Tale of Two Types of Properties

Real Estate Investment: Residential Vs. Industrial

One of the common questions that many real estate investors would ask, perhaps ordinary families too, is which type of properties is better investments. The answer is --- depends on the market.

a market has two dimensions --- spatial and temporal. On the spatial dimension, the real estate market is very localized. It's easy for us to see that different cities have different real estate markets. On the temporal dimension, we understand that there is a so-called market cycle. Different types of real estate may perform differently in different stages of a market cycle. Of course, there will always be some factors that could change the market and the whole industry permanently. For now Pandemic could be one of the factors.

During this pandemic, residential properties and industrial properties have had totally different experiences. investors and landlords of residential properties have been frustrated while investors of industrial properties enjoyed a kind of good time (in terms of investment performance only), at least in the market of Greater Vancouver.

On the residential property market, the bad news was coming one after another. Effective November 9, the BC provincial government extended a freeze on rent increase until July 10, 2021. The president of Landlord BC said in an online statement: “This decision is very concerning,”“Our sector is on a negative financial trajectory and we need support for rental property owners.

However, a few days earlier on November 4, 2020, Vancouver City Council tossed an idea of hiking property tax up to 12% in 2021, which was increased 7% this year. Both the provincial decision and the city's idea quoted Covid-19 as the reason.

On the other hand, industrial lease rates have been on an upward trajectory, according to Avison Young Industrial Overview released early November: "Tenants could see ongoing annual leases hikes of 2.5 percent to 4 percent as there are often multiple offers for leased space". Where does the high demand come from? Mostly from E-commerce that has been strongly boosted under pandemic.

With consideration to the same reason, the City of Vancouver tried to shift some property tax burden away from businesses to residents, creating the most heavily taxed homeowners and the lowest commercial (including industrial) to residential tax ratio in Canada.

Isn't it clear that for now (and maybe for a long way to come), at least in Vancouver, industrial properties are a better investment than residential?

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