Months before the debut of the newest extension of Vancouver’s rapid-transit rail system, a new station in this sleepy suburb is flanked by towering construction cranes and lumbering excavators.
The scene, an erecting of two condominium towers and a grocery store, is a familiar one throughout this lush, mountainous region. Developers, pension funds and big banks are racing to build thousands of condos and commercial complexes along the rail lines, pushing the metro area to the forefront of North American cities clustering billions of dollars of development around rail stops.
About 50 projects are under development along Vancouver’s now-49 miles of rapid-transit rail lines, representing more than C$15 billion ($11.4 billion) of development costs, according to officials at TransLink, the region’s transportation agency formally known as the South Coast British Columbia Transportation Authority. The boom has enticed several of Canada’s biggest real-estate developers, lenders such as Royal Bank of Canada and equity partners like Healthcare of Ontario Pension Plan.
Demand for apartments and store space is being fueled partly by the region’s massive population of Asian immigrants. People of Chinese origin accounted for 18% of the Vancouver region’s population of 2.3 million in 2011, up from 17.4% in 2001, according to government statistics. The city’s overall population rose 16.4% over that period.
The cranes piercing the Vancouver skyline have helped make the city a leader in one of the most popular types of development in North America since the downturn: mixed-use projects near train stations that allow people to rely less on cars and more on their feet.
“Vancouver is one of the top-performing markets in North America” among those using light-rail systems rather than heavy-rail systems, like subways, designed for larger volumes of passengers, said Cody Brandt, a senior research analyst for brokerage CBRE Group Inc. who has studied cities’ approaches to transit-oriented development.
Development around rail hubs has long been the norm in the crowded metropolises of Asia and Europe. But much of North America outside of New York, Boston, Chicago and Washington has been slower to embrace transit-oriented development due to a car-centric history.
Now, Vancouver is foremost among a cadre of North American cities seeing development booms around rail stops to accommodate growing demand among young professionals, empty nesters and others . Fueled by residents’ desire to avoid owning and parking cars, as well as municipalities’ interest in accommodating growth without traffic, similar activity is taking place in other cities with expanding rail systems, including Denver; Portland, Ore.; Charlotte, N.C.; Salt Lake City and San Mateo, Calif.
In Denver, for example, developers have built 2.4 million square feet of offices and 2,100 residential units with more in planning stages around the downtown Union Station rail and bus hub. A light rail system in Silicon Valley, which has expanded to 42 miles since it opened in 1987, is “finally seeing some development” near some of its 62 stations including over 5,000 residential units and a big Samsung Semiconductor Inc. facility, according to Brandi Childress, spokeswoman for the Santa Clara Valley Transportation Authority
Vancouver’s surge of development near train stations was sparked in 2009, when TransLink expanded its 30-mile rail system by opening a C$2 billion, 12-mile extension, called the Canada line, from downtown to Vancouver International Airport in time for the 2010 Winter Olympics. It gained more momentum with the scheduled opening next year of the C$1.4 billion, seven-mile Evergreen line extending east into Vancouver’s suburbs.
Since 2012, developers in the region have constructed more than 8,700 condominiums near the rail lines, with another 13,100 in planning and development as of this year, according to residential-analysis firm Urban Analytics Inc. Several projects sold out of units within weeks, buoyed by the area’s massive population of Asian immigrants seeking real estate to live in, house relatives or rent out. Adding momentum: Vancouver and its suburbs, landlocked by mountains, sea and government-protected agricultural land, long have championed dense development such as condo towers.
When Shape Properties started offering condos at its Brentwood project in the Vancouver suburb of Burnaby in May 2014, before construction had started, all but two of the 291 units slated for its first tower were sold within the first week. Roughly 100 people camped out, some for as long as three nights, outside of Shape’s sales center at the adjacent Brentwood Town Centre mall for a crack at buying condos averaging C$420,000, Shape Executive Vice President Darren Kwiatkowski said.
Speculative flipping of condos doesn’t appear to be a problem in Vancouver, despite rising prices. Urban Analytics studied 10 condo towers that opened along Vancouver’s rail lines since 2013 and found that an average of 14% of units were listed for resale within a year of each tower opening, often a sign of flipping. A typical threshold for a bubble-inducing level of flipping is more in the neighborhood of 40%, according to Jon Bennest, an Urban Analytics principal.
Rail systems aren’t always the magic formula for economic development. The Niagara Frontier Transportation Authority of Buffalo, N.Y., hasn’t expanded its 6.4-mile light-rail system since opening it in 1986. Some development has occurred around its rail stops, but it isn’t booming as in other cities.
There also are drawbacks to the transit booms. In Vancouver, land prices for parcels near some of the new rail stops have increased sharply, causing some developers to balk. Real-estate advisory company Altus Group Ltd. calculates that land values have more than doubled since 2010 along the Canada line, to an average of $463 a square foot from $191.
Investors are cashing in by assembling home sites near new rail stops to sell to developers planning condo towers or mixed-use complexes. They are still finding plenty of buyers. For example, Onni Group, a Vancouver developer, in April paid C$302 million for a 22-acre parcel slated to get its own rail stop along the Canada line.
But others have balked at certain expensive deals. Daryl Simpson, a senior vice president at developer Bosa Properties, says his company walked away from buying a parcel on the Canada line in 2012 after homeowners there tried to renegotiate the deal’s terms to get an even higher price. “The challenge along the Canada line is that the prices are so high that developers are prepared to gamble on sites,” Mr. Simpson said. “We tend not to do that.”