Vancouver Commercial Real Estate Podcast

Providing real-time insight into today's commercial real estate industry.

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October 18, 2023
VCREP #113: Is Vernon the Next Kelowna? with Shelby Kostyshen

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Cory and Melisa connect with Shelby Kostyshen, a distinguished commercial real estate expert from the William Wright Commercial Kelowna office.

Shelby takes the reins to shed light on Vernon, a city that's recently seen an uptick in growth. Could Vernon be the next Kelowna?

Shelby unpacks specific asset classes that mirror the trends unfolding in Kelowna. Whether you are a seasoned investor or simply intrigued by emerging markets, this episode offers an inside perspective on the potential transformation of Vernon. Let's go!

Who is Shelby Kostyshen?

I’m from Edmonton originally and planned to become an accountant out of university. In my last year of university, I realized accounting wasn’t for me. I found commercial real estate through conversations with some friends and family members.

I got a job in office sales in Edmonton and then got an opportunity to join the William Wright Commercial team in Kelowna in 2021. It’s an exciting time to be part of commercial real estate, especially in the Okanagan market.

How was it working in the Edmonton office market?

The Edmonton office market doesn’t have the same peaks and valleys of a market like Calgary, which depends on oil and gas. There are lots of government tenancies that keep the Edmonton market more stable. Of course, there’s been more of a downturn through covid but it’s still steady. Agents are still plugging away and doing deals.

Depending on the area and quality of the building, some office vacancies can last 1-1.5 years in Edmonton. When I first started, some of the buildings had been vacant for 3+ years.

Tell us about Vernon. Is Vernon the next Kelowna?

Vernon is about 45 minutes north of Kelowna. Predator Ridge is just 15 minutes out of the core of Vernon and it’s a beautiful area. A lot of people come out for tourism and fall in love with Vernon and the Okanagan.

We’ve seen a boom in Vernon, similar to what we saw in Kelowna, over the last few years. It hasn’t reached the same level as Kelowna but we are seeing strong demand throughout many asset classes.

Vernon has 45,000 people, which is 10% more than in the 2016 census. That’s similar growth to what Kelowna saw in that same time period. Residentially, it’s a bit cheaper to live in Vernon than Kelowna. It’s a great spot for a slightly cheaper cost of living.

Can you tell us about the office market in Vernon and why it’s moving so quickly?

It comes down to supply and demand. Vernon doesn’t have a ton of office supply. It’s mostly 2-3 storey walk up office spaces. Anything available gets scooped up quickly, compared to Kelowna where there’s an influx of new inventory and a slower pick up.

How do the industrial markets of Vernon and Kelowna compare?

The industrial markets of Vernon and Kelowna are fairly similar but you will get a bit of a discount in Vernon. In Vernon, you can still find industrial land for $2 million for an acre; if you go a bit out of town it can be under $1 million.

For industrial strata, Kelowna real estate is around $450/square foot and Vernon is under $400 for sure. So there are great opportunities for owner-users and investors. Lease rates for newer product are $17-19 per square foot in Vernon; Class B is closer to $14-15. We see similar rates in Kelowna with not much over $20 per square foot.

Absorption timelines in Vernon are similar to most smaller markets with fewer pre-sales. But there hasn’t been much new product in Vernon lately. The few projects that have come online saw good lease rates in phase one and are now onto phase two. So there is good demand, but how deep it goes is yet to be determined.

How is the Vernon retail market?

Retail is probably one of the strongest asset classes in Vernon. There are a lot of people looking for space but not enough supply. Areas in demand see very little vacancy.

Why should someone invest in Vernon instead of Penticton?

Both Vernon and Penticton are seeing a lot of interest right now and while they have similarities, they are very different cities. Vernon seems to have better logistics for industrial groups, especially for companies looking to travel from Vancouver to the Prairies. There’s more upside in Vernon.

The transportation corridor between Penticton and Kelowna has had issues, such as the mudslides we saw this year. Whereas the four-lane highway between Kelowna and Vernon is a smoother ride with fewer issues.

How is the multi-family market in Vernon?

There’s definitely a spillover effect from Kelowna. A lot of people who are priced out of Kelowna are now looking at Vernon as an attractive place to buy.

More multi-family developers are taking note of that and tying up projects in Vernon. They’re very bullish on the demand they’re seeing there.

What are cap rates like in Vernon?

In multi-family we’re seeing items around the 4.5-5 cap rate and it’s similar in retail. Industrial is around 5 or 5.5 but it may move up a little bit depending on what happens to interest rates.

What type of development activity is Vernon seeing?

A developer out of Langley has a significant industrial strata development coming up. Another project just north of that, catering to industrial and retail uses, almost has shovels in the ground. There’s also a premium self-storage facility and multi-phase light industrial project coming.

With all of those projects coming up, it’s clear developers feel quite bullish on Vernon and for good reason.

What asset class would you invest in in Vernon and why?

If money was no object, I’m probably going for Class B industrial with a value-add potential. There’s new product coming on board but if you can find an older building, do a value-add project and get a good tenant mix in there, that commercial strategy is where you’ll see the best return.

How has the Okanagan market been in the last six months?

It’s been an interesting time. There seems to be a lot of money on the sidelines and a lot of uncertainty in the market. New construction and investment is quiet, but we are hearing some good news stories, like the GST rebate on rental buildings.

Leasing has been fairly steady with retail coming out the strongest. Industrial had quite the run over the last few years and has now plateaued a little bit. In terms of office, many businesses are still trying to figure out their work from home policy and finding the right office space for their needs.

The 6 Pack: Getting to Know William Wright Commercial Kelowna’s Shelby Kostyshen

Favourite bar or restaurant?

In Kelowna, one of my favourite spots is BNA. It’s definitely worth a stop!

What would your last meal be on death row?

I have to go with steak and sushi.

Favourite band or musician?

Right now Morgan Wallen is coming up on the playlist a lot. I’m an Alberta guy so I have to go country.

What’s your go-to karaoke song?

I’ll go with Life Is a Highway by Rascal Flatts.

What is one book you recommend?

This summer I read The Way of the Fight by Georges St-Pierre, who is an MMA fighter. I’m not a big MMA guy but I liked reading about his approach to business and discipline.

What is something you’ve purchased for under $1500 that has had a positive impact on your life?

I’d say my Airpods. I use them every day whether I’m on calls or taking the dog for a walk.

Bonus q: Are the Edmonton Oilers winning the Stanley Cup?

Yup, my money’s on the Oilers. This is our year!

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Vancouver Commercial Real Estate Podcast

For all the curious minds interested in commercial real estate investing, grab a coffee and pull up a chair because we have exclusive stories and tips from commercial real estate brokers, investors, developers, economists, urban planners, and everyone in-between. From the successes and failures to the motivations and lessons learned, the Vancouver Commercial Real Estate Podcast is your insight into commercial real estate in Vancouver, Victoria, Kelowna, and beyond.

What's the best real estate market to invest in? What are the commercial real estate asset classes and property types? Hosted by Cory Wright, founder of William Wright Commercial, and co-hosts Adam and Matt Scalena of the Vancouver Real Estate Podcast, our podcast opens the door to real estate investing for everyone from beginner investors to experienced real estate professionals. New episodes are released every Tuesday. Follow the Vancouver Commercial Real Estate Podcast on Apple Podcasts, Spotify, Google Podcasts, or your favourite streaming platforms.

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This communication is not intended to cause or induce breach of an existing agency agreement. E&OE: All information contained herein is from sources deemed reliable, and have no reason to doubt its accuracy; however, no guarantee or responsibility is assumed thereof, and it shall not form any part of future contracts. Properties are submitted subject to errors and omissions and all information should be carefully verified. All measurements quoted herein are approximate.