The Residential-Commercial Link: The Hamilton Market
While most of us tend to concentrate primarily on one side of the real estate market, whether it be the
residential side or the commercial side, the two are inherently linked. Seeing as this is primarily a publication most
interested in the commercial side, we’re going to explore the effect residential prices may have on commercial prices.
The Hamilton Residential Market
As most of its citizens are now acutely aware, the price of housing in Hamilton has skyrocketed in the last few
years. We’re often bombarded with statistics with taglines along the lines of, “House prices in September 2016 were
15 percent higher than September 2015 house prices,” leading us to believe that house prices have increased 15
percent from 2015 to 2016. In reality, one should place a higher emphasis on year-to-date sales averages (if possible)
and compare them to prior years, while additionally doing so on an area-by-area basis. In the context of Hamilton,
four separate MLS districts make up the city, with others making up the greater Hamilton area, such as Grimsby,
Burlington, Dundas, and Flamborough. If a buyer is looking to buy or invest in a city or region, they should distill their
search down to as small of a geographical area as possible. In Hamilton, each of the four districts is made up by
smaller sub-areas. At both these levels, some areas and districts grow more quickly than others.
The Hamilton Commercial Market
The Hamilton residential market has been mentioned above in order to give the reader a sense as to the
performance and state of Hamilton West, East, Centre, and Mountain. As can be seen above, real estate prices in
Hamilton have been steadily increasing across the board – though some areas are growing more quickly than others.
One of the best ways to measure commercial market health is through the price per unit (or to use the terminology,
per door) of a multi-residential commercial investment property. For the purposes of these discussions, I am referring
to purpose-built apartment complexes, including low-,mid-, and high-rise properties. Single-family homes converted
to duplexes/triplexes/etc will not be considered.
The following data is taken exclusively from commercial multi-residential properties within the Hamilton
market. Year-to-year, as with the residential market, prices have increased – that much is true. What’s more
interesting is that there exists a correlation between the residential and commercial markets. For instance, across all
areas of Hamilton, prices rose 11 percent from 2014 to 2015. For the same areas, prices have risen 18% from 2015 to
2016 year-to-date. One can therefore discern not only growth in the residential market, but an increase in the rate of
growth as well. If we examine the price per door for multi-residential properties, a similar finding emerges. For
instance, from 2014 to 2015, the average price per door of a commercial property increased from approximately
$75,000 per door to around $85,000 per door. This denotes an increase of 12.7 percent. Using this same data but
instead examining 2015 to 2016 data, we notice an increase of 16.2 percent. Meaning, along the same timeframe and
using the same geographical area, there exists a correlation between the rise in residential prices and price per door
of a commercial multi-unit property. This is especially important for an investor to be aware of, as finding data down
to the district or area level for commercial real estate can be quite difficult, while finding data on the residential
market can be comparatively simple. If an investor is looking at an individual neighbourhood or area but does not
have the resources to track down data on the commercial real estate market, they should take stock of house prices.
What does it all mean?
While the two are traditionally considered separate and entirely different, the commercial and residential
markets are actually linked. While one may grow at a faster rate than the other such as in the case of 2013 – 2014
where the residential market grew by 7.7 percent and the commercial market by only 4 percent, growth occurring on
one side means growth on the other. Further, if the rate of growth starts to increase on one side, it will also increase
on the other. This is evident in the case of 2015-2016, where the average residential price in Hamilton increased by
17.6 percent, which has not happened at any point in the last 5 years, and in commercial, the price per door in a
multi-unit property increased by 16.2 percent. While there are exceptions to this rule, such as the price per door
jumping by 23 percent between 2012 and 2013 and the average residential price increasing by only 7.6%, anomalies
do occur, but the rule remains. If a buyer is curious about the state of the commercial market, they should look at the
health of the respective, specific residential market in order to be better able to make a decision on their investment.