March 21, 2013

Investor interest in Metro Vancouver commercial real estate topped $2 billion in 2012

VANCOUVER – Seeking alternatives to stocks and bonds at a time of volatility for the former and low interest rates on the latter, investors snapped up B.C. commercial real estate in all categories with 2012 sales totaling a record $2.35 billion, according to a report by the Avison Young real estate services company.

Of the 117 transactions recorded in the Avison Young report – itself a record number – “the first and foremost was Bentall 5 downtown, in late spring, for $401 million,” says Bob Levine, principal at Avison Young. Other significant transactions: the Plaza at New Westminster Station (mixed use) for $100 million; Richmond’s Hopewell Distribution Centre, phases one and two, for $102 million; and Coquitlam’s Whitgift Gardens (multi-family) for $57.5 million.

“The majority of buyers were private, driven by the low rates and cheap mortgages,” says Levine. “They prefer real estate, and that’s a trend that’s going to continue. People aren’t overly concerned about looming vacancies in any of these real estate transactions. You have four or five buildings under construction downtown – and still people are continuing to buy.”

As an example, all three phases of the Hopewell Distribution Centre are fully leased, says Murray DeGirolamo, executive vice president of the Calgary-based Hopewell Development. “Pricing is extremely strong. There’s a huge wall of capital.”

Political instability and turbulent economics in other parts of the world are making Canada, and in particular B.C., more attractive. “There’s a reasonable amount of faith in the future here,” says Levine.

Stuart Morrison, executive vice president of Colliers International, attributes the increase in transaction sizes primarily to the development of “much larger buildings, specifically distribution centres, to capitalize on Metro Vancouver’s growing position as Canada’s import and export gateway.”

Morrison noted that the first two phases of the Hopewell Distribution Centre total over 935,000 square feet of space, which gives its investors a big footprint with a single transaction.

The scarcity of available land will just keep pushing the values higher, says Morrison. “The Metro Vancouver industrial real estate market is facing severe land supply constraints. Property values have appreciated steadily and should continue to do so as it becomes more and more challenging to acquire land suitable for development of new distribution centres.

“Strong investment demand for industrial real estate should continue for the foreseeable future. Pension funds, life companies, real estate investment trusts and private investors have significant amounts of capital to place in this asset class. We were able to generate eight competing offers for our most recent industrial investment oppo

rtunity, equating to well over $480 million of offers for a single asset.”

The market also proved hot for long-established properties. Anthem Properties bought the bought the 100,000-square-foot BC Electric building, dating from 1912, for $28 million (figure based on the sale price for office component).

Alexa Ulinder Baughen, Anthem’s investments and communications vice president, describes the heritage site, at 425 Carrall Street, as “a landmark office building that offers an eclectic mix of tenants. We were attracted to the property given its iconic stature, but also its close proximity to public transit, the Carrall Street green corridor, nearby restaurants and retail amenities.”

Anthem will continue to operate the property as an office building, with retail on the ground level, says Baughen. “We are seeing some of the larger tenants consolidating in the building, as well as strong interest from new tenants looking to move in. Its strategic location at the cross-section of Chinatown, Gastown and downtown is very appealing to existing and prospective tenants. The building has a creative buzz to it; many of our tenants are in the design, media, marketing, and technology industries. We hope to maintain this energy and comfortable work environment.”

With interest rates unlikely to change much, all categories of commercial real estate will continue selling well, Levine predicts. “Boring as it may sound, 2013 will be similar to 2012. The economy looks pretty decent. There may not be a huge deal like Bentall 5, but I think there will be lots of volume.”

According to the Avison Young report, two properties loom as major investment deals in 2013: Burnaby’s 3650 Gilmore Way and Surrey Central Business Park’s building five. Both are both part of a 715,000-square-foot office and industrial portfolio totaling six properties and 58 acres, with assets in both B.C. and Ontario.

Levine notes that Avison Young doesn’t specialize in reporting on land sales, as these tend to be smaller.

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