Avison Young releases Mid-Year 2009 BC Real Estate Investment Review,
global economic slowdown continues to influence local market as
industrial deals dominate
VANCOUVER, Aug. 26 /CNW/ - British Columbia commercial real estate
investment activity shifted downward in the first half of 2009 as the province
continued to feel after-shocks from the global financial meltdown.
Capitalization rates, however, did not rise as high as they did in other
Canadian markets. Meanwhile, buyers and sellers continue to seek middle
These are some of the key trends noted in Avison Young's Mid-Year 2009
British Columbia Real Estate Investment Review, released today. The
semi-annual report tracks office, industrial and retail investment sales in BC
greater than $5 million.
While the 23 transactions completed in the first half of 2009 represent
the lowest first-half number of deals witnessed in the province in the past
seven years, investor confidence continues to improve as global economic
restraints ease. Total dollar volume in the first half of 2009 fell 12% to
$643 million from $734 million in the second half of 2008. (It is important to
note, though, that the majority of those second-half 2008 deals were
negotiated in the early part of 2008, before the fall 2008 equity market
crash.) Year-end 2009 sales volume is on track to meet last year's level of
"The drop in both dollar volume and number of transactions over the
second half of 2008 is mainly due to buyers' expectations that pricing should
follow national and U.S. trends," comments Avison Young Principal Bob Levine.
"However, most sellers have been reluctant to dispose of assets at those price
Levine says that the current market trends reflect the continuing
influence of the subprime mortgage crisis, which reached an acute stage in
"As expected, deal activity decreased significantly from January to June
of this year due to the slowdown in executive decision-making, buyer
perception versus vendor expectation, and the time needed for the
price-expectation gap between buyers and sellers to narrow. The lower
transaction total reflects the difficulties of putting together deals in
turbulent economic times."
Industrial deals (11) outnumbered office (8) and retail (4) transactions.
But office deals accounted for 79%, or $506 million, of the $643 million in
total dollar volume, while industrial amounted to 15%, or $96 million, and
retail reflected a modest 6%, or $41 million. The average sale price in the
first half of 2009 increased to $29.2 million from $24.5 million in the second
half of 2008 and $14.5 million in the first half of 2008.
Continuing a trend that prevailed through 2008, private investors were
the most active players on both the buying and selling sides in the first half
of 2009. However, institutional investors dominated higher-priced office
The sale of the Grosvenor building (1040 West Georgia) in Downtown
Vancouver for $84 million, which closed on June 30, 2009, helped push the
total sales volume for the first half of 2009 above the first-half 2008
volume. German investor Deka Immobilien Investment GmbH's unsolicited
$297-million purchase in May of Bentall V in Downtown Vancouver, the largest
deal in Canada this year, accounted for nearly half of the total amount
invested in the first half of 2009.
Overall in the first six months of this year, institutional investors
demonstrated their desire to maintain high-valued portfolios in the wake of
global economic conditions, and private buyers proved they are quite willing
to invest in competitively-priced properties," says Avison Young Principal
Douglas McMurray. "REITS are also making a comeback as their unit prices
improve. Some are raising more capital for acquisitions or to shore up their
balance sheets as debts mature in the near term."
Cap rates are expected to maintain their current levels in metro markets
and increase in secondary and tertiary regions. Continued interest in prime
real estate should help stabilize capitalization rates across all categories,
according to the report.
"Lenders will make financing more easily available as they recover from
bad loans and face more pressure from their boards, shareholders, clients,
corporate social responsibility advocates and governments to help accelerate
economic activity during difficult times," adds McMurray.
Other Survey Highlights:
Office Investment market
Office investors struggled to string together office deals in the first
half of 2009 because of the dearth of high-quality supply, according to
Levine. "Nonetheless, the recovering Canadian economy and Bentall V and
Grosvenor building sales, which underline investor confidence in the Vancouver
office market and provide much-needed benchmark prices for class A office
properties, are likely to spur more deals in the second half of this year."
Institutional investors again spent the most on office properties,
investing $379 million as cap rates rose 100 to 150 basis points from the
previous year, depending on the asset class and submarket. However, cap rates
did not influence pricing significantly in the first half of this year and any
rise will be slight in the second half.
"This scenario, the lack of available high-end office properties, and the
yield gap between BC and other Canadian markets may increase the possibility
that investors will buy elsewhere in the second half of 2009," says Levine.
"Rental rates, interest rates and lower sale prices will have a major impact
on future market-capitalization levels. But these effects will not likely be
felt until the middle to end of next year." He adds that more office product
should become available through 2009 as economic conditions improve.
"Purchasers will continue to challenge rental assumptions as lease agreements
approach post-Olympic renewal dates and tenants in all business sectors
continue to review operations."
Retail Investment Market
Mostly private investors participated in retail transactions during the
first half of 2009. Institutional investors generally shied away from retail
facilities because of uncertainty created by the global financial meltdown and
significant reductions in retail spending.
"More retail centres are likely to change ownership in the second half of
2009, but the increase is expected to be marginal," says Avison Young
investment broker Michael Keenan. "Supply remains the issue because sellers
can afford to wait for the consumer to return. Retail investors' biggest
challenge will be to minimize the loss of tenancies. As rental agreements
approach their renewal dates, sellers will face more pressure to lower rents
and provide more lease concessions. Buyers will also insist on having
strongly-branded food and drug anchor tenants, and continue to display a
preference for restaurants, which are less vulnerable to recessionary
pressures." He adds that Canadian retailers will help offset defaults and
declines by moving into prime space vacated by struggling U.S.-based chains.
Industrial Investment Market
Industrial property sales accounted for half of the transactions in the
first six months of 2009, compared to just 7% in the second half of 2008.
However, on a year-over-year basis (mid-2008 to mid-2009), industrial
investment fell 65% to $96 million from $274 million as record prices
normalized. Despite strong demand, tight supply kept key players on the
"More industrial deals would have occurred if more properties were
available," says McMurray. "Financial institutions and REITS chose to lick
wounds caused by the global financial meltdown and declines in their
investment portfolios rather than contend with modest yields and limited
credit availability. However, institutions and REITs, thanks to stronger
balance sheets and decreased dividend yields, are positioned to re-enter the
industrial market in a potentially big way, depending on attractive
Overall, availability of quality product, especially in the office and
retail categories, is expected to remain low in the second half of 2009 as
many investors are still sitting on the sidelines and watching for future
value adjustments. According to Keenan, approximately half of the deals this
year occurred off market, but investors now prefer a more traditional, orderly
approach to transactions.
"Due to excessive demand, the BC market became a Wild West show in recent
years as vendors auctioned off properties to the highest bidder without
setting list prices," he says. "Those days are over."
Founded in 1978, Avison Young is Canada's largest independently-owned
commercial real estate services company and the only national, Canadian-owned,
principal-managed real estate brokerage firm in the country. Headquartered in
Toronto, Ontario and ranked among Canada's leading national commercial real
estate organizations, Avison Young is a full-service commercial real estate
company comprising more than 500 real estate professionals in 12 offices
across Canada and in Chicago, IL . The company provides value-added,
client-centric investment sales, leasing, advisory, management and financial
services to owners and users of commercial, industrial and multi-residential
real estate properties.
- Avison Young Mid-Year 2009 British Columbia Real Estate Investment
Review, full report:
- Property Photos for Media use:
(If you are unable to open the links, please contact Sherry Quan for PDF
attachment to be emailed.)
For further information/comment/photos:
- Sherry Quan, National Director of Communications & Media Relations,
Avison Young: (604) 647-5098; cell: (604) 726-0959
- Bob Levine, Principal, Avison Young: (604) 687-7331
- Douglas McMurray, Principal, Avison Young: (604) 687-7331
- Michael Keenan, Investment Broker, Avison Young: (604) 687-7331
For further information:
For further information: Media Relations: Sherry Quan, (604) 647-5098 or
(604) 726-0959, email: email@example.com