Avison Young releases Fall 2014 Canada, U.S. and U.K. Commercial Real Estate Investment Review
TORONTO, Oct. 8, 2014 /CNW/ - Dispositions continue to drive healthy investment levels in most Canadian markets, while the lack of quality product being offered for sale masks investors' true demand for acquisitions. This situation has prompted some Canadian investors to deploy capital to other countries – especially the U.S., where some markets are seen as being undervalued. In the U.S., improving leasing fundamentals have led to a robust investment environment with sales performance either on par with, or up from, one year ago.
These are some of the key trends noted in Avison Young's Fall 2014 Canada, U.S. and U.K. Commercial Real Estate Investment Review, released today.
The report covers commercial real estate investment conditions in 29 regions: Calgary, Edmonton, Montreal, Ottawa, Toronto, Vancouver, Atlanta, Austin, Boston, Chicago, Columbus, Dallas, Denver, Houston, Las Vegas, Los Angeles, New Jersey, New York, Orange County, Philadelphia, Pittsburgh, Raleigh-Durham, San Diego County, San Francisco, San Mateo, South Florida, Tampa, Washington, DC and London, U.K.
"We are seeing stable-to-increasing investment deal velocity, more so in the U.S. than in Canada, because of the pricing differential – although it's narrowing for core assets in primary markets," comments Mark E. Rose, Chair and CEO of Avison Young. "I believe that we are at a short-term pricing top in Canada with bigger deals being fewer and farther between."
Rose continues: "However, given the compressed yield environment to date, I believe the next wave of deals will more than likely be spurred on by rising interest rates, forcing some over-leveraged owners to sell, while others will find that buyers can't pay what they used to. With all that anxious surplus capital and limited supply, I think there is sufficient pent-up demand in Canada, with a variety of investors waiting to get in at slightly better pricing. This will ultimately result in a re-pricing of commercial real estate assets."
"Investment sales activity in the U.S. continues to benefit from the continued recovery in the economy and improving leasing fundamentals. By and large, office building dispositions drove investment dollar volume in the first half of 2014 to the tune of $38 billion (USD) – a result of improving employment levels and rising rental rates," says Rose.
Avison Young reviewed first-half 2014 investment sales figures for the commercial real estate sector in Canada, the U.S. and, for the first time, London, U.K. In all, 29 markets were surveyed.
Rose adds: "We are excited to expand our reporting coverage across the pond, as our firm's strategy has always been to use London and the U.K. as a major launch pad into Europe, and to service assignments emanating from North America."
Nick Cook, Avison Young Principal and Managing Director of the company's London and Thames Valley, U.K. offices, states: "London remains a preferred investment destination for both domestic and international buyers. Two main themes are being played out in the marketplace: global investors have been active in the £100-million-plus lot size, whereas domestic investors have been active in the sub-£100-million category."
A survey of the office, industrial and retail sectors in London, U.K. revealed that more than £12 billion worth of properties was sold in the first half of 2014 – a 19% increase compared with the same period in 2013.
"On the Canadian front, some market observers may look at the first-half sales performance as disappointing; however, one has to put the figures into perspective. The $13 billion worth of commercial real estate assets that changed hands in the first six months of 2014 exceeds the slightly more than $12 billion that traded in the whole of 2009 – the trough for sales at the peak of the credit-crisis," notes Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.
"Despite the year-over-year dip in sales numbers, there is still healthy demand for income-producing assets across the country. With a surplus of capital and premium pricing for select assets, you would expect to see more willing sellers. However, some owners are opting to hold on to their properties given the difficulty of replacing them with similar or better-quality assets. Others, who were part of the buying spree of two to three years ago – for example, REITs – are now focusing on culling some assets as they reinforce their operations, management and leasing efforts; aim to increase asset value; and create value for their unit holders by recycling capital."
Argeropoulos adds: "Lower yields have led other investors to pursue alternative growth strategies – such as new developments, which offer higher yields; or re-development of existing assets to unlock value, while others have sought investments abroad. All of these factors have tempered domestic investment activity."
The report shows that Canadian investors poured $5.4 billion into commercial real estate in the U.S. in the first six months of 2014. Institutional capital was the biggest buyer group, with Boston and Manhattan the top destinations.
Argeropoulos continues: "While there are a myriad of factors driving Canadian investors to U.S. real estate assets, the prospect of higher income growth in primary and secondary markets is seen as being better in the U.S. than in Canada, where income growth is expected to be more modest. Nevertheless, the second half of 2014 looks promising for Canada. Since we compiled our mid-year 2014 Canadian investment sales figures, assets valued at more than $7 billion have been sold, put under contract or listed for sale – and those completed or pending transactions exclude any off-market deals underway."
According to the report, the aggregate sum of commercial real estate investment (office, industrial, retail, multi-residential and land greater than $1 million) across Canada's six major markets slightly exceeded $13 billion (CAD) in the first half of 2014 – down $1.5 billion, or 10%, compared with the first half of 2013. Pension funds and private-equity investors have more than filled the acquisition gap left by some of the REITs.
Notable report highlights include:
- Large office and retail portfolio and single-asset sales (>$100 million) propelled Toronto to the highest dollar volume ($5.6 billion / 43% share) in the first half of 2014, though sales were down 14% year-over-year.
- Vancouver ($2.3 billion / 18% share) recorded the greatest year-over-year improvement (+16%).
- In Alberta, land sales lifted Edmonton's six-month tally ($1.7 billion / +6% / 13% share), while office replaced land sales in Calgary ($1.4 billion / -36% / 11% share) from one year ago.
- Despite multi-residential transactions driving Montreal ($1.4 billion / 11% share), sales fell short (-9%) of the 2013 tally, while Ottawa managed only $545 million (-12% / 4% share) in sales.
- By asset class, office buildings ($3.3 billion / 25% share / +2%) were high on investors' lists. Noteworthy office sales included Centre 10 ($274 million) in Calgary and Simpson's Tower ($410 million) in Toronto.
- Retail saw the greatest improvement over 2013 investment levels ($2.9 billion / 22% share / +25%), highlighted by the sale of Bayview Village Shopping Centre ($505 million) in Toronto.
- Land sales dipped 13% to $2.8 billion (21% share), but were prominent among the top five sales in terms of price in Edmonton, Calgary and Ottawa; while industrial (the first-half 2013 leader) posted $2.3 billion (-36% / 17% share) in trades. South Burnaby Corporate Centre ($48 million) in the Vancouver area was the top industrial deal.
- Multi-residential sales ($1.8 billion / 14% share) dropped 19% nationally, but more than doubled in Vancouver, highlighted by the Boardwalk REIT BC portfolio sale. Noteworthy multi-residential deals also showed up in Edmonton, Montreal, and Ottawa.
- Capitalization (cap) rates across six markets and five property types were flat, or marginally lower than one year ago, with multi-residential properties having the lowest yields. While Vancouver remains the most expensive market overall, it was challenged by Calgary and Toronto for select product types.
In Avison Young's U.S. markets, commercial real estate sales rose during the first half of 2014 compared with the first half of 2013, driven in large part by a resurgence of office dispositions. Sales volume for office, industrial, retail and multi-residential properties rose 11% to $85.4 billion at mid-year 2014 from $76.7 billion at mid-year 2013.
"Over the last 12 months, the U.S. commercial real estate investment market has witnessed strong acquisition from international investors, and by mid-year 2014, volume approached peak levels," notes Earl Webb, Avison Young's President, U.S. Operations. "Gateway cities and office properties in the central business districts maintain their share of interest, but we are seeing sales expand to include markets across the U.S. and across property types. As was the case at mid-year 2013, Canadian buyers have led foreign investment by a wide margin thus far in 2014."
Webb adds: "Multi-residential sales maintained a significant portion of overall trades in the first half of 2014 but fell off from recent performance; however, the lower volume for that asset type was more than offset by gains in other sectors. We anticipate that the strengthening leasing conditions and employment gains in markets across the U.S. will drive further investor demand for office, industrial and retail properties between now and year-end."
Notable report highlights include:
- Seven markets registered volume increases in excess of 60%, with the standouts being Philadelphia (+117%), San Francisco (+97%), San Diego (+93%) and Orange County (+87%). Overall, sales rose in all but two U.S. markets: Los Angeles (-3%) and Washington, DC (-38%).
- Sales of office assets accounted for the largest portion (44% / $37.8 billion) of the total dollar volume, a 27% increase compared with the first half of 2013.
- Office volume was highest in the coastal urban centers of New York ($9.4 billion), Los Angeles ($4.6 billion), Washington, DC ($3.4 billion) and Boston ($3.1 billion).
- In the retail sector, year-over-year sales volume increased 25% to $13 billion by mid-year 2014 with Los Angeles reporting the highest volume of retail sales at $1.8 billion.
- Markets that reported the greatest positive change in retail sales volume were Boston (+364%) and San Francisco (+273%).
- Multi-residential sales continued to account for a significant portion of overall volume (29%), but activity in this segment is beginning to moderate following several years of robust activity. Sales of this asset class totaled $24.5 billion in the first half of 2014, down 15% compared with the same period in 2013.
- Industrial sales in the first half of 2014 rose almost 30% to $10.2 billion.
- Chicago, Los Angeles and Dallas led sales of industrial properties with total dollar volume of $1.4, $1.3 and $1.1 billion, respectively. The largest increases in volume were recorded in Denver (+328%), San Mateo (+260%) and Las Vegas (+209%).
- Cap rates in the U.S. moved lower in the first half of 2014 for all asset classes, averaging 6.7% versus 6.9% one year earlier. Multi-residential properties witnessed the greatest declines (-30 basis points (bps)), followed by industrial (-29 bps), retail (-24 bps) and office (-10 bps) assets.
Webb concludes: "Washington, DC's mid-year 2014 volume fell noticeably when compared with the same period in 2013; however, the U.S. Capital City remains a top investment market by volume, and we expect investor interest in Washington will be sustained. Due to growing new supply, multi-residential properties could face upward pressure on cap rates, while pricing for office, industrial and retail assets are expected to increase. Available capital, improving market conditions and rising rental rates will support continued strong sales activity through the second half of 2014 and into 2015."
Please turn to the following pages of the report for fall 2014 market highlights of the local investment markets. For further info/comment, please contact the Avison Young Principals/Managing Directors listed below. Thank you.
p. 10 Calgary
Todd Throndson, Principal, 403.232.4343 [email protected]
p. 11 Edmonton
John Ross, Managing Director, 780.429.7564 [email protected]
p. 12 Montreal
Denis Perreault, Managing Director, 514.905.0604 [email protected]
p. 13 Ottawa
Michael Church, Principal, 613.567.6634 [email protected]
p. 14 Toronto
Mark Fieder, Principal, 416.673.4051 [email protected]
p. 15 Vancouver
Michael Keenan, Principal, 604.647.5081 [email protected]
p. 16 Atlanta
Steve Dils, Principal, 404.865.3663 [email protected]
p. 17 Austin
Michael Kennedy, Principal, 512.970.2400 [email protected]
p. 18 Boston
Michael Smith, Principal, 617.575.2830 [email protected]
p. 19 Chicago
Danny Nikitas Principal, 312.940.8794 [email protected]
p. 20 Columbus, OH
Scott Pickett, Principal, 614.264.4400 [email protected]
p. 21 Dallas
Greg Langston, Principal, 214.207.8388 [email protected]
p. 22 Denver
Alec Wynne, Principal, 303.332.4952 [email protected]
p. 23 Houston
Rand Stephens, Principal, 713.993.7810 [email protected]
p. 24 Las Vegas
Joseph Kupiec, Principal, 702.472.7979 [email protected]
p. 25 Los Angeles
Chris Cooper, Principal, 213.935.7435 [email protected]
p. 26 New Jersey
Jeff Heller, Principal, 973.753.1100 [email protected]
p. 27 New York
Arthur Mirante, Principal, 212-729-1896 [email protected]
p. 28 Orange County
Dan Vittone, Principal, 949.757.1570 [email protected]
p. 29 Philadelphia
David Fahey, Principal, 610.276.1081 [email protected]
p. 30 Pittsburgh
George (Duke) Kingsley, Principal, 412.944.2131 [email protected]
p. 31 Raleigh-Durham
John Linderman, Principal, 919.420.1559 [email protected]
p. 32 San Diego County
Jerry Keeney, Principal, 858.201.7077 [email protected]
p. 33 San Francisco
Nick Slonek, Principal, 415.322.5051 [email protected]
p. 34 San Mateo
Randy Keller, Principal, 650.425.6425 [email protected]
p. 35 South Florida
Pike Rowley, Principal, 954.938.1807 [email protected]
p. 36 Tampa
Ken Lane, Principal, 813.444.0623 [email protected]
p. 37. Washington, DC
Keith Lipton, Principal, 202.644.8683 [email protected]
p. 38. London
Nick Cook, Principal, +44 20 7041 9999 [email protected]
Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,600 real estate professionals in 60 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.
∙ Please click on link to view and download Avison Young's Fall 2014 Canada, U.S. and U.K. Commercial Real Estate Investment Review:
For further information/comment/photos:
• Sherry Quan, National Director of Communications & Media Relations, Avison Young:
604.647.5098; cell: 604.726.0959 [email protected]
• Bill Argeropoulos, Vice-President and Director of Research (Canada), Avison Young:
416.673.4029; cell 416.906.3072 [email protected]
• Margaret Donkerbrook, Vice-President, U.S. Research, Avison Young: 202.644.8677
• Mark Rose, Chair and CEO, Avison Young: 416.673.4028
• Earl Webb, President, U.S. Operations, Avison Young: 312.957.7610
Avison Young was a winner of Canada's Best Managed Companies program in 2011 and 2012 and requalified in 2013 to maintain its status as a Best Managed company.
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SOURCE: Avison Young Commercial Real Estate (BC)
For further information: Media Relations: Sherry Quan, (604) 647-5098, or (604) 726-0959, email: [email protected]