Avison Young releases Fall 2013 Canada, U.S. Commercial Real Estate
TORONTO, Oct. 9, 2013 /CNW/ - Canada has exceeded pre-credit-crisis
investment dollar volumes and pricing for most asset categories, while
improving property market fundamentals continue to fuel investment
activity in the U.S. There is no evidence that the recent rise in
interest rates slowed activity on either side of the border in the
first half of 2013. However, it will be interesting to watch the
appetite of the biggest buyer group - interest-rate-sensitive real
estate investment trusts (REITs), and whether they will be taking a
break from their insatiable buying spree.
These are some of the key trends noted in Avison Young's Fall 2013 Canada, U.S. Commercial Real Estate Investment Review, released today.
The report covers commercial real estate investment conditions in 24
regions: Calgary, Edmonton, Montreal, Ottawa, Toronto, Vancouver, Atlanta, Boston, Chicago, Dallas, Denver, Houston, Las Vegas, Los Angeles, New Jersey, New York, Orange County, Pittsburgh,
Raleigh-Durham, San Diego County, San Francisco, San Mateo, South
Florida and Washington, DC.
"Canada and the U.S. are on track to meet or exceed 2012's volume of
sales as Canadian REITs and pension funds continue to target strategic
U.S. markets," comments Mark E. Rose, Chair and CEO of Avison Young. "Robust demand and available capital
for quality assets is evident on both sides of the border. Whereas
Canada continues to be stable, if not at peak pricing, the U.S. seeks
to improve if the politics of sequestration, government shutdowns and
debt-ceiling limits do not prolong the recovery. Interest rates will
remain the wild card as U.S. tapering of bond purchases and the
inevitability of inflation will impact both countries."
"Canada's stable economic environment and enviable commercial real
estate market saw strong investments in the first half of 2013 across
all asset types - in comparison with the first half of 2012 when office
sales dominated. Look for Canadian REITs to be more discriminating in
their acquisition choices in Canada in response to interest rates.
Nevertheless, pension funds, life insurance companies and private
equity players are poised to fill the void, should REITs take a step
back," he says.
"In the U.S., expect the economy to continue its modest growth through
the balance of 2013, as constraints on construction overall and an
uptick in occupier demand have led to improved market conditions in
many metro areas. Rising interest rates have failed to halt investor
appetites for stabilized core properties, and office and
multi-residential sales comprised 80% of the volume thus far," adds
According to the report, healthy market fundamentals continue to drive
investment activity in Canada. Slightly more than $14.4 billion (CAD)
worth of commercial real estate assets (office, industrial, retail,
multi-residential and land, greater than $1 million) changed hands in
the first half of 2013 - up $1 billion, or 8%, compared with the first
half of 2012. Four of the six major Canadian markets saw an increase in
commercial sales volume in the range of 4% to 46%, while two markets
witnessed a decrease of between 20% and 29%.
"Though transactions are being consummated across the country and the
full brunt of the initial interest rate hike earlier this year has not
shown up in the first-half figures, the full effect may very well
reveal itself in the year-end tally," notes Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.
"However, there are indications that one of the most active buyers
since the downturn, the REITs, have tempered their appetite for
commercial real estate over the past year. This is clearly evident in
two of Canada's biggest investment markets - Toronto and Calgary.
Year-over-year REIT investment volumes are off by 34% and 60% in
Toronto and Calgary, respectively."
Argeropoulos continues: "The second half of 2013 should prove to be
interesting. A year ago, we expected Vancouver, Calgary, Toronto and
Ottawa to either match or exceed their previous annual investment
totals. We were pleasantly surprised that every market, with the
exception of Edmonton (by a narrow margin), surpassed their 2011
results. Given the first-half 2013 performance, only Toronto and
Edmonton are on pace to match or exceed their 2012 tally. Perhaps, we
will be pleasantly surprised one year from now."
Nationally, industrial properties were the most actively traded asset class in the first half
of 2013, outpacing the office sector with 24% of total first-half
investment dollar volume. In all, $3.5 billion worth of industrial
product sold - the greatest year-over-year increase at 92%. Industrial
sales increased in every market. While Ottawa saw the most notable
improvement (+351%), Toronto recorded the largest industrial dollar
volume - $1.9 billion (53% of the national total). Highlights in this
sector included REIT portfolio acquisitions in Toronto, where GE Canada
Real Estate Equity (GE) sold $341 million worth of industrial buildings
to PIRET; and Montreal, where Tecton Industries sold a portfolio of
buildings to Cominar REIT for $151 million.
Office, 2012's most actively traded asset class, saw sales of $3.2 billion
(22% share) - down 37% from an impressive $5.1 billion in the first
half of 2012 - falling everywhere except Montreal (+77%) and most
sharply in Vancouver (-70%). Toronto was the most active office market,
as sales reached $1.8 billion, but even this figure represented a
decrease from the 2012 first-half performance of nearly $2.7 billion.
Notable office transactions across the country included the sale of a
$542-million Toronto portfolio by GE to Greystone Managed Investments
and Slate Properties; Canada Pension Plan Investment Board (CPPIB)'s
purchase of 1 Queen Street East and 20 Richmond Street East in
Toronto's financial core for $220 million from Ontario Pension Board;
and Calgary's sale of the Jacobs Engineering building from KanAm Group
to Epic Realty Partners for $171 million.
Land was in demand (especially in Western Canada) with first-half 2013 sales
of $3.1 billion, comprising a 22% share - up $925 million (42%)
compared with the same period in 2012. Calgary was the hottest land
market as sales jumped 249% to $902 million, 30% of the Canadian total.
Of the top five transactions in terms of dollar value, two - including
the top-ranking deal - were land sales amounting to 44% of the total
land sales activity in Calgary. Runners-up were Edmonton, at $460
million, and Vancouver, at $456 million, while in the eastern markets
(Toronto, Ottawa and Montreal) land sales accounted for $861 million,
only 10% of total investment dollar volume in those markets.
The flow of foreign retailers continuing to establish a presence on the
Canadian landscape, along with a steady consumer appetite, pumped more
investment dollars into the retail sector. Retail transactions across Canada increased a modest 3% above
2012 to $2.3 billion (16% share). The eastern markets (Toronto, Ottawa
and Montreal) were busiest, combining for $1.6 billion worth of retail
trades - two-thirds of the national total. Toronto garnered $1.3
billion (55% of national total) - matching the sales volume for all of
2012. REITs and pension funds continued to swap assets and were
involved in a number of sizable deals at both ends of the country. In
the Greater Toronto Area, RioCan REIT purchased Oakville Place from
Primaris Retail REIT (Primaris) for $259 million; Oxford Properties
Group sold a 50% interest in Upper Canada Mall to CPPIB for almost $252
million; while in the Edmonton area, H&R REIT sold a 50% interest in
Sherwood Park Mall to Primaris for $180 million - the largest asset
sale in Edmonton in the first half of 2013.
Multi-residential rounded out the five sectors. Low vacancy rates, steady incomes and
favourable mortgage rates lifted sales of multi-residential property
12% compared with 2012 to $2.2 billion (16% share). While Edmonton and
Montreal witnessed annual sales growth of 184% and 124%, respectively,
Toronto led all markets in total dollar volume with $986 million (44%
of national total). Though it did not make the top five sales list, the
sale of Maple Leaf Quay for nearly $151 million ($300,000 per door) at
the heart of Toronto's waterfront is evidence of investors' strong
interest in multi-residential assets.
Although capitalization rates (cap rates) are lower on average than one
year ago, further interest rate hikes may moderate or even signal the
end of cap-rate compression for some property types. Cap rates are
lowest for multi-residential investments, and once again, Vancouver
yields the lowest cap rates in every asset category except retail (tied
with Toronto). Financing acquisitions on a go-forward basis, however,
will be tricky.
"Canadian debt markets were very active in the first half of 2013,
despite a couple of the larger institutional participants withdrawing
as a result of meeting their allocations. The second half of the year
will be tempered by the U.S. Federal Reserve's actions on reducing
market stimulus. Expect higher 'all-in' interest rates driven by
deteriorating bond prices in anticipation of the Fed's reduction of
market stimulus. Lenders will be very conscious of funding deadlines in
what we see as a potentially rising interest-rate environment,"
explains Avison Young's Norman Arychuk, Mortgage Broker, Capital Markets Group, in Toronto.
Toronto, Canada's largest city and commercial real estate market, remains the
investment market of choice, recording $6.5 billion in sales (a 45%
share of the national total) ― up 15% compared with the first half of
2012, and beating the 8% national year-over-year growth in sales.
Office and industrial were top of mind capturing 56% of the total
investment volume, while first-half sales of retail properties already
equal the sales volume for all of 2012.
"Though we haven't had a blockbuster deal along the lines of Scotia
Plaza this year, 2013 has been a busy year thus far. Notwithstanding
the uncertainty surrounding interest rates, some REITs will continue to
look for assets; however, they will be more discerning as to the
quality of the assets they will pursue. Even though we are seeing a
shift from the REIT community, this has been more than compensated for
by others, including pension funds and their advisors, life companies
and private investors. As such, we envisage pricing to remain
relatively stable," observes Robin White, Avison Young Principal and Executive Vice-President, Capital Markets
Group, in Toronto.
Demand for commercial real estate in Vancouver attained near-record levels in the first half of 2013 with almost $2
billion invested. While dollar volume tapered off compared with the
same period in 2012 (a record-setting $2.4 billion), deal velocity was
one of the strongest recorded in the past decade.
Avison Young Principal Michael Gill in Vancouver notes: "Despite the fact that the largesse of the REITs is
currently absent from the BC commercial property market, there remains
plenty of capital in the hands of the pension funds and life insurance
companies seeking investment properties with strong fundamentals. Those
investors who decide to wait to buy on the premise that capitalization
rates may rise due to the absence of the REITs will be sadly mistaken,
as capitalization rates are expected to remain stable. What the market
really needs are more sellers who recognize that it is still a very
opportune time to sell due to the large pool of available capital and
very low mortgage rates."
Calgary's commercial real estate investment market once again witnessed
significant investment activity in the first half of 2013. Total dollar
volume increased by 4% compared with first-half 2012 levels, amounting
to almost $2.2 billion (15% share). Though the growth in sales was
modest, the key driver was land sales, which totalled $902 million
"The conditions present in today's marketplace make for an ideal and
opportune time for buyers to be active on the acquisition front. Cap
rates continue to show resistance to threats of increase for
best-in-class assets across all property types, and interest rates
remain favourable. With some of the world's largest companies located
here, and rental rates expected to stay strong for the foreseeable
future, Calgary is a great place to invest in," adds Avison Young
Principal Todd Throndson in Calgary.
Investment volume in Edmonton for the first half of 2013 was up almost $350 million compared with the
first half of 2012, reaching $1.6 billion (11% share). These numbers
are indicative of the cyclical trend that has gripped the market during
the last three years, with larger investment totals occurring in the
first and fourth quarters and dropping off during the second and third.
"As the year continues, we feel that investment volume will remain
moderate with product in tight supply. Pricing will remain strong,
particularly in class A assets, as pent-up demand and strong balance
sheets from pension funds and life insurance companies continue to
drive capitalization rates further down. With the temporary downward
turn in the capital markets, we anticipate less REIT activity,
resulting in likely price declines in class B and C product - also
compounded by today's more expensive debt climate," explains John Ross, Managing Director of the Edmonton office.
Montreal had an exceptional first half with sales volume of nearly $1.6 billion
(11% share), representing an increase of nearly $497 million (+46%)
compared with the same period in 2012 - led by the multi-residential
and industrial sectors, capturing 62% of the total investment volume.
"This is the second-largest first-half dollar volume experienced during
the last five years. With previously announced and ongoing transactions
in the second half of the year, it is more than likely that 2013 total
sales volume will surpass the 2012 mark - and may very well exceed the
record volume of $3.5 billion seen in 2008," notes Avison Young
Principal Tom Godber in Montreal.
The nation's capital, Ottawa, continues to be a safe haven for pension fund advisors, REITs,
financial institutions and other institutional investors looking for
stable long-term yields. Investors' assets of choice continue to be
office buildings - although the industrial market is ahead of 2012
levels as it remains popular with institutional and private local
investors. Ottawa was the only market not to crack the
$1-billion-dollar mark in the first half of 2013 as sales declined 29%
to $618 million (4% share).
According to Avison Young Principal Michael Church in Ottawa: "A slowing office market has not tempered enthusiasm for
well-positioned assets with covenant leases in place, despite lower
investment volumes compared with one year ago. Retail development
continues to be strong. Interest rates continue to drive the Ottawa
investment market, with multiple bids on the very limited product that
does come to market - a trend expected to continue through to the end
In Avison Young's U.S. markets, commercial real estate sales rose during
the first half of 2013 compared with the first half of 2012 primarily
on the strength of multi-residential asset dispositions. Sales volumes
for office, industrial, retail and multi-residential properties reached
$77.5 billion (USD) by mid-year 2013, compared with $60.3 billion for
the same period in 2012, a 28% increase.
"International capital still favors the U.S., and year-to-date, Canadian
buyers lead foreign investment by far. As with 2012, the market remains
bifurcated with core, well-placed properties maintaining their values
relative to their markets," comments Earl Webb, Avison Young's President, U.S. Operations "This year, however, yields
are so compressed in core properties that core buyers once again
expanded their acquisitions outside the top 10 target cities.
Furthermore, the pricing of value-add properties is a qualitative
discussion dependent on the individual asset and its submarket
fundamentals. As well, the effect on investors of the debt
ceiling/budget battle raging in Congress remains uncertain."
Three standout markets comprised 47% of all U.S. sales volume: New York
($14.6 billion / +59% / 19% share), Los Angeles ($11.3 billion / +54% /
15% share), and Washington, DC ($10.8 billion / +107% / 14% share).
Other markets that registered notable year-over-year changes in volume
included Las Vegas (+73%), Orange County (+66%), Atlanta (+63%) and San
"Through the first half of 2013, investment sales volume in New York
City has far surpassed the pace set during 2012. The increase in
private equity, coupled with the appeal to foreign investors, should
drive a continued upswing of activity for the remainder of 2013,
resulting in the highest level of sales volume since 2007. With the
overall interest-rate environment continuing to be favorable for real
estate, we anticipate that the Manhattan commercial market will remain
strong with continued momentum, even if there is a potential uptick in
interest rates in the second half," observes Avison Young Principal Jon Epstein in New York.
"We fully anticipate that market activity will see its typical increase
in the third and fourth quarters of 2013; however, it's too early to
determine whether that uptick will be sustained into 2014. For
Metropolitan Washington, for example, much will depend on the outcome
of any pending government shutdowns and the debt-ceiling resolution,"
adds Avison Young Principal Chip Ryan in Washington, DC.
Multi-residential and office sales comprised 79% of all sales volume by mid-year 2013.
Multi-residential sales showed the most marked improvement, jumping to
$31.9 billion in the first six months of 2013 (+88%) from $16.9 billion
for the same period in 2012. All Avison Young markets, with the
exception of four (Boston, -22%; San Francisco, -21%; San Diego County,
-3%; Raleigh-Durham, no change), recorded gains in multi-residential
sales volume. The greatest gains were in San Mateo, which increased to
$611 million from $56 million in volume (+990%), and Washington, DC,
increasing to $7.6 billion from $1.7 billion (+355%). Sales of
multi-residential properties led first-half 2013 transaction volume in
nine Avison Young markets: Dallas, Denver, Las Vegas, Los Angeles,
Orange County, Raleigh-Durham, San Diego County, San Mateo and
"In the South Atlantic Region, development of new multi-residential
product will slowly push vacancy rates upward after achieving a
forecasted sub-5% vacancy at the end of 2013 - a 12-year low," notes
Avison Young Principal Matt Tritschler in Atlanta. New completions have escalated to pre-recession levels in
2012 and 2013 with a growing pipeline for new-product delivery into the
next two years that could begin to increase vacancy levels."
Overall office sales volume rose during the past year, reflecting strengthening market
fundamentals in many U.S. cities, climbing to $29 billion in the first
six months of 2013 (+37%) from $21.2 billion in the first half of 2012.
Not surprisingly, New York ($9 billion / +76%), Los Angeles ($3.4
billion / +96%) and Washington, DC ($2.2 billion / -7%) led asset sales
in this category as well. Atlanta, with overall office sales of $1.8
billion (+515%), and Orange County, with office sales volume of $1.6
billion (+208%), represented the greatest year-over-year increases.
"Investment activity is significantly up in Downtown Los Angeles and on
the Westside -specifically Playa Vista and Santa Monica, the
self-proclaimed Silicon Beach," says Avison Young Principal Dan Vittone in Irvine. "Canadian investors have been at the forefront of recent
acquisitions, including Brookfield in Los Angeles and Manulife in Long
Beach. Office sales activity in Orange County, however, has been
tempered as most of the opportunistic deals were done in the last
couple of years. With slow leasing velocity in Orange County, however,
many investors have not seen enough rental and value appreciation to
warrant an exit."
Office was the leading property type for 2013 sales volume in Atlanta,
Boston, Chicago, Houston, New York and San Francisco.
According to Avison Young Principal Darrell Betts in Houston: "Texas continues to be one of the most sought-after markets
for national and international investors. The combined areas of
Houston, Dallas, Austin and San Antonio have a population of 18.5
million, and that figure is projected to nearly double by 2040 to more
than 30 million, securing the state's appeal for many years to come. We
are reaching record-level sale prices for class AA/core product, but
there are still opportunities in the class A-/B and C asset classes
with significant growth in projected rental rates. Look for Texas to
continue to attract investors for all asset classes and properties
In Chicago, foreign investment has increased significantly as investors
look to chase yield that cannot be found in the coastal markets.
"The city has experienced a tremendous amount of sales activity in 2013,
mostly in core and core-plus office space," states Avison Young
Principal Suzanne Martinez in Chicago. "This year should end strongly with almost 4 million square
feet (msf) of downtown office space under contract and another 6.2 msf
currently being marketed. The onslaught of historically suburban
tenants moving to downtown Chicago for space continues to fuel the
leasing activity. I anticipate that more value-add or class B assets,
ripe for redevelopment and repositioning, will come to market."
First-half 2013 sales of retail properties declined by 35% to $9.4 billion from $14.4 billion in the
first half of 2012 with only five Avison Young markets in the U.S.
reporting any uptick in volume (Raleigh-Durham, +191%; Las Vegas,
+100%; Atlanta, +92%; Pittsburgh, +75%; New York, +3%). In the first
half of 2013, Pittsburgh and South Florida recorded more sales in
retail properties than in any other property type.
Lastly, industrial sales volume in the first half of 2013 declined slightly compared with
the same period in 2012, slipping 7% to $7.2 billion from $7.7 billion.
While Los Angeles recorded the greatest volume with $1.2 billion in
sales, New Jersey reported the greatest positive change with $909
million of sales (+138%) and was the only Avison Young market where
industrial sales outpaced the volume for all other property types in
the first six months of 2013.
Cap rates in the U.S. moved lower in 2013 for all asset classes (except
multi-residential) and averaged 6.8% compared with 7% one year ago.
Multi-residential cap rates are the lowest (although they are
experiencing upward pressure) on average for all of Avison Young's U.S.
markets. Of note, cap rates for office product fell significantly in
Dallas (-160 bps), New Jersey (-140 bps), Orange County (-140 bps) and
San Diego County (-110 bps).
"As 2013 heads into the last quarter of the year, the Southeast
continues to see improved commercial real estate sectors, increasing
manufacturing activity and a recovering job market," says Tritschler in
Atlanta. "The Southeast Purchasing Managers Index (PMI) topped 50 for
the eighth month in a row in August, showing an expanding manufacturing
sector. Total employment in the six states that make up the Sixth
Federal Reserve District - Alabama, Florida, Georgia, Louisiana,
Mississippi and Tennessee - has risen significantly (5.1%) during the
recovery after dropping by 8.5% during the Great Recession."
Look for further improvement between mid-year and year-end 2013, with
overall sales volume likely to exceed 2012 levels. Office sales should
be led by gateway and energy-driven markets with improving
fundamentals, and multi-residential sales may begin to cool due to the
increased development occurring in some markets.
Please turn to the following pages of the report for fall 2013 market
highlights of the local investment markets. For further info/comment,
please contact the Avison Young Principals/Managing Directors listed
below. Thank you.
pp. 1-3 Canada & U.S.:
Bill Argeropoulos, VP & Director of Research (Canada), 416.673.4029 or cell:
Margaret Donkerbrook, VP, U.S. Research, 202.644.8677 firstname.lastname@example.org
p. 10 Calgary:
Todd Throndson, Principal, 403.232.4343 email@example.com
p. 11 Edmonton:
John Ross, Managing Director, 780.429.7564 firstname.lastname@example.org
p. 12 Montreal:
Tom Godber, Principal, 514.905.5440 email@example.com
p. 13 Ottawa:
Michael Church, Principal, 613.567.6634 firstname.lastname@example.org
p. 14 Toronto:
Robin White, Principal, 416.673.4009 email@example.com
Norm Arychuk, Mortgage Broker, 416.673.4006 firstname.lastname@example.org
p. 15 Vancouver:
Michael Gill, Principal, 604.647.5067 email@example.com
p. 16 Atlanta:
Matt Tritschler, Principal, 404.865.3670 firstname.lastname@example.org
p. 17 Boston:
Rick Kimball, Principal, 617.758.8271 email@example.com
p. 18 Chicago:
Suzanne Martinez, Principal, 312.957.7617 firstname.lastname@example.org
p. 19 Dallas
Greg Langston, Principal, 214.269.3115 email@example.com
p. 20 Denver:
Alec Wynne, Principal, 720.508.8112 firstname.lastname@example.org
p. 21 Houston:
Darrell Betts, Principal, 713.993.7704 email@example.com
p. 22 Las Vegas
Joseph Kupiec, Principal, 702.472.7979 firstname.lastname@example.org
p. 23 Los Angeles
Dan Vittone, Principal, 949.757.1570 email@example.com
p. 24 New Jersey
Jeff Heller, Principal, 973.753.1100 firstname.lastname@example.org
p. 25 New York
Jon Epstein Principal, 212.729.1381 email@example.com
p. 26 Orange County
Dan Vittone, Principal, 949.757.1570 firstname.lastname@example.org
p. 27 Pittsburgh
George (Duke) Kingsley, Principal, 412.944.2131 email@example.com
p. 28 Raleigh-Durham
John Linderman, Principal, 919.420.1559 firstname.lastname@example.org
P.29 San Diego County
Dan Vittone, Principal, 949.757.1570 email@example.com
P.30 San Francisco
Nick Slonek, Principal, 415.322.5051 firstname.lastname@example.org
P.31 San Mateo
Randy Keller, Principal, 650.425.6425 email@example.com
p. 32 South Florda:
Pike Rowley, Principal, 954.938.1807 firstname.lastname@example.org
p. 33 Washington, DC:
Chip Ryan, Principal, 202.644.8694 email@example.com
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 1,300 real estate professionals
in 53 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
For further information/comment/photos:
Sherry Quan, National Director of Communications & Media Relations, Avison Young: 604.647.5098; cell: 604.726.0959 firstname.lastname@example.org
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 requalified in 2012 to maintain its status as a
Best Managed company.
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SOURCE: Avison Young Commercial Real Estate (BC)
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