Commercial sales reach new record this year
Evan Duggan
The Vancouver Sun
A small number of big office deals pushed Metro Vancouver’s commercial real estate sales figures to a new record in 2016, with the first-half numbers surpassing the entire total for the previous year, according to Colliers International’s Metro Vancouver Investment Report.
Halfway through 2016, Metro Vancouver commercial real estate deals totalled $4.28 billion across 819 transactions, smashing 2015’s full-year total of $4.25 billion and 695 transactions, according to the report released earlier this month. The report assessed all commercial investment deals in the region valued at $1 million or more, including office, industrial, retail and multi-family properties.
The office sector experienced the highest sales increase from the same period last year due to a few high-profile acquisitions, including sales of the Bentall Centre, the Royal Centre and the United Kingdom building in downtown Vancouver — sold separately for a total of nearly $1.57 billion.
“The main drivers of this large volume increase is the sales of trophy office assets downtown,” said Curtis Scott, Western Canada manager of market intelligence for Colliers in Vancouver. “I would say that for the remainder of this year it’s probably just going to track along slowly. I haven’t seen any big trades like what we saw earlier in the year.”
But he said the overall office sales and other assets were strong across the board in Metro Vancouver, accounting for $1.8 billion of all commercial property deals in the first half of 2016. “When we take those (trophy) assets away from the overall volume, we still see an increase, and particularly when we look at assets in industrial where we are seeing a shortage of supply and people are seeing this as an opportunity to invest.”
The industrial market in Vancouver was one of the hottest stories of 2016, with stakeholders raising the alarm repeatedly over a region-wide shortage of industrial and logistics space. That asset class represented nearly 20 per cent of total commercial real estate transactions over the first half of 2016, totalling nearly $756 million, according to the report.
Investment in multifamily assets remained hot too, with apartment sales reaching nearly $673 million in volume over 89 transactions in the first half of 2016. Meanwhile, total retail investment in Metro Vancouver reached $1.1 billion in the first six months of the year, nearly double the amount from the same period last year
“Multifamily continues to be an attractive asset to a lot of investors just due to low vacancies and increasing rents, so it offers up good revenue,” Scott said.
He said there has been more investors buying and holding onto residential property, creating land banks with apparent plans to redevelop when the time is right.
“I think a lot of people are waiting for municipalities to change some of the density in those areas,” he said, pointing to Vancouver’s West End and Broadway Corridor as examples. “When we saw the West End plan change … the (city) offered up an immense amount of density, that really caught a lot of peoples’ eyes to buy older product and perhaps look for a long-term play of redeveloping.”
“The first half of 2016 was unlike anything I’ve ever seen,” said Mehdi Shokri, a principal with Avison Young in Vancouver. “From the office sector, definitely, and I think the residential land as well, there was just a lot of deals that occurred in the first half of the year.”
He said the surprise of 2016 were the huge sums of money being spent on Vancouver assets by big-time investors like China’s mysterious Anbang Insurance Group, which bought Bentall I, II, III and IV, and German multi-billionaire Klaus-Michael Kuehne, the buyer of the Royal Centre.
“Typically, over the last few years, institutional activity has been fairly limited just because nobody wants to sell and nobody can buy in our market from an institutional point of view,” Shokri said. “It was pretty shocking to see so many institutional deals come into the market all at once.”
Shokri said their assessments also point to record sales values. “We were showing about $4 billion in sales volume in 2016 year to date,” he said. “From a traditional commercial real estate asset class, office was certainly the highest and that was around $2.2 billion in sales volume.”
Forecasting 2017, Shokri said the massive price tags for big office assets means it’s more difficult to turn a profit in these buildings with existing cash flows and costs. “That will pique my interest to see how low it can go before it becomes very enticing to start to see more institutional capital move money into other markets,” he said.
He said everyone in the market is now taking a closer look at lending rates too. “Obviously, the condo values are getting to numbers that we keep saying we never believed they were going to get there, but they are,” he said. “How much more room is there to keep moving those numbers up because that’s making land values become crazy.”
Political winds are also blowing and could bring more change and disruption to the market with upcoming provincial and civic elections coming into view, he said. “I’m curious to see how that’s going to start to affect the way that people look at deals.”
Decisions over density, housing supply, project approvals and general market confidence all connect to political decisions, he said. “A lot of these things come back to politics when I look at real estate deals, and I don’t think that gets highlighted enough.”
© 2016 Postmedia Network Inc.
