Feb 23, 2010 - British Columbia's commercial real estate investment market made a strong comeback in the second half of 2009 and into 2010, as after-shocks from the global economic downturn began to subside and the bid-ask gap narrowed. Capitalization rates remained below those in other Canadian markets.
REITs, conspicuous by their absence during most of 2009, have raised significant capital and become dominant players, according to Avison Young. As a result, secondary markets are back - unlike in 2009 when buyers were mainly chasing prime product in Metro Vancouver.
"Transaction volumes rebounded during the second half of 2009 as REITs and pension funds rejoined the private buyers in seeking commercial and industrial income investments," says Avison Young principal, Bob Levine. "Improving fortunes in the stock markets and yield compression in all income-producing assets have improved availability and liquidity of debt and equity in BC's commercial real estate market, allowing for greater transaction volume."
The retail sector enjoyed a renaissance, accounting for most of the transactions and dollar volume. In November, RioCan REIT and the Canada Pension Plan partnered to purchase Surrey's Grandview Corners outdoor shopping centre for $182 million (the largest retail deal in the province in 2009) and Primaris REIT acquired 50 per cent of Woodgrove Centre from Ivanhoe Cambridge in Nanaimo for $103.1 million. Together, the two deals accounted for more than half of the total value of second-half 2009 retail deals closed.
The 16 second-half retail transactions represented a fourfold increase from just four deals in the first half. The increase could be attributed to sellers' perception that retail posed the biggest risk to their portfolio values.
Meanwhile, buyers saw strategic opportunities that offered leverage as they acquired properties located next to strongly-anchored shopping centres owned by deep-pocketed investors who likely plan to expand in the future. Throughout 2010, as in the second half of 2009, retail investors' biggest challenge will be to minimize the loss of tenancies, especially in the case of shopping centres anchored by large U.S. chains.
"The market's overall increases in dollar volume and number of transactions in the second half of 2009 can be attributed to increased investor confidence, a reduced bid-ask gap, and healthier REIT and private-company balance sheets," says Avison Young principal, Michael Gill. "Buyers and sellers have come to the realization that Canadian pricing is less likely to follow trends south of the border, where many distress sales have occurred. Accordingly, executive decision-making on BC commercial real estate has increased."