In the first half of 2010 there was $1 billion invested in British Columbia’s commercial sales within 36 transactions above $5 million, compared $594 million at the halfway point this year within 45 transactions. But Avison Young attributed that 42% drop in volume mostly to a lack of available product due to the strong demand already experienced in 2010. And while volume is down, vendors are finding 2011 to be very favourable thus far.
“It is a perfect storm for vendors in the marketplace right now,” said Michael Keenan, senior vice president and managing director of Avison Young’s Vancouver office. He pointed to factors including a the stable economy and banking system inspiring investor confidence, historic low interest rates, a lack of available quality commercial real estate, and high demand for commercial product.
The combination of these factors has created an aggressive pricing environment and downward pressure on yields. “Vendors, should they choose to dispose of assets, will find buyers of all types working to meet their pricing expectations,” said Keenan.
The top selling asset class in British Columbia was the office market, with 12 transactions totalling $270 million in the first half of 2011, compared to 12 transactions at $189 million in the first half of 2010. The lack of available office options continues to drive the price, said the Avison Young report. The downtown Vancouver office rate dropped to 5% and is expected to remain tight going forwards. Cap rates are believed to be below 6% and could compress further.
“Canada is viewed as a safe haven for investment,” said Keenan. “We are sought after as a destination, and Vancouver more so than any other city in Canada.”
But while the office market remained hot, retail in British Columbia dropped significantly from last year’s whopping $711 invested in 21 deals in the first half. This year, it was $138 million invested in 11 transactions. Avison Young said 2010 was a more favourable time to transact, but ongoing economic turmoil in the U.S. and Europe could push more retail activity to British Columbia later this year.
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