Investors are being drawn to the commercial condo market, according to one industry veteran, because of the strong returns and red-hot markets.
“Office condos are attractive to investors for a couple reasons; the commercial market offers strong returns and you benefit from a strong economy and rising rents,” Scott Chandler, senior vice president, advisory and investment services at Colliers International, told Canadian Real Estate Wealth.
And investors seem to agree.
According to a Colliers research report, released Wednesday, investors now own 83% of office condos in Vancouver – up from 31% in 2010.
“Owning office space offers the advantages of having a fixed and clear cost in the wake of major increases in leasing rates, full control over the design taste and feel of your environment, the prospects of capital gain, and no longer having to worry about the lack of flexibility that is usually coupled with a leasing contract,” Chandler said in the research release. “As lease rates continue to increase and Canadian lending rates remain low, business owners are discovering the advantages and opportunities to own their own office space rather than lease and the market has responded.
Chandler says both Vancouver and Toronto’s office condo segments are attractive for investors.
“In Toronto and Vancouver, core locations – especially close to transit – [are attractive investments],” he said.
And many investors who have trouble raising their own capital are partnering with others to purchase these units, according to Chandler.
However, they aren’t the sort of investment that interest landlords looking to make a quick buck.
“Office yields are pretty low, in the mid-single digits; what’s driving interest is future capital gains,” Chandler said. “It’s medium to long-term investors; not flippers.”
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