Commercial real estate sales across the Lower Mainland continued to climb, hitting a record $5.71 billion over the last fiscal year as property prices and sales rose, according to a new report.
Of those, the majority was intended for housing development, which is counted as a commercial sale if no houses have yet been built. This suggests speculators think the residential slump will be shortlived, said George Carras, president of RealNet Canada, the real estate information services company behind Wednesday’s report.
The “sweet spot” in the Lower Mainland was mid-market retail, he said.
Although it constituted only 13 per cent of all commercial property sales, retail prices have increased more than those of office, industrial, apartment, hotel and land since 2007. Retail property values grew 10.5 per cent per year over the last five years for properties between $3 million and $10 million.
“In the mid-market there’s more access to capital, so there’s a larger buying group that’s available than, say, for large retail – strip centres or malls or those kind of things,” Carras said.
Commercial real estate prices overall increased at an annual compound growth rate of 9.4 per cent in that period, still a strong showing, he said.
More than half – $3.2 million – of the record-setting sales volume between July 1, 2011, and June 30, 2012 was poured into raw land deals. Of that amount, 62 per cent went toward land set aside for residential development.
That means more than one third of the $5.71 billion that changed hands in commercial deals is slated for houses, condos and apartment buildings.
While the value of home sales in B.C. declined more than 25 per cent last month compared to a year ago according to a report from the B.C. Real Estate Association, speculators may see that dip as a temporary hurdle, not a long-term obstacle, Carras said.
The appeal of investment in commercial properties lies partly in their relative predictability and long-term returns, he added.
“They’re much larger than the public stock market,” he said.
“They’re tangible, you can touch it, you can drive by it. And it produces an income and it produces value growth over the long term.”
Cameron Muir, chief economist at the B.C. Real Estate Association, cautioned against too much optimism, despite the impressive rise in shortand medium-term commercial property prices.
“Vancouver, within Canada, is a very strong commercial investment market within North America – But the past is not necessarily a good indicator of the future, in any kind of investment,” he said.
Muir also warned encroaching foreign investment and U.S. retailers may up property prices even further. He pointed to Dekabank, an institution based in Germany, buying the Bentall Five office tower in downtown Vancouver in 2009 in one of the year’s biggest property deals.
But Carras said Canadian private owners represented a much larger share of buyers, often in the form of pension funds and life insurance companies.
“Foreign investors really have to compete with the Canadian institutions and the Canadian institutions tend to come away with the largest real estate assets,” he said. Dekabank sold Bentall Five for $400 million this year to a Canadian property fund and undisclosed partners.
The Lower Mainland’s robust commercial real estate activity is part of a broader national trend.
“You’re seeing across the country the return of the commercial real estate investment market to either new record levels or to near record levels of investment,” Carras said.
He also highlighted the resilience of the Vancouver market during the 2009 recession compared with Calgary and Toronto.
“Vancouver had more softening and less volatility, which is one of the reasons it’s a favoured market. It doesn’t have the same swings of highs and lows as, say, a Calgary.”
Carras said the past year’s 2,487 commercial property transactions took place around the Lower Mainland, with only office property deals concentrated heavily around downtown Vancouver. “When you looked to the trading of retail assets, there was a really good distribution throughout the Lower Mainland.”
COMMERCIAL REAL ESTATE TRANSACTIONS
$5.71 billion worth of commercial real estate was sold in the Lower Mainland over the past four quarters, a record for a single fiscal year. The graph suggests increases in property price, among other factors, are behind the high dollar figures from 2010 on, as the amount of money spent has increased more steeply than the number of transactions.
Source: Vancouver Sun