B.C. investment volume rises over low cap rates

British Columbia's commercial real estate investment market made a strong comeback in the second half of 2009, says a new Avison Young report.
The number of transactions increased to 37 from 23 in the first half, which at the time marked the lowest first-half total in seven years. Meanwhile, second-half investment volume rose 11% to $715 million from $643 million in the earlier period, the report adds. Total investment for the year reached $1.36 billion, up from $1.27 billion in all of 2008, when provincial investment activity was caught in the global economic downturn.
The report attributes the increases mainly to a narrowing of the bid-ask gap as the effects of the worldwide downturn and U.S. credit crisis subside further.
Retail deals spurred the second-half 2009 comeback after lagging in the first six months. A total of 16 retail deals were completed in the second half compared to four in the first half. Remaining second-half trades were split evenly between office (11) and industrial (10).
For the year, total trades dropped to 60 from 68.
In the second half of 2009, retail investment volume accounted for $64%, or $458 million, compared to a modest 6% ($41 million) in the first half. Following a 70% drop, office deals accounted for $154 million as opposed to $506 million in the first half.
The large decrease resulted because large Downtown Vancouver office deals similar to Bentall V ($297 million) and the Grosvenor building ($84 million) did not repeat in the second half.
Industrial volume rose slightly to $102 million in the final six months of 2009.
Looking at 2009 as a whole, deals were evenly split between office (19), retail (20) and industrial (21). Office deals comprised 49%, or $660 million, of volume while retail accounted for 37% ($499 million) of volume and industrial represented 15% ($199 million).
The year-over-year increase in sales volume occurred even though the province's traditionally low capitalization rates nudged downward.
And, they are expected to continue on that course.