Foreign speculation hits Metro commercial real estate

Trend skewing prices in multi-family market moves into retail, industrial sectors

BIV Files

The sale of an aging, eight-unit rental apartment building in Burnaby’s Metrotown for $440,000 per suite in January underscored the ongoing speculative trend in Metro Vancouver’s residential rental market, which posted record sales of $1.3 billion last year.

But the purchase of an old retail building on a 20,000-square-foot lot in Vancouver’s Marpole area in February for nearly $1,000 per square foot – the equivalent of $44 million an acre – signals that speculation, much of it involving offshore buyers, has taken a firm hold in the commercial sector as well.

Many properties are being bought based on future development potential rather than expected lease income, according to a real estate investment report from Colliers International’s Vancouver office.

In the industrial market, Colliers points to a 169,000-square-foot industrial parcel on Alderbridge Way in Richmond that it calls a “development site with holding income.” It sold a year ago for $63 million, or about $140 above the average per-square-foot cost in the industrial sector.

In the Metro Vancouver retail market, investment sales in 2015 totalled $1.18 billion, up from $992 million a year earlier, and prices also appear to defy the capitalization rate formulas normally associated with commercial sales. An example is a 34,700-square-foot retail outlet on West Broadway that sold for $38.8 million, or about twice the average price for Vancouver retail space.

David Goodman of HQ Commercial, who specializes in the multi-family market, credits the record-high prices to a fire hose of investment funds from China switching from residential to commercial real estate.

“Relatively small in number yet with billions of dollars at their disposal, investor groups from China are leaving an indelible mark on local real estate,” Goodman said. “The vast new dollar flow pouring into Greater Vancouver is disrupting the local development and investor community. Locals either lose out or feverishly raise their bids to compete with the new kids on the block.”

Derek Lobo, CEO of Toronto-based SVN Rock Advisors, said what differentiates offshore investors in both Vancouver and Toronto is an apparent disregard for property returns.