Private and institutional real estate investors flock to Vancouver

Institutional investment

Vancouver saw approximately $6.3 billion in investment deals worth $5 million or more last year, according to Jones Lang LaSalle IP Inc., 13.4% of the $47 billion recorded across Canada. Most buyers were domiciled in Canada (75%) while just 5% came from outside North America.

Private investors constituted the single largest category of buyer, accounting for 53% of deals in Vancouver. The trend is set to continue in 2020, according to CBRE Ltd., which released its own perspective on market conditions last week.

“Looking back a few years, foreign capital was the biggest player on the trophy assets, and they were outbidding the local market,” said Jason Kiselbach, managing director in the Vancouver office of CBRE. “That has been replaced by institutional investors, specifically from Toronto and the U.S., that are looking for scale in Vancouver.”

A combination of economic growth, in-migration and the potential for further upward moves in lease rates are all factors in drawing private and institutional investors here. Vancouver led the country’s biggest cities in commercial lease growth and ranked second in terms of multi-family rent growth.

“They’re looking at [Vancouver] and saying, ‘If we can get scale in a city like that and there’s opportunity to push yields up through lease rate appreciation, we’d love to get involved,’” Kiselbach said.

A case in point is Blackstone Group Inc., which joined forces with Hudson Pacific Properties Inc. last year on the billion-dollar purchase of Bentall Centre. The deal put it at centre ice in a market where it held nothing just a few years ago.

But then, it bought Pure Industrial Real Estate Trust in 2018 and quickly became one of the single largest industrial landlords in the region. On the office side, they’re now the third-largest owner downtown, with 6.1% of the market. (Cadillac Fairview Corp. Ltd. remains the largest, with 13.7%.)

Another institutional newcomer is Toronto-based CanFirst Capital Management, which bought Fama Business Park in Surrey last year for $66 million.

“They hadn’t owned anything previous to last year,” said Kiselbach, noting it was the year’s largest industrial building deal. “[CanFirst] really had a mandate to buy something in Vancouver, and they went after one of the largest offerings of the year.”

All things being equal, he sees more of the same ahead.

“Any larger trophy assets that come to market will see significant demand from institutional capital,” he said. “There might be some players that don’t own here that might be looking to get a piece of Vancouver that might be the successful bidder on some of those assets.”

Innovation reserve

When the Agricultural Land Reserve (ALR) was proposed in 1972, an industrial land reserve was tipped to follow. The idea was that if one tranche of land was put out of reach of developers, another should be placed within reach.

That didn’t happen, and from time to time the spectre of such a reserve has been raised in the commercial real estate community. It has its proponents, but also its detractors, who note that any constraints on the supply of industrial land would further raise the price such sought-after lands command.

However, what if there were land set aside for agricultural innovation, similar to the parcels set aside in Chilliwack for agricultural-related uses and now home to the new Molson Coors plant, Berryhill Foods Inc. and others?

That’s the vision of the province’s food security task force, whose final report and recommendations were published at the end of January.

Headed by cranberry magnate Peter Dhillon (also a director of the Bank of Canada), the three-member task force recommends hiving off unproductive portions of the ALR for industrial use.

“A land-use strategy that creates specific agricultural-industrial zones within the ALR would allow B.C. to preserve the ALR while ensuring that land of low soil quality, ill-suited for farming but with good transportation connectivity, is maximized,” it says.

The report recommends creating “a Commissioner for Agri-Industrial Lands,” who would oversee their development and be responsible for attracting companies to locate within the proposed zone.

Dhillon said the report’s four recommendations have created interest within government, and he hopes it will act quickly on implementation. •