Vancouver slips
Vancouver’s shine as a prime real estate investment locale is dimmed by Toronto’s sheen, where opportunities have been buoyed by tough economic times.
While the attention from the Olympic Games won Vancouver local prospects, investor distaste for the harmonization of provincial and federal sales taxes on some classes of real estate dampened sentiments. Meanwhile, Toronto’s prospects rose on the abundance of industrial product and the impact of the recession on hotel valuations.
“I don’t think Vancouver’s changed dramatically on a stand-alone basis. It’s just there’s been an increased focus on Toronto,” said Craig McMillan, a partner in the real estate practice of PricewaterhouseCoopers, which issued the annual Emerging Trends in Real Estate report last week in collaboration with the Urban Land Institute.
“I think it’s more of a relative measure from Vancouver to Toronto more than a dramatic change in Vancouver itself.”
The report cites “high housing prices and immigration flows” as working in Toronto’s favour, while Vancouver – which the report has identified as the top market for real estate investment in North America for the past two years – benefits from foreign interest, even as sources consulted for the report express a fear that the market has been “too hot for too long.” Tack on the HST, and demand sags further.
Fortunately, there was the Games, which piqued investor interest in Vancouver.
“It really caught the attention of outside investors,” McMillan said. “The Olympics seem to have propped things up and kept them there for a while.”
Comments in the Emerging Trends report echoed what local investors have been hearing in recent months.
Concert Properties Ltd.’s recent purchase of a 51-acre industrial property in Brampton highlights the appeal of the Greater Toronto market. The property, which includes 1.1 million square feet of warehouse space fully occupied by Canadian Tire Corp., was selected for its location and its income-producing potential.
Meanwhile, during a recent panel hosted by commercial real estate association NAIOP, Cushman & Wakefield senior vice-president Kevin Meikle pegged hotels as the next hot class of investment real estate.
“[It’s got] the higher yield curve. I think people are going to look to that,” he said. “There are a lot of private guys looking to buy hotels.”
Commercial strengthens
Whatever the position of Vancouver relative to Toronto, local commercial and industrial markets are strengthening as the latest crop of statistics from local brokerages point out.
“B.C. continues to be among the provincial leaders in economic growth. The Olympics have long since passed, the harmonized sales tax has been implemented, and yet B.C. continues to be leaving the recession in its wake,” remarks Cushman & Wakefield Ltd. in the lead to its latest quarterly reports on the Metro Vancouver office and industrial markets.
The reports maintain a positive tone for both segments of the market, discounting potential storm clouds by noting the “relatively advantageous position” Metro Vancouver enjoys.
The fundamentals are sound, with decreasing vacancies in both the office and industrial markets.
DTZ Barnicke is less bullish on industrial prospects, noting that demand is softening and lease rates in the region have dropped 10% to 15%, though land prices haven’t been significantly affected.
CB Richard Ellis steers a middle path, optimistic, but recognizing the risks.
Acknowledging that a slower pace has characterized the industrial market, keeping availability at 8.6%, CB still expects the market to enjoy a strong close to 2010 as demand recovers and excess product is absorbed.
Meanwhile, absorption in the office market is leaving tenants with few options downtown and will push them to consider options outside the area, reducing suburban vacancies.
CB Richard Ellis notes that only six of the 29 buildings with vacancies of 10,000 square feet or more are class-A buildings. Downtown vacancies have fallen to 5.5%, a five-quarter low, while regional vacancies remain steady at 10.1%.
League partners
Victoria-based League Assets Corp. spent close to $17 million through its subsidiary IGW REIT earlier this year to acquire a 49.9% stake in Toronto-based Charter REIT. It’s now rechristened the company Partners REIT, a nod to the collaborative approach it touts as the distinctive feature of its relationship with investors (which League styles “member-partners”).
The deal gave League, which holds $600 million worth of assets, a stake in a portfolio of 10 retail properties in Ontario and Quebec.
Partners REIT, like IGW REIT, is managed by League; its president and COO is Patrick Miniutti, who also serves as CFO of League.
League CEO Adam Gant said the arrangement allows IGW to benefit from any increase in the value of Partners’ assets, without diluting the value of its own units.
He noted that League’s investment in Partners has increased to approximately $23.3 million since the acquisition.