BC Investment Sales by Dollar Volume ($ Millions) and. Number of Transactions .... North Vancouver $7,100,000 0.28 Comme
British Columbia Real Estate
Investment Review Year-End 2014
1st Half 2014 2nd Half 2014 Total value
2014 Total
$852 million
$1.1 billion
$1.95 billion
56
62
118
Most active buyers:
Private
Private
Private
Most active sellers:
Private
Private
Private
Most active asset class:
Retail
Industrial
Retail
(sales > $5 million):
Total no. of transactions:
(based on # of transactions)
BC Investment Sales by Dollar Volume ($ Millions) and Number of Transactions (Properties >$5 Million) $852 (56)
2014 2013
$1.1B (62) $1.4B (61)
$724 (58)
2012
$1.95B (118) $2.12B (119)
$1.39B (60)
2011
$594 (36)
2010
$968 (57) $889 (49)
$1.48B (85)
$1.03B (45)
2009
$920 (54)
$643 (23)
2008
$715 (37)
$535 (38)
2007
$316 (24)
2006
$765 (41)
2005
$438 (32)
2004
$633 (37)
2003
$559 (35)
$1.95B (99)
$1.36B (60)
$734 (30) $651 (23)
$2.35B (117)
$1.27B (68)
$967M (47) $246 (13) $1.01B (54) $950 (42)
$1.39B (74)
$893 (45) $579 (29)
$1.53B (82)
$1.14B (64)
First Half Second Half Total Transactions
Sales by Property Type and Dollar Volume First Half 2014
Second Half 2014
$163M $310M
$256M
19%
$466M
36%
2014 Total $419M
23%
$776M
43%
47%
45%
51%
Office Partnership.Performance.
$1.0B
$374M $709M 34%
$380M
21%
40%
Industrial
Retail
$753M
39%
Underlying land value propelling dollar volume as private investors dominate tight BC market
D
emand for BC commercial real estate assets remained exceptionally strong in 2014 despite an overall lack of available investment-grade properties in a market dominated almost exclusively by private investors. With 118 transactions completed and proceeds of more than $1.95B in 2014, the BC investment market was dominated by private purchasers who were involved in 87% of acquisitions and collectively deployed 75% of the total dollar volume (or more than $1.46B) in 2014 to acquire office, industrial and retail assets. (Avison Young tracks investment deals valued at more than $5M.) While the ratio of private buyers has fluctuated between 60% and 82% of purchasers annually since 2006, the previous record was in 2009 (82%). The percentage of private purchasers subsequently declined to 67% by 2011, but has been rising steadily ever since. The number of institutional purchases shrank to 6% of acquisitions in 2014, but the deals did capture 20% of total dollar volume. Of those deals, three were office assets – Discovery Green ($80M) in Burnaby, The Axor ($36.7M) in Victoria and a 50% interest in 3777 Kingsway in Burnaby ($86.9M). Institutional retail deals included Longwood Station in Nanaimo ($33.1M) and Cherry Lane Mall ($74.9M) in Penticton. Institutions also acquired two industrial assets in 2014: South Burnaby Corporate Centre in ($47.6M) and 27475 58th Crescent in Langley ($22M). A multi-family portfolio of three buildings was the only multi-family asset acquired by an institutional investor in 2014. Institutions had an increasingly difficult time securing continued on back page
I 1
Buyer purchases by asset & land deals
Demand for BC commercial real estate remained strong in the first quarter of 2015 with the sale of Victoria’s Bay Centre (far left) and the $101.85-million sale of a 50% interest in Langara Gardens (left) in Vancouver.
Buyer Purchases by Asset Type: Second Half & Total of 2014 Office Retail Industrial
Second Half 2014
*Institutional
Total 2014 Second Half 2014
Private Investors
Total 2014 Second Half 2014
Government
Total 2014 Second Half 2014
REIT
Total 2014 Second Half 2014
Public Companies
Total 2014 Second Half 2014
Financial
Total 2014
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
$1000
$1100
$1200
$1300
$1400
$1500
$ Millions
* Institutional investors include pension funds and life insurance companies Note: Foreign buyers have also been institutional or private investors. Rather than identifying them separately as foreign, Avison Young is categorizing them as institutional or private as the case may be.
ICI LAND SALES (GREATER THAN $5 MILLION AND EXCLUDING PARKS AND AGRICULTURAL/AGRICULTURAL BUSINESS LANDS) JULY 1 TO DECEMBER 31, 2014 Transaction Name
Region
Price
Size (Acres)
Land Use
TOP FIVE RESIDENTIAL LAND SALES (METRO VANCOUVER) JULY 1 TO DECEMBER 31, 2014 Date
1903 - 1909 West Broadway
Vancouver
$6,250,000
0.13
Government November 2014
8107 - 8167 Cambie Street
Vancouver
$16,667,000
0.78
Commercial December 2014
5771 No. 3 Road
Richmond
$6,600,000
0.51
Commercial November 2014
Mission
$5,447,000
33.84
Commercial November 2014
31831 - 31971 Lougheed Highway 419 - 427 Gore Avenue
Vancouver
$5,750,000
0.31
Commercial November 2014
4211 No. 3 Road
Richmond
$17,000,000
2.33
Commercial
October 2014
6840 - 6860 No. 3 Road & 8049 - 8061 Anderson Road
Richmond
$18,500,000
1.29
Commercial
October 2014 October 2014
984 West Broadway
Vancouver
$12,500,000
0.43
Commercial
North Vancouver
$7,100,000
0.28
Commercial September 2014
1424 West Broadway
Vancouver
$14,300,000
0.36
Commercial September 2014
3200 - 3270 East Broadway
Vancouver
$40,510,000
9.23
Commercial
August 2014
14940 Triangle Road
Richmond
$5,450,000
5.4
Commercial
August 2014
419 - 427 Gore Avenue
Vancouver
$5,050,000
0.31
Commercial
July 2014
3879 - 3889 Oak Street
Vancouver
$7,900,000
0.3
Commercial
July 2014
5520 - 5660 Minoru Boulevard
Richmond
$35,450,000
4.57
Industrial
December 2014
Surrey
$22,144,166
26.24
Industrial
November 2014
Port Coquitlam
$5,043,000
5.0
Industrial
October 2014
Burnaby
$9,200,000
4.05
Industrial
October 2014
1323 - 1333 Lonsdale Avenue
Morgan Place 16113 - 16197 20th Avenue Riverwood Business Park 8700 - 8900 Boundary Road Fremont Village Business Park, Lot 1 Nicola Avenue
Port Coquitlam
$5,287,192
2.83
Industrial
September 2014
Lot A, 23300 Block River Road
Maple Ridge
$6,400,000
10.0
Industrial
August 2014
Region
Price
Lot Size (Acres)
Lot Size (SF)
Density
Date
Jericho Lands 3800 West 4th Street
Vancouver
$237,000,000
52.21
2,274,311
Medium
October 2014
Heather Lands 4949 - 5255 Heather Street
Vancouver
$59,200,000
21.6
940,896
High
October 2014
2316 Beta Avenue 2311 Delta Avenue 4756 Lougheed Highway 4828 Lougheed Highway
Burnaby
$62,091,000
23.2
1,010,592
High
October 2014
Kingsley Estates 10440 - 10460 No. 2 Road
Richmond
$41,125,000
13
566,280
Medium
December 2014
Burke Mountain
Coquitlam
$35,000,000
284.82
12,406,759
Long Term*
October 2014
Address/Name
* No rezoning application as of yet but the OCP allows for compact, low density residential
Land remains the most sought-after commercial real estate investment in BC. Avison Young has initiated coverage of ICI land deals (with some exclusions) and the top five residential land sales in an effort to better inform our clients and reflect our full-service approach to all real estate asset classes, including land. The changing nature of growth in Metro Vancouver and the approval of various updates to official community plans (OCPs) throughout the region have led to numerous land deals that reflect future development plans. Source: RealNet and Avison Young
Partnership.Performance.
I 2
Buyer Profile Only one buyer type – private investors – had an impact in 2014. Private purchasers accounted for 87% of all transactions and 75% of total dollar volume, a new record in terms of a single buyer type capturing dollar volume and deal activity. In comparison, private purchasers accounted for 80% of transactions and just 54% of total dollar volume in 2013 – marking an 8% and 21% increase, respectively, in 12 months. Institutional purchases accounted for just 6% of all trades in 2014, but totalled 20% of dollar volume. Government, public companies, a REIT and a financial institution made up the remainder of buyers in 2014, which totalled just 6% of transactions and 5% of dollar volume.
2014: Number of Transactions by Type of Buyer 6%
3% 2%
1%
office ($204M), retail ($108M) and industrial ($70M) properties for a total of $382M, but remained largely sidelined in 2014 when compared with private interests. Private buyers’ dominance of transactional activity in 2014 is the result of several factors, including an overall lack of available institutional-grade assets and an expanding pool of sophisticated private investors who can compete with institutions. A rising inability for institutions to transact properties due to the low rate of return that most quality BC commercial real estate assets offer has further complicated institutional acquisition strategies.
vendors who captured 72% of dollar volume. This is a significant change compared with six months earlier when private sellers represented 73% of transactions and just 55% of dollar volume. Twelve months earlier, private vendors accounted for 84% of sales but captured just 50% of dollar volume.
2014: Number of Transactions by Type of Seller 4%
78%
2014: Value of Sales by Type of Seller 5%
2014: Value of Sales by Type of Buyer 2% 1% 20%
75%
Private Investors REIT Public Co. Financial Institutions
Institutional Government Non-Profit
Private buyers spent $1.46B in 2014 and acquired $646M worth of retail assets, while also spending $513M on office product and $303M on industrial properties. Institutions managed to secure select Partnership.Performance.
Tentative private sellers remained susceptible to the allure of premium pricing achieved for some class B and C assets in both primary and secondary markets, while holders of class AAA and A assets mostly rebuffed off-market offers for well-located assets that owners are simply unable to replace in BC’s current commercial real estate environment. Many institutional investors remain underweighted in the BC market and, therefore, were uninterested in selling assets even with peak pricing. Harvesting capital in the form of sale proceeds from the disposition of BC assets would leave many institutional investors in an unbalanced position and highly unlikely to secure suitable assets to replenish their portfolios and fulfil their allocations. Private owners have been increasingly benefiting from the pricing premium attached to BC commercial assets. In the second half of 2014, 82% of transactions involved private
0.5%
6%
Seller Profile 87%
1%
12%
Private purchasers invested more in all asset classes in the second half of 2014 than they did in the first half. Private buyers’ appetite to acquire commercial real estate assets in BC during the second half pushed dollar volume to $1.1B – only the fourth time since 2003 that the value of purchases in a six-month period exceeded $1B. (The other three times were in the second half of 2013 and the first halves of 2010 and 2012.)
Private vendors accounted for 65% ($1.27B) of the total proceeds in 2014. Institutional sellers banked $257M, while public companies realized $185M. REITs ($117M) and government ($105M) made up the majority of the balance.
3%
10%
13% 65%
Private Investors REIT Public Co. Financial Institutions
Institutional Government Non-Profit
Institutional sellers represented just 8% of vendors but captured 23% of dollar volume in the second half of 2014. There were no institutional vendors in the first half. Institutional owners accounted for just 8% of vendors in the second half of 2013, but captured 45% of dollar volume. This shift to a greater percentage of sale proceeds flowing to private owners and away from institutions is likely to continue. Industrial properties were the only asset type that included public companies as vendors in the second half. Public companies represented 24% of industrial sellers and this was likely due to owner/users seeking to capitalize on their real estate. I 3
Office Office investment sales activity in BC remained limited in 2014 with just 28 transactions, but the sector was able to achieve 39% of total annual dollar volume ($753M) thanks to three deals valued in excess of $80M: 1500 West Georgia Street ($120.5M) in Vancouver, Discovery Green ($80M) and a 50% interest in 3777 Kingsway ($86.9M), the latter two of which are located in Burnaby. These three deals represented approximately 38% of total office investment in 2014. For comparison, 22 office deals valued at $459M completed in 2013 – a marked decrease from the 31 office properties valued at $968M that transacted in 2012. Second-half 2014 activity slipped to 13 transactions (21% of deal volume) valued at $374M. Two properties – 1500 West Georgia and Discovery Green – accounted for 54% of office dollar volume in the half. Six properties located in the Vancouver Downtown core changed hands in the second half of 2014, a departure from the first half when just two (of 15 office transactions) represented the disposition of Downtown properties. The lack of available quality assets constrained market activity amid a growing pool of buyers in 2014. Owners of class AAA and A assets, particularly Downtown, remained extremely reluctant to sell even in the face of premium pricing, multiple bidders with few subject conditions, and compressed capitalization rates. The rising competition to acquire quality assets has led to a situation, particularly for well-located properties in the Downtown core, where the ascribed value of many office buildings is no longer based on fundamentals. The impact on rental rates in the face of more than 2 million square feet of new office space being delivered Downtown in the next 24 months remains in question. The arrival of significant amounts of new Downtown office space in 2015 – a symptom of the lack of available investmentgrade office product that led asset managers to become developers and build what they could not buy – may trigger additional sale transactions, particularly class B and C assets. Properties requiring capital improvements and facing heightened challenges to occupancy levels and rental rates in the midterm will also be more likely to transact. Partnership.Performance.
With little to no rental rate growth likely occurring within Downtown in the next three to five years, purchasers are buying assets at highly compressed cap rates that are expected to provide little growth and the likelihood that income may actually decline in the short- to midterm as opposed to remaining stabilized. However, these market conditions, along with stricter underwriting guidelines as major lenders grow increasingly leery of the values achieved, appear to have done little to quench the desire to acquire quality office product in Vancouver or its major suburban markets. The reason: the pricing being achieved is largely predicated on the underlying land value and the site’s redevelopment potential. Only true trophy class AAA assets – of which there are only a handful in Downtown Vancouver – would be priced based on their current intrinsic value but are highly unlikely to ever come to market. Off-market deals will remain an integral source of office transactional activity and likely the only way to pry loose quality assets from reluctant sellers. Highly compressed cap rates for quality office assets are pushing institutional buyers to the sidelines as the available deals do not offer the returns necessary for institutional investors to come to an agreement. This has opened the door to an expanding pool
The $120.5-million sale of 1500 West Georgia in Downtown Vancouver, which included a land component, was the largest office deal in 2014.
of private buyers, local and otherwise, who are to able to leverage inexpensive debt and are willing to accept lower returns for longer periods of time – and who ultimately seek to unlock additional value through redevelopment as opposed to income growth. REITs were almost entirely shut out of the BC market in 2014 for similar reasons as those that sidelined institutions, and were involved in just two deals as a vendor in all of 2014. This situation is not anticipated to change in 2015.
OFFICE PROPERTY
MUNICIPALITY
PRICE
VENDOR TYPE
BUYER TYPE
DATE
100 -130 East 1st Street
North Vancouver
$6,400,000
Private
Private
December 2014
Maynards Block Unit 200 - 429 West 2nd
Vancouver
$6,275,000
Private
Government
November 2014
1128 Homer Street
Vancouver
$26,400,000
Private
Private
September 2014
411 Dunsmuir Street
Vancouver
$34,276,917
Private
Private
September 2014
1033 Granville Street
Vancouver
$5,500,000
Private
Private
September 2014
Richmond Professional Building 7031 Westminster Highway
Richmond
$15,000,000
Private
Private
September 2014
1638 West 3rd Avenue
Vancouver
$5,750,000
Private
Private
September 2014
2121 160th Street
Surrey
$19,300,000
Private
Private
August 2014
Discovery Green 3383 Gilmore Way
Burnaby
$80,000,000
Institutional
Institutional
August 2014
1500 West Georgia
Vancouver
$120,500,000
Institutional
Private
August 2014
535 Granville Street
Vancouver
$10,500,000
Private
Private
July 2014
1281 West Georgia
Vancouver
$36,000,000
Private
Private
July 2014
4126 Norland Avenue
Burnaby
$7,925,000
Private
Private
July 2014
Total Deals/Investment
13
$373,826,917 I 4
Retail RETAIL PROPERTY
The $32.8-million sale of St. Edwards Crossing was one of three large retail transactions that occurred in Richmond in the back half of 2014.
Demand for BC retail assets remained strong with 24 transactions totalling $466M in the second half of 2014. This trend marked a reversal of fortunes when compared with the first half of 2014 when more retail transactions closed (28) but the total value was less ($310M). In total, more than $776M was spent acquiring 52 retail properties in 2014. By comparison, more than $1B was spent on 54 retail assets in all of 2013. The largest retail transactions of 2014 occurred outside Vancouver and included Richport Town Centre ($79.8M) in Richmond and Cherry Lane Mall ($74.9M) in Penticton. Other notable retail transactions in 2014 included St. Edwards Crossing ($32.8M) in Richmond, Ladner Centre ($35.25M) in Delta, Longwood Station ($33.1M) in Nanaimo, 3000 Sexsmith Drive ($29.6M) in Richmond and Plaza 4351 ($24.9M) in Richmond. The largest retail deal in Vancouver proper in 2014 ($26M) involved properties associated with auto dealerships on the city’s west side. A tight supply of retail product in Metro Vancouver and select secondary markets across the province has led many investors to look further afield in the hunt for quality product and higher capitalization rates. A good number of retail investors accepted higher risk in secondary markets in 2014 in exchange for product availability and (slightly) higher returns. This trend is expected to continue in 2015 as quality retail assets remain in short supply in Metro Vancouver and the availability of assets in secondary markets dwindles. The previous absence of institutional purchasers in most secondary markets had allowed private purchasers and REITs to cherry pick quality retail assets for years. This trend shifted in 2013 and 2014 as institutions Partnership.Performance.
Peachtree Square 2701 -2897 Skaha Lake Road, 251 Green Avenue West & 220 Brandon Avenue 10155 King George Boulevard 1617 Victoria Street 6456 Norcross Road Holland Block 350 - 360 Water Street & 416 West Cordova 2182 West 41st Street 1740 West 5th Avenue & 2040 Burrard Street Coopers Village Centre 9522 Main Street 13171 Smallwood Place Meridian Crossing 3387 David Street 506 Finlayson Street Plaza 4351 4351 No. 3 Road Ladner Harbour Centre 4857 Elliot Street Cherry Lane Mall 2111 Main Street Ladner Centre 5138 Ladner Trunk Road Timberline Village 801 Hilchey Road Richport Town Centre & Ackroyd Court 8111 - 8211 Ackroyd Court 1042 Alberni Street Mill Bay Shopping Centre 2720 Mill Bay Road St. Edwards Crossing 3100 St. Edwards Drive 7860 Wallace Drive Ambros Centre 19188 72nd Avenue Tyee Plaza 1287 Shoppers Row Old Orchard Shopping Centre 4429 Kingsway Street Total Deals/Investment
MUNICIPALITY
PRICE
VENDOR TYPE
BUYER TYPE
DATE
Penticton
$16,900,000
Private
REIT
December 2014
Surrey Prince George North Cowichan
$5,831,715 $6,500,000 $6,908,240
Private Private Private
Private Private Private
December 2014 October 2014 October 2014
Vancouver
$9,350,000
Private
Private
October 2014
Vancouver Vancouver
$5,332,100 $26,000,000
Private Private
Private Private
October 2014 October 2014
Lake Country
$13,400,000
Private
Private
October 2014
Richmond
$6,600,000
Private
Private
October 2014
Coquitlam
$11,947,000
Private
Private
October 2014
Victoria
$8,700,000
Private
Private
September 2014
Richmond
$24,980,000
Private
Private
September 2014
Delta
$19,750,000
Private
Private
September 2014
Penticton
$74,900,000
Private
Institutional
September 2014
Delta
$35,250,000
Private
Private
September 2014
Campbell River
$10,300,000
Private
Private
August 2014
Richmond
$78,400,000
Private
Private
August 2014
Vancouver
$15,000,000
Private
Private
August 2014
Duncan
$19,078,781
Private
Private
August 2014
Richmond
$32,800,000
Institutional
Private
August 2014
Saanich
$5,937,500
Private
Private
July 2014
Surrey
$7,360,000
Private
Private
July 2014
Campbell River
$11,700,000
Private
Private
July 2014
Burnaby
$13,594,100
Private
Private
July 2014
24
$466,519,436
increasingly acquired regionally dominant retail assets in secondary markets due to the difficulty in obtaining properties in BC’s primary retail markets. The retail assets that institutions did acquire typically offered greater yields than found in Metro Vancouver. REITs are likely to prune their portfolios of non-core retail assets acquired in secondary markets as the investment vehicles continue to deleverage and focus on redeveloping, repositioning and renovating core assets in primary markets to strengthen income streams.
Pricing in secondary markets for retail assets has peaked, and prudent investors will remain even more cautious acquiring such assets with the understanding that rates will have to rise from near record-low levels and could expose those purchasers who paid too much for questionable assets. Demand remains very strong in Metro Vancouver (and select secondary markets) and superior retail properties could still see some upward pressure on pricing if the asset is food- or drug-anchored and potential for upside in rental growth exists. I 5
Industrial Industrial investment activity stabilized in 2014 with 38 transactions contributing $419M, due to a second-half surge in terms of both number of deals completed and dollar volume. While deal velocity on an annual basis remained on pace with previous years, dollar volume was down significantly as only three deals exceeded $20M: South Burnaby Corporate Centre ($47.6M), 27475 58th Crescent in Langley ($22M) and 9291 & 9311 River Drive in Richmond ($20.4M) For comparison, there were 43 industrial transactions valued at approximately $663M in 2013, and 38 industrial deals valued at $548M in 2012, marking a 37% and 24% decrease in annual dollar volume, respectively. Industrial investment in the second half of 2014 surged significantly compared with the first half of the year with 25 transactions totalling $256M in contrast to 13 trades valued at $163M in the first half. The vast majority of transactions in the second half were for less than $15M with the average deal valued at approximately $10M. Industrial buyer and vendor types were the most diverse of any of the asset classes included in this report. While the majority of purchasers were private (80%), government (8%), public companies (8%) and institutional (4%) buyers also completed industrial acquisitions in 2014. This is in stark contrast to the percentage of private buyers of retail (95%) and, to a lesser extent, office (82%) assets in 2014. The composition of vendor types was also varied, with public companies (24%) and institutions (8%) joining private sellers (68%) in the disposition of industrial assets. While private vendors dominated as both buyers and sellers of industrial real estate, many were also owner/occupiers. Many sellers took advantage of premium pricing by exiting premises that may no longer have been suitable in order to relocate and/or expand or to recapture the equity contained in their real estate holdings. Private purchasers continue to take advantage of low interest rates and the wide spread between yield and Partnership.Performance.
the cost of debt. That spread continues to be healthy for an investor using leverage despite compressed cap rates and further encourages private buyers. Because institutional investors and public companies are not typically prepared to assume as much debt as a private buyer, that spread (or margin) and how it impacts the actual yield on equity is multiplied in favour of the private buyer. The absence of significant institutional transactions in 2014 – due to the strong reluctance of owners of quality industrial assets to sell and a constrained supply of new product – were responsible for the significant decline in annual dollar volume. However, with the Canadian interest rate declining in early 2015, there will be some encouragement of investors to sell into this market as
The renovation and repositioning of 888 S.E. Marine Drive will result in more than 166,000 sf of industrial space.
lenders hit a ‘floor’ and decline to lend below a predetermined figure no matter the government bond rate. This should produce an easing of further cap rate compression, which in turn should signal to vendors that a peak in value has been achieved and may trigger the potential disposition of additional industrial real estate assets in 2015.
INDUSTRIAL PROPERTY
MUNICIPALITY
PRICE
VENDOR TYPE
BUYER TYPE
DATE December 2014
6700 Southridge Drive
Burnaby
$13,900,000
Private
Government
19609 96th Avenue
Langley
$7,025,000
Public Co.
Private
December 2014
34494 McClary Street
Abbotsford
$14,100,000
Institutional
Private
December 2014
27475 58 Crescent
Langley
$22,000,000
Private
Institutional
December 2014
6000 Lougheed Highway
Burnaby
$11,000,000
Public Co.
Private
December 2014
6600 Fraserwood Place
Richmond
$5,035,000
Private
Private
December 2014
3127 - 3157 Grandview Highway
Vancouver
$14,000,000
Private
Private
December 2014
61-63 Glacier Street
Coquitlam
$8,000,000
Private
Private
December 2014
1132-1172 West 14th Street
North Vancouver
$5,650,000
Private
Private
November 2014
238, 266, 350 & 366 East Esplanade Road Cove Warehouse Portfolio
North Vancouver
$13,910,000
Private
Private
November 2014
Burnaby
$5,350,000
Private
Private
November 2014
Vancouver
$17,500,000
Private
Private
October 2014
Surrey
$6,500,000
Private
Private
October 2014
4455 No. 6 Road
Richmond
$9,300,000
Institutional
Public Co.
October 2014
5628 Riverbend Drive (Unit 1) 888 S.E. Marine Drive 12511 & 12531 82nd Avenue 9291 & 9311 River Drive
Richmond
$20,400,000
Private
Private
October 2014
808 & 836 Viewfeld Road
Esquimalt
$17,000,000
Private
Government
September 2014
7298 Highway 97 North
Fort St. John
$7,000,000
Public Co.
Private
September 2014
3851 22nd Avenue
Prince George
$6,120,000
Public Co.
Public Co.
September 2014
45018 Yale Road
Chilliwack
$5,300,000
Private
Private
September 2014
7039 - 7069 Winston Street
Burnaby
$7,125,000
Private
Private
August 2014
4114 Crozier Road
Armstrong
$7,750,000
Private
Private
August 2014
4460 Jacombs Road
Richmond
$8,100,000
Public Co.
Private
August 2014
2480 Viking Way
Richmond
$6,313,622
Public Co.
Private
August 2014
8665 Barnard Street
Vancouver
$7,800,000
Private
Private
August 2014
Delta
$9,750,000
Private
Private
July 2014
25
$255,928,622
1500 - 1520 Derwent Way Total Deals/Investment
I 6
Multi-Family Multi-family investment activity started strongly in 2014, but faded significantly in the back half of the year. After recording 23 deals valued at $396M in the first six months of 2014, investment dropped to 20 transactions totalling $186M. In total, 43 multi-family transactions valued at $582M occurred in the province in 2014. Avison Young only tracks multi-family investment transactions trading at more than $5M. There were no significant multi-family acquisitions in BC in the second half of 2014. The largest deal in the second half was the $18.25-million acquisition of Fraserview Court in Surrey. Only five deals exceeded $10M in the back half of 2014. All multi-family transactions in the second half of 2014 involved private vendors and purchasers, which highlighted the extremely tight supply of significant multifamily assets in terms of both price and size. The total absence of REITs and institutions in the second half was not due to lack of demand (which remains extremely strong), but rather a lack of available quality assets. The absence of these types of buyers did not affect pricing, which remained at or near peak, and cap rates continued to compress as private buyers were able to take advantage of the low-interest rate environment to finance the acquisition of properties while still maintaining a cash positive or neutral position. As with the other asset types covered in this report, underlying land value and redevelopment potential have emerged as a significant factor in determining asset price. Upwards of a dozen multi-family assets, located primarily in Vancouver’s Kerrisdale neighbourhood and the area surrounding Burnaby’s Metrotown mixeduse complex, were acquired in the second half of 2014 with the express purpose of redevelopment – and the pricing reflected that higher and better use. These future development sites were not included in the list of multi-family transactions and were instead classified as land deals. With rental accommodation vacancy at 1% in Metro Vancouver, according to Canada Mortgage and Housing Corp., the need for rental units remains high. While the development process for new rental Partnership.Performance.
buildings remains a slow and arduous process at the City of Vancouver despite a stated intention otherwise, the City of Burnaby has approached the issue very differently by amending its official community plan for the Metrotown area and permitting the unimpeded demolition of existing rental apartment buildings. All of the Burnaby development site transactions in 2014 were considered land deals and, subsequently, were not reflected in our multi-family statistics. Off-market deals will remain key to sales activity in 2015 and transaction volume is expected to remain on par with what was recorded in the second half of 2014. Dollar volume should rise in 2015 as reluctant vendors remain under pressure
Three North Vancouver apartments –Sussex Lodge, Hillside Manor (above) & Lynn Park Manor – were sold in 2014 as a portfolio for $13.5 million.
to capture peak pricing for their assets, and unrelenting demand from local and international buyers compresses cap rates to an almost negligible yield. Significant rental property portfolios will increasingly be built in the next three years by those developers building new rental stock as opposed to investors acquiring scale by purchasing older buildings.
MULTI-FAMILY (Greater than $5M) PROPERTY Montego Apartments 319 Knox Street Simco Manor 1275 Comox 1081 Martin Street The Lex 1249 Granville Street The 950 Apartments 950 Jervis Street The Garth Apartments 1133 Barclay Street El Toro Apartments 310 East 2nd Avenue Second Vista Apartment 2086 West 2nd Avenue 321 East 2nd Avenue Rosewood Manor 2345 Dundas Street 15915 84th Avenue Sussex Lodge, Hillside Manor & Lynn Park Manor Fraserview Court 10138 Whalley Boulevard 1530-1600 Albatross Avenue 425 6th Street Hoffman Manor 1168 Pendrell Street Quadra Villages 2835 Quadra Street Maple Manor Apartments 20117 56th Avenue Citadel Apartments 163 West 5th Street Winston House 1137 Bute Street Total Deals/Investment
MUNICIPALITY
PRICE
New Westminster
$6,000,000
$142,857
Private
Private
December 2014
Vancouver
$6,200,000
$258,333
Private
Private
December 2014
New Westminster
$5,380,000
$206,923
Private
Private
December 2014
Vancouver
$15,150,000
$313,111
Private
Private
November 2014
Vancouver
$14,083,000
$343,487
Private
Private
November 2014
Vancouver
$9,225,000
$297,581
Private
Private
November 2014
North Vancouver
$9,900,000
$206,250
Private
Private
November 2014
Vancouver
$9,200,000
$317,241
Private
Private
November 2014
North Vancouver
$7,926,000
$220,166
Private
Private
November 2014
Vancouver
$8,120,000
$172,766
Private
Private
November 2014
Surrey
$6,200,000
$187,879
Private
Private
October 2014
North Vancouver
$13,500,000
$300,000
Private
Private
October 2014
Surrey
$18,250,000
$118,506
Private
Private
October 2014
Kitimat West Vancouver
$5,200,000 $8,925,000
$65,000 $557,813
Private Private
Private Private
October 2014 August 2014
Vancouver
$5,890,000
$256,086
Private
Private
August 2014
Victoria
$11,000,000
$171,875
Private
Private
July 2014
Langley
$8,732,000
$99,227
Private
Private
July 2014
North Vancouver
$8,900,000
$211,904
Private
Private
July 2014
Vancouver
$8,100,000
$245,454
Private
Private
July 2014
20
PRICE PER UNIT VENDOR TYPE BUYER TYPE
DATE
$185,881,000 I 7
continued from cover page...
assets as private buyers leveraged low-cost debt and were prepared to accept lower returns when it came to acquisitions. While a general lack of available investment-grade assets further narrowed the purchase opportunities for institutions (more than half of institutional acquisitions were for properties that were located in secondary markets), private buyers more frequently secured properties with redevelopment potential and/or additional land. Private investors were increasingly involved in landmark deals in 2014 as was highlighted by the acquisitions of 1500 West Georgia ($120.5M), Richport Town Centre ($78.4M), Ladner Centre ($35.2M), St. Edwards Crossing ($32.8M), the Anvil Centre office tower ($36.5M), 411 Dunsmuir Street ($34.27M) and 1281 West Georgia ($36M). Underlying land value is increasingly driving the pricing for almost every class of commercial real estate asset in Metro Vancouver (aside from fully improved Downtown office buildings and very select retail and industrial properties). As a result, in the eyes of many purchasers, this situation has converted a majority of what would have been considered income-property transactions into land deals. As supply has tightened and inexpensive debt continues to flush through the market after five years of record low interest rates (which boosted pricing and compressed cap rates), the need to identify redevelopment opportunities or unlock additional value is paramount to making the pro forma pencil out and secure a deal from highly reluctant sellers. While Metro Vancouver is still a seller’s market, many potential vendors remain averse to the disposition of quality assets as in many cases they would be irreplaceable in the BC market. Institutions, which are the owners of most investment-grade assets in the province, are even more reluctant to sell as they often have obligations to diversify their portfolio holdings across Canada and have allocations earmarked for each region. Selling assets, even at a significant profit, can further complicate the situation if owners are unable to acquire new assets or deploy their capital allocations. This is one factor driving some institutional buyers to acquire assets in secondary markets, particularly retail properties. Even owners of assets that sold in secondary markets were likely not keen to sell, but peak pricing and strong demand from purchasers not typical to secondary markets ultimately changed owners’ minds. Competition for assets in Metro Vancouver and beyond is expected to increase in 2015 as Canadian investors reconsider U.S. real estate investments, as a weakened Canadian dollar works to offset the lower pricing associated with an increasingly tight supply of available quality assets in U.S. markets. An improving American economy has made the cap rates and pricing commonplace in recent years in many U.S. markets much more difficult to secure. While U.S. investors are also more likely to explore opportunities in BC, it is the return of local investors leveraging low-cost debt that could expand the already crowded pool of buyers which, in recent years, has come to include more increasingly sophisticated Asian investors, particularly from Mainland China. Many institutions, particularly those with large stock portfolios that may have been beaten down due to the sharp decline in oil prices in early 2015 and the resultant impact on the Canadian economy, will also be in the hunt to acquire prime assets. Commercial real estate demand in Metro Vancouver and the province is still being largely driven by those seeking improved yields and tangible assets in comparison to the volatile and reduced returns offered in the stock and bond markets. Many international investors, in particular, are seeking hard assets as an insurance policy in order to place a significant amount of capital, while others are pursuing the stronger yields that real estate offers compared with other investment classes.
For more information please contact: Michael Keenan, Principal & Managing Director Direct Line: 604.647.5081
[email protected] Andrew Petrozzi, Vice-President, Research (BC) Direct Line: 604.646.8392
[email protected] Sherry Quan, Principal & National Director of Communications & Media Relations Direct Line: 604.647.5098
[email protected]
Investment Team Bal Atwal*, Principal
[email protected] Michael Buchan, Senior Associate
[email protected] Michael Emmott, Senior Associate
[email protected] Michael Gill, Principal
[email protected] Robert Greer*, Principal
[email protected] Robert Gritten, Principal
[email protected] Robert Levine, Principal
[email protected] Douglas McMurray, Principal
[email protected] Amanda Payne, Senior Analyst
[email protected] Jacqueline Robinson, Research Coordinator
[email protected] Struan Saddler*, Vice-President
[email protected] Evelyn Tian, Client Services Coordinator
[email protected] Chris Wieser, Vice-President
[email protected] * Personal Real Estate Corporation
Avison Young Commercial Real Estate (B.C.) Inc. #2100-1055 W. Georgia Street Box 11109 Royal Centre Vancouver, BC V6E 3P3, Canada
avisonyoung.com © 2015 Avison Young (Canada) Inc. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C,) Inc.
