Commercial real estate investment properties in Canada exceed volumes for 2009

Over US$12 billion in commercial real estate assets had changed hands by the end of the third quarter of 2010, up 57% compared with the same nine month period in 2009.
 
Figures from Avison Young, whose quarterly Investment Market Monitor tracks office, industrial, retail, land, and multi residential property sales transactions greater than US$1 million, also shows that Toronto is the most active market and Vancouver is the most expensive.
 
Retail property is the most sought after by investors in the commercial real estate market and the report predicts that overall investment volume will top US$ 16 billion by the end of this year.
 
According to the study, retail was not only the most actively traded asset class in Canada in the first nine months of 2010, but it also posted the greatest improvement over the same period in 2009. US$3.8 billion worth of retail properties changed hands, some 31% of the overall investment dollar volume.
 
Office volumes reached USD2.3 billion, up 35% with a 19% share of investment, land was US$2.1 billion, up 7% and accounting for 18% of volume, industrial was US$2 billion, up 31% and with a 17% share of volume while the multi-residential sector was US$1.8 billion with a 15% market share.
 
‘Compared to last year, the results to date are a welcome sign that the commercial real estate investment market is gaining traction in Canada,’ said Bill Argeropoulos, vice president and director of research (Canada) for Avison Young, the largest independent real estate services company in the country.
 
‘This upswing is attributed to a number of factors, including stable and improving market fundamentals, historically low borrowing costs, high availability of debt, a narrowing bid-ask gap and the emergence of Reits as active buyers,’ he explained.
 
The report also shows that, on a year on year basis, the national average cap rate for major property types has declined 50 basis points (bps) to 6.75% at the end of the third quarter of 2010, but is still approximately 80 bps above where it was when the market peaked in the summer and autumn of 2007.
 
Overall, cap rates range from an average low of 5.97% for multi-residential properties to a high of 7.47% for multi-tenant industrial buildings. While multi-residential properties are viewed as the most expensive asset among investors, Vancouver is the highest priced market in Canada with an overall average cap rate of 6.12%, which is poised to fall further.
 
‘Given the increased bids for assets lately, coupled with historically low interest rates, ample liquidity and, more importantly, a steady flow of product to the market, we can expect further cap rate compression,’ said Robin White, Avison Young’s executive vice president, Capital Markets Group.