Market Commentary
The Global Economy: Fourth Quarter 2011
June 11, 2012 | Posted by: Francine Tracey
Canadian Market Overview
Canada was considered to have one of the best investment climates in 2011, particularly in the commercial property market. Investment activity was strong, with uncertainty in other markets undoubtedly making Canadian commercial property look attractive in comparison.
The commercial property market as a whole remained solid across all asset types in 2011, supported by employment growth and a healthy domestic economy. 2012 is projected to be another relatively stable year for Canada, with muted growth in GDP across all provinces and a similar pullback in employment growth. All forecasts, however, are currently subject to the strength of the emerging nations’ economies, as well as the European debt crisis which could push the global economy into recession once again.
Vancouver Retail Real Estate Report 2011 Q4
Despite a sluggish global economy, Metro Vancouver has been relatively insulated from the havoc experienced by other major metropolitan regions around the world. Consumer retail sales in British Columbia were not as strong as other provinces in Canada in 2011; however, Metro Vancouver experienced a slight increase in leasing activity in the last half of the year pointing towards stronger consumer confidence in retail spending. The investment market for retail properties continues to generate demand from private capital, REITs and institutions for well-anchored centres with strong tenant mixes. One of the most notable trends has been the increasing popularity of retail strata properties on the part of developers, investors and small business owners.
Leasing Market
Trends: The market has shown swings if improvement, with positive momentum continuing into 2012. The majority of deal velocity transpired in Vancouver and Surrey, with flashes of activity in growth markets such as Richmond, Burnaby, Coquitlam and North Vancouver. Without question, space that is priced competitively is generating the most demand in the current market.
Forecasts
As the rest of the world works through various economic uncertainties, Metro Vancouver’s improving consumer retail sales and unique real estate market are two major economic factors which should help insulate landlords and tenants from the current global turmoil. According to a recent report by Statistics Canada, Metro Vancouver posted a 3.9 per cent increase in retail sales from September 2010 to September 2011.
Investment Market
Trends: Transactional sales volume and deal velocity picked up steam since the summer with a number of retail properties trading hands over the last six months. In addition, there has been an increasing trend of local private investors purchasing retail strata properties in new mixed-use developments across the Metro Vancouver region.
Forecasts
Metro Vancouver’s softer rents, in comparison to the past decade, are attracting tenant interest and deal velocity should
continue to strengthen over the next year. Low-interest rates coupled with an abundance of investors seeking retail product in Metro Vancouver should cause cap rates to continue to compress. Strata properties will likely continue to be popular amongst investors as local developers move towards this trend in their mixed-use projects.
Vancouver Industrial Real Estate Report 2011 Q4
The Metro Vancouver industrial market finished the year off stronger than anticipated and glancing back at the past eight quarters it is apparent that vacancy rates continue to approach pre-recession levels. The overall vacancy for Metro Vancouver decreased to 3.6 per cent this quarter, from 4.1 per cent in the third quarter, as a result of 930,561
square feet of positive net absorption. The challenge facing investors continues to be the absence of available product, as the demand for quality investments is becoming increasingly competitive.
Vancouver Office Real Estate Report 2011 Q4
The Metro Vancouver office market remained very stable throughout 2011. Each quarter posted positive net absorption, totalling an impressive 476,986 square feet for the entire year. This is particularly noteworthy as it is the largest amount of net absorption since 2007, indicating that the Metro Vancouver office market is steadily on its way to regaining pre-recession numbers. The vacancy rate changed minimally throughout 2011, fluctuating between
7.2 per cent and 7.5 per cent. Based on vacancy fluctuation alone, 2011 has been the most stable year for the Metro Vancouver office market in over a decade. Net absorption for the fourth quarter of 2011 totalled 74,446 square feet; however, even with positive net absorption, the vacancy rate increased slightly to 7.4 per cent. This was due to
184,085 square feet of new supply being added to the inventory, with tenants absorbing only 120,000 square feet of it.
Downtown:
The Downtown Vancouver office market is anticipated to remain stable throughout the first half of 2012. With the vacancy at 3.5 per cent, the market is considered to be full and the majority of spaces still available and vacant are less desirable spaces that receive little interest. This being said, the vacancy will likely decrease minimally, if at all, throughout the next six months.
Suburbs:
The Suburban investment market was once again dominated by strata office sales, with the majority of transactions taking place in Burnaby. The suburban vacancy is predicted to decline slowly over the next six months due to stable activity and the lingering interest of Downtown tenants. Although very few tenants have actually committed to moving from Downtown to the Suburbs, an increased movement is still a possibility if Downtown vacancy continues to tighten in 2012 and 2013.