Garry Marr
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Valuations are getting so high in Vancouver’s commercial market it is starting to affect deal flow, says a new report.
RealNet Canada Inc. says capitalization rates – the implied rate of return on a property – in British Columbia have gone so low that a 13% decline in sales in the first quarter can be attributed to the drop. The lower the cap rate, the more a property is worth.
“Transaction volumes experienced declines as the general market adjusts to changing value expectations in a record low cap rate environment,” said Paul Richter, director of research with RealNet, in the report. “Investment activity experienced a decline, however, demand for quality assets and development sites remains high.”
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RealNet said there was 217 transactions of more than $1-million in the Vancouver market in the first quarter which amounted to $1.06-billion in activity. That was sharply down from the more than $1.2-billion in activity in the fourth quarter of 2012 but still 10% above the long-term quarterly average.
The only asset classes showing improved activity were office and hotel. Office sales volumes were up 114% from the previous quarter. Land investment dropped 11% from the fourth quarter.
The big deal in the first quarter was British Columbia Investment Management Corp.’s purchase of 349 West Georgia Street, an entire downtown Vancouver block taking up 2,984 acres of land. The property was purchased from Canada Post for $166-million.
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