Canadian commercial market in North Shore upbeat

Commercial real estate in Vancouver’s North Shore commercial is shaping up to be one of the hottest property investment plays of 2011, it is claimed in a new report.

The low cost of debt and a tight supply of quality inventory combined with the region's affluence, proximity to downtown Vancouver, and geographical land constraints have made the North Shore commercial real estate classes attractive to public and private investors and developers alike, according to Avison Young’s Spring 2011 Commercial Real Estate Market Report.

‘After almost two years of challenges in our market we are pleased to see evidence of the turn around. Both investor and business confidence is on the rise, leasing activity has started to increase, and deal velocity is up,’ said Terry Thies, principal at Avison Young.

Thies said that he expects lease rates to stabilize through 2011 and property values to remain strong. ‘New developments on the North Shore combined with current vacancies will provide businesses with excellent leasing options and strata purchasing options,’ he added.
 
Retail property investment recorded a 460% increase between 2009 and 2010, climbing from $17 million in 2009 to $93 million in 2010, according to RealNet Canada. About half of that is derived from the $47 million purchase price paid for 845 Marine Drive in North Vancouver. Overall retail deal volume climbed to 23 transactions in 2010 from 16 the year previous.
 
The report suggests that strata projects remain a hot commodity on the North Shore where a constrained inventory of new office product keeps local business owners aware of the benefit of making mortgage rather than lease payments. In 2010, dollar and deal volumes for office investment on the North Shore ($26 million/16 transactions) remained consistent with 2009 levels ($29 million/15 transactions).
 
‘We are experiencing a significant increase in activity. The office market, which was slow for the past year, has picked up considerably. Sublease product that was sitting on the market is starting to move,’ said Matt Thomas, an Avison Young associate specializing in North Shore commercial real estate sales and leasing.
 
North Shore industrial lease rates remain among the highest in Metro Vancouver, ranging between $9 and $14 net per square foot, and certain developers are acquiring older industrial buildings to stratify and sell off, or to redevelop. Industrial lease rates are expected to remain steady although more owner-users are likely to consider purchasing their property as prices stabilize and public and private investors gain a better understanding of the market fundamentals post downturn.
 
‘The outlook for leasing on the North Shore is positive, with activity increasing across all property segments. While the past 16 to 18 months have been slow, during the first quarter of this year we saw leasing activity start to pick up and expect it to continue improving through the balance of 2011,’ explained Avison Young associate Ian Whitchelo.

Overall, cap rates for North Shore commercial real estate will trend between 4% and 6.5% in 2011, the report suggested. Quality products without development potential or below market rents are achieving between 5.5% and 6%. Those properties achieving cap rates 4% or lower are likely in areas where redevelopment is envisioned by North Shore municipalities.
 
‘Developers from all over Metro Vancouver want to be on the North Shore and they are willing to pay the required premium to be there,’ added Thomas.