As the year closes, it’s time to look back on the biggest commercial real estate deals in Metro Vancouver. There were a couple of sizeable sales in an otherwise ultra slow commercial property market, particularly for the multi-family residential sector.
At no. 1 on the region’s list is an industrial acquisition by Toronto’s Crestpoint Real Estate Investments. The company acquired the Surrey based for $178M, a newly built 428,000 sq. ft warehouse distribution property sold by a numbered company private investor. It was the 16th largest sale in Canada.
“You have to understand it’s a slow market... you remember during the heady days there were a number of investors lined up to bid on certain buildings. For the core assets, the best assets, you are getting interest, but you don’t have that huge availability of capital. Investors are a little bit more careful on their spend, to make sure that the properties fit within their objectives and their portfolio strategy, right.
“So, when you look at that transaction, even though it’s at no. 16 [in the country], it’s still not bad given this market, because we are seeing a little bit less activity in all the markets across Canada.”
Aerial view of Coastal Heights Distribution CentreVia Crestpoint
Avison Young brokered the share sale of the Surrey development at 2325 190th Street, which, according to Wong, works out to $416 per square foot.
The big deals happened in Ontario. Topping the list for all of Canada was Allied Properties portfolio sale of its three data centres in Toronto, at $1.35B, in early summer. And just a week ago, American private equity firm TPG Inc. purchased a 75% ownership of Oxford Properties Group’s two industrial parks in Ontario, a deal valued at around $990M, says Wong. Oxford represents the pension plan for Ontario municipal employees.
At No. 2 on the Metro Vancouver list according to Altus is the sale of eight-acre townhouse and duplex site 1145 Inlet St., Coquitlam, which went for $111,196,000, purchased by Ledingham McAllister from vendor Rivers Inlet Enterprises. The redevelopment plan is for a nine building, multi-phase project including 135 secured purpose-built market rental units and 978 condo units.
The industrial sector held its own during an overall slow year that saw serious declines in dollar volume transactions.
“Similar to the rest of Canada, overall investor action is down in Vancouver about 55% compared to a year ago, and that’s because of high interest rates,” says Wong. “The challenge with borrowing is that lenders are a little more selective on what they are prepared to lend on, and there is that bid/ask gap between vendor and purchaser expectations as to what the price will be. That’s right across the board, so you are seeing investment transactions down,” said Wong.
“But on the industrial side, it’s only down by about $27M compared to the overall market – so transactions did fall as well, but not to the same extent as the total market.”
And because Metro Vancouver’s industrial vacancy rate is still low, there’s pressure on prices.
“Even though the industrial availability rate has gone up a bit in Vancouver, it’s still under 3%, it’s still tight, there is still strong demand from an investor standpoint, and when you look at the cap rates, cap rates for industrial and apartments are within the same range,” says Wong. “So, they are still in demand from investors, but deal activity is a bit off because of the economy and where the interest rates are.”
Altus released its third quarter market update report last week, and it highlighted aspects of the bleak picture, with $5.8B in dollar volume transactions in the Vancouver region, which marked that 55% decline, year over year.
Higher interest rates and inflation are the obvious culprits behind the slowdown.
20551 Langley Bypass, the No. 7 deal for Metro Vancouver in 2023via Altus
Vancouver’s residential land market saw a drop of 70% in dollar volume, coming in at $1.3B. The region saw apartment sales worth $524M, or a 57% drop year-over-year, largely due to higher interest rates, high construction costs, and a labour shortage. The retail sector, which suffered during the pandemic, dropped 67% in dollar volume as investors sought out safer investments such as industrial properties.
And the office sector dropped 36% in sales year-over-year. According to Altus, Vancouver has the lowest office availability rate of all the urban centres in the country.
The industrial sector fared better, and only saw a drop of 23%. Industrial has long been a tight market with little availability in the last several years, but that rose to 2.9% in 2023 (the highest since Q3 2020). Altus also cited a new 66,000 sq. ft industrial building without any pre-leasing activity as a factor in the increased availability.
The surprising thing is that foreign buyers drove the top transactions, says Wong.
“Here’s the cool thing: when you look at the top transactions in Canada, there is that [foreign] interest. The buyer of the three data centres is foreign, as well as the Oxford TPG industrial portfolio – that’s also foreign activity.
“Just less than 50% of the top 30 [deals] are foreign buys, based on dollar volume, not transactions, so I think there is still a fair amount of confidence in the Canadian market.
“You can see it with regards to the involvement of the foreign players in the marketplace. So, Canada remains attractive for foreign investors, based on stability, based on our population growth and demographics, and so forth. For foreigners, Canada is still on the radar, especially Toronto, Vancouver, Montreal.”
As for predicting what the next year will bring, Wong expects to see a slow momentum as optimism and confidence grow. But it will take time.
“In the first half of the year it will still be slow, but there is some increased activity in the way companies are trying to figure out how to balance their objectives… so there will be a lot more inquiries. But I don’t see deal activity happening until the second half of the year.
“So I think people are thinking that there will be no more increases in interest rates, that, if anything, we will see some cuts by the second or third quarter of next year.”
Top 10 commercial real estate deals in Metro Vancouver in 2023
- Coastal Heights Distribution Centre, Surrey, $178M
- 1145 Inlet Street, Coquitlam, $111.2M
- 5502 Lougheed Highway, Burnaby, $94M
- 1527 Main Street, Vancouver, $80M
- 718 Drake Street, Vancouver, $70M
- 380 Riverside Road, Abbotsford, $65M
- Benchmark Commercial Centre, Langley, $63.5M
- Robson Professional Building, Vancouver, $62.8M
- 590 & 598 Ebury Place, Delta, $62.75M
- Parque on Park, Langley, $53.7M