British Columbia’s commercial property investment cooled in 2019 after a couple of record-breaking years and local industry insiders expect 2020 to see a continuation of that trend.
Overall investments in industrial, office, multifamily and retail assets in the region fell sharply compared to the previous two years, though the totals won’t be known for several more weeks. While 2019 activity was more in line with historical norms in B.C. and Metro Vancouver, it was significantly lower than in 2017 and 2018, which were exceptional years.
“The magnitude of the slowdown was very surprising. Various policy initiatives by three levels of government didn’t help … investor confidence. I think that’s what we saw in 2019.”
In 2017, British Columbia saw a record $7.5 billion worth of transactions across office, industrial and retail sectors according to Avison Young‘s annual figures. In 2018, commercial property deals amounted to $6.47 billion, the second-highest total on record and still well above the annual figures from 2009 through 2016.
2019 an “absolute correction”
However, Dubuque predicted the 2019 downturn will not be merely a blip.
“I think it was an absolute correction and it was a response to a number of things like record pricing, lack of investor confidence, (lengthy) entitlement periods and new regulations. It was a number of things that piled up.”
Bob Levine, a principal with Avison Young in Vancouver, agreed. He said buyer demand remains steady, but there are fewer sellers.
“The volumes are down because the number of sellers is down,” he told RENX.
“Where there was softness in the market was in acquisitions of mixed-use or multifamily lands for development. That slowed down a lot.”
Government policies and demand-focused taxes took the steam out of the multifamily market.
“Foreign buyers were taken out of the market, investor buyers are somewhat taken out of the market and prices just softened, going down on pre-sale condos,” Levine said.
Meanwhile, many of the leading local developers have large existing land holdings. They’re just sitting on them while they struggle to determine the economics of large projects, he said.
British Columbia’s top transactions of 2019
The largest deal by far was the June acquisition of the Bentall Centre office complex by U.S. buyers Hudson Pacific Properties with Blackstone Partners for an estimated $1.05 billion, according to lists provided to RENX by Colliers and Avison Young.
Second on both lists was the sale of 1075 West Georgia Street, a 26-storey office tower that traded for $275 million. Rounding out the top three was the Airport Executive Park, a sprawling low-rise office complex in Richmond, which sold in July for $208 million.
Levine said the Bentall complex deal stood out as a major foray into local assets by U.S. money. “It’s not often that you see significant U.S. investment into Canada and that deal is huge in that respect.”
He predicted we will see more large U.S. investments coming into Canada, driven mostly by the low Canadian dollar.
“You can buy 35 per cent more properties than if the dollars were at par,” he said.
Looking ahead to 2020
“I’d say we’re probably heading back to a more normal market where 2017 and 2018 might have been the anomalies,” Levine said. “There is still very strong demand within North America to buy commercial properties. The fundamentals of industrial and office from a rent point of view continue to be crazy.”
Dubuque agreed. He said the fourth-quarter figures for 2019 will likely be strong and that appetite should carry into the new year.
It seems the largest institutional investors had adjusted to the slower market by June, he said. It took smaller, private investors a bit more time to measure the market and to accept the new reality.
Dubuque said many large Toronto-based investors are now starting to ask about Vancouver. “It’s been a number of years since anybody in Toronto asked me about Vancouver.”
He said 2020 should see overall investment make a modest recovery, “but we’re not going to return to 2018 levels in 12 months.”
B.C.’s Top-10 CRE deals in 2019.
1) Bentall Centre, Vancouver. A massive downtown office complex sold in June for an estimated $1 billion. China’s Anbang Insurance Group had owned the four-building, 1.45-million-square-foot complex since 2016.
2) 1075 West Georgia Street, Vancouver. The office tower sold at the end of March for $275 million. The iconic concrete tower was initially designed for former forestry giant MacMillan Bloedel in 1968.
3) Airport Executive Park, Richmond. The sprawling low-rise suburban office park sold in January for $208 million to Fiera Real Estate.
4) Tillicum Centre, Victoria. Also sold in January, the shopping centre in the capital region changed hands for a reported $110 million. It was one of four major retail assets sold in 2019 that made the Top 10.
5) Metrotown Place I & III, Burnaby. Located in the heart of Burnaby’s Metrotown area, the pair of office towers sold in March for $95 million.
6) Renfrew Business Centre, Vancouver. The office complex on the eastern side of the city sold in April for $73.5 million.
7) Cottonwood Mall, Chilliwack. The shopping centre located just off the Trans-Canada Highway in the Fraser Valley city traded in February for $73 million.
8) FAMA Business Park, Surrey. The only industrial property on Avison Young’s Top-10 list, the park sold for $66.1 million in September.
9) Port Place Shopping Centre, Nanaimo. Another retail location, the 685 Terminal Ave. mall in Vancouver Island’s second-largest city sold for $57 million in October.
10) Langford Centre, Langford. Located just west of the provincial capital region, the shopping plaza sold together with the Langford Plaza, Goldstream Station and Millstream Centre in August for just over $50.2 million.
– List compiled by Avison Young