By Mark E. Rose (Toronto)
Dispositions
continue to drive healthy investment levels in most Canadian markets, while the
lack of quality product being offered for sale masks investors’ true demand for
acquisitions. This situation has prompted some Canadian investors to deploy
capital to other countries – especially the U.S., where some markets are seen
as being undervalued. In the U.S., improving leasing fundamentals have led to a
robust investment environment with sales performance either on par with, or up
from, one year ago.
These are some of the key trends
noted in Avison Young’s Fall 2014 Canada, U.S. and U.K. Commercial Real
Estate Investment Review, released today. You can read the full
report here: http://www.avisonyoung.com/fileDownloader.php?file=files/content-files/Research/Links/2014/AYFall2014CanadaUSUKInvestOct8_14Final.pdf
The report
covers commercial real estate investment conditions in 29 regions: Calgary,
Edmonton, Montreal, Ottawa, Toronto, Vancouver, Atlanta, Austin, Boston,
Chicago, Columbus, Dallas, Denver, Houston, Las Vegas, Los Angeles, New Jersey,
New York, Orange County, Philadelphia, Pittsburgh, Raleigh-Durham, San Diego
County, San Francisco, San Mateo, South Florida, Tampa, Washington, DC and
London, U.K.
We are seeing
stable-to-increasing investment deal velocity, more so in the U.S. than in
Canada, because of the pricing differential – although it’s narrowing for core
assets in primary markets. I believe that we are at a short-term pricing top in
Canada with bigger deals being fewer and farther between.
However, given
the compressed yield environment to date, I believe the next wave of deals will
more than likely be spurred on by rising interest rates, forcing some over-leveraged
owners to sell, while others will find that buyers can’t pay what they used to.
With all that anxious surplus capital and limited supply, I think there is
sufficient pent-up demand in Canada, with a variety of investors waiting to get
in at slightly better pricing. This will ultimately result in a re-pricing of
commercial real estate assets.
Investment
sales activity in the U.S. continues to benefit from the continued recovery in
the economy and improving leasing fundamentals. By and large, office building
dispositions drove investment dollar volume in the first half of 2014 to the
tune of $38 billion (USD) – a result of improving employment levels and rising
rental rates.
