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Friday, October 10, 2014

Fall 2014 Canada, U.S. and U.K. Commercial Real Estate Investment Review

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:

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.

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