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Saturday, September 23rd, 2023

Commercial real estate booming again – now what?

The commercial real estate market saw an unprecedented recovery last year, with investment growing 48 per cent as the economy improved and investors returned to the market.

Canadian commercial real estate sales volume reached $18.9-billion in 2010, according to CB Richard Ellis, from $12.7-billion in 2009 – though it’s still a long way from the $19.8-billion posted in 2005.

“Once we were a few weeks into 2010, we could feel momentum picking up so that by the year-end, we were about where we expected it to be,” said John O’Bryan, CBRE’s vice-chairman. “It was really a coast-to-coast recovery – something we haven’t seen before.”

The only market that didn’t see an increase in volume was London, Ont. Toronto finished the year with $7.4-billion in trades, up from $3.8-billion in 2009 as volume grew by 95 per cent.

There were some large deals that helped boost the numbers, including ING Groep NV’s sale of its Canadian portfolio for $2.2-billion to KingSett Capital and Alberta Investment Management Corp.

“It was a good year relative to 2008, but volumes are still down considerably from where they were prior to the recession,” said Colliers International senior vice-president Milton Lamb.

Here’s what three experts expect to happen next:

John O’Bryan, vice-chairman of CB Richard Ellis

Hot: Retail

“We all talk about Target as if it were the only one, but there will be lots of movement. There are several chains that find expansion in the United States difficult, but they are looking to Canada. I think you can finally look for some rental traction in industrial as well, especially in the last half of 2011.”

Cold: Calgary

“The terrific pace that Calgary set last year in terms of office leasing has to slow. It has to settle down – it was a great performance but it can’t keep going at that rate. And while this could be a good year for hotels in terms of trading, there are still going to be issues around financing. That’s the grey cloud over that industry.”

George Carras, president of RealNet Canada

Hot: Big deals

“Big is back – regardless if it’s retail, industrial or office, if it’s got proven income, then it’s going to be hot. You’ve got an abundant supply of buyers who like what they see in those spaces. So big is in vogue – and by that I mean deals over $50-million. And when you see the commercial-mortgage-backed securities market is showing a bit of a pulse, that’s pretty exciting.”

Cold: Bargain hunting

“Distressed-deal shopping. Everyone who had their powder dry last year waiting and waiting and waiting for distressed sales finally figured out it wasn’t going to happen. So now they are looking to deploy that capital on other assets, if they haven’t already. There’s also less appetite for value-added properties – people are mindful of how much lease-up risk they want to take on.”

Mark Rose, chief executive officer of Avison Young

Hot: U.S. real estate

“The No. 1 theme I see in Canada is Canadian investment in U.S. real estate. It started last year, when there was $2-billion invested. The Canadian dollar is at a premium and could go higher, and there are opportunities in the distressed market to achieve double-digit returns. Last year you saw companies such as Brookfield, RioCan, Artis, CPPIB [Canada Pension Plan Investment Board] and Manulife down there – this year, you’ll see them and maybe some others.”

Cold: Snap decisions

“There isn’t a market in Canada that couldn’t be made better if there was more confidence on the part of decision makers. Those who actually occupy real estate are taking their time making decisions and don’t yet have confidence in a full recovery. That is holding us back. It is very difficult to pick out a province where that lack of confidence isn’t a factor in the market.”

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