British Columbia Real Estate

Investment Review Mid-Year 2014

Dispositions drive healthy investment levels in tight BC market

First Half 2014 Total value

$852 million

(sales > $5 million):

Total no. of transactions:

H

56

Most active buyers:

Private

Most active sellers:

Private

Most active asset class:

Retail

(based on # of transactions)

BC Investment Sales by Dollar Volume ($ Millions) and Number of Transactions (Properties >$5 Million) 2014 2013

$852 (56)

2012 2011

2008 2007 2006 2005 2004 2003

$889 (49)

$594 (36)

$920 (54) $715 (37)

$643 (23)

$651 (23)

$765 (41) $438 (32) $633 (37) $559 (35)

Sales by Property Type and Dollar Volume

$1.95B (99)

$1.36B (60)

$734 (30)

$535 (38)

$2.35B (117)

$1.48B (85)

$1.03B (45)

$316 (24)

$2.12B (119) $968 (57)

$1.39B (60)

2010 2009

$1.40B (61)

$724 (58)

$1.27B (68)

$967M (47) $246 (13) $1.01B (54) $950 (42)

$1.39B (74)

$893 (45) $579 (29)

$1.53B (82)

$1.14B (64)

First Half 2014

Office Industrial Retail

$163m

19%

$380m

45%

$310m

36%

First Half Second Half Total Transactions

ealthy demand for BC investment product propelled sales activity in the first half of 2014 to 56 transactions valued at more than $852M – the third highest deal and dollar volume recorded in a first half since 2002. While significantly off the pace set in the record first half of 2012, which featured 60 transactions totalling $1.39B, the first half of 2014 was characterized more by what was not sold versus what was. Only a single property exceeded $50M with no trophy assets changing hands. Industrial investment dropped to a four-year low, and retail deals and dollar volumes were substantially influenced by transactions mandated by the federal government’s Competition Bureau. (Avison Young tracks investment deals valued at more than $5M.) Private investors remained the most active as both buyers and sellers in the first half of 2014. A perception that the first half of 2014 was ‘slow’ in terms of the scale but not the pace of investment sales in BC can be attributed to the high number of smaller deals involving non-trophy assets. Seventy-one per cent of all deals were for less than $15M. Add the combination of unconventional and nonmarket transactions, and the observation that activity in the first half seemed muted, is understandable. The lack of noteworthy transactions can be traced to the ongoing reluctance by all owner types to sell commercial real estate assets located in Metro Vancouver despite premium pricing and strong demand. This reluctance is fuelled by the difficulty that potential sellers would experience if they tried to acquire other assets in the BC market, particularly within Vancouver at this time. Many of those vendors that chose to sell, particularly REITs, have likely done so in order to redeploy the capital in markets with higher returns. Governments have also sought to capitalize on the pent-up demand for quality product by selling selected surplus properties. continued on back page

Partnership.Performance.

I 1

Overall Trends

The sale of significant assets such as 1500 West Georgia in Downtown Vancouver (left) and St. Edwards Crossing in Richmond (right) early in the second half of 2014 bode well for a strong finish to the year.

Acquisitions by Asset Type: First Half of 2014 1st Half Office

*Institutional

Retail Industrial

Private Investors Government

* Institutional investors include pension funds and life insurance companies

REITs

Note: Foreign buyers have also been active acquisitors. Rather than identifying them separately as foreign, Avison Young is categorizing them as institutional or private as the case may be.

Public Companies Non-Profits Financial Institutions $0

$100

$200

$300

$400

$500

$600

$700

$ Millions

ICI land sales (greater than $5 million and excluding parks and agricultural/agricultural business lands) January 1 to June 30, 2014

Top FIVE Residential Land Sales (Metro Vancouver) January 1 to June 30, 2014

Region

Price

Size (Acres)

Land Use

Date

Address/Name

Region

Price

Lot Size (Acres)

Lot Size (SF)

Density

Date

West Vancouver

$16,070,000

1.758

Institutional

March 2014

1444 Alberni & 740 Nicola Street

Vancouver

$83,500,000

0.99

43,282

High

March 2014

Burnaby

$57,908,000

40.062

Commercial

March 2014

5333 & 5451 No. 3 Road & 7960 Alderbridge Way

Richmond

$69,000,000

4.91

213,879

High

April 2014

Surrey

$13,125,000

7.226

Commercial

June 2014

Coquitlam

$50,000,000

87.43

3,808,450

Coquitlam

$7,500,000

2.985

Commercial

April 2014

Long Term*

March 2014

1100 & 1200 Woolridge Street

3605 Crouch Avenue, 1350 Pollard, Lot A & 4189 Cedar Drive, Lot A Harper Road*

16450 & 16510 16th Avenue

Surrey

$6,850,000

9.966

Commercial

March 2014

16273 20th Avenue

Surrey

$6,500,000

9.508

Commercial

May 2014

Vancouver

$32,444,621

2.12

92,347

High

June 2014

Little India Plaza

Surrey

$6,150,000

3.656

Commercial

February 2014

Vancouver House: 1420 - 1450 Howe Street, 1429 & 1495 Granville Street, 1410 Granville Street

Campbell Heights North Business Park - Phase IV

Surrey

$23,474,600

59.552

Industrial

January 2014

The Park Metrotown

Burnaby

$20,725,000

1.13

49,222

High

February 2014

Pitt Meadows

$16,963,393

35.878

Industrial

January 2014

8398 North Fraser Way

Burnaby

$14,200,000

13.04

Industrial

May 2014

9702 Glenlyon Parkway

Burnaby

$11,960,000

14.085

Industrial

March 2014

2098, 2128, 2160 & 2178 Peardonville Road

Abbotsford

$8,562,940

18.3

Industrial

February 2014

Bridgeview Industrial Park

Surrey

$7,800,000

9.541

Industrial

June 2014

Port Coquitlam

$6,100,000

7.132

Industrial

June 2014

Transaction Name 2185 Gordon Avenue (formerly: 990 22nd Street) 3405 Willingdon Avenue 7005 & 7093 King George Boulevard & 13510 - 13570 70A Avenue

11208 & Lot 3 Harris Road

860 Dominion Avenue

* No rezoning application as of yet but the OCP allows for compact, low density residential

Land remains the most sought-after commercial real estate investment in BC. Avison Young has initiated coverage of ICI land deals (with some exclusions) and the top residential land sales in an effort to better inform our clients and reflect our full-service approach to all real estate asset classes, including land. The changing nature of growth in Metro Vancouver and the approval of various updates to official community plans (OCPs) throughout the region have led to numerous land deals that reflect future development plans. Source: RealNet and Avison Young

Partnership.Performance.

I 2

Buyer Profile Private buyers accounted for 89% of transactions and 72% of dollar volume invested in the first half of 2014. Retail transactions represented 50% of first-half activity, while office deals registered 27% and industrial dispositions accounted for 23% of deal volume. The acquisition of office properties represented the largest dollar volume by an asset class in the first half of 2014 (45%), edging out retail assets (36%) despite more retail properties being sold. Industrial investment activity trailed significantly (19%).

First Half 2014: Number of Transactions by Type of Buyer 7%

2% 2%

89%

First Half 2014: Value of Sales by Type of Buyer 4% 1% 24%

72%

Private Investors REIT Public Co. Financial Institutions

Institutional Government Non-Profit

Private purchasers were the most active in all asset classes, investing in retail ($271M), office ($225M) and industrial product ($115M). Institutional investors were also active in all asset classes, purchasing office ($123M), industrial ($48M) and retail ($33M) assets. REITs were not Partnership.Performance.

involved in any purchases during the first half. Government ($5M) and a financial institution ($31M) each purchased a single asset and were responsible for a combined 4% of transactions and 5% of overall dollar volume. While institutional buyers were only involved in 7% of the overall transactions in the first half of 2014 (the same as 2013), they invested 24% of the total dollar volume (compared with just 10% in 2013). This was in marked contrast to private buyers who were involved in almost all transactions but accounted for less than three-quarters of total dollar volume. A tight supply of available quality product and the absence of REITs, many of which have been slow to recover after the threat of rising interest rates knocked down returns in the sector in 2013, restricted deal and dollar volume. Increased institutional investment compared with the first half of 2013 helped offset the pullback by REITs.

Seller Profile While private sellers were represented in 73% of transactions (generating 55% of total dollar volume), REITs, public companies and the government combined to account for 23% of transactions and 42% of total dollar volume. This marked a significant departure from the past two years in which both private sellers and institutions dominated the sale side of BC commercial real estate transactions. Private sellers disposed of $471M worth of assets, including retail, industrial and office product. Government, including the City of New Westminster and the province, were involved in three office transactions for a total of $105M. REITs sold off two office properties – one in Vancouver and another in Burnaby – for total proceeds of $117M. Public companies were involved in eight transactions valued at $139M, with Sobeys Inc. (owned by Empire Co. Ltd. (TSX: EMP)) selling four stores to the Jim Pattison Group as a requirement of

Sobeys’ acquisition of Safeway in Canada. Rona Inc. (TSX:RON) also sold its former Kamloops location. Of the 15 office sales in the first half, nine (60%) involved a private seller. Private sellers were represented in 21 of 28 retail sales (75%). Eleven of 13 (85%) industrial assets were sold by private vendors along with two public companies, including Panasonic Corp. (TYO:6752). Year-over-year, private vendors banked less cash in the first half of 2014 ($471M) than they did in the first half of 2013 ($538M). Institutions, which sold $71M worth of assets 12 months ago, were not involved as vendors in any transactions in the first half of 2014. Meanwhile, proceeds from government, REIT and public company sales in the first half of 2014 rose dramatically compared with the same period last year.

First Half 2014: Number of Transactions by Type of Seller 5%

2% 4% 2%

14%

73%

First Half 2014: Value of Sales by Type of Seller 1% 12%

14%

16%

Private Investors REIT Public Co. Financial Institutions

55%

Institutional Government Non-Profit

I 3

Office A unique combination of factors in the first half of 2014 produced the strongest six-month period of office investment sales activity since the first half of 2012, despite the absence of any transactions involving significant downtown properties. There were 15 transactions totalling $380M in the first half of 2014, far surpassing the 10 transactions ($165M) posted in the first half of 2013 and the 12 transactions ($294M) that closed in the back half of 2013. The first half of 2014 also surpassed the final six months of 2012 when 11 transactions resulted in $204M in dollar volume. While six office properties in the first half of 2014 sold for less than $15M each, seven sold for in excess of $30M. The disposition of a 50%-interest in the “Telus Boot” building at 3777 Kingsway in Burnaby represented the largest office deal of the half and one of two office properties sold by H&R REIT. The other property that the investment trust sold was phase one of False Creek Research Park at 1618 Station Street for $30.5M. These two transactions (accounting for 31% of total dollar volume) stood in contrast to some of the more unconventional deals in the first half, including the sale of the recently completed (but vacant) Anvil Centre Office Tower by the City of New Westminster and the disposition of two properties in Victoria by the provincial government. These three government deals accounted for more than 40% of total dollar volume in the first half of 2014. Add to that the Health Sciences Association of BC and Blueshore Financial selling their old offices and acquiring new build-to-suit buildings in the first half as well as the sale of office buildings at 761 Cardero and 1455 West Georgia (likely redevelopment plays), and the eclectic nature of some of the acquisitions driving first-half investment totals emerges. A lack of quality available product (particularly in the Downtown core) and the absence of vendors willing to capitalize Partnership.Performance.

on continued strong pricing typified by compressed (but stabilized) cap rates, remained an impediment to investment and continued to curtail institutional acquisitions. As a result, private investors subsequently transacted primarily class B and C properties in non-prime locations. Foreign investment interest from China and Southeast Asia is becoming increasingly prevalent in the office market, particularly Downtown Vancouver. Interest is anticipated to rise as potential buyers become more comfortable with the asset class and the market reconciles itself to the different pricing metrics and motivations that distinguish these foreign buyers from more typical private investors.

Marlborough Court in Burnaby sold for $27.2M in the first half of 2014 and was one of the few conventional office deals completed in the half.

The delivery of new Downtown office product in the back half of 2014, combined with anticipated interest rate hikes in the next 12 to 18 months, may result in an uptick

in the number of dispositions of small to mid-sized class B and C buildings as mainly private owners divest their holdings of dated office inventory in the face of increased competition, potential renovation costs and softening rental rates. Class AAA and select A assets of scale will likely remain unavailable.

OFFICE PROPERTY

VENDOR TYPE

BUYER TYPE

DATE

Burnaby

$86,900,000

REIT

Institutional

June 2014

Vancouver

$5,513,172

Private

Private

June 2014

Marlborough Court 5021 Kingsway Street

Burnaby

$27,200,000

Private

Private

May 2014

Mission Community Health Centre 7298 Hurd Street

Mission

$8,420,678

Private

Private

May 2014

Vancouver

$5,500,000

Private

Private

April 2014

North Vancouver

$10,000,000

Financial

Private

April 2014

Langley

$5,550,000

Private

Private

April 2014

North Vancouver

$30,516,815

Private

Financial

March 2014

The Axor 2975-2995 Jutland Road

Victoria

$36,700,000

Government

Institutional

March 2014

537 Superior Street

Victoria

$32,109,000

Government

Private

March 2014

False Creek Research Park (Phase 1) 1618 Station Street

Vancouver

$30,500,000

REIT

Private

March 2014

The Lea Building 1455 West Georgia

Vancouver

$18,800,000

Private

Private

February 2014

Anvil Centre Office Tower 777 Columbia Street

New Westminster

$36,500,000

Government

Private

February 2014

Royal Bank Building 618, 628, 634 6th Avenue

New Westminster

$32,471,500

Private

Private

January 2014

100 East Columbia Street

New Westminster

$12,985,000

Private

Private

January 2014

Total Deals/Investment

15

$379,666,165

3777 Kingsway (50% interest) The Centro #128 - 5118 Joyce Street

761 Cardero Street 1100 Lonsdale Avenue Walnut Central 20091 91A Avenue The Prescott Office/Retail Podium 1250 Lonsdale Avenue

MUNICIPALITY

PRICE

I 4

Retail BC retail product remained in strong demand in the first half of 2014 with 28 sales and $310M in dollar volume. While deal velocity was similar to that of the back half of 2013 (30), dollar volume dropped significantly compared with the previous six-month period ($709M) due to the absence of significant shopping centre transactions. Only two malls, both located in small secondary markets, were sold (representing just 7.3% of total retail dollar volume). The first half of 2014 surpassed the same period in 2013 (24 trades/$292M), but 2014 dollar volume remained well below the first and second halves of 2012 ($411M and $423M, respectively). Unconventional retail investment sales were responsible in large part for the activity that did occur in 2014 to date.

Of the 28 retail transactions in the first half of 2014, 82% were priced at less than $15M. For comparison, 70% of transactions in back half of 2013 (and 75% in the first half) were priced at less than $15M. The final six months of 2012 registered just 65% of transactions at less than $15M, while 73% of transactions were under that threshold in the first half of 2012.

Bosa Development sold the former RONA site at 3000 Sexsmith Rd. in Richmond in January 2014.

RETAIL PROPERTY Longwood Station 5765 - 5801 Turner Road

MUNICIPALITY

PRICE

VENDOR TYPE

BUYER TYPE

DATE

Nanaimo

$33,100,000

Public Co.

Institutional

June 2014

PC Plaza 9831 98A Avenue

Fort St. John

$10,000,000

Private

Private

June 2014

2740 Kingsway Street

Vancouver

$8,580,000

Private

Private

June 2014

4898 Main Street

Vancouver

$6,245,000

Private

Private

May 2014

Vernon

$12,200,000

Private

Private

May 2014

Vancouver

$5,930,000

Private

Private

May 2014

Langley

$5,746,000

Private

Private

May 2014

819 Automall Drive

North Vancouver

$10,047,000

Private

Private

April 2014

Dawson Creek Mall 11000 8th Street

Dawson Creek

$5,570,400

Private

Private

April 2014

Port Alberni

$9,800,000

Public Co.

Private

April 2014

1555 Versatile Drive

Kamloops

$13,000,000

Public Co.

Private

April 2014

Coronation Mall 370 Davis Road

Ladysmith

$19,225,000

Private

Private

April 2014

Le Magasin Building 328 & 332 Water Street

Vancouver

$8,495,000

Private

Private

March 2014

1950 Foul Bay Road (Sobeys)

Victoria

$25,600,000

Public Co.

Private

March 2014

2345 Beacon Avenue (Sobeys)

Sidney

$13,700,000

Public Co.

Private

March 2014

Bayside Village (Sobeys) 1143 - 1163 56th Street

Delta

$16,300,000

Public Co.

Private

March 2014

Vancouver

$8,115,000

Private

Private

February 2014

Burnaby

$7,650,000

Private

Private

February 2014

Surrey

$6,000,000

Private

Private

February 2014

Anderson Crossing 5601 Anderson Way 2827 - 2839 West Broadway

BC retail investment activity in first six months of 2014 was supplemented by the government-mandated sale of select Sobeys stores in Western Canada as a result of the grocery chain’s acquisition of Safeway in Canada. Jim Pattison Group-owned Overwaitea Food Group subsequently acquired numerous locations in the province during the first half totalling almost $65M and constituting 27% of total retail dollar volume. Privately-held Gateway Casinos expanded into the BC Interior by obtaining sites in Vernon and Kamloops, representing 7% of total retail dollar volume.

Sundel Square 20202 Fraser Highway

Almost 40% of retail transactions occurred in secondary markets such as Fort St. John, Dawson Creek, Kamloops, Vernon(2), Victoria, Nanaimo, Port Alberni, Ladysmith and Sidney. This highlights not only the lack of supply of available retail product in Metro Vancouver, but a recognition that retail investment opportunities remain throughout the province. The preponderance of retail assets in secondary markets was reflected in the number of smaller deals completed – a trend that has been accelerating since at least 2012.

Circle Square 3502 - 3550 Kingsway Avenue

Vancouver

$8,226,100

Non-Profit

Private

February 2014

Holland Block 350-364 Water Street & 415 West Cordova Street

Vancouver

$5,650,000

Private

Private

January 2014

Partnership.Performance.

3756 10th Avenue (Sobeys)

1615 - 1695 Renfrew Street 3850 Lougheed Highway 15257 Fraser Highway

1004 West Broadway

Vancouver

$5,050,000

Private

Government

January 2014

911 Stremel Road

Kelowna

$5,000,000

Private

Private

January 2014

842 Thurlow Street

Vancouver

$8,950,000

Private

Private

January 2014

2811 - 2845 Grandview Highway

Vancouver

$8,800,000

Private

Private

January 2014

6710 - 6790 Hastings Street

Burnaby

$5,150,000

Private

Private

January 2014

3000 Sexsmith Road

Richmond

$29,600,000

Private

Private

January 2014

Anderson Village 4900 Anderson Way

Vernon

$7,950,000

Private

Private

January 2014

Total Deals/Investment

28

$309,679,500 I 5

Industrial A lack of institutional quality industrial assets resulted in just 13 sales valued at $163M in the first half of 2014, with a single transaction – the sale of South Burnaby Corporate Centre – constituting 29% of total dollar volume. The first half of 2014 marks the first time since the second half of 2011 that BC industrial sales did not surpass $200M, and represents the lowest dollar volume since the first half of 2010.

sales activity. Strong demand and a lean development pipeline will continue to support elevated pricing levels on a per-square-foot basis as quality nextgeneration warehouse/logistics product is primarily acquired/developed by institutional investors and significant user groups. Options for small to mid-sized owner/users remained extremely limited to older, less efficient buildings or smaller but more recently constructed strata units.

Supply tightened in the first half of 2014 after two years of considerable deal and dollar volume. In 2013, there were 24 deals valued at $267M in the first half and 19 deals totalling $395M in the back half of the year. The previous year, 2012, recorded 23 transactions valued at $341M in second half and 16 deals worth $215M in the first half.

With the ongoing erosion of Metro Vancouver’s industrial land base driving land prices higher, industrial vacancy – which was already at a low 3.6% at June 30, 2014 in a 188.5-million square foot market – is likely to continue to decline. This low vacancy may encourage the redevelopment of older inventory, which could (in the short term) further reduce sales activity as existing inventory is renovated or demolished. However, sale price expectations for older, less efficient buildings can remain an impediment to further redevelopment and may be a contributing factor to the number of vacant assets currently on the market. Many of these buildings no longer meet

Owner/user activity was the primary driver in the first half of 2014 with private investors and REITs, who typically buy for income and/or accretive value, remaining on the sidelines. Private owner/users have typically purchased industrial real estate when they see an opportunity to lock in occupancy costs for the long term or when the transaction represented an investment opportunity for the principals of the company. Private vendors typically sell when they recognize an opportunity to take equity out of their real estate holdings to reinvest in the core business. Other transactions included Panasonic Canada, which engaged in a saleleaseback transaction involving its former building on Bridgeport Road in Richmond. Beedie Developments sold a build-tosuit industrial park in Surrey to a private investor. South Burnaby Corporate Centre was the only industrial asset in the first half purchased by an institutional buyer. Slightly less than half of the industrial transactions in the first half were off market, demonstrating that vendors remained reluctant to sell and that limited product availability continued to restrict Partnership.Performance.

South Burnaby Corporate Centre was sold for $47.6M, the largest industrial transaction in the first half of 2014.

the needs of industrial tenants and remain empty and underutilized due to acquisition costs. Limited availability of investment-grade industrial real estate in Metro Vancouver’s core markets will continue to apply pressure on capitalization (cap) rates for those assets that do come to market, but cap rates are unlikely to achieve new lows. Delivery of new industrial product in key Metro Vancouver markets in the back half of 2014 and into 2015 is expected to boost sales, return industrial deal and dollar volumes to more historical norms, and attract private and institutional investors as well as REITs back to the market.

INDUSTRIAL VENDOR TYPE

BUYER TYPE

DATE

12111 Bridgeport Road

PROPERTY

Richmond

$8,900,000

Private

Private

June 2014

195 West 7th Avenue

Vancouver

$6,500,000

Private

Private

June 2014

Panasonic Building 12111 Riverside Way

Richmond

$16,600,000

Public Co.

Private

May 2014

19429 54th Avenue

Surrey

$5,650,000

Private

Private

May 2014

80 & 84 Golden Drive

Coquitlam

$11,300,000

Private

Private

April 2014

12031 No. 5 Road

Richmond

$5,155,000

Private

Private

March 2014

351 Gifford Street

New Westminster

$8,300,000

Private

Private

March 2014

City Crossroads Plaza  19300 Langley Bypass

Surrey

$5,500,000

Private

Private

March 2014

24th Ave Business Centre 19347 24th Avenue

Surrey

$13,175,000

Private

Private

March 2014

Vancouver

$11,500,000

Public Co.

Private

February 2014

Burnaby

$47,600,000

Private

Institutional

February 2014

Burnaby

$14,600,000

Private

Private

January 2014

Port Coquitlam

$8,100,000

Private

Private

January 2014

850 West Kent Avenue South South Burnaby Corporate Centre  #101-108 - 8131 Wiggins Street, 8183 Wiggins Street 8168 Glenwood Drive 1589 Kebet Way Total Deals/Investment

MUNICIPALITY

13

PRICE

$162,880,000 I 6

Multi-Family A $140M portfolio sale and the City of Vancouver’s disposition of its remaining interest in the Olympic Village residential development propelled the multi-family segment of the market to its strongest firsthalf performance (in terms of dollar volume) in more than five years. The sale of Boardwalk REIT’s BC apartment portfolio to the Realstar Group represented the largest investment transaction in BC in the first half of 2014. The three multiresidential buildings included: Horizon Towers in Burnaby, Surrey Village and Christie Point Apartments in Victoria. Boardwalk REIT’s inability (along with most REITs as well as institutional and private investors) to acquire scale in BC’s multi-family market in the face of highly compressed cap rates allowed Boardwalk to recognize premium pricing for its BC assets and to redeploy the capital to markets that generate higher returns for the REIT’s unit holders. With 23 transactions totalling $396M in the first half of 2014, sales activity surpassed the first half of 2013 (17 deals/$154M) and was on par with the first half of 2012 (25/$386M). While deal and dollar volume were both strong in the first half of 2014, stripping out the portfolio sale and the Olympic Village transaction revealed a more telling portrait of market activity. Fifteen of the remaining 19 transactions were for less than $10M with seven of those around the $5M mark. Only two of the 19 transactions were notable stand-alone deals, including the $18M sale of Seaview Towers and the $25.5M disposition of the Parklea Apartments. Demand from local and international buyers remained exceptionally strong with many older, smaller buildings trading hands despite highly compressed cap rates and continued near-record pricing. Buyers often purchased buildings with the intention of performing major upgrades in an effort to achieve higher rents and boost the property value. Current yields do not make sense otherwise. The market is so competitive that in order to make sense of the pricing, purchasers need to have a plan beyond buy and hold. Supply remains tight despite the construction of new rental product in Vancouver thanks to city incentive programs.

It remains difficult for institutional and private investors to buy quality, well-located rental apartment buildings in Metro Vancouver. Eleven of 23 transactions occurred in Vancouver while eight were located in suburban markets. Victoria remained popular with investors who purchased three buildings in the city. One transaction in the Fraser Valley – a former hot spot for investors in 2011/12 – rounded out the deals in the first half.

Surrey Village (above) was part of the $140M Boardwalk REIT portfolio sale to Realstar Group.

MULTI-FAMILY PROPERTY

MUNICIPALITY

PRICE

VENDOR TYPE

BUYER TYPE

DATE

The Inverness 1325 Pendrell Street

Vancouver

$5,170,700

Private

Private

June 2014

Lilford Lodge 2394 Cornwall Avenue

Vancouver

$8,500,000

Private

Private

June 2014

New Westminster

$5,501,465

Private

Private

June 2014

Burnaby

$54,000,000

REIT

Institutional

May 2014

Surrey Village 9801 & 9305 King George Boulevard

Surrey

$48,000,000

REIT

Institutional

May 2014

Christie Point Apartments 2861 Craigowan Road

Victoria

$38,000,000

REIT

Institutional

May 2014

Ladrillo Apartments 221 West Seventh Street Horizon Towers 4960 & 5050 Sanders Street

2280 Vine Street

Vancouver

$5,150,000

Private

Private

May 2014

Courtyard Estates 2929 - 2959 Tims Street

Vancouver

$10,300,000

Private

Public Co.

May 2014

Charlotte Manor 3065-3069 Clearbrook Road

Abbotsford

$5,550,000

Private

Public Co.

April 2014

Burnaby

$5,835,000

Private

Private

April 2014

Olympic Village Interest in 67 units

Vancouver

$91,000,000

Government

Private

April 2014

555 East 6th Avenue

Vancouver

$8,880,000

Private

Private

April 2014

Victoria

$18,187,500

Private

Private

April 2014

Coquitlam

$5,800,000

Private

Private

April 2014

Mountain Ash Manor 4505 Grange Street

Seaview Towers 450 Dallas Road Maryon Manor 1035 Howie Avenue 2358 Cornwall Avenue

Vancouver

$5,025,000

Private

Private

April 2014

North Vancouver

$7,800,000

Private

Private

April 2014

Mountview Apartments 2182 West 39th Avenue

Vancouver

$6,873,500

Private

Private

March 2014

Vallejo Court 1009 West 10th Avenue

Vancouver

$11,000,000

Private

Private

March 2014

Parklea Apartments 151 East Keith Road

North Vancouver

$25,500,000

Private

Private

March 2014

Acadia Court 1075 Nelson Street

Vancouver

$9,000,000

Private

Public Co.

February 2014

Victoria

$7,826,000

Private

Private

January 2014

The Black Knight 170 West 4th Street

North Vancouver

$7,000,000

Private

Private

January 2014

Carlton House 1540 Burnaby Street

Vancouver

$6,300,000

Private

Private

January 2014

Four Cedars & Sundance Court 141 & 147 East 21st Street

Nottingham Court Apartments 1635 Cook Street

Total Deals/Investment

23

$396,199,165

Avison Young tracks investment deals valued at more than $5 million. Sources: Avison Young and RealNet Canada

Partnership.Performance.

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The largest transaction in the first half of 2014 was a 50%-interest in the Brian Canfield Centre at 3777 Kingsway (also known as the “Telus Boot” due to its distinctive architecture) in Burnaby for $87M. The building is primarily leased by Telus Corp. but almost 90,000 sf is currently available for sublease as the telecom prepares to move into its new Downtown offices starting in late 2014. The continued absence of significant Downtown office building transactions underscores the unwillingness of owners to sell assets that could not easily be replaced. While Longwood Station in Nanaimo was the largest BC retail deal at $33M, the combined sale of Sobeys assets to the Jim Pattison Group (mandated as part of Sobeys’ acquisition of Safeway in Canada) totalled $65M. More than 82% of BC’s retail acquisitions were for less than $15M. Only two of 13 industrial deals were greater than $15M, including the $48M sale of South Burnaby Corporate Centre to an institutional buyer and the $17M sale-leaseback of Panasonic Canada’s facility in Richmond. Avison Young also tracks multi-family investment sales, but those figures are not included in the overall statistics. The supply of office product may improve in the back half of 2014 as the provincial government and Crown corporations consider the further disposition of assets both Downtown and throughout Metro Vancouver. Some institutional owners such as life insurance companies may also begin to review their portfolio holdings starting in 2015 in an effort to match future projected disbursements with earnings from income-generating properties. If disbursements are likely to contract, real estate portfolios can be rebalanced as needed. Retail assets are likely to remain in short supply with remaining product likely situated in secondary markets or poorly located in suburban Vancouver markets and lacking key anchor tenants. Industrial assets will remain in short supply as a limited pipeline of new product and lack of existing properties continue to limit sales activity in the face of strong continuing demand from users and investors.

For more information please contact: Michael Keenan, Principal & Managing Director Direct Line: 604.647.5081 [email protected] Andrew Petrozzi, Vice-President, Research (BC) Direct Line: 604.646.8392 [email protected] Sherry Quan, Principal & National Director of Communications & Media Relations Direct Line: 604.647.5098 [email protected]

Investment Team Bal Atwal, Principal [email protected] Michael Buchan, Senior Associate [email protected] Michael Emmott, Senior Associate [email protected] Michael Gill, Principal [email protected] Robert Greer, Principal [email protected] Robert Gritten, Principal [email protected] Mark E. Hannah, Principal [email protected] Robert Levine, Principal [email protected] Douglas McMurray, Principal [email protected]

Capitalization (cap) rates remained near historic lows in the first half of 2014 with the interest rate environment compressing further from the second half of 2013. Cap rate compression remained a non-factor with some slight upward movement in select secondary markets or on less desirable assets in suburban markets. The Government of Canada’s five-year benchmark bond yield moved from 1.9% at year-end 2013 to 1.57% by mid-year 2014. The 10-year bond yield also declined in the first half, sliding from 2.72% in December 2013 to 2.26% at June 2014. As a result, commercial lending rates have trended downward since year-end 2013. Canada’s prime lending rate has remained unchanged at 3%. The timing around any interest rate hikes remains speculative at best, but a recovering U.S. economy is likely to shorten the timeframe in which the Bank of Canada will act.

Alex Messina, Associate [email protected]

The increasing likelihood of an interest rate hike – combined with more than 2.1 million square feet (msf) of new office space in the Downtown core and more than 4 msf of industrial product in Metro Vancouver coming online in the next 18 months – will impact cap rates and, in turn, affect investors, particularly REITs. This could lead to the greater availability of product as owners attempt to capture premium pricing in a shifting market. The performance of the BC economy also remains in question with expectations around LNG development being reined in as final investment decisions have yet to be made and international competition threatens to undermine the province’s efforts. There is also an influx of foreign investment capital from China and Southeast Asia that is increasingly seeking to obtain quality product as these investors diversify beyond more traditional trophy assets. Utilizing different pricing metrics and possessing different motivations, these foreign buyers have distinguished themselves from the typical investment market buyer. This combination of factors in 2015 (and beyond) could trigger a fundamental shift in Metro Vancouver’s investment market as cap rates rise with potential interest rate hikes and the tight supply of product (and a low-vacancy environment) become relics of the low-interest era that followed the Great Recession. 

Avison Young Commercial Real Estate (B.C.) Inc. #2100-1055 W. Georgia Street Box 11109 Royal Centre Vancouver, BC V6E 3P3, Canada

Jacqueline Robinson, Research Coordinator [email protected] Struan Saddler, Senior Associate [email protected] Evelyn Tian, Client Services Coordinator [email protected] Chris Wieser, Vice-President [email protected]

avisonyoung.com © 2014 Avison Young (Canada) Inc. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young Commercial Real Estate (B.C.) Inc.