By Curtis Taylor, Senior Analyst | September 2, 2020

Overall investment activity decreases in the Vancouver commercial real estate market as COVID-19 reality sets in

The second quarter of 2020 has offered the first bit of insight into the effects of the COVID-19 global pandemic on the Vancouver commercial real estate market. While certain asset classes remained steady, the decline in overall investment activity is a reflection of the current global situation. Across all asset classes, there were 317 transactions recorded during Q2 2020 for a total investment volume of $1.5 billion – a 50% decrease from Q2 2019. Facing the brunt of the pandemic, the first half of 2020 recorded a total investment volume of $3.7 billion, marking a nearly 30% decrease from the first half of 2019. Share sales, totaling only $500 million, accounted for the majority of the decline from the first half of 2019, falling 71% while asset sales of $3.2 billion fell by just 7% from H1 2019.

(Vancouver property transactions – all sectors by year)Vancouver property transactions by year - 2010 to Q2 2020

Office sales were down 76% compared to the first half of 2019, due in large part to the benchmark Bentall Centre transaction in Q2 2019 for approximately $1.1 billion. There were two transactions this quarter that accounted for $300 million, or 82% of the office transactions for Q2 2020 (see notable transactions below). The multi-family asset class has remained steady through these uncertain times and investment volume bucked the trend in the first half of 2020, seeing an increase of 58% from the first half of 2019, though volume was down in Q2 2020 versus last year.

Industrial space remains in high demand as a result of increased e-commerce activity and the associated warehousing space required, with industrial transaction volume composing 21% of total investment volume in the first half of 2020, up 22% from the first half of 2019. ICI land made up the majority of investments in the first half of 2020 at 23% with a total of $861 million in volume roughly matching last year, but saw a 33% decrease from Q2 2019. According to Altus Group’s Investment Trends Survey Q2 2020 results, while Vancouver cap rates have increased across asset classes, it remains one of the top-preferred markets despite losing momentum. Vancouver single- and multi-tenant industrial assets are among the top-three product-market combinations preferred by investors.

(Vancouver market area cap rates – Q2 2005 to Q2 2020)Vancouver overall capitalization rates Q1 2005 - Q2 2020

Notable Vancouver investment transactions:

375 Water Street, The Landing – Office
The sale of the office building at 375 Water Street (known as The Landing) was the most notable transaction of the quarter across all sectors. Sold by Vancouver Whitecaps majority owner Greg Kerfoot to Allied REIT based out of Toronto, the transaction was a share sale with a reported price of $225 million. The property was 99% occupied at the time of sale and features an eight-storey office building, with Steamworks Brewing Company as the anchor retail tenant on the ground floor.

225 North Road, Coquitlam – ICI Land
Translink, Metro Vancouver’s public transportation company, was the purchaser of this infrastructural development site located at 225 North Road in Coquitlam. The 26.8-acre property was purchased for a total consideration of $82.5 million, representing the second largest transaction of the quarter and a price per acre of $3,082,038. The property lies adjacent to both the Trans-Canada Highway and the Expo Skytrain Line.

9500 Glenlyon Parkway, Burnaby – Office
This 164,580 square foot single-tenant office building closed on May 28, 2020 for a total consideration of $75 million, representing a price per square foot of $456. The property was sold by The Canada Life Assurance Company to a private investor.

1176 Granville Street, Vancouver – Apartment
The most notable apartment transaction of the quarter was the sale of the Howard Johnson Downtown Vancouver hotel, located at 1176 Granville Street. The 110-room hotel was purchased for $55 million by the Provincial Government, with the intention for the building to house the homeless and provide long-term affordable housing.

3455 Gardner Court, Burnaby – Industrial
The most significant industrial transaction of the quarter was the sale of 3455 Gardner Court in Burnaby. The 46,874 square foot, multi-tenant warehouse and distribution centre sold for $16 million, representing a price per square foot of $341. The property was approximately 46% occupied at the time of sale.

(Vancouver property transactions by asset class – H1 2019 vs H1 2020)Vancouver property transactions by asset class H1 2019 vs H1 2020

While the second quarter has offered some perspective into the effects of COVID-19 on the commercial real estate market, it remains too early to tell what the overall impact will be. Still, the Vancouver market saw transactions go through, as well as strong outcomes in apartment, industrial and ICI land sectors over the first half of 2020 compared to the same period last year.   Moving forward, investors remain cautious and continue to assess market risks as the economy recalibrates.

 

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