Valuations are getting so high in Vancouver’s commercial market it is starting to affect deal flow, says a new report.

RealNet Canada Inc. says capitalization rates — the implied rate of return on a property — in British Columbia have gone so low that a 13% decline in sales in the first quarter can be attributed to the drop. The lower the cap rate, the more a property is worth.

“Transaction volumes experienced declines as the general market adjusts to changing value expectations in a record low cap rate environment,” said Paul Richter, director of research with RealNet, in the report. “Investment activity experienced a decline, however, demand for quality assets and development sites remains high.”

RealNet said there was 217 transactions of more than $1-million in the Vancouver market in the first quarter which amounted to $1.06-billion in activity. That was sharply down from the more than $1.2-billion in activity in the fourth quarter of 2012 but still 10% above the long-term quarterly average.

Construction on Telus’ new Downtown Vancouver headquarters is now progressing above ground. The 22-storey complex is scheduled to be complete in early 2015.

Telus Office Tower Construction

All photos courtesy of Built Form on SSP.

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238 Fell Avenue, a 2-storey retail and office complex on the East side of Fell Avenue in North Vancouver has sold for $2,300,000. The building is a total of 7,232 SF in size, representing $318 per SF. The building had been listed for $2,600,000.

News of Cadillac Fairview’s proposal for a 65-storey, 580-unit rental apartment tower at Queen and Yonge St. in Downtown Toronto is interesting for Vancouver observers. The proposal indicates that the development will have zero parking stalls. Instead, it will include 580 bicycle spaces are planned instead. The building appears to be absent of unit balconies as well.

This particular site includes demolition of an existing retail space and preservation of an existing heritage building, and based upon the location, parking probably won’t be necessity for most urban residents.

This begs an interesting question however, would the outright or partial relaxation of parking requirements for a downtown rental project be viable from a rental or construction perspective? There are many buildings in the West End that do not have any parking, and this does not appear to impact rents…

Recent efforts to reduce parking requirements for Vancouver condo projects have yielded mixed results; such as the MC2 project at Marine and Cambie where units sans obligatory parking stall were apparently much slower to sell. Is rental different?