A two-storey retail building has sold at the Southwest corner of Denman and West Georgia Streets in Downtown Vancouver. The building is 9,400 sq ft and tenants include the Running Room. The purchase price was $7,360,000, equating to $780 per sq ft.

Over the past few years, a significant proportion of the increasing value of commercial real estate in Vancouver has been attributed to declining capitalization rates. This so-called “cap-rate compression” has been evidenced by seemingly perpetual price appreciation in Vancouver throughout the past several years, with only a small blip in the markets in late 2008 and early 2009. Since that time, cap rates have followed the march of the bond market.

When will we witness the end of declining capitalization rates? Logic would dictate that this trend cannot be sustained; however, with continued low bond yields, debt financing can continue to be characterized as ‘cheap’, and many investors will continue to be attracted to Vancouver’s overall low-risk profile.

Yields on 5-year bonds are forecast to increase approximately 50 basis points by the end of 2013. This may have an impact on lower-tier properties and those in secondary markets, where average yields may increase by as much as 50-100 BPS. On the other hand, with continued global economic uncertainty, Vancouver may benefit from sustained low interest rates and a ‘safe’ outlook, particularly in core areas where there remains high barriers to new supply.

Bosa Development has purchased Sperling Plaza, a 4-storey office complex located near Highway 1 and Canada Way in Burnaby. The 130,000 sq ft complex is located on a 3.3 acre site. The purchase price was $33,300,000.

David Taylor and Simon Lim of Colliers are pleased to present for sale 2116 West 41st Avenue, a 2-storey retail and apartment building located in the heart of Kerrisdale.

Key Features

• High-exposure retail and apartment property in the heart of Kerrisdale
• Stable, fully leased income producing property in affluent neighbourhood
• Opportunity to generate income and live and/or work in the building
• Six apartment units over two retail units
• Additional residual density creates renovation potential
• Asking price: $7,688,000

Contact us for further information, including a brochure.

West Vancouver has long been recognized as an affluent, limited-growth, high barrier to entry market among all asset classes. As a result, there has been a limited amount of transaction activity over the past several years. Valuations remain stable with continued growth as a result of lack of new supply and increasing rental rates. Current market dynamics for each asset class in West Vancouver are summarized below:

Office

Office space in West Vancouver comprises only a fraction of that available on the North Shore and is limited primarily to a handful of buildings in the Marine Drive and Bellevue areas. The balance of available space is typically in smaller strata or mixed use buildings which reflects the demand base of professional and medical services.

There have been few office transactions in this market, with pricing for larger freehold assets typically ranging in  the $450-500 per sq ft range, with cap rates of between 5.0-6.0%.

Retail

Retail continues to be in high demand in West Vancouver as an investment, particularly due to the ongoing demand on behalf of retailers to be part of this market and no new opportunities to develop. Well established nodes include Park Royal, the Marine Drive corridor, Dundarave Village and Caulfield Village Shopping Centre.

Retail assets that have traded over the past 5 years have typically been streetfront retail, with most sales occurring in the Marine Drive area. Cap rates for retail tend to be between 5.0% and 6.0% in this market, and have exhibited average prices as follows:

Apartment

The lack of sales activity for multifamily assets in West Vancouver reflects the desirability of the market from an income perspective, particularly given high demand spurred by prohibitive housing costs in the area, an aging population, and lack of opportunities for new development.

Apartment buildings that have traded have typically been at capitalization rates around 4.0% and at prices per unit of approximately $300,000 depending on the age of the building.

Bellevue Tower, 195 21st Street, a 126 unit concrete highrise apartment tower sold in June 2010 to Hollyburn Properties for $36,500,000, 3.8% cap rate.

Quick Facts on Apartment Market:

• Overall vacancy rate is 0.6%
• Overall average rent is $1,462
• 2,329 total private apartment units (not including rented condos)
• 2.1% average rent growth in 2010

Source: CMHC

For information on current opportunities in this market, contact Simon or David.