JLL expert details 3 shifts in Canadian business property market
Credit to Author: Evan Duggan| Date: Tue, 27 Aug 2019 23:53:10 +0000
It appears that the slow first-quarter start in Canada’s commercial property investment market was a one-off in what remains a strong multi-year run for overall investment, according to a new report by Jones Lang LaSalle (JLL) brokerage house.
The national investment market rebounded in the second quarter of this year with total investment reaching $12.5 billion — a 40 per cent increase from the previous quarter of this year, according to JLL.
If the rest of 2019 remains strong, it’s possible the year could be on par with the sizzling pace of the previous four or five years, said Scott Figler, JLL’s national manager of capital markets research.
The lack of clarity over interest rates in Canada and the U.S. combined with economic sluggishness late last year and early this year took steam out of the investment market, he said.
But while the market appears to be back on track, there are changes taking place, said Figler, who recently detailed a few of those major transformations with Postmedia.
Many of the large institutional investors and pension funds appear to believe we have hit the peak of the market.
“They’re starting to be a bit more pessimistic about where rents are going to go over the next maybe two (or) three years,” he said. “Obviously everyone is talking about the inverted yield curve. Is the U.S. going to enter into a recession soon? Those are the main headlines.”
It all adds up to large investors staying on the sidelines. “They’re holding on to core assets and selling peripheral assets, and they’re also focusing more now on ground-up development rather than asset acquisition.”
The hesitance by large investors is making room for smaller, private buyers in the market, Figler said.
“(Private investors) are seeing this as a really good opportunity to acquire some really prime real estate with a lot of the major players sort of (appearing) a little queasy about conditions right now,” he said.
Private groups bought more than $8 billion in total assets so far this year, making them by far the most active cohort, JLL’s numbers showed.
“Buyers have more power now than they did a year ago because the buyer pools are thinning out,” Figler said. “They are starting to demand more and more conditions. They have a little bit more say in the final price, and as that happens …, it’s the smaller groups that are willing to sit at the negotiating table for longer because they are more interested in acquiring those assets.”
“The last few years has been all about multifamily, industrial and office,” Figler said.
Canada’s big-city housing crunches have fuelled multifamily investments while demand for downtown workspace has kept offices full and attractive to buyers in Toronto, Vancouver and Montreal. Meanwhile, the country’s online retail growth has fuelled a premium for warehouse and logistics space for e-commerce companies.
“Those are really the three asset classes that are kind of driving the market,” he said.
But overall office, industrial and retail investments have fallen off from last year’s investment pace.
“The one asset class that is projected to surpass, not only last year, but historically, is investment in raw development land,” Figler said.
Land transactions so far this year have accounted for over 20 per cent of all deal flow, compared with an average of eight per cent over the past decade.
Cities are now more eager to streamline the permitting process and alleviate shortages for multifamily, office and industrial and developers are responding by launching projects.
evan@evanduggan.com
twitter.com/EvanBDuggan
CLICK HERE to report a typo.
Is there more to this story? We’d like to hear from you about this or any other stories you think we should know about. Email vantips@postmedia.com.