Vancouver is among the top-tier markets for income-generating commercial real estate, according to BMO Economics. The bank notes that such real estate is now attracting even conservative investors looking for sustained yields.
"After a severe and protracted market downturn in the 1990s, the commercial real estate industry in Canada has been characterized by cautious development and prudent lending practices," said Earl Sweet, senior economist and managing director, BMO Capital Markets.
Sweet noted several factors make the sector attractive for investors:
• supply is limited, with vacancy rates lower than historical norms in many cities;
• risk-averse operations have helped to improve balance sheet performance of developers, construction firms and realtors;
• robust corporate performance - along with lending discipline - have maintained the quality of real estate loans at a high level; and
• ultra-low interest rates have supported real estate development and prices.
Vancouver is particularly attractive because an ongoing lack of supply has maintained higher pricing in all commercial property asset classes, BMO notes. This, along with low bond yields and volatile stock markets, is driving traditionally conservative investors into commercial real estate, the report found.
BMO added that commercial strata sales are attractive now to both investors and owner-occupiers, some of whom can lease out part of the property. "Now may be a particularly good time for businesses to invest in commercial property for their own use," said Steve Murphy of BMO's commercial and treasury management department.
The outlook is not all rosy, however. The BMO study cautions that fallout from the European financial crisis and a slowing U.S. economy could stunt commercial real estate sales. "The [commercial property] market is likely to grow at a more tempered pace this year and next, with Canada's economic growth expected to ease to 2 per cent," Sweet warned.
from Western Investor September 2012