B.C. commercial sector in steady decline since the first half of 2017—report

Have the best days of the province’s commercial real estate market already passed?

B.C. commercial sector in steady decline since the first half of 2017—report
In a fresh report released last week, Avison Young noted that while British Columbia’s commercial real estate segment has enjoyed robust performance over the past few years, the most recent figures indicated that the market’s peak might have already passed.

“Unprecedented levels of investment in the first half of 2017, which involved 109 transactions valued at $5.09 billion, will likely mark the culmination of the latest and most robust cycle of capital expenditures on BC commercial real estate yet recorded in the province,” according to the study titled Mid-Year 2017 BC Real Estate Investment Review.

“This ‘cycle of impatience’, which has its roots in 2012 and accelerated in 2015 before peaking in 2017, may be on the decline. Interest-rate increases in the U.S. and Canada, rising bond yields, a change in government at the federal and provincial levels, municipal red tape, new taxation regulation as well as increased enforcement limiting capital outflows from China may start to slow investment activity in BC’s commercial real estate market,” the report cautioned.

Avison Young principal Mehdi Shokri warned that contrary to several analysts’ expectations, a lack of demand is not the factor that will affect commercial real estate investment in B.C. the most.

“Supply remains the challenge. Increases in the Canadian interest rate environment and the cost of capital as well as changes to federal and provincial taxation policy, combined with greater enforcement of limitations on foreign capital, particularly from China, are what will ultimately lead to a pause in BC,” Shokri explained.

Canadian institutional capital represented 60 per cent of all investment in the B.C. commercial sector in the first six months of 2017. Institutional investors accounted for $5.09 billion, despite being involved in just 6 per cent of deals. Private purchasers were the most influential buyer group in terms of deals volume (at 86 per cent), although they accounted for just 36 per cent of dollar volume.

Avison Young’s report can be accessed here.

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