Forecasts keeps buyers sidelined and prices in check for commercial real estate in 2011

Recovery on the economic front will go hand in hand with retail and office investment in 2011, as developers cautiously brush off plans for towers downtown and improved housing starts boost demand in the suburbs for retail projects.

 

But this year will be characterized by hard bargaining on prices and incentives as doubts remain about the depth and speed of the economic recovery.

 

While Metro Vancouver retail remains "the most sought-after property type" in Canada, according to a third-quarter report by Avison Young, sales tallies are off across the board from the second quarter as activity slowed in the second half of 2010 to the lowest level since the first quarter of 2009.

 

Overall investment sales totalled $527.3 million in the third quarter of 2010, including $68.8 million worth of office deals and $143.7 million worth of retail sales.

 

Those deals include South Surrey's South Point Exchange, which sold to a private investor for $91 million, and Bosa Development Corp.'s sale of Semiahmoo Shopping Centre to First Capital Realty Inc. for $82.7 million - both driven by strong growth in surrounding residential communities.

 

But the deals also highlight the shift from the bargain-taking deal-making that characterized the first half of the year to a strategic rejigging of portfolios in the second half that heralds more stable conditions as owners prepare for the long term.

 

Based on interviews in the third quarter, Colliers International reported that 61 per cent of investors were looking to expand their portfolios, down slightly from six months earlier when 65 per cent were looking to expand. On the other hand, approximately 22 per cent were looking to rebalance.

 

Close to two-fifths of respondents attributed the shift in emphasis to a desire to shift asset classes, while other key factors were linked to advantages to be gained from location, liquidity and leverage. Approximately 17 per cent were looking to trade up or trade down and 6 per cent were looking to increase leverage.

 

A further 28 per cent refused to disclose the reasons for rebalancing their portfolios, but the several factors point to a hunkering down for the long term in the face of lacklustre growth for the year ahead.