Canadian Market Overview
The Canadian economy grew by 2.5 percent in 2011 and is forecast to better that performance in 2012, with expected GDP growth of 2.6 percent. The U.S. economy looks to continue on an upward trajectory, supporting Canada’s export oriented industries. With healthy balance sheets, availability of low interest financing and access to capital through debt and equity markets, Canadian Corporations are well positioned for expansion. This corporate strength is reflected in the Bank of Canada’s most recent Business Outlook survey, indicating that the majority of companies plan to invest in machinery, equipment and/or additional employees. Supporting both retail property performance and demand for warehousing and distribution facilities, consumer spending is anticipated to grow at a pace similar to 2011.
Metro Vancouver Market Overview
The Metro Vancouver retail market has remained relatively insulated from the struggling global economy. Consumer retail sales increased, climbing from $2.64 billion in December 2010 to $2.74 billion in December 2011 and the retail investment market continued to be active. Investment transaction totals decreased from 32 transactions in 2010 to 23
transactions in 2011 and total value decreased from $800 to $600 million. While this may appear to be a negative trend, 2011’s figures were still quite strong, with 2010 posting irregularly high figures due to pent-up demand following the 2008 recession.
In the first quarter of 2012 foreign retailers (mainly U.S.) continued to enter the Metro Vancouver market, attracted by the strong local economy. Canadian retailers Le Chateau, Sterling Shoes and Sears shut down locations in Vancouver as they were unable to compete with the low-priced foreign retailers. In the months to come, it is anticipated there will be an increase in national and international retailers looking for prime space, with available investment properties purchased quickly as demand continues to outweigh supply.
With the continuation of low interest rates and limited supply, demand for the purchase of retail properties remains steady. The value in stratification of retail properties continues to be seen by both landlords and tenants with many existing properties and new developments being sold rather than leased. While private investors lead the market in the under $20 million category, Institutional, REIT and public purchasers focus on the plus $20 million category. Private investors account for 49.0 percent of the total value of investment purchases.
As demand continues to trump supply in Metro Vancouver, development companies are becoming more aggressive as they quickly acquire potential retail properties. A large amount of new retail space – approximately seven million square feet – will be added to the market in the next three years. Whether all of these projects and other future and proposed developments will be fully absorbed and successful, is uncertain. The centres with the highest success rates will be in areas with high population growth, proximity to SkyTrain stations and near major transit routes.
Over the past quarter, leasing activity was steady with premium locations and well-anchored projects garnering the most interest. Non-key retail areas were less active, with streets such as Granville and West 4th experiencing increased vacancy. To ensure that vacancy does not continue to increase in these secondary markets, landlords have been more willing to negotiate by lowering rental rates and offering tenant inducement packages.
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