Fewer buildings for sale leads to increased interest in land
Ottawa was the only major Canadian city to see commercial real estate transaction volumes fall in 2011, a year marked by rising investor confidence and easy access to capital, according to a recent study.
CB Richard Ellis reported that $886.5 million worth of commercial real estate changed hands in the nation's capital last year, an 11.4-per-cent decline from 2010.
However, one investment expert says the closing of several major deals - namely Allied REIT's $100-million acquisition of the Chambers office complex on Elgin Street - were pushed back into 2012 and will be counted in this year's statistics.
Had those deals come together by the end of 2011, Ottawa's numbers would have been on par with previous years, says Nico Zentil, a senior sales representative at CB Richard Ellis.
Ottawa's government stability makes the city an attractive market for investors. However, that same stability means many investors want to hold income-generating assets in this city for the long term, creating a shortage of available product for sale.
That helped drive a tripling of land sales in 2011, according to CB Richard Ellis.
On the residential side, condo builders are continuing to purchase development properties at prices that assume the city will approve greater height and density, says Mr. Zentil.
Meanwhile, retail developments are driving up the value of commercial land.
"For big-box retail land, we're seeing new high-water marks set for pricing, peaking at $800,000 an acre," he says.
Mr. Zentil says he anticipates investment volumes in 2012 will outpace last year's levels, fuelled by attractive debt markets.
"There is no shortage of capital," he says.
"Ottawa ... is perceived as a very attractive risk profile, offering investors good, stable returns. There is a ton of capital out there waiting to be deployed into a limited amount of product."
Likewise, Colliers Ottawa sales representative Jordan Bianconi says the relatively low supply of properties on the market, combined with a high demand for local assets - particularly among private syndicates and real estate investment trusts -‒ are resulting in many off-market deals.
"A lot of people don't want to let go of the product that they own because they are not sure where they are going to park their money once they sell," he says.
"You have to start knocking on doors to create opportunities."