commercial real estate investment analysis€¦ · estate (cre) investment in the edmonton market...

Prepared by Barclay Street Real Estate

COMMERCIAL INVESTMENT ANALYSIS

COMMERCIAL REAL ESTATE INVESTMENT ANALYSIS

Overview

1-2Office Investment

3Retail Investment

4Industrial Investment

5Multi-Residential Investment

6ICI and Residential Land Investment

7

TABLE OF CONTENTS

2015 2016 Year-Over-Year Change

Total Dollar Volume $1,325,321,344 $1,839,222,388 $513,901,044

Volume Excluding

Residential Land$1,189,658,699 $1,651,993,964 $462,335,265

Residential Land Only $135,622,645 $187,228,424 $51,605,779

PREPARED BY BARCLAY STREET REAL ESTATE

w w w . b a r c l a y s t r e e t . c o m

Director of Research – Anthony B. Scott403-290-0178 • [email protected]

DURING 2016, COMMERCIAL REAL ESTATE (CRE) INVESTMENT IN THE EDMONTON MARKET PROVED RESILIENT THROUGH THE SECOND YEAR OF AN ONGOING RECESSION, PARTICULARLY AS THE YEAR PROGRESSED AND FAVOURABLE NEWS SUCH AS THE FEDERAL APPROVALS OF THE TRANS MOUNTAIN EXPANSION AND LINE 3 UPGRADE WERE GRANTED. Previously dampened investor sentiment gave way to a sense of optimism that the worst of the downturn had passed, resulting in more than $1.03 billion being invested in commercial properties during the latter half of 2016.

Tracking sales greater than or equal to $1 million, more than $1.8 billion was invested across the Office, Retail, Industrial, Multi-Residential and ICI/Residential land asset classes during 2016. In comparison, $1.3 billion transacted over the course of 2015, which represented a significant decrease from the $2.1 billion invested in 2014. Several significant shifts in investor focus

were noted; investor activity among retail properties was up 64%, which resulted in dollar volume more than tripling in this asset class. Further, dollar volume increases were seen in the Multi-Residential and Industrial asset classes. Notably, investment volume was down in the ICI Land and Residential Land asset classes by 20% and 32%, respectively, which is reflective of generally lessened activity coupled with an increased appetite for partial-acre properties which come with smaller price tags. Year-over-year office investment was flat. Barclay Street tracks activity level (the number of transactions) by property price range, which demonstrates a continuing across-the-board focus by investors on properties priced less than $5 million but with a notable uptick in purchases of properties priced between $5 million and $10 million.

Overall, a healthy appetite remained for quality properties while sustained demand was demonstrated for older, less sought-after properties in the hunt for bargains. This is best shown by the

EDMONTON YEAR-END 2016

“A pleasant surprise! While expectations were that CRE investment in the Edmonton market would decline, we have seen strong overall demand and spending, particularly on Retail properties over the course of 2016, shifting from ICI Land the previous year. The remaining asset classes largely remained stable and generally exceeded analysts’ expectations.”

David Wallach, CCIM, President & Broker

Barclay Street Real Estate

Year-End 2016 • Edmonton


2

dichotomy seen in commercial office transactions, particularly

during the first half of 2016; both commercial office buildings and office condominium developments were in demand but were of very different qualities, and therefor pricing, on a per square foot basis. With this in mind, Barclay Street sees long-term confidence in Edmonton’s investment market, as evidenced by the prices paid per square foot, per unit (Multi-Residential) and per acre across all CRE asset classes, which in most cases exceed 2011-2013 pricing; widely regarded as boom years for Alberta’s economy.

7%

10%

24%

22%%

16%

21%5%

26%

24%

25%

14%

6%

Office Office

Retail

Retail

Industrial

IndustrialMulti-Residential

Multi-Residential

ICI Land

ICI Land

Residential Land

Residential Land

TOTAL DOLLAR VOLUME TOTAL SALES ACTIVITY

$1.35 BILLION 294 SALES

$1.84 MILLION 302 SALES

2015 VS. 2016 TRANSACTION ACTIVITY DISTRIBUTION, PERCENTAGE OF TOTAL SALES

2015 COMMERCIAL REAL ESTATE INVESTMENT SALES OF $1 MILLION AND GREATER

2016 COMMERCIAL REAL ESTATE INVESTMENT SALES OF $1 MILLION AND GREATER

20152015

20162016

Multi-Residential

RetailOffice

Residential LandICI Land

Industrial

0%

50%

100%

$1 million -$3 million




$25 million plus0%

50%

100%





$25 million plus

0%

50%

100%


$3 million - $5 million



$25 million plus0%

50%

100%





$25 million plus

g

0%

50%

100%





$25 million plus0%

50%

100%





$25 million plus

DOLLAR VOLUME

SALESACTIVITY

$90M 27 Sales

$85M 31 Sales2016 2016

2015 2015

DOLLAR VOLUME

SALESACTIVITY

$315M 85 Sales

$446M 80 Sales2016 2016

2015 2015

DOLLAR VOLUME

SALESACTIVITY

$218M 63 Sales

$174M 37 Sales2016 2016

2015 2015

DOLLAR VOLUME

SALESACTIVITY

$138M 33 Sales

$483M 54 Sales2016 2016

2015 2015

DOLLAR VOLUME

SALESACTIVITY

$289M 45 Sales

$464M 53 Sales2016 2016

2015 2015

DOLLAR VOLUME

SALESACTIVITY

$275M 41 Sales

$187M 50 Sales2016 2016

2015 2015

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016



3

Office Investment

THE OFFICE INVESTMENT MARKET IN EDMONTON SAW 31 OFFICE TRANSACTIONS DURING 2016, TOTALLING $85.5 MILLION, DOWN SLIGHTLY FROM $89.7 DURING 2015.

2012 2013 2014 2015 2016Total $ Volume $316,491,537 $331,146,760 $241,427,055 $89,703,950 $85,510,735# of Transactions 32 18 20 27 31Avg. Bldg. Price per Square Foot $258 $290 $245 $330 $272Average Price Per Transaction $9,890,361 $18,397,042 $12,071,353 $3,322,369 $2,758,411Average Building Size (sf) 38,318 63,466 52,235 12,473 13,308

OFFICE TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

C Class properties which sold for an average of $219 p/sf price per square foot (p/sf). This is about $20 lower per square foot than was achieved during 2015.

A significant contributor to overall investment in this asset class was strong activity among office condominium developments. Barclay Street has noted an emerging and growing interest in ownership versus leasing in the Calgary market we noted in an previous report that this model has also successfully taken hold in the tertiary market of Fort Saskatchewan. Given the still uncertain macroeconomic environment, small to mid-sized professional services firms have been drawn to the ownership model as it offers the opportunity to build equity. Interestingly, of the 12 office condo purchases, half were made by two companies; 1711555 Alberta Ltd and 1756768 Alberta Ltd. Office condominiums sold for an average of $356 p/sf and this served to increase overall average prices in this category.

Referring to Barclay Street’s investor activity chart below, our analysis shows that investors continued to focus heavily on office properties priced in the $1 million to $3 million dollar range.

2016 OFFICE INVESTMENT ACTIVITY DISTRIBUTION

AVERAGE PRICE PER SQUARE FOOT

0

5

10

15

20

25

30

35

40

2008 2009 2010 2011 2012 2013 2014 2015 2016

NUMBER OF TRANSACTIONS

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

$900,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

$TOTAL $ VOLUME

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ork

$0

$50

$100

$150

$200

$250

$300

$350

2008 2009 2010 2011 2012 2013 2014 2015 2016

Given the city’s construction pipeline and the current economic down cycle, from which the city has not quite yet emerged, higher than average vacancy is expected to continue driving landlords to sell underperforming assets. While average price per square foot for office buildings declined, however, the trend is more indicative of building class and seller motivation during the second year of a recession.

Investor activity during 2016 increased by 15% year-over-year, due largely to the aforementioned interest in smaller, generally less-desirable office buildings. This particular activity was responsible for the majority of total dollar volume invested in the commercial office asset class, bolstered by the purchase of 10242 105th Street by Wentworth Properties for $18.5 million; the largest office building purchase of the year. As noted earlier, the commercial office properties changing hands were typically B and

23 Sales, 74.2%

6 Sales, 19.4%

1 Sale, 3.2%

1 Sale, 3.2%







4

Retail Investment

INVESTMENT DOLLAR VOLUME DURING 2016 WAS FROTHY.Total dollar volume was 350% of that transacted over the course 2015, boosted by dropping by seven sales greater than $10 million and three sales of more than $45 million. Service stations were a notable source of retail investment, with 7-Eleven purchasing seven locations from Imperial Oil. One additional service station was sold by a private owner to a private investor. In total, these eight transactions accounted for approximately $52 million and

RETAIL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

came at a substantial price per square foot of $629. Overall price per square foot for retail properties increased substantially over 2015 values and surpassed 2013 levels. Investor activity also increased substantially, rising 64% above 2015 levels. Referring to the activity distribution chart below, Barclay Street’s analysis shows that while the majority of activity occurred with retail properties priced between $1 million and $3 million dollars, bigger-ticket properties were once again on investors’ radar in a meaningful way. The top three transactions – 9530 170th Street (Terra Losa Shopping Centre), 9450 137th Avenue (North Town Centre) and 2004 38th Avenue (RioCan Meadows Shopping Centre) – together comprised nearly half of 2016 total dollar volume.

2016 RETAIL INVESTMENT ACTIVITY DISTRIBUTION

$0

$50

$100

$150

$200

$250

$300

$350

$400

2008 2009 2010 2011 2012 2013 2014 2015 2016

AVERAGE PRICE PER SQUARE FOOT

NUMBER OF TRANSACTIONS TOTAL $ VOLUMESo

urce

: The

Net

wor

k

2012 2013 2014 2015 2016Total $ Volume $685,056,341 $240,003,499 $356,600,076 $138,038,238 $482,888,288# of Tran ons 49 43 50 33 54Avg. Bldg. Price per Square Foot $237 $320 $305 $239 $375Average Price Per Tran on $13,980,742 $5,581,477 $7,132,002 $4,182,977 $8,942,376Average Building Size (sf) 59,109 18,125 34,046 18,794 29,628

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

$800,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

$

24 Sales, 44.4% 8 Sales, 14.8%

12 Sales, 22.2%

7 Sales, 13.0%

3 Sales, 5.6%

$1 million - $3 million $3 million - $5 million



$25 million plus



5

Industrial Investment

FOR WELL-CAPITALIZED INVESTORS, THE SECOND YEAR OF ALBERTA’S RECESSION PROVIDED A PLETHORA OF QUALITY OPTIONS, AS ELEVATED INDUSTRIAL SECTOR VACANCY LOWERED VALUATIONS ON PROPERTIES IN THE EDMONTON AND AREA MARKETS.The situation in 2016 represented an opportunity to negotiate discounts on industrial assets and the sizeable increase in investment dollar volume shows they did just that. While only two years ago, vendors were reluctant to haggle on price to move their real estate, we have seen increased

INDUSTRIAL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

willingness on their part to meet market pricing. This change in mindset contributed to a significant lift of investment levels in Edmonton’s industrial market, posting a 42% year-over-year increase in dollar volume. A slight year-over-year decrease in prices per square foot, however, has been noted.

The Industrial sector demonstrated relatively consistent investment activity during 2016, with 80 industrial property transactions closing versus 85 during 2015. Referring to the distribution chart below, Barclay Street’s analysis demonstrates that more than half of investor activity occurred with industrial properties priced in the $1 million to $3 million dollar range. As with the retail asset class, properties commanding a premium were once again on investors’ radar. Compared to 2015, there was a 40% increase in property purchases of $10 million plus which included the PIRET purchase of 12810 170th Street from ARTIS for %57 million.

2016 INDUSTRIAL INVESTMENT ACTIVITY DISTRIBUTION AVERAGE PRICE PER SQUARE FOOT

NUMBER OF TRANSACTIONS TOTAL $ VOLUMESo

urce

: The

Net

wor

k

2012 2013 2014 2015 2016Total $ Volume $430,366,599 $621,302,291 $423,331,760 $315,031,543 $445,979,265# of Transactions 83 132 97 85 80Average Price per Square Foot $178 $158 $184 $199 $177Average Price $5,185,140 $4,706,836 $4,364,245 $3,706,253 $5,574,741Average Building Size (sf) 34,866 39,753 31,965 24,504 41,596

$-

$50

$100

$150

$200

$250

2008 2009 2010 2011 2012 2013 2014 2015 2016

0

20

40

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140

2008 2009 2010 2011 2012 2013 2014 2015 2016$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

$

44 Sales, 55.0% 16 Sales, 20.0%

10 Sales, 12.5%

7 Sales, 8.8%

3 Sales, 3.8%




$25 million plus



6

Multi-Residential InvestmentMULTI-RESIDENTIAL TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

2016 MULTI-RESIDENTIAL INVESTMENT ACTIVITY DISTRIBUTION

NUMBER OF TRANSACTIONS TOTAL $ VOLUME

Sour

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$-

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

0

10

20

30

40

50

60

70

2008 2009 2010 2011 2012 2013 2014 2015 2016$0

$50,000,000$100,000,000$150,000,000$200,000,000$250,000,000$300,000,000$350,000,000$400,000,000$450,000,000$500,000,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

OVER THE COURSE OF 2016, EDMONTON’S MULTI-RESIDENTIAL MARKET EXPERIENCED A 60% INCREASE IN YEAR-OVER-YEAR INCREASE IN DOLLAR VOLUME, WITH APPROXIMATELY $464 MILLION INVESTED. The primary contributor was renewed investor focus on big-ticket assets, with eight transactions priced at or greater than $25 million. This asset class continues to appeal to purchasers seeking a relatively stable cash flow and with Multi-Residential vacancy remaining at approximately 7%*, this asset class remains healthy and low mortgage rates provide additional incentive for prospective buyers.

The above-noted activity pertaining to large assets is noteworthy as the transactions taking place at this level made a substantial impact on total investment number, representing 67% of dollar volume in this asset class versus 41% in 2015. Of note, these large assets averaged approximately $39 million and 193 units versus the four transactions averaging $29.5 million and 134 units sold during 2015. The most informative metric in this asset class, the price per unit, showed a 5% year-over-year decrease.

In terms investment activity, the Multi-Residential sector witnessed a small increase versus that seen during 2015, with 53 transactions completed versus 45 one year prior. Referring to the distribution chart below, Barclay Street’s analysis shows 57% of activity in this asset class occurred with properties in the $1 million to $3 million dollar range with a substantial increase in mid-priced assets and the above noted $25 million plus category.

2012 2013 2014 2015 2016Total $ Volume $201,891,312 $297,041,684 $325,246,716 $289,110,217 $463,718,535# of Transactions 59 59 64 45 53Average Price per Unit $100,204 $118,542 $133,198 $141,482 $134,309Average Price $3,421,887 $5,034,605 $5,081,980 $6,424,671 $8,749,406Average Building Size (Units) 28 39 32 41 53

AVERAGE PRICE PER UNIT

30 Sales, 56.6% 5 Sales, 9.4%

9 Sales, 17.0%

1 Sale, 1.9%

8 Sales, 15.1%


$5 million - $10 millio

$10 million - $25 milli

$25 million plus

‡ Source: Canada Mortgage and Housing Corp. (CMHC) rental market report for October, 2016. Via Edmonton Journal. (November 28, 2016). http://edmontonjournal.com/business/local-business/alberta-rental-vacancy-rate-climbs-to-8-1-per-cent-from-5-6-per-cent



7

ICI & Residential Land Investment

THE ICI (INDUSTRIAL, COMMERCIAL AND INVESTMENT) LAND SECTOR CONTRIBUTED $174 MILLION OF THE $361 MILLION IN TOTAL LAND SALES GENERATED DURING 2016. The average ICI transaction sat at $2.3 million, with seven transactions greater than $10 million; the largest being the purchase of 10.1 acres at 7319 29 Avenue by M.S.C. Ventures Ltd from The Board Of Governors Of Grant Macewan University.

In terms investment activity, the ICI Land asset class saw a notable reduction with 37 transactions completed versus 63 one year prior. Similarly, dollar volume in this asset class was down to about 80% of that registered during 2015. Barclay Street’s analysis shows that the greatest reduction in activity occurred at the low end of the investment scale; there were 22 transactions between $1 Million and $3 million in 2016 versus 44 the previous year. There was a significant withdrawal on investors’ part from properties priced in the $3 million to $5 million range and an absence of purchases above $25 million.

ICI & RESIDENTIAL LAND TRANSACTIONS OVER $1 MILLION (TOTAL ANNUAL)

Residential Land sales, when compared to 2015, demonstrated a significant dollar volume decrease of 22% percent to 187 million. Investor activity, however, was up, with nine additional transactions. The discrepancy lies in the shift in size and sale price of land; considerably more purchases were made in the $1 million to $3 million range, while there was a near absence of transactions between $10 and $25 million. The two most significant purchases of the year were the sale of 131.5 acres at 20411 118A Avenue for $28.2 million to Yellowhead Lands CP Inc. and the purchase of 60 acres at 1821 Rabbit Hill Road for $16.6 million by Windermere At Glenridding Inc.

Combined, the land sector saw the average price per acre increase to $472,000 /acre for 2016, versus $319,000/acre at mid-year 2015. As noted in our Mid-Year CRE Investment Analysis, land sales of less than one acre in the ICI and Residential Land sectors have been identified as a significant contributor to this inflation. ICI Land saw 5 partial land transactions for an average price of $3.6 million/acre and Residential Land saw 10 partial land transactions for an average price of $4.6 million/acre. Looking ahead, a shift in focus may be taking place towards partial-acre land sales.

ICI+RESIDENTIAL AVERAGE PRICE PER ACRE

ICI+RESIDENTIAL NUMBER OF TRANSACTIONS ICI+RESIDENTIAL TOTAL $ VOLUME

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2012 2013 2014 2015 2016Total $ Volume $679,795,944 $840,219,090 $766,549,218 $493,437,396 $361,125,565# of Tran ons 157 141 156 104 87Average Price per Acre $241,251 $203,562 $317,257 $318,817 $472,677Average Price $4,329,910 $5,959,000 $4,913,777 $4,512,179 $4,222,246Average Land Area (Acres) 24 21 12 21 5

$- $50,000

$100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

$0

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

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2008 2009 2010 2011 2012 2013 2014 2015 2016

0

20

40

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180

2008 2009 2010 2011 2012 2013 2014 2015 2016

29 Sales, 58%

12 Sales, 24%

7 Sales, 14%

1 Sale, 2%

1 Sale, 2%$1 million - $3 million




$25 million plus

2016 YTD RESIDENTIAL

LAND INVESTMENT

ACTIVITY DISTRIBUTION

22 Sales, 59.5%

4 Sales, 10.8%

4 Sales, 10.8%

7 Sales, 18.9%$1 million - $3 million




2016 YTD ICI LAND

INVESTMENT ACTIVITY

DISTRIBUTION



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L O C A L E X P E R T I S E M A T T E R S

INVESTMENT TEAM 780-463-3332BARCLAY STREET REAL ESTATE

KELLY CARVERVICE PRESIDENT, ASSOCIATE [email protected]

GEORGE LARSONVICE [email protected]

NICHOLAS [email protected]

DAN HARMSENVICE PRESIDENT, ASSOCIATE [email protected]

CASEY STUARTVICE [email protected]

DOUG GRINDEVICE [email protected]

DAVID WALLACHCCIM, PRESIDENT, [email protected]

JON MOOKEXECUTIVE VICE [email protected]

EDMONTON

403-290-0178CALGARY

KALINKA IVANOVARPA, CCIM, [email protected]

The information contained herein was obtained from sources which we deem

reliable and, while thought to be correct, is not guaranteed.

© 2017 Barclay Street Real Estate Limited. All Rights Reserved. E. & O.E.: This report or any portion thereof may not be reproduced or used

in any manner whatsoever without proper citation given to the publisher.

commercial real estate investment analysis€¦ · estate (cre) investment in the edmonton market...

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