A couple of commercial real estate projects have made the news in Victoria this week. One story discusses how Evergreen Centre, Sooke’s largest shopping centre, is in the process of being sold to a new owner. This commercial property, home to a largest supermarket, a national bank branch, and a retail and pharmacy store, will be managed by LAPP Global Asset Management, an affiliate of IGW REIT, one of Canada’s largest private real estate investment trusts. Sooke, a bedroom community of Victoria, BC, is growing fast. Land in BC’s Capital Region is at a premium (Victoria, after all, is located at the tip of an island, and is hemmed in by ocean, mountains, farmland, and land reserved for green space), so Sooke has a bright future. The population is affluent, and the community itself is extremely desirable, as it will likely escape the explosive growth of its sister-municipalities to its west.

The second bright spot for commercial real estate in BC this week is the announcement that Victoria’s Plaza Hotel will finally be renovated, once again with a little help from League. The Plaza Hotel, most famous in Victoria for being the home of Monty’s Showroom Pub (a strip club) is the last remaining commercial building in its neighbourhood to await revitalization. Mountain Equipment Co-op has moved in across the street, as well as a number of nice new condominiums,so the Plaza Hotel looks positively blighted in comparison (especially when contrasted with chic Lower Johnson, just a block away).

Plans for the Plaza Hotel include mixed use affordable housing, market condominiums and commercial opportunities at street level. As well, the somewhat less-than-stellar backside of the hotel may be converted into a street-level open-air cafe.

Here’s more information about the two League Assets-related projects.

Add these stories about the second phase of the Uptown Project and the recent addition of a new movie theatre to the Westshore region, and the Victoria BC commercial real estate scene is looking very rosy indeed.

- Charles Edwards frequently blogs on Canadian REIT topics

One blogger in Toronto believes the next 10 years may be better than the last 10 years, in regards to what commercial real estate gets built. The last 10 years, Bert Archer notes, have not been great for creative and visionary real estate projects in Toronto. One reason is because of the Megacity:

Local architects haven’t been able to navigate their way through all the committees, boards and panels that have to sign off on anything before it gets built.

“It’s become a very, very complex group of problems… We have the municipal planning process, planners, ratepayer councils, design review panels, neighbourhood design charettes. You don’t just have a client anymore, you have a huge collaborative effort.

And it’s not just that there are so many of them; it’s that they all seem to be going in different directions.

Archer, though looks on the bright side: for most of the past 100 years of urban architecture, building design has always been constrained by municipal rules, and he uses the iconic Empire State Building and Chrysler building in New York as examples.

Archer also points out that Toronto is a leader in “adaptive resuse”, that is, converting buildings from their original purpose or function into something that is more useful to contemporary society. Essentially, the constraints of municipal regulations and red tape are forcing architects to be creative. There may not be an star architectural attractions recently in Toronto, but on a different level architects and planners are still being responsive to market demands for artistry.

And this bodes well for the future of commercial real estate over the next ten years in Toronto.

- Charles Edwards frequently blogs on Canadian REIT topics

The world’s largest real estate services firm CB Richard Ellis reports that the strength of British Columbia’s resource sector is the driver pushing Metro Vancouver’s office vacancy rates back down. CBRE tracked buildings with 22 million square feet of space, and found a vacancy rate of 4.3 per cent at the end of June versus 5.6 per cent at the same point of last year.

Avison Young has found the same thing in its Mid-Year 2011 Metro Vancouver Office Market Report:

The overall Metro Vancouver vacancy rate declined to 7.6% at  mid-year 2011 from 8.4% at year-end 2010. Downtown vacancy slipped to 5% from  5.2%. If the space availability factor (SAF) is taken into consideration, Downtown’s effective availability rate is currently 7.2%, relatively unchanged over the past 12 months.

Says  said Anthio Yuen, senior researcher in Vancouver with CB Richard Ellis:

“Downtown definitely has moved back toward pre-recession levels in terms of vacancy.”

Incremental growth in the sectors of B.C.’s economy that are now doing well that is bringing the vacancy rate down, especially the resource sector.

-  Charles Edwards frequently blogs on Canadian REIT topics.

REITs may be a good way to hedge against inflation, according to Brad Case, VP of Research and Industry Information at NAREIT.

In this audio clip, Case talks about a recent NAREIT study looking into using REITs as an inflation hedge, and discusses REIT Benchmarks and study results that indicate when REITs can effective as an inflation hedge in various economic periods. Case also mentions that teal estate as a diversifier and inflation hedge and other areas of REIT research

Aimed at commercial real estate professionals, REITCafe offers frequently updated news, interviews with REIT strategists and a library of quarterly REIT earnings calls. REITCafe publishes its content daily, and sends out updates and posts via Twitter, LinkedIn and email newsletters to ensure that its followers are always up-to-date on what is happening in the world of REITs.

REITCafe is owned  Trepp, which provides CMBS and commercial real estate information and analytics.

- Charles Edwards frequently blogs on private REIT topics.

Industrial REITs are buying land in Florida again. Denver-based DCT Pan American has purchased a 14.7-acre vacant site in Doral (located in Miami-Dade County) for a 65 percent discount off of the distressed property’s mortgage. The site was purchased for $14 million in 2008 but acquired by DCT for $3.13 million. EverBank had foreclosed on the property’s $8.85 million mortgage.

Indeed, after claiming the dubious title as “default capital of the US”, Florida’s real estate market is showing signs of rebirth, led by affluent buyers, many of them foreign (and, presumably, Canadian).  Reports the New York Times:

Much of Miami is gripped by a housing mania as the oversupply of distressed homes dries up and foreigners and investors swoon. Only a few years after it seemed there were so many unwanted high-rise condominiums that the only solution was to tear some of them down, there are plans to build even more… Prices, after a brutal drop, are firming up or even increasing. During the first six months of the year, there were 439 sales for at least $2 million, up 13 percent from last year.

Part of the rebound has been a result of a crackdown on “foreclosure mills”, or legal firms that used unscrupulous methods to claim properties during the crash. Legal challenges against these businesses have slowed the process of foreclosures, giving a market a reprieve from its downward spiral, allowing property prices to remain relatively stable, yet low enough for other investors to swoop in and purchase them.

In Florida, many of these purchasers are foreign, benefiting not only from low real estate prices, but also a weak US dollar.

But is the real estate rebound sustainable? Concludes the Times:

In the meantime, the South Florida market is busy, although it offers a problematic blueprint for a national recovery. For the traditional buyer who wants to put down no more than 20 percent, loans are somewhere between tough and impossible. Many of the sales are to investors, rich people or foreign citizens benefiting from a weak dollar.

- Charles Edwards frequently blogs on real estate investing.

Moody’s reports that the commercial real estate market is improving in the United States during the first quarter of FY2011, with apartment units showing the most improvement.

Commercial real estate generally is divided into five main categories: Office, industrial, retail, hospitality and apartments, sometimes referred to as the multifamily sector. Moody’s ranks markets’ health on a scale of zero to 100, with the highest score representing a stronger market. The U.S. apartment market registered a score of 88, while the overall commercial real estate market ranking for the nation increased two points to 67.

Says one analyst:

Market conditions improved in the first quarter of 2011 and Moody’s projects that the commercial real estate sector will continue on a positive trend. The report notes that commercial space is being leased at a rate that could exceed the rate of increase in supply. The projection that this gap could be closed is welcome news in the industry.

- Charles Edwards frequently blogs on Canadian REIT topics

The Moody’s/REAL Commercial Property Price Index rose 6.3 percent from April, the largest gain since the measure began in 2000.

U.S. commercial property prices increased in May for the first time in six months as a rebound in distressed real estate helped boost values, according to Moody’s Investors Service.

“A number of transactions that were recorded in May had their most recent prior sales in 2009 as the market was beginning to bottom and subsequently traded for substantial returns,” Tad Philipp, director of commercial real estate research at Moody’s, said in a separate statement. “We are likely to see a pickup in post-peak repeat sales and expect such transactions to play an important role in helping drive the CPPI higher.”

Moody’s/REAL Commercial Property Price Index is down 11 percent from a year earlier and 46 percent below the peak of October 2007, the company said today.

- Charles Edwards frequently blogs on real estate investing.

According to Avison Young, the prospect of new development once again circulating in Downtown Toronto. Activity in the midtown and downtown markets is robust with demand from a wide spectrum of user groups seeking varying space requirements. This has led to the anticipation of new office development once again in DowntownToronto:

Compared to the suburbs, the downtown and midtown markets are in much better shape, displaying strong, consistent tenant interest, with availability and vacancy rates firmly in single-digit territory. Midtown closed out the first quarter of 2011 with availability and vacancy rates of 8.5% and 7.4%, respectively. Downtown saw its overall availability rate drop to a two-year low, presently at 8.9%. Vacancy sits even lower at 6.6% – down 200 bps from one year ago.

Avison Young has published their First Quarter 2011 GTA Office Market Report here (pdf).

Colliers has published its Canada Retail Report for Spring 2011, which can be downloaded here (pdf).

The report provides plenty of useful information. Small snippets of the report are provided (and often regurgitated) by many news outlets, but it’s always better to read the report in its entirety.

The theme of the spring 2011 report is Canadian Economy Lures International Retail Interest:

Not since Walmart’s 1994 acquisition of Woolco stores has the topic of U.S. retailers’ expansion into Canadian markets attracted so much attention. Despite the fact that U.S. retailers such as Best Buy, Sears, Home Depot and Costco have been operating in Canada for years, the formal announcement of Target acquiring 220 Zellers stores continues to be a huge story in Canadian retail – and it could continue to be the biggest story for a decade.

According to Colliers, one of the most compelling factors for U.S. retailers is the value of the Canadian dollar relative to the U.S. dollar. With a stronger Canadian dollar, it becomes increasingly worthwhile to establish Canadian stores rather than to sell only to those Canadian customers who shop online or on cross-border trips:

For some U.S. retailers, Canada is the largest, closest and/or most similar market to the U.S., and represents a logical next move now that the economic conditions are right.

Food will be a critical part of Target’s business model, according to top company brass  at the Honda Indy race in Toronto. Fresh food is big business for Canadian retailers.

According to Colliers International:

The grocery business in Canada is significant, worth $111.8 billion, or 38 percent of the $294.3 billion of non-automotive retail sales in 2010,

By 2013, Target will be a big presence here following its $1.8-billion deal with Hudson’s Bay Co. earlier this year to buy leases of up to 220 Zellers stores and convert them to the Target name. The U.S. chain expects to ultimately roll out 200-plus outlets in Canada, hitting $6 billion in annual sales by 2017.

According to Colliers:

• Walmart Supercentres (66 stores in 2009) increased total grocery retail sales in Canada from $130 million in 2006 to nearly $1.98 billion in 2009; in the process, it increased its share of the total Canadian grocery retail market from 0.1% to 1.8% in just 3 years.
• Costco (77 stores in 2009) increased total Canadian grocery retail sales from $4.98 billion in 2006 (5.3% market share) to $6.0 billion in 2009 (5.6% share).