Lacombe, AB -- (SBWIRE) -- 09/10/2014 -- Private buyers squeezed out pension funds in the commercial real estate market during the second quarter, according to a new report.
CBRE Ltd, a real estate company that provides data on the market, said despite the strong interest from private investors, the dollar volume of investment activity dropped sharply from a quarter earlier.
The total value of commercial real estate that changed hands in the second quarter was $5.1-billion, down from $6.7-billion in the first quarter.
“Volume came off a bit in the second quarter but more deals were processed and the lack of summer lull bodes well for the remainder of the year,” said John O’Bryan, chairman of CBRE in Canada, in a release.
The actual number of transactions was up 9.7% but it was driven by a lot of smaller deals that institutional players like pension funds would have no interest in.
Mr. O’Bryan noted while commercial prices continue to remain near or record highs, there is still strong demand from investors looking for a place to park their money.
“While this investment cycle may seem long in the tooth, an abundance of capital is still waiting to be place. Any hesitation caused by the current pricing is quickly trumped by the promise of healthy, stable returns which commercial property in Canada continues to offer,” said Mr. O’Bryan.
In total, pension funds accounted for 11.4% of commercial property purchases in the second quarter, down from 31.6% in the first quarter. Private investors bought 61.6% of real estate, up from 39.6%, a quarter earlier.
Publicly-traded real estate investment trusts, unable to compete because their own valuations have been depressed, continue to struggle to find real estate.
REITs made up only 8.7% of purchases in the second quarter, down from 11.5% a quarter earlier.
“You have to think that the REITs are near the bottom in terms of purchasing activity. I would expect REITs will be more active going forward,” said Ross Moore, director of research for CBRE in Canada, in a statement.
Despite 1,000 fewer builds than 2014, new construction of multi-family housing in the Calgary area should still out-pace all urban centres in Alberta next year, says CMHC. The Edmonton area is expected to come in second with 6,400 multi-family starts next year. But in 2015, the Calgary area is expected to lose the lead in single-family starts, with the Edmonton area slated for 6,500. Across Alberta, housing starts are expected to grow by seven per cent this year, with shovels turning out 38,600 homes. That total should recede next year, with 36,800 slated to break ground, CMHC says.
“The resale market will (become) more competitive, drawing some sales away from the new home market in 2015,” says Cho. In Alberta this year, 69,900 homes are expected to change hands on the resale market. Next year, it’s slated for a three per cent uptick to 71,900 sales.
Behind Alberta’s two biggest cities, Red Deer is forecast to see 865 starts on a variety of homes in 2014, 10 per cent more than the 784 homes a year earlier.
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