The Commercial Leasing market in Greater Victoria appears stable with a return to a more normalized market following the run up in 2007-2009 and subsequent slowdown through the last half of 2009 into 2010. The following observations have been noted:
- Vacancy rates in all sectors have increased to a more healthy level.
- Lease rates have decreased somewhat in sympathy to both the increased vacancy rate and the challenging economic environment.
- Class "B" Office Space is experiencing a challenging environment with significant new supply coming on the market due to several new Class "A" buildings completing construction. The result of this has drawn several Tenants out of existing Class "B" space as opposed to new Tenants entering the Victoria market.
- The Industrial market has seen an increase in the vacancy rate to a healthier level although quality, well located space is still in high demand. Lease rates have moderated somewhat for existing space.
- The Retail market continues to experience reasonable vacancy although lease rates have come down in some markets due to the challenging economic environment.
- Restaurants are starting to show signs of stress due to the implementation of the HST and the crack down on drinking and driving.
- Lease rates for New Construction have eased due to lower input costs compared to the "boom days" however these rates are still at a significant premium to existing space. In most cases though this premium is deserved as there have been some beautiful buildings constructed with several "Green" features incorporated.
The main challenge for Landlords is finding good quality Tenants. It appears as though "time" is the solution as opposed to a significant decrease in lease rates. A Landlord who is sympathetic to the current economy business's are trying to operate in might consider a "step-up" approach to their lease rates in order to work through this environment with their Tenants.
The economy will improve, nobody knows for sure when but my feeling, as I've maintained for the last 18 months or so, is we're in for a long slow recovery. Interest rates are likely to stay low for the forseeable future which should provide support for the value of commercial property, I'll explor this further in my next piece.
...The Victoria Grizzlies Jr "A" team have turned things around, leading up to their current road trip they were on a 6-0 run! Road trips are never easy, especially 4 games in 5 nights, hopefully we can come home .500 at worst and get things rolling again...
Cheers,
David
View all of my commercial real estate listings on-line at www.naivictoria.ca
Thursday, October 28, 2010
Friday, September 10, 2010
Interest Rate Update September 2010
The Bank of Canada raised their benchmark rate another .25% to 3.00% which in my opinion will likely be the last increase for a while. Although there are small "Statistical" signs of increasing economic activity, the real world seems to be doing everything it can just to hang on.
Most measures relating to the United States are still quite problematic as the underlying reason for their situation, excess debt, has not been resolved. It does not appear this will happen anytime soon and since Canada is so closely tied to the economy of the United States it is not likely we will see any substantial economic improvement in the near term.
Bond rates continue to fall in both Canada and the United States. No matter what the reason for this, the bottom line is Central Banks in the developed world must have low interest rates in order to service their ever expanding debt. The US will continue to print and inject liquidity into the world financial system. There likely will come a time when the Bond Market forces interest rates up but this is still a ways away.
It is my anticipation fixed rates will fluctuate mildly but continue on a downward bias and the Bank of Canada will be on hold for the foreseeable future with the possibility of one more .25% before Christmas. The only event that will change this outcome will be concrete evidence of a return to sustainable economic growth in the world's developed economies as I do not see inflation becoming a problem until the currency markets (think US$) start to really deteriorate. This event of course is anyone's guess, mine is it's still a long time coming.
As this relates to commercial real estate here in Victoria, the low interest rates provide both cheap financing (which is still relatively easy to obtain in Canada) and low capitalization rates which will continue to support the value of well performing commercial property. There will be distressed sales coming to market but they are more a matter of one being given the opportunity to purchase a property that otherwise would not have come to market as opposed to buying property at drastically reduced prices.
Anyway, I'm off to the Jr. A Victoria Grizzlies home opener, we have a good young team and I'm excited to be working with our two goaltenders for the season. Enjoy your weekend.
Cheers,
David
View all of my commercial real estate listings on-line at www.naivictoria.ca
Most measures relating to the United States are still quite problematic as the underlying reason for their situation, excess debt, has not been resolved. It does not appear this will happen anytime soon and since Canada is so closely tied to the economy of the United States it is not likely we will see any substantial economic improvement in the near term.
Bond rates continue to fall in both Canada and the United States. No matter what the reason for this, the bottom line is Central Banks in the developed world must have low interest rates in order to service their ever expanding debt. The US will continue to print and inject liquidity into the world financial system. There likely will come a time when the Bond Market forces interest rates up but this is still a ways away.
It is my anticipation fixed rates will fluctuate mildly but continue on a downward bias and the Bank of Canada will be on hold for the foreseeable future with the possibility of one more .25% before Christmas. The only event that will change this outcome will be concrete evidence of a return to sustainable economic growth in the world's developed economies as I do not see inflation becoming a problem until the currency markets (think US$) start to really deteriorate. This event of course is anyone's guess, mine is it's still a long time coming.
As this relates to commercial real estate here in Victoria, the low interest rates provide both cheap financing (which is still relatively easy to obtain in Canada) and low capitalization rates which will continue to support the value of well performing commercial property. There will be distressed sales coming to market but they are more a matter of one being given the opportunity to purchase a property that otherwise would not have come to market as opposed to buying property at drastically reduced prices.
Anyway, I'm off to the Jr. A Victoria Grizzlies home opener, we have a good young team and I'm excited to be working with our two goaltenders for the season. Enjoy your weekend.
Cheers,
David
View all of my commercial real estate listings on-line at www.naivictoria.ca
Friday, April 9, 2010
INTEREST RATES - VARIABLE OR LOCK IN?
One of the most frequently asked questions I receive from Real Estate investors regarding interest rates is, "do I lock in a rate or ride the variable rate". Not a simple answer.
It goes without saying the individual property and the owner's financial situation are critical components and have a significant impact on the final decision, however, my intention with this posting is more a general call on the degree with which interest rates might rise over the next couple of years and how to position yourself for it.
In general, interest rates tend to rise at the latter stages of an economic expansion as the inflationary heat generated needs to be contained. Think the latter stages of the dot com bubble and the latter stage of the real estate bubble. Although the side effect of rising interest rates, theoretically, is the containment of inflation, the direct effect is a slowdown of the economy. The early stage of an economic recovery is not the ideal time to be significantly raising interest rates due to the negative impact on economic growth.
Additionally, the strong Canadian Dollar has a significant negative impact on the Canadian economy. Although one could argue the strong Canadian Dollar is helping to offset the inflationary pressure coming from rising energy and commodity prices, that inflation is more a result of a depreciating US Dollar than an increase in domestic demand as all commodities are priced in US Dollars.
It is my feeling we are in for a long and slow recovery as the rest of the developed world is suffering a tremendous amount of pain that has not been resolved, however emerging markets are contributing to global growth.
In essence, I don't think the Bank of Canada will be able to raise the Prime rate significantly over the course of the next year. My thoughts are for Prime to be at 3% (a .75% rise) by the end of the year and likely sitting until crystal clear indications are present that the Canadian economy is expanding continously. With regards to fixed rates the 5yr and 10yr bond yields have moved up in recent weeks, and although this may continue modestly, I feel due to the superior image around the globe of Canadian Banks, substantial Canadian natural resources and the strength of the Canadian Government's balance sheet, inflows of foreign investment to Canadian Bonds should help to keep yeilds in check.
At Prime + 1.5% or better on commercial loans I think the variable rate is the way to go.
Enjoy your weekend....
View all of my commercial real estate listings on-line at www.naivictoria.ca
It goes without saying the individual property and the owner's financial situation are critical components and have a significant impact on the final decision, however, my intention with this posting is more a general call on the degree with which interest rates might rise over the next couple of years and how to position yourself for it.
In general, interest rates tend to rise at the latter stages of an economic expansion as the inflationary heat generated needs to be contained. Think the latter stages of the dot com bubble and the latter stage of the real estate bubble. Although the side effect of rising interest rates, theoretically, is the containment of inflation, the direct effect is a slowdown of the economy. The early stage of an economic recovery is not the ideal time to be significantly raising interest rates due to the negative impact on economic growth.
Additionally, the strong Canadian Dollar has a significant negative impact on the Canadian economy. Although one could argue the strong Canadian Dollar is helping to offset the inflationary pressure coming from rising energy and commodity prices, that inflation is more a result of a depreciating US Dollar than an increase in domestic demand as all commodities are priced in US Dollars.
It is my feeling we are in for a long and slow recovery as the rest of the developed world is suffering a tremendous amount of pain that has not been resolved, however emerging markets are contributing to global growth.
In essence, I don't think the Bank of Canada will be able to raise the Prime rate significantly over the course of the next year. My thoughts are for Prime to be at 3% (a .75% rise) by the end of the year and likely sitting until crystal clear indications are present that the Canadian economy is expanding continously. With regards to fixed rates the 5yr and 10yr bond yields have moved up in recent weeks, and although this may continue modestly, I feel due to the superior image around the globe of Canadian Banks, substantial Canadian natural resources and the strength of the Canadian Government's balance sheet, inflows of foreign investment to Canadian Bonds should help to keep yeilds in check.
At Prime + 1.5% or better on commercial loans I think the variable rate is the way to go.
Enjoy your weekend....
View all of my commercial real estate listings on-line at www.naivictoria.ca
Saturday, February 20, 2010
NEW LENDING RULES
Well, the new rules introduced last week shouldn't have a significant impact on the "Primary Residence" residential market, however, small revenue properties (under 5 units) are much more at risk now due to the 80% Loan to Value cap for a CMHC insured mortgage. This combined with a rising interest rate environment at some point in the next 2 years points directly to an increase in Capitalization Rates which have been remarkably low for these properties.
Lending standards for Commercial Real Estate have been pretty tight for over a year now so until interest rates move significantly higher I don't expect to see much of an increase in the Cap Rates unless our economy takes a significant turn down.
Lease rates are still under downward pressure but in some respects this is a healthy reset for the Victoria market place as rents were beginning to become prohibitively high for a number of business.
Anyway, I hope you're enjoying the Olympics, it's hard to be inside today with the weather as beautiful as it is, it doesn't feel right to call this winter....
Cheers
View all of my commercial real estate listings on-line at www.naivictoria.ca
Lending standards for Commercial Real Estate have been pretty tight for over a year now so until interest rates move significantly higher I don't expect to see much of an increase in the Cap Rates unless our economy takes a significant turn down.
Lease rates are still under downward pressure but in some respects this is a healthy reset for the Victoria market place as rents were beginning to become prohibitively high for a number of business.
Anyway, I hope you're enjoying the Olympics, it's hard to be inside today with the weather as beautiful as it is, it doesn't feel right to call this winter....
Cheers
View all of my commercial real estate listings on-line at www.naivictoria.ca
Friday, January 8, 2010
U.S. economy sheds 85,000 jobs
FYI...the labour market is likely going to be the key to when interest rates can begin to rise...pretty sobering numbers below out of the US...Important to note the number of people who have given up looking for work, they're unemployed, but do not count in the official unemployment number...
U.S. economy sheds 85,000 jobs
Last Updated: Friday, January 8, 2010 | 10:34 AM ET
CBC News
Non-farm payroll employment in the United States decreased by 85,000 jobs in December, the Department of Labour said Friday.
Despite the jobs decreases, the unemployment rate held steady at 10 per cent.
Still, economists were surprised by the December slump in the U.S. jobs markets.
The decline "was an extremely softer report relative to market expectations going into the release," said Ian Pollick, an economics strategist with TD Securities in a commentary. He added that economists were "looking for a print of 0, while our own in-house forecast was looking for a positive print of 25K."
Analyst disappointment leaked into U.S. stocks as the Dow Jones, Nasdaq and Standard & Poor's indices all opened the trading day in negative territory.
"U.S. equities turned lower following payrolls which underwhelmed expectations by a large margin and quashed the anticipated significant positive print," said Action Economics, a U.S.-based economics research outfit.
The Nasdaq market was the only one of the three that made up its initial losses by 10:30 a.m.
Fewer jobs, fewer seekers
The civilian labour force participation rate fell to 64.6 per cent during the month.
A sharp drop in the labour force, a sign more of the jobless are giving up on their search for work, explains how the unemployment rate stayed steady despite the job losses. Once people stop looking for jobs, they are no longer counted among the officially unemployed.
Employment fell in construction, manufacturing and wholesale trade, while temporary help services and health care added jobs, the agency said.
At 15.3 million, the number of unemployed people was unchanged. At the start of the recession in December 2007, the number of unemployed persons was 7.7 million, and the unemployment rate was five per cent.
Among the unemployed, the number of long-term unemployed — those jobless for more than 26 weeks — continued to trend up, reaching 6.1 million.
Average hourly earnings rose by three cents, or 0.2 per cent, to $18.80 US.
The agency also revised its jobs data for November up from a loss of 11,000 jobs to a gain of 4,000 for the month.
Cheers,
View all of my commercial real estate listings on-line at www.naivictoria.ca
U.S. economy sheds 85,000 jobs
Last Updated: Friday, January 8, 2010 | 10:34 AM ET
CBC News
Non-farm payroll employment in the United States decreased by 85,000 jobs in December, the Department of Labour said Friday.
Despite the jobs decreases, the unemployment rate held steady at 10 per cent.
Still, economists were surprised by the December slump in the U.S. jobs markets.
The decline "was an extremely softer report relative to market expectations going into the release," said Ian Pollick, an economics strategist with TD Securities in a commentary. He added that economists were "looking for a print of 0, while our own in-house forecast was looking for a positive print of 25K."
Analyst disappointment leaked into U.S. stocks as the Dow Jones, Nasdaq and Standard & Poor's indices all opened the trading day in negative territory.
"U.S. equities turned lower following payrolls which underwhelmed expectations by a large margin and quashed the anticipated significant positive print," said Action Economics, a U.S.-based economics research outfit.
The Nasdaq market was the only one of the three that made up its initial losses by 10:30 a.m.
Fewer jobs, fewer seekers
The civilian labour force participation rate fell to 64.6 per cent during the month.
A sharp drop in the labour force, a sign more of the jobless are giving up on their search for work, explains how the unemployment rate stayed steady despite the job losses. Once people stop looking for jobs, they are no longer counted among the officially unemployed.
Employment fell in construction, manufacturing and wholesale trade, while temporary help services and health care added jobs, the agency said.
At 15.3 million, the number of unemployed people was unchanged. At the start of the recession in December 2007, the number of unemployed persons was 7.7 million, and the unemployment rate was five per cent.
Among the unemployed, the number of long-term unemployed — those jobless for more than 26 weeks — continued to trend up, reaching 6.1 million.
Average hourly earnings rose by three cents, or 0.2 per cent, to $18.80 US.
The agency also revised its jobs data for November up from a loss of 11,000 jobs to a gain of 4,000 for the month.
Cheers,
View all of my commercial real estate listings on-line at www.naivictoria.ca
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