Capitalization rates, or cap rates, are largely stable in Vancouverās commercial real estate sector, despite rapid economic developments surrounding trade policy, interest rates and the dollar.
Cap rates, which measure a propertyās financial performance relative to its purchase price, are steady mainly due to low transaction volumes, says Michael Emmott, capital markets principal with global commercial real estate advisor Avison Young (Canada) Inc.
āThe supply is there, but few people are prepared at the moment to sell the assets that people want to buy,ā he said. ā[Owners] may be looking for cap ratesĀ to come down a little more, but there isnāt really a significant volume of trade at the moment influencing a downward pressure on these.ā
Cap rates tend to be lower for highly liquid and desirable commercial properties because investors are willing to take on a lower yield based on the lower risk profile. On the other hand, cap rates are higher for properties in non-central locations or with higher vacancies and improvement costs, because investors need a higher yield in terms of income versus price paid.
Across all commercial asset classes, Emmott said grocery-anchored retail, quality industrial, multi-family, data centres and self-storage are the most coveted based on his discussions with institutional investors and clients.
āA lot of the investors are looking for the same kind of product, but volume of trade, the properties that are available on the market for purchase that fit into those categories, are still quite few and far between,ā he said.
Despite stable commercial markets, much is transpiring in the broader economy. For example, optimistic investor sentiment has been tempered by the possibility of a recessionary trade war with the United States. President Donald Trump has threatened 25-per-cent tariffs on imports from Canada commencing Feb. 1.
āI think President Trumpās rhetoric, if not making people nervous, does provide some uncertainty,ā said Emmott. āI think the wait-and-see period has not quite finished. I think itās been extended a little bit while some of these issues are clouding the waters.ā