Vancouver Property Yields Drop to Manhattan Levels, CBRE Reports

  • City's capitalization rates fall to record low, broker says
  • Canadian currency at weakest in 13 years attracts foreigners

An influx of Chinese capital is tightening returns on Vancouver buildings including office towers and warehouses to almost the same levels found in Manhattan, brokerage CBRE Group Inc. said in a report.

Capitalization rates, a measure of yield used by real estate investors, dropped to a record low of 4.25 percent on the highest-quality downtown Vancouver office properties in the fourth quarter, according to CBRE, the world’s largest commercial real estate services firm. By comparison, cap rates on top-tier Manhattan office towers were as low as 3.75 percent, the brokerage said in a separate report. Yields on Vancouver industrial real estate were as low as 5 percent, and regional retail properties were at 4.5 percent. Cap rates fall as prices rise.

“It’s just how competitive it is,” Norm Taylor, executive vice president and managing director at CBRE in Vancouver. “With the devaluation of our currency, Canada is now discounted for many currencies. Toronto and Vancouver are now seen as very safe places to invest.”

Vancouver, where residential real estate is already the most expensive in Canada, is attracting buyers from overseas for commercial properties as well. The Canadian dollar fell 15 percent against the U.S. dollar in the past year, and last week touched its lowest since 2003. Buildings are attracting so many buyers that some are approaching landlords before their holdings even come to market, offering prices they can’t refuse, Taylor said.

“The Chinese markets seem to be dipping -- their currency is being devalued so there’s some challenge for them to invest within their own market,” Taylor said. “Will that raise the desire to place money elsewhere? I think, yes, it will.”

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