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SCMP Reporter

A combination of pension funds, locally listed companies and business expansion are credited with fuelling a surge in investment for grade-A office space in the Vancouver area, according to a Canadian commercial property expert.

 Avison Young vice-president Robin White said the low cost of borrowing was fuelling demand for space.

 Avison Young recently was involved in the sale of the 13-floor Bank of Canada building in central Vancouver for more than C$13 million (about HK$71.1 million).

 Mr White said the sale sparked interest from 22 buyers.

 'There is very little product for sale and what is out there is getting a lot of attention from investors,' he said.

 In Vancouver, real estate investment trusts (Reits), which are relatively new to the Canadian investment scene, had been involved in some large office and retail purchases this year, he said.

 Vancouver commercial property was among the most sought after because of the falling vacancy rate, rising net effective rentals and little construction taking place, he said.

 In the city centre area, 250,000 square feet was due to be leased out in 1997 and 1998, Avison Young said.

 With little construction, the vacancy rate in the core area is expected to fall to less than one million sq ft.

 While the resource sector is contracting, adding 2.2 per cent to the existing vacancy rate in the central city, an expanding service sector is moving in to take up some of the space.

 'Some professional, financial and legal firms and new companies expanding from Ontario are coming into the Vancouver market,' he said.

 'We are going to see more of that activity taking place.'  Avison Young said the city vacancy rate continued to decline.

  Its projections indicate that it should reach about 6.3 per cent this year which is the lowest vacancy rate in the Vancouver commercial property market in the past 10 years.

 In 1992, when the Canadian office market and the economy were in the doldrums, the vacancy rate notched just less than 18 per cent.

 With the price of investment properties yields were falling off, Mr White said.

 Average yields in the city core are sitting about 7.5 to 8 per cent, while yields for the best quality properties have dropped to 6.5 per cent, Avison Young said.

 The lack of supply was forcing prices up, Mr White said.

 Leading investors in the Vancouver commercial office scene include public and private pension funds which account for 60 per cent of the dollar-volume trade.

 Restructured Canadian real estate firms are the second largest buyers followed by the Reits.

 Vancouver private investors reduced their activities after a strong 1996 while offshore investment continued at a relatively quiet pace, Mr White said.

 If demand for quality property continued, it might be enough incentive for developers to plan new office projects, Mr White said.



Vancouver sees office space boom