It does not seem that long ago that my typical response to an inquiry from an investor was: “I have a list of potential purchasers as long as my arm with very little product to present.” Saskatchewan was becoming known for the bounty of its rich resource sector. Lease rates had increased thereby lifting property values to provide incentive for sellers. Many were reluctant to sell because of the potential for further appreciation however we did have buyers and some did decide to sell.
It was not only interest from investors but we also saw a lot of interest from owner occupants. Many businesses that were leasing faced large increases in their rental rate upon lease renewal.
With record low interest rates, a solid case could be made to purchase instead of lease. Those rates are still near record lows however there is ongoing talk of when, not if they will edge up.
As the spread between interest rates and capitalization rates narrows, buyers start to look long term with the question, how long that spread will exist.
Within the last three months we have seen a few investment properties in the office and retail sectors listed for sale with an asking price in that 5.5 per cent cap rate range.
These asking prices are around one half to a full percent below the typical cap rates on listings last year. The depth of interest from buyers at these prices has not been as strong.
Right time to sell?
What does all this mean? From my perspective there are indicators that lead me to believe cap rates have bottomed. What happens in the equities market can impact commercial real estate values.
When we see sustained turmoil in that sector investors can see stability in real estate but questions still remain.
Obviously there are many contributing factors when determining supply and demand; however if I was considering selling my commercial real estate property within the next five years, a solid case can be made for pricing it right and selling it now.
Posted by Barry Stuart