Hot getting hotter in commercial property

If we are not near the top of the market for Canadian commercial real estate prices, we're getting close.
That possibility has a number of investors heading for the exits, with some major portfolios ready to hit the market.

Sources indicate Erin Mills Development Corp., a privately held firm controlled by some of Toronto's well-connected real estate families, is now marketing some key parts of its empire.

On the block is Erin Mills Power Centre, an eight-year-old big-box mall of 365,000 square feet. Also included is a major industrial portfolio. The asking price is about $450-million, based on a capitalization rate of 6.5%.

The transaction will not include Erin Mills Town Centre, owned equally by Erin Mills Development and Cadillac Fairview Corp. Ltd. The sale also excludes some 200 acres of vacant land in the area Erin Mills controls.

Elsewhere, German-controlled investment firm Northam Realty Advisors Ltd. is said to be putting a portion of the portfolio it has acquired over the past three years on the market. It has been interviewing brokers to do the transaction.

Purchases by Northam have included Cite Multimedia, the $147-million, heavily subsidized technology enclave in downtown Montreal, and a $76.3-million telecommunications hub near Toronto's CN Tower. Northam once had an office portfolio of more than seven million square feet worth more than $1-billion.

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How hot is the domestic commercial real estate market? Hot enough that Halifax-based Homburg Invests Inc. is avoiding the Canadian marketplace.

The company is buying 12 commercial properties in Germany and the Netherlands for $507-million. The properties include office buildings, shopping and logistics centres, and production, warehousing and distribution facilities. The transaction includes $402-million in debt, future income tax liabilities and about $34.9-million in cash. The company will also issue $70.1-million in shares.

"The purchase of quality properties in Canada became much more difficult as competition in the marketplace was prepared to earn lower and lower cap rates, thereby pushing up the value of Canadian properties significantly," said Homburg.

Homburg is now looking at acquiring development land, considering existing properties in Canada for redevelopment, and exploring investment opportunities in Europe.

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Corporate Canada is spending more cash on housing its employees, according to a new survey.

Royal LePage Relocation Services says the growing number of Canadian workers on short-term assignments accounted for $230-million in business last year.

LePage, which considers one month to a year as short-term, says revenue generated in the sector proves corporate Canada believes temporary secondments are worth the money spent. They are considerably less expensive and disruptive than permanent relocations, says LePage.

Toronto and Calgary have the largest supply of corporate housing in the country but the real action is in the booming energy sector, according to LePage.

Fort McMurray, Alta., is dubbed "corporate housing capital of Canada" by LePage because it has the lowest vacancy rate, the longest stays and the third-most expensive rental rates. The city's vacancy rate is just 1%.

The most expensive corporate digs are in Vancouver where, on average, companies are paying $2,935 a month to house their workers in one-bedroom suites.

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Further proof that this housing boom is being driven by condominium owners comes from the Greater Toronto Home Builder's Association.

The group's April data show condo sales rising faster than single-home sales. Four in 10 homes sold in Toronto are now condos, up from 33% last year. Condo sales through the first four months of the year are up 28% over the same period a year ago.