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B.C. investors scout Alberta single-tenant deals

Long-term triple-net lease commercial property in a surging oil-fired economy deliver higher cap rates at lower price points than in Metro Vancouver, agents say
Triple-net Rexall-anchored retail property in Fort Saskatchewan, Alberta, generates a 6.7 cent capitalization rate for its B.C.-based owner | Photo: Marcus & Millichap

With oil trading north of US$100 a barrel and net migration also at the highest level since 2014, Alberta is attracting more B.C. investors and a popular target is single-tenant commercial property, according to agents with Marcus & Millichap’s triple-net (NNN) team.

Team member Curtis Leonhardt said, “demand from B.C. investors has seen a tremendous increase over the past 12 months.

“Investor interest continues to be focused on strong national or regional tenants with considerable lease terms remaining.  Recent transactions and offerings in Calgary, Edmonton and the surrounding metro areas have seen multiple offer scenarios, with the bidders predominantly being from B.C.”

Many single-tenant properties are attractive because they are occupied by brand-name retailers, such as national banks, pharmacies, quick-service restaurants, or automotive gas stations and service centres. They also often have long-term, triple-net leases in place, which covers the lease, maintenance and property taxes.

This, combined with the generally higher capitalization rates and lower property prices in Alberta cities, when compared to urban B.C., has increased interest from Lower Mainland buyers, according to Marcus & Millichap.

The average retail cap rate in Vancouver so far this year is in the range of 4.75 per cent to 5.50 per cent, based on Cushman & Wakefield’s Canada Cap Rate Report Q1 2022.  In both Calgary and Edmonton, however, retail cap rates range from 6.25 per cent to 7.25 per cent.

Industrial and office properties in big-city Alberta are generating annual yields from 1.5 per cent to 2 per cent higher than in Metro Vancouver, Cushman & Wakefield reported.

“Generally, you can buy a similar commercial property in urban Alberta for a fraction of the price than in Metro Vancouver and see an annual return [cap rate] that is 200 basis points higher,” Leonhardt explained.

An example of the recent B.C. investment action is a single-tenant, free standing Rexall pharmacy in Stony Plain, Alberta. It sold in December of 2021 to a Metro Vancouver-based investor. Since then, the property has generated interest at prices above the December 2021 sale. It is now listed at $8.2 million.

A more recent Alberta example is the May 13, 2022, sale of a stand-alone retail centre in the Edmonton suburb of Fort Saskatchewan, anchored by Rexall under a long-term NNN lease. It sold to a B.C. investor for $11 million with a 6.78 per cent cap rate.

Higher interest rates have slowed the commercial real estate action recently, but demand remains strong for well-located single-tenant Alberta property, Leonhardt noted.

“We have started to see an adjustment in buyer perception due to increasing interest rates,” he said, “However it's still too early to know the impact this will have on demand and cap rates.”