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Investors drive up property value as appraisers consider changes

Rocketing on A strong finish to 2015, and a strong start to the new year, is anticipated across asset classes.

Rocketing on

A strong finish to 2015, and a strong start to the new year, is anticipated across asset classes.

“We’re not expecting any change in the momentum for the first half of 2016, as long as we remain in this low-interest-rate environment,” observed Rob Greer, a principal with Avison Young, recently. “There seems to be a lot of money on the sidelines that’s trying to find a home.”

Indeed, the latest report on investment sales from RealNet Canada Inc. indicates that deal velocity hit a record high in the third quarter and has sufficient momentum to continue through the end of the year.

Similarly, residential markets have witnessed the strongest price gains since 2006 – a level of optimism PricewaterhouseCoopers director of real estate research Andy Warren noted last month in recapping the Urban Land Institute’s Emerging Trends in Real Estate study for 2016.

Real Estate Board of Greater Vancouver benchmark pricing increased 18.1% over the past 12 months, the strongest and most consistent run of increases seen since the headiest days of the last decade.

The activity is all the more remarkable given that it’s taken place in the face of tighter lending terms and more disciplined corporate spending.

Determining value

In the midst of record deal activity, the advent of International Property Measurement Standards (IPMS) presents appraisers and owners with the prospect of a shakeup in how properties are measured.

IPMS is a sibling system to the International Financial Reporting Standards that remade the accounting world (except in the U.S.) in 2011. Recently, the Royal Institution of Chartered Surveyors gathered in Vancouver to discuss the implications of the new standard for measuring properties.

Beginning with office properties, it will eventually roll out across multi-family, retail and industrial classes. Dubai has adopted the standard, and the U.K., Hong Kong, Singapore and New Zealand are following suit. It also has the backing of 70 industry organizations, including Building Owners and Managers Association (BOMA) Canada, the Real Property Association of Canada and the International Real Estate Federation, headed in the Americas by West Vancouver property agent Cal Lindberg.

But panellists discussing the standard in Vancouver concluded that local markets will likely stick with the status quo unless a pressing need for change presents itself. This has been the case with successive versions of the BOMA measurement standard, noted Altus Group director Pedro Tavares, who said most landlords have stuck with BOMA’s 1980 standard rather than shifted to the 1996 or 2010 iterations.

“There’s been a slow adoption in the market, and it’s often tied to tenants’ legal positions attached to their leases that allow them to continue on and retain the older standards,” he said.

Tenants, as David Martin, a partner with law firm Fasken Martineau DuMoulin LLP, noted, “[are] not going to let you change to a standard that’s going to make them pay more rent.”

More recent standards have usually come with a greater gross-up factor; buildings have to be re-surveyed, and, more important, landlords face renegotiating lease rates with tenants to reflect the greater area for which they’re responsible.

Vancouver, with a transparent and efficient marketplace, isn’t ripe for the disruption a new standard would bring for both tenants and landlords, said Rob Kavanagh, vice-president with GWL Realty Advisors Inc.

“So is there going to be a big motivator for landlords to adopt this? I’m not so sure,” he said. “This has never really been a front-and-centre issue.” •

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