Returns on investing in city real estate top 21 per cent

Lower vacancy rates drive up values and income.

Investment returns on Vancouver real estate reached 21.4 per cent last year, nearly doubling the rate of returns in 2004 as lower vacancy rates drove up property values.

Returns on retail property in the city were 22.4 per cent, while office and industrial property reached 21.2 per cent, according to the Canadian Property Index, a report by The Institute of Canadian Real Estate Investment Managers and U.K.-based Investment Property Databank.

In comparison, 2004 investment returns on all property types in Vancouver was 12.1 per cent, the report said.

Patricia Arsenault of Clayton Research in Toronto, IPD's Canadian partner, said lower vacancy rates were a key factor in boosting the income of property investors.

"More investors wanting to buy than there are wanting to sell has driven up prices/values," she added in an e-mail.

Arsenault said more investors are being drawn to real estate, which has provided a relatively stable income compared with the stock or bond markets over the past five years.

Equities outpaced the real estate market in 2005 with returns of 25.6 per cent, while the return on bonds was 14.8 per cent, the report said.

Total returns on all property types in Canada was at 18.7 per cent, up from 13 per cent a year earlier. According to the index, that was the highest level in 20 years.

Calgary and Edmonton recorded the strongest returns at 26.5 per cent and 23.4 per cent respectively, as the local economy received a boost from Alberta's booming oil and gas sector.

In comparison, property returns in Toronto were 16.4 per cent and in Montreal, 15.2 per cent.

The retail sector was the highest performing sector throughout the country, with a total return of 21.4 per cent, while residential rental properties lagged with returns of 9.9 per cent.

The report's data covered 1,827 properties, totalling more than $58 billion.

"We think over the next year, we'll see strong returns," Arsenault said, but she could not predict whether this year would outperform the last.

Peter Simpson, CEO of Greater Vancouver Home Builders' Association, expected property values in the Lower Mainland to continue to rise during the next two years because of the rising costs of land, labour and construction materials.

"If you don't own a home in Vancouver yet, it's a cause for concern," Simpson said. "If you own a home, you're dancing in the streets."

(prepared by Wendy Leung/Vancouver Sun)

HOW WE RATED:

2005 2004

All property types

Vancouver 21.4% 12.1%

Calgary 26.5% 16.7%

Edmonton 23.4% 10.4%

Toronto 16.4% 11.2%

Ottawa/Hull 16.8% 14.9%

Montreal 15.2% 12.1%

Canada 18.7% 13%

Source: ICREIM/IPD Canadian Property Index