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Densification potential underpins sale of Surrey shopping centre

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A private investor has picked up Strawberry Hill Shopping Centre in Surrey, possibly the biggest retail deal in B.C. last year.

Strawberry Hills Shopping Centre Inc. purchased the 340,000-square-foot complex from RioCan REIT on Dec. 14, 2023 for $155 million. RioCan had owned the property since 2002, when it acquired the asset as part of a portfolio deal that also saw it acquire two malls in Alberta and one in Ontario.

RioCan’s interest 20 years ago was piqued by the presence of major national tenants the stable cash flows its unitholders love, it said at the time.

Today, good holding income as well as the site’s long-term redevelopment potential as part of Surrey’s vision for the Scott Road corridor played a role.

“While the property features significant holding income from national and local tenants, there is large potential for long-term phased development to bolster the city’s plans for future densification in the area,” said Yashar Khalighi, vice-president in the Vancouver office of brokerage CBRE Ltd. “These plans include the creation of much-needed residential and rental housing adjacent to the city’s major transit hub.”

Khalighi said Strawberry Hill’s new owners do not have immediate plans to redevelop the property.

The 35-acre site at the corner of 72 Avenue and Scott Road is zoned CD-19761 and includes extensive surface parking for mall customers, including patrons of long-time tenants Home Depot, Cineplex, Winners, HomeSense and PetSmart. Many have been in place since a $25 million expansion of the mall in 1998.

CBRE brokered the off-market deal in partnership with The Firm Real Estate Services, both representing the purchaser.

RioCan was not immediately available to comment on its motivation for the sale.

Altus Group reported that retail asset sales through the third quarter of 2023 totalled $541 million, a decrease of 67 per cent versus a year earlier, primarily due to interest rate hikes and inflationary pressures. This led investors to pivot to more stable, low-risk areas of real estate such as industrial, it said last month.

“However, the gradual return of in-person shopping and interest in physical space has renewed momentum in the retail leasing market,” it said, noting that street-front retail space in urban areas and community-level shopping centres in suburban areas continued to be strong.

“Given the market’s land constraints, the sector has continued to focus on mixed-use redevelopment and densification to introduce new retail space,” Altus said.

However, the sale of Strawberry Hill indicates that shoppers are also returning to the investment market, picking up strong assets in strategic locations.

“With transactions like these taking place amidst Canada’s turbulent market conditions, I am convinced that investor confidence in BC’s commercial real estate sector remains high,” Khalighi said. “In times like these where we are still faced with scarcity of land, we are seeing how future development potential can outweigh the cost of borrowing even at today’s rates.”

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