MARKET OVERVIEW
J.J. Barnicke is one of Canada's leading commercial real estate firms. Having been in operation for over 45 years, it now boasts over 400 sales professionals and support staff serving clients from more than 20 offices across the country. The Victoria office was formed in the Spring of 2001 and includes team members who are some of the most experienced, knowledgeable and committed people in the business providing real estate services including brokerage, consulting, and research throughout the Greater Victoria region. We offer comprehensive, professional and highly personalized real estate advice whether selling, leasing or managing commercial properties for investment sales, retail, office, industrial, apartment and hotel transactions.

Beautiful Victoria, British Columbia is a sophisticated seaside City located on the southern tip of Vancouver Island. The region is the vacation capital of Canada and the premiere tourist destination in the Pacific Northwest, contributing over one billion Canadian dollars a year in revenue to the local economy. Victoria's temperate climate, natural beauty and laid-back lifestyle make it an attractive place to visit and a wonderful home to over 335,000 people. The City's British colonial heritage is still very much apparent today, but contemporary Victoria has a distinctly Pacific Northwest flavour with cosmopolitan dining, superb shopping, a colourful nightlife and a full complement of cultural offerings.

The Greater Victoria market has experienced another tremendous year in terms of vacancy rates, property values, and development. Demand is far outpacing supply in most sectors making it challenging to find enough product to satisfy the appetite of buyers and tenants. It’s a sellers market, as British Columbia is increasingly recognized as a place where people want to live, work and play.

Part of the attraction to British Columbia and Greater Victoria is that the province is experiencing an unprecedented alignment of factors favourable for continued long term economic growth. Growth is related to the lowest levels of unemployment in 30 years, booming commodity markets, migration to the province, renewed consumer confidence, preparations to host the 2010 Olympic games, and relatively low interest rates.

Greater Victoria Office Market
The Greater Victoria office market has tightened further in 2006. Demand for office space remains steady and vacancy rates have continued to decline in all office classes (A,B and C) and in both downtown and suburban markets. The overall vacancy rate is approximately 5%, with Class A remaining the tightest at under 2%. Class B is experiencing a significant decline in vacancy rates, sitting below 5%, while Class C space continues to face redevelopment pressure and otherwise fills a niche role to balance the Victoria office market. "Tech space" has seen the most dramatic improvement in its vacancy rates over the last few years, now comfortably in the mid-single digit range.

Recently, we have seen an escalation in net lease rates across Greater Victoria and a decrease in tenant inducements due to limited supply of quality product. Looking ahead, we see continued growth in private sector demand and potentially a modest expansion in the public sector, but the challenge facing the market is the shortage of available quality space. Higher land values and soaring construction costs make it difficult to deliver new space at attractive rates, which will keep vacancies low and maintain upward pressure on rental rates across the region.

Greater Victoria Retail Market
Over the past five years, owners of retail property in Greater Victoria have enjoyed a strong economy and increased consumer confidence. In 2006, Victoria's retail market has proven resilient and shown healthy gains overall, despite rising interest rates, higher gasoline prices, and a flattening of the tourist trade. As a result, rents have increased by approximately 3% annually, with average rental rates in the downtown core ranging from approximately $20/sq.ft. to $35/sq.ft. The most expensive rental rates in Greater Victoria are found on its most popular tourist thoroughfare, Government Street, where retailers are paying upwards of $80/sq.ft. in rent in some locations.

Downtown vacancy (not including the Bay building) has remained relatively constant a about 5%, similar to Shopping Centre vacancy, which decreased significantly last year but remained constant throughout the first half of 2006, hovering around the 1% mark. Encouraged by residential development, in-migration, and a strong economic forecast, these vacancy rates will likely remain low and rental rates are expected to increase for years to come.

Greater Victoria Industrial Market
Greater Victoria's industrial market continues to experience an unhealthy combination of steady absorption and limited new supply, which has kept the vacancy rate well below 1%. This market condition is being fuelled by a shortage of industrial zoned land, rising land values, escalating construction costs, and a rapidly expanding economy throughout British Columbia. Given that the region has no further industrial parks planned, opportunities for buyers and tenants alike will remain very scarce and industrial real estate will continue to be highly sought after in coming years.

Greater Victoria Investment Market
Investment sales in Greatre Victoria consistently see lower cap rates due to limited supply of investment-grade properties being chased by an increasingly large number of qualified buyers. Prime properties are selling at cap rates as low as 6% with the majority ranging between 7% and 8%. The multi-family market is particularly competitive with capitalization rates between 4.5% and 7%. British Columbia's performance in recent years combined with its favourable forecast going forward has many investors convinced of BC's economic strength and stability.