2015 Q2 Update - Canadian Economic Outlook and Market Fundamentals Report
To some extent, the largely positive second quarter investment performance in Canada’s commercial property market was overshadowed by the Greek debt crisis and the slowdown in economic activity resulting from the oil crisis on Alberta’s economy. In large part, property investment trends mirrored those of the previous quarter, although the sector’s risk profile had clearly increased. The Greek debt crisis and potential exit from the Eurozone cast a shadow on global capital markets as values fell sharply. The TSX, for example, erased gains made in the first half of 2015 in a matter of days. Coincidentally, the recent plunge in oil prices not only pushed Alberta closer to a recession, but also began to erode rents in the region’s office and industrial markets. At the same time, Alberta saw a modest decline in retail sales, a trend not seen in some time. Despite the increase in property sector risk, investors continued to view Canada as an attractive and stable destination in which to invest. Second quarter investment property demand outpaced the supply of available assets by a significant margin, with pension fund, private capital and institutional capital looking for a home in Canada. Demand pressure ensured values held at the peak in most regions across the major asset classes. Economic performance through the balance of the year will dictate any change in interest rates, which will impact Canada’s property markets and investment performance.
2015 Q1 Update - Canadian Economic Outlook and Market Fundamentals Report
The first quarter of 2015 saw the continuation of the mature phase of the Canadian commercial property investment cycle. Arguably, the most tangible evidence of this prolongation was contained in property value trends. Investment property values continued to settle close to the peak, after a marked rise between 2010 and 2013. In some cases, investors showed a willingness to push values slightly higher, however, the broader trend is one of stabilization. First quarter sales volume was below the pace of the past two years, a performance that characterized the overall market maturity. Transaction volume totaled $1.3 billion for assets sold with a minimum sale price of $10.0 million for the office, industrial, retail, and apartment asset classes according to RealNet Canada data. However, the slowdown was attributed more to a lack of available product, rather than weaker demand. There continues to be a wide range of sources of low-cost debt and equity capital allocated to Canada’s real estate sector, which has been the case for much of the post-financial crisis era. This demand-pressure will continue to ensure prices hold at the peak for the cycle, at least through to the close of the year.
2015 Canadian Economic Outlook and Market Fundamentals Report
Morguard is predicting a fourth consecutive year of positive performance for Canada’s commercial property sector in 2015. Investors are expected to achieve attractive returns once again, driven in large part by the stability and growth in rental income. Sales of commercial property will top $25 billion CDN - slightly below the 2014 total - but higher than the long-term average of $20.7 billion CDN. Healthy and stable fundamentals will attract a range of investors armed with low-cost debt and equity capital. Core offerings will receive interest from pension funds, institutions, private capital groups, and capital market groups who continue to slowly return to the market. This demand will hold property values at the peak of the cycle, having stabilized through much of 2014. In the 2015 Economic Outlook and Market Fundamentals Research Report, Morguard provides a detailed analysis of 2015 real estate trends to watch in Canada.
2014 Q4 Update – Canadian Economic Outlook and Market Fundamentals Report
The Canadian commercial property investment market ended 2014 on a largely positive note. An “historic amount of capital” continued to drive the sector. Funds were sourced domestically and abroad, with many groups looking to add to their holdings in this market. In their quest to increase allocations to the sector, most groups focused on core properties. For the most part however, there was a persistent shortfall of product available for purchase. In some instances, investors were willing to push values beyond the peak for the cycle in order to meet their investment objectives. The line between core and non-core assets remained somewhat blurred as 2014 came to a close. More groups pursued development or redevelopment activities as part of their core strategy, driven by a search for yield.