2016 Canadian Economic Outlook and Market Fundamentals Report
2015 Q4 Update - Canadian Economic Outlook and Market Fundamentals Report
Morguard is predicting a fifth consecutive year of positive results for Canada’s commercial property sector in 2016. Investors will continue to achieve attractive portfolio returns, finishing the year close to or slightly below 2015. Performance will be essentially income-driven, with property values holding at 2015 levels. There will be modest erosion of property values in specific asset categories in Alberta, as the ongoing oil crisis results in rental market softness through at least the first half of 2016. Investment fundamentals will be largely positive, against a backdrop of elevated global economic and financial risk. A range of investment groups will continue to scour the Canadian market for opportunity. However, supply will fall short of healthy demand supported by low interest rates and relatively stable property market investment performance. Despite weakness in regions that are dependent on the oil and broader energy sector, the 2016 outlook for Canada’s commercial property investment market is largely positive. In the 2016 Economic Outlook and Market Fundamentals Research Report, Morguard provides a detailed analysis of 2016 real estate trends to watch in Canada.
The fourth quarter represented a continuation of healthy investment performance for Canada’s commercial real estate sector, against a backdrop of elevated risk. Investors displayed a willingness to acquire properties that had historically yielded stable and healthy income performance and capital retention attributes. On the whole, access to low cost debt and equity funds exceeded the supply of core income producing properties available for acquisition in the fourth quarter. For this reason, values remained close to the cycle peak. Canadian commercial property sector investment performance risk remained above levels recorded during the post financial crisis in the fourth quarter. External risks captured the bulk of the headlines. Political tensions in the Middle-East and in parts of Europe threatened to escalate, which could impact global stability. The continued global oversupply of oil reverberated through the economy of Alberta, which eroded Canadian economic activity through to the close of 2015.
2015 Q3 Update - Canadian Economic Outlook and Market Fundamentals Report
The effects of financial market volatility and global economic uncertainty weighed on the minds of Canadian commercial property sector investors in the third quarter. For most, their impacts on performance was “top of mind”. Through the third quarter however, there was little evidence to suggest that these external forces had yet to have any real impact on the market. From a property investment standpoint, the mature phase of the cycle continued to play out as expected in the third quarter. Property values were generally stable and demand remained healthy. The impact of the correction in oil prices on the nation’s rental markets was limited so far to the obvious regions and sectors. For example, Calgary office market vacancy continued to rise. There was some evidence that investors were generally trying to place funds in safer assets overall. This was likely at least part of the rationale behind the recent flurry of rental apartment transactions. This sector has traditionally weathered periods of economic or financial market turmoil historically. For the most part, the third quarter commercial property market performance played out much as expected, while investors kept a keen eye on an increasingly uncertain financial and economic global picture.
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.