Toronto — While the US real estate market is bottoming out, according to the annual Emerging Trends in Real Estate 2009 report released by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI), Canadian real estate industry players are approaching 2009 with caution, but are somewhat more positive.

“US housing woes haven’t extended to Canada, where banks and regulators have managed the excessive mortgage lending practices of our neighbours to the south,” says Frank Magliocco a PwC partner and the national leader for the Canadian Real Estate practice. “Property markets, including housing, track at or near equilibrium with high occupancies and controlled development. We always get caught up in US trends, but given our strong fundamentals they shouldn’t affect us to the same magnitude.”

According to report respondents, they remain positive about sidestepping any serious impacts of a possible US correction. Western provinces showcase the strongest growth trends and lowest vacancies in North America. All property sectors share positive prospects, especially industrial and retail.

Overall, the “Emerging Trends Barometer” highlights that it is a moderately good time to sell followed by a high “fair” rating or holding property. Furthermore, the majority of firms (35.8% very good and 22.4% excellent) remain positive in their prospects for profitability as compared to last years’ report (38.5% very good, 23.8% excellent).

The report shows that compared with the US, capital has remained disciplined in Canada with a handful of large institutions and development companies dominating the country’s five primary real estate markets: Toronto, Montreal, Vancouver, Calgary, and Edmonton. For 2009, survey respondents anticipate steadying capital volumes, with pension fund investors still eager to increase portfolio holdings.

“Those companies that have cash and established balance sheets are and will continue to do relatively well,” says Chris Potter PwC partner and leader of the firm’s Canadian Real Estate Tax practice, “Financing will cost more and take longer than expected but they will come out ahead in the end. In fact, Canada ranks third in the world (preceded by Asia Pacific and the Middle East) for a moderate to high increase in the availability of capital for real estate.”

In terms of specific sectors, industrial outpaces retail in favoured property categories, but all sectors show strength, including housing. Toronto and Calgary rank as top distribution/warehouse markets.

Retail has been on a roll, thanks to the booming economy and the report shows that the home for sale market seems to be holding up but new home development will slow. Respondents see a market crest rather than a slump unless interest rates head north.

Office stock is seeing limited inventories and dated product filled up with tenants. Except for Montreal, where office vacancies approach 9%. Hotels are prospering with the strong economy and investment and development prospects are modestly good, with most respondents rating the sector either a buy or a hold. Rental apartments are doing well in major cities with high immigration flows.

Canadian Markets to Watch

Vancouver is Canada’s highest rated city for 2009. The hot-growth energy cities out west—Calgary and Edmonton—also score high ratings for investment prospects, development, and for-sale housing. Toronto, Canada’s premier global pathway city, also registers a strong score. Ottawa and Montreal follow, and Halifax in the Eastern Maritime provinces lags.

Calgary is Canada’s “resource” capital and people are moving there in droves, although recent reports suggest this may be slowing. Survey respondents expect strong buys in 2009 for almost all sectors. For instance: 53.5% for hotels, 52.7% for industrial, 49.1% for office property, 48.1% for apartment buys and 48.1% for retail.

Edmonton has been experiencing the same Calgary-style growth wave and as long as demand for energy resources stays strong, this market has legs. Prospects for for-sale home-buying are particularly solid with an above average rating.

Respondents to the survey are saying to ‘never bet against’ Toronto and compared with other national financial centers, “the city is cheap.” However, the high loonie has been hurting manufacturing industries, and clouds over the US economy continue to create uncertainty. Three new office towers are under construction, adding 3 million new square feet of office space but high taxes and budget deficits make it hard to do business. Office, industrial, and apartments still rate solid buys.

Montreal still faces concerns about market stability and overall growth prospects. Not particularly dynamic, the local market is tough to break into and the city’s skyline has hardly changed in years and most respondents give the market a hold rating in all sectors.

Finally, investment in the Maritimes should generally be approached cautiously. There may be some opportunistic returns for speculative investors who are knowledgeable about the specific centers in this area.

The report notes that best bets for investors for the coming years include a focus on the high-growth energy markets—all property categories, hold coupon-clipper central business district office, develop infill condos near subway stops in Toronto, buy infill sites wherever you can and invest overseas—domestic opportunities are too limited at current prices.