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Housing

Canadian real estate executives remain positive, Expectations of improving markets

TORONTO - The Real Property Association of Canada and FPL Advisory Group are pleased to announce the results from the Third Quarter 2011 REALpac/FPL Canadian Real Estate Sentiment Survey.

As Canada's most comprehensive measure of senior executives' confidence in the Canadian commercial real estate industry, the Q3 2011 survey captured the thoughts of 49 leading real estate executives, including CEOs, Presidents, Board Members, and other leading executives from a broad set of real estate sectors including owners and asset managers, financial services providers, and building operators and related service providers.

Survey respondents represent income producing real estate assets including office buildings, retail shopping centres, industrial buildings, hotels, multi-family residential (apartment buildings), and seniors' residences. This quarterly economic survey serves as a gauge of senior real estate executives' confidence in financial and real estate markets in Canada.

The REALpac/FPL Canadian Real Estate Sentiment Survey measures executives' current and future outlook in three areas including overall real estate conditions, real estate asset values, and availability of capital. Three Sentiment Indices comprise the survey including a Current Conditions, a Future Conditions and an Overall Conditions Index. The "REALpac/FPL Canadian Real Estate Sentiment Survey" is directly comparable to the "Real Estate Roundtable Sentiment Survey" in the U.S. (also conducted by FPL Advisory Group, using an identical methodology).

Topline Findings
For the third quarter of 2011, overall real estate sentiment remains positive, reflecting respondents' expectations of improving markets. However, expectations are moderating slightly, as reflected by the index score, which has dropped slightly this quarter, to 66 from 70. It is important to note that the Sentiment Index measures the market trajectory and is scored from 0-100, meaning scores above 50 reflect positive trends and score below 50 reflect negative trends. This quarter has been the eighth straight quarter in which the Index has been above 50.

This quarter, the Current Index is at 71 and the Future Index is at 61, reflecting respondent perspectives that market conditions, while still expected to improve, will not improve at the same pace seen over the past year. Notably, respondents are generally pleased with the current state of the Canadian real estate market. The market is largely viewed as stable and attractive, which bodes well for future investment and development. Ultimately, the recovery Canada has experienced is now maturing.

When the Overall Sentiment Index for Canada is compared to that of the United States, there are similarities, though the Canadian Indices continue to reflect this country's stronger fundamentals. The Overall U.S. Sentiment Index came in at 69 this quarter (down from 77 last quarter), reflecting a continued, though also decelerating positive trend. The key difference is that the U.S. index showed a score of 68 for future conditions compared to Canada's 61, suggesting respondents believe the U.S. real estate market still has more room for improvement. This is no surprise, considering U.S. market conditions continue to be weaker than Canadian conditions.

In interviews, respondents reported strength in a variety of asset classes and regions, though there is some suspicion about the possibility of increased risk. One respondent noted, "Interest rates are low, job creation is good, and there's growth in the market. I'm still surprised by the strength of the market." Another more cautiously stated that "Prices are suspiciously high in comparison to fundamentals. A lot of people want to say that we're in a bubble, but I'm not sure."