../Morning Post
Posted November 12, 2009
Emerging Trends

Canadian real estate markets elude US collapse

Toronto - While conservative banking practices and stricter regulation kept lending in check and most Canadian real estate investors were saved from overleveraging, they are still worried about suffering more economic shocks if the US can’t get its financial house in order more quickly. This, according to the annual Emerging Trends in Real Estate 2009 report, released by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI).

The report reflects interviews with and surveys of more than 900 of the industry’s leading real estate experts, including investors, developers, lenders, brokers and consultants in both Canada and the US. Other versions of this report are conducted in countries around the world including Asia Pacific and Europe.

According to the report, total value losses in Canada will average 10 to 20 % off previous highs but some markets and sectors could suffer steep losses. Markets should enter a slow recovery phase by year-end 2010, but respondents see better investment opportunities eventually in top US and European cities, which could rebound more sharply after steeper declines.

“The conservative, careful approach to managing government and markets is paying divi­dends now for Canadian real estate players,” says Frank Magliocco, leader of the PwC Canada Real Estate practice. “Sideswiped by the US fallout, they experienced a manageable market correction rather than a full-blown credit crisis–precipitated market meltdown.”

The Emerging Trends 2010 investment barometer forecasts a relatively stable transaction mar­ket, slightly better for buyers than sellers. According to the survey, average cap rates will increase mod­estly by year-end 2010, ranging from about 7% for moderate-income apartments to 9.5%–plus for hotels. Power centers and central city office will register the sharpest increases. Hotels, malls, and neighbourhood shopping centers will record the smallest bumps.

“For 2010, we are rating only fair investment outlooks for most property types and predict generally weak conditions for development. Limp demand threatens to soften property cash flows across all sectors and most markets,” says Chris Potter, PwC partner and leader of the firm’s Canadian Real Estate Tax practice.

Indeed, across Canada, apartment investment prospects rank barely above a fair rating at 5.44 out of 10, followed by office at 5.04, retail at 5.00, industrial/distribution at 4.68 and hotels at 3.69. Development prospects in any segment never break past the 3.74 out of 10 mark (apartment segment). Hotels suffer the worst in development options at a low 2.68.

Lori-Ann Beausoleil, PwC partner and leader of the firm’s Advisory Real Estate practice comments, “We expect to see developers curbing their activity in light of softened demand as bankers rein in construction loans. Furthermore certain condo projects will likely stall out until residential prices firm up in Vancouver and Toronto. Canadian office markets have performed better than expected particularly when most major US cities are experiencing double digit vacancies, whereas the Canadian markets are averaging only 8%. Demand remains weak in most markets but that is expected however, concern is growing with Calgary office builders—that market is experiencing a supply splurge at a time of waning demand from deflated energy companies. In Toronto, where some smaller developers may be in over their heads in residential construction, there could be an opportunity for the larger players with more experience and lender relationships to take over these struggling projects.”

Prospects for Major Commercial/Multifamily Property Types in 2010
Scale of 1  10, where 1 is abysmal and 10 is excellent
Property Type Investment Prospects Development Prospects
Apartment 5.44 3.74
Office 5.04 2.96
Retail 5.00 3.30
Industrial/Distribution 4.68 3.35
Hotel 3.96 2.68

Markets to Watch

The Vancouver market is considered to be the higher performing of all regions, albeit at only a slightly above fair rating for commercial and multifamily investment and development (5.75 out of 10 for investment prospects and 4.68 for development prospects). Many wonder what will happen after the Olympics.

Toronto ranks third highest with better investment prospects (5.63) than development prospects (3.83). Indeed, new condominium high rises and office tower projects adorn downtown streetscapes, raising concerns about too much construction in a problematic econ­omy.

Single-family home and condo buyers are surging to make deals before a new harmonized sales tax (HST) takes effect on July 1, and devel­opers fear a demand drop-off afterwards. Warehouse markets have stumbled—with rents declining 25 to 30%.

Montreal ranks fifth as the real estate market sleepwalks through equilibrium—measured development and limited demand growth. Investment prospects rate an almost exact fair at 5.05 and development prospects fall to 3.53.

Calgary. Alberta’s largest city suffers the biggest rating decline for any North American market in Emerging Trends surveys (investment prospects 4.75 and development at 3.58) About 6 million square feet of office comes online at just the wrong time. Condos and hous­ing are overbuilt, too.

Prospects for Commercial/Multifamily Investment and Development
Scale of 1  10, where 1 is abysmal and 10 is excellent

Submit press release to pressrelease@exchangemagazine.com - Editor Jon Rohr - Content published on this site represents the opinion of the individual/organization and/or source provider of the Content. ExchangeMagazine.com is non-partisan, online journal. Privacy Policy. Copyright of Exchange produced editorial is the copyright of Exchange Business Communications Inc. 2009/*.*. Additional editorials, comments and releases are copyright of respective source(s) and/or institutions or organizations.


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