Canada’s commercial real estate leaders slightly more optimistic than in Q4 2012

In the face of strong fundamentals, Canada’s commercial real estate leaders felt more positive about the health of the sector in the first quarter of 2013, but lingering uncertainties continued to temper their optimism, according to The First Quarter 2013 Canadian Real Estate Sentiment Survey released by the Real Property Association (REALpac) and FPL Advisory Group.

The quarterly survey measures the current and future outlook of Canada’s top commercial real estate executives on overall real estate conditions, real estate asset values, and availability of capital.

Top findings for 2013’s first quarter included:

•           Asset prices continued to see considerable gains;

•           Some respondents expressed concern about future interest rate change, while others do not expect a reversal of this trend in the near- to mid-term;

•           Debt is widely available despite heightened underwriting requirements; lenders remain eager to put capital to work;

•           Equity capital is abundant as investors continue to search for yield, though many respondents cited deployment of capital as a challenge.

Underscoring such findings were respondent comments such as:

  • “The market is fueled by a lack of reasonable investment alternatives. No other option can offer the yields and relative safety of real estate. As long as investors have nowhere else to go and real estate supply and demand      fundamentals continue to remain strong, this rally still has legs. That said, any shift in fundamentals or change in credit conditions will cause an immediate adjustment and stall the cycle.”
  • “I think we’re back to where we were in 2006 and 2007. Cap rates are even lower than they were. There is still a lot of capital chasing assets. The financial market is there and available. We’re seeing more and more high net worth individuals investing in Canada for two reasons: one, returns are still very good in Canada for certain foreign investors (those from Europe, Africa, Asia), and two, the economy is doing well.”
  • “There is so much money chasing property in Canada and the REITs, using a lot of leverage, have been dominating the buyer profile. Because of that, a lot of our institutional clients are focusing on the U.S. right now just to find places to deploy capital. The biggest challenge right now is helping people find a way to deploy the available capital.”
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