TORONTO — Although Canadian institutional and private real estate investors think the market has yet to reach its lowest point, they are cautiously optimistic that a fast recovery is on the horizon and are honing their expansion strategies, according to Colliers International’s 2010 Global Investor Sentiment Survey. Two out of three Canadian investors (65 per cent) indicated they are considering further acquisitions over the next 12 months, mirroring the global trend (64 per cent).
The global survey of more than 240 major real estate investors (including 26 large Canadian institutional property investors) with a total investment portfolio of over $300 billion, also found a strong appetite for domestic investments. The vast majority (85 per cent) of Canadian respondents who indicated acquisition plans intend to focus on the domestic market, especially in locations such as Toronto (27.8 per cent), Vancouver and Montreal (16.7 per cent each), Edmonton and Calgary (14.8 per cent and 11.1 per cent respectively). The lack of appetite for foreign investments is also reflected globally with eight out of ten respondents having no off-shore portfolio or intentions to invest overseas.
“On a risk adjusted basis, Canadian investors still see Canada as a preferred investment destination that offers a higher return on investment compared to the U.S., in part because of the turmoil that still lingers south of the border,” says Milton Lamb, Chair, National Investment Team, with Colliers International in Canada. “Additional reasons respondents gave for focusing on domestic investments range from the quality of assets to diversification of income stream, availability of capital or better valuation matching income.”
The survey also reveals that Canadian investors are not only looking for buying opportunities, but also looking to divest under-performing or non-core assets (54 per cent). At the same time another 42 per cent of investors are playing the waiting game, holding firm on any asset selling plans to avoid sale at the bottom of the cycle. Respondents predict that the price-expectation gap between buyers and sellers, which has brought deal flow to a near standstill, will narrow closer to the end of the year. The consensus among investors surveyed is that the market will resume to normalcy of transaction stream starting in Q3’10 through to Q2’11.
Milton Lamb adds “If there is a lesson to be learned from this recent recession it would be about the importance of proper assessment of investment opportunities in the context of market cycles. The commercial real estate market is not a stock market where one can enter and exit so easily, which means proper research and analysis become more important than ever.”
Additional Findings and Highlights
• Nearly three out of four (73 per cent) Canadian investors feel that access to capital became easier over the past year and 54 per cent say the movement toward easier access to debt to continue. Additionally and in-line with the BoC recent announcement, 58 per cent of respondents believe the cost of borrowing will climb over the next 12 months.
• Investors expect to see rents continue to decline and hit bottom at the beginning of 2011. This places tenants whose leases are set to expire this year in a better position when negotiating with their property owners.
• 50 per cent of Canadian respondents, most of them institutional investors, are willing to pay a premium for sustainable buildings, compared to only 30 per cent of U.S. investors.