With Negative Bond Yields, What About Cap Rates and Canadian Real Estate?

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Recently, Colliers looked deeply at the phenomenon of negative bond yields globally and their potential impact on real estate investment. This research has led to the realization that, in Canada, there is ample statistical evidence that cap rates and a lagging 5-year bond yield are strongly correlated. Specifically, the cap rates trail changes in this bond yield by approximately two years. This points to a strong near-term buying opportunity for those interested in purchasing commercial real estate in Canada. 

While the next two years may offer price weakness and a buying opportunity based on the yield indicator alone, we see little reason for increased risk or value depreciation in Canadian commercial real estate over the longer term. Vacancy is low, immigration is high and developable industrial land in key geographies is scarce. Therefore, once past the coming period of expected weakness, we anticipate lower bond yields, lower cap rates and higher real estate prices to endure for some time. In other words, now is a good time for those looking to buy Canadian commercial real estate on any perceived drop in value.


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With Negative Bond Yields, What About Cap Rates and Canadian Real Estate?

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Craig Hennigar

Senior Director

Vancouver

Craig is a Senior Director in the Valuation and Advisory Services group at Colliers and holds the AACI, P.App and CFA designations.  He offers appraisal and consulting services in the Greater Vancouver and Fraser Valley area as well as throughout British Columbia with particualr focus on the following assets and services: Commercial Property, Industrial Property, Expropriation Valuation, Hospitality Property and Recreational Land, and Multi-Family Property.

Craig is the former Director of Market Intelligence for Canada as well as a real estate broker and appraiser with over 25 years of experience in commercial real estate with work experience is focused on providing strategic and transactional assistance to national real estate firms.  With professional experience in real estate research, valuation, development, management, finance, consulting, and portfolio management roles he has worked with all major asset classes for valuation of both income producing real estate as well as expropriation, development projects.  His client list includes firms in the finance, technology, aerospace, and logistical industries as well as real  estate firms and has additional work experience providing ongoing economic knowledge, research, forecasting and review of the Canadian and international environment.

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