Canadian commercial real estate markets are in a state of flux with various markets performing at different levels
With Oil and Gas having a progressively negative impact on the economy nationally, 2015 was a relatively flat year, according to the Colliers International Q4 2015 Canadian Commercial Real Estate Capitalization Rate Report.
Each quarter, Colliers surveys its top investors from across Canada regarding current market conditions, with the capitalization rate as a leading indicator of market health. The capitalization rate measures the rate of income return on any real estate investment, applied as a percentage.
“As a result of the enduring low interest rate environment, coupled with uncertainty in the capital markets and the low Canadian dollar, demand for investment-quality real estate assets in Canada continues to be strong despite the impact low energy prices are having on the overall Canadian economy. This continues to be particularly true in the major markets of Toronto, Montreal and Vancouver,” says Chris Marlyn, senior vice president of Colliers’ Valuation and Advisory Services team.
The report illustrates a weakening Canadian dollar and low interest rates have made for further compression in Canadian capitalization rates in select market segments. With little top-tier product available, investor focus has shifted to maximizing existing product and the competition that does come into market.
Alberta saw its own challenges as 2015 came to a close. With lease rates declining, overall asset values continued to decrease. Given the highly competitive nature of the larger markets, investors had heightened interest in cities such as Ottawa, Halifax, Winnipeg and Victoria as they pursued returns and acquisitions not available in Toronto, Montreal or Vancouver.
Overall, according to the report, the Canadian market continues to struggle with uncharacteristically slower commercial transaction activity and lack of supply. With the exception of Alberta, overall capitalization rates are projected to remain stable in the first part of 2016.
> Download the full Canada Cap Rate Report Q4 2015