Commercial Real Estate Leaders Begin To Express Caution

TORONTO, Aug. 2, 2012 /CNW/ - The Real Property Association of Canada (REALpac) and FPL Advisory Group are pleased to announce the results of the Third Quarter 2012 REALpac / FPL Canadian Real Estate Sentiment Survey.

Though still in positive territory, the third quarter Current Canadian Real Estate Sentiment Index has dropped to its lowest level since 2009, as Canada's commercial real estate leaders express caution and less optimism today than a year ago in regard to the broader Canadian economy and the prospects for sustained real growth. Sentiment stemming from an unstable international economy has Canadian senior executives taking cautious approaches and wondering if Canada will be next to face financial consequences. As REALpac's 2012 Policy Briefing outlines, the federal government could increase sentiment by finalizing real estate investment trust (REIT) legislation, originally announced on December 16, 2011, thereby instilling confidence into one of Canada's strongest industries throughout the economic downturn.

The Canadian Real Estate Sentiment Survey, produced by the Real Property Association of Canada (REALpac) and FPL Advisory Group, 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. A broad spectrum of owners and asset managers, financial services providers, building operators and related service providers across Canada are surveyed for this comprehensive report, which includes both qualitative and quantitative findings.

The Q3 2012 survey results released today show the Overall Real Estate Sentiment Index achieved a ranking 58, down from 63 in Q2, and 66 a year ago. Scores above 50 reflect positive trends and those below indicate negative trends in questions ranked between 0 and 100. The third quarter marked the twelfth straight quarter in which the overall ranking has been above 50.

This quarter, the Current Index is at 60, down from 66 in the second quarter and 64 in Q1. The Future Index also dropped to 56 from 61 in Q2 2012, and in fact, is one of the lowest response rankings since REALpac and FPL began publishing the Index in Q3 2009. The Q3 2012 survey results and interviews with leading industry executives highlight the belief that current commercial real estate market conditions will continue in a balanced and orderly fashion. However, the sentiment expressed was one of caution due to global economic uncertainty. Even as the market begins to plateau, general sentiment is still positive as respondents continue to note solid market conditions. Markets are liquid and healthy, capital is available and well priced, and the low interest rate environment and aggressive pricing of capital has resulted in a lot of activity in the market.

Capitalization rates have reached extremely low levels and many respondents believe that they may have finally bottomed. Real estate is perceived as a relatively safe investment and given the low interest rates environment investors are driving demand for quality assets.

Though some banks and institutional lenders are looking at tightening their debt requirements and becoming more cautious with their lending guidelines, there continues to be an abundance of debt capital available at low interest rates. One industry CEO indicated that while "debt is very cheap … people are still forced to put up equity and make disciplined decisions".

Industry leaders surveyed for the Q3 Index noted the abundance of equity capital. Allocations to real estate by major pension funds continue to be significant and are rising. One executive surveyed captured the sentiments of a majority of others in saying "Too many large players are chasing too few quality assets with lots of money".

To download a copy of the Q3 Sentiment Survey results, go to http://www.realpac.ca/?page=CanadianRealEstateSS

To download REALpac's 2012 Policy Briefing, go to http://www.realpac.ca/?page=PolicyBriefing

About the Real Property Association of Canada

REALpac is Canada's premier industry association for investment real property leaders. Our mission is to collectively influence public policy, to educate government and the public, and to ensure stable and beneficial real estate capital and property markets in Canada.

REALpac members currently own in excess of $180 Billion CAD in real estate assets located in the major centres across Canada. Members include real estate investment trusts, publicly traded and large private companies, banks, brokerages, crown corporations, investment dealers, life companies, lenders, and pension funds. For more information, please visit us at www.realpac.ca.

About FPL Advisory Group

FPL Advisory Group (FPL) is a family of companies focused on providing highly specialized advisory services to the real estate and related operating and financial services industries. Through our complementary practice areas, we work with our clients to develop the right talent, leadership, structure, and strategies for success in today's intensely competitive marketplace.

FPL is comprised of two primary operating companies that work together to serve a common client base. Ferguson Partners provides executive, director, and professional search services. FPL Associates provides a range of specialized consulting and finance-related services in the areas of compensation, management consulting, executive onboarding, and succession planning. The firm is headquartered in Chicago and maintains offices in London, New York, Boston, and Tokyo. For more information, please visit www.fpladvisorygroup.com.

SOURCE: Real Property Association of Canada

Julia St. Michael, Manager, Research & Environmental Programs, 416-642-2700 x237, or Loren Croskey, Manager, FPL Advisory Group, 888-368-6598 (toll free).