Morguard Research Report Says Foreign Investors Continue to Seek Stability in Canadian Commercial Real Estate
Jul 25, 2016, 12:50 ET
MISSISSAUGA, ON, July 25, 2016 /CNW/ - Despite Canada's tepid economic growth forecast, foreign investment continues to stimulate the real estate market as investors look for stability. Morguard Corporation's (TSX: MRC) ("Morguard") second quarter 2016 Economic Outlook and Market Fundamentals Report points to Canada as an attractive market for foreign capital investment, due to the relative stability of the property sector coupled with the low Canadian dollar, resulting in strong investment interest across the country, specifically in Vancouver, British Columbia and Toronto, Ontario.
Q2 2016 Key Findings
- Equity markets have stabilized after Brexit turbulence; the impact in Canada will remain modest
- Canada's low dollar, coupled with strong demand, continues to drive prices of high quality real estate assets
- Despite the forecasted erosion of office leasing fundamentals due to increasing supply, investors continue to find value in the sector, specifically in primary markets including: Vancouver, British Columbia, Toronto, Ontario and Montreal, Quebec
- The rapidly changing retail environment is resulting in both opportunities and challenges for owners, managers and tenants.
To download the second quarter 2016 Economic Outlook and Market Fundamentals Report, visit http://www.morguard.com.
Brexit Impact Modest for Canada
Global equity markets have fully recovered from the initial shock of the United Kingdom's referendum result to leave the European Union. Moving forward, global equity markets are expected to gradually stabilize over the balance of 2016. For Canada the impacts will be modest. Despite being Canada's third largest trading partner, the United Kingdom accounts for only about three per cent of the country's total exports, and it's expected the effect on Canada's economic growth should be mild.
"The overall impact of the Brexit vote will continue to suppress interest rate hikes," said Keith Reading, Director of Research at Morguard. "The race to investment grade corporate and sovereign fixed income investments has led to yields on those instruments hitting some all-time lows. As a result, the absence of suitable returns from other investment vehicles will translate into continued support for real estate investment."
Canada's Commercial Real Estate Market Remains Attractive to Foreign Investors
Investment in Canada's real estate sector will remain steady in the face of stable interest rates and overall incomes, despite the forecast deterioration of leasing fundamentals in some markets. Over the short to mid-term, investors can expect that commercial property investment demand will continue to outpace the supply of the highest quality Class A office properties available for purchase.
Longer-term however, office leasing fundamentals are expected to soften for the next few years as supply continues to grow. Between 2016 and 2018, Calgary, Alberta will see 4.4 million square feet of new office space added to the market, while Toronto will see an addition of 7.3 million square feet. This will be contrasted by moderate demand levels, driven by modest economic growth, leading to rising vacancies and downward pressure on rents.
Retail Facing Opportunities and Challenges
Recent trends reported in Canada's retail sector have been a source of opportunity and challenge for business. "In some cases shopping centre owners and managers have capitalized on recent trends, including the opening of bricks and mortar stores by a number of online retailers to keep pace with changing consumer behaviour," said Reading. "There are also examples where retailers have rationalized their business operations and have adjusted their store location strategies from larger box locations to enclosed malls."
At the same time, some shopping centre owners and managers have been able to capitalize on growth in the fashion sector over the recent past. The arrival of U.S. and European fashion operators have provided a lift to mall rosters and another competitive element to the retail leasing environment. Overall, Morguard believes there has been, and will continue to be, healthy and productive growth in some segments of Canada's shopping centre market.
About Morguard Corporation
Morguard Corporation (TSX: MRC) is a major North American real estate and property management company. It has extensive retail, office, industrial, multi–suite residential, and hotel holdings owned directly, or through its investment in Morguard REIT (TSX: MRT.UN) and Morguard North American Residential REIT (TSX: MRG.UN). Morguard also provides real estate management services to institutional and other investors. Morguard's combined real estate portfolio is valued at $16.0 billion. Visit www.morguard.com.
SOURCE Morguard Corporation
For further information: Morguard Corporation, K. Rai Sahi, Chief Executive Officer, T 905-281-3800; Keith Reading, Director of Research, T 905-281-3800
Share this article