Perception vs Reality: Making Sense of 2016’s Polarized Canadian Commercial Real Estate Market

Toronto – February 23, 2016 The commercial real estate (‘CRE’) market in Canada today is one of stark contradictions, heavy polarization and is extremely difficult to neatly categorize. In addition, Paul Morassutti​, Executive Managing Director of CBRE Ltd, speaking today at CBRE’s Market Outlook Breakfast, told attendees that the market is arguably experiencing the widest ever disparity in the performance of assets based on geography and asset class.

“If you were an investment broker in Vancouver, you were popping champagne bottles at the end of last year.  An office Leasing agent in Calgary? Not so much. There was record pricing for some assets and, for others, limited liquidity,” commented Morassutti adding that a lack of uniformity has made it a curious time for the Canadian CRE market.  Furthermore, Morassutti cautioned attendees to “be careful of averages” and that in such a disparate market, average industry key performance indicators such as national or even regional vacancy rates reveal very little.  Consequently, Morassutti reasoned that there were several common perceptions about the CRE market in Canada that do not accurately reflect the reality of its underlying fundamentals in 2016.

Perception: Canadian REITS are in Trouble – A declining buying force over the last three years constrained by a high cost of capital, the S&P/TSX Capped REIT index closed 5% down in 2015.  However, Morassutti reminded attendees that the REIT index outperformed the wider TSX index and, being mindful of averages, that 33 out of 54 Canadian REITS posted positive returns in 2015 with relatively few overall having substantial exposure to the Albertan office market.

“REITS are definitely operating in a challenging environment but reasons for the sector to go even lower are becoming harder to find. The sector yields 6%, spreads over 10 year GoC Bonds are attractive and energy vulnerability appears to have been fully priced in. Many REITS have clearly been oversold,” he added.

Perception: The Office Market is Oversupplied – Against a backdrop of 16.7 million Square Feet of new office buildings under construction, the national vacancy rate is the highest in a decade and has increased in virtually every major market over the year.  Of this new construction, over 60% is to be delivered in Toronto and Calgary collectively.  However, drilling down beyond the national vacancy rate again reveals great disparities.

Morassutti remarked that suburban office vacancies were drastically higher than downtown vacancies which have skewed the national average. Focusing on the markets with the most additional supply, he added, “At 18.2%, Calgary vacancy rate is still rising but Toronto’s overall level of vacancy is quite stable at 9.6%.  However, the vacancy rate in Downtown Toronto’s greater core is 3.3% and the vacancy rate in the South Core is only 2.0%. Vacancies in most non-Alberta markets are manageable.” 

Perception: Alberta is a Distressed Market – Prolonged low oil prices and nearly 20,000 job losses in the Province in 2015 have caused significant pain within Alberta’s office market.  However, there is yet to be any distressed selling in Alberta, and Morassutti added that over half of Calgary’s office properties are “owned by long term, institutional owners who have the scale to weather a few years of pain in a small portion of their overall portfolio, especially when they are booking gains in other parts of the country.” 

Perception: Foreign Investors See Canada as a ‘One Trick Pony’ – A large withdrawal of foreign capital from Canadian equity markets seems to affirm the perception that, as a result of prolonged low commodity prices, international investors are negative on the country’s future economic outlook.  However, “the reality is four out of the last five major Downtown office sales in Canada have been to foreign buyers and there is more to come, primarily in Vancouver and Toronto which have emerged as true global markets,” noted Morassutti.

He added that any short-term economic uncertainty has not dissuaded offshore buyers who tend to have long term investment horizons and seek to buy prime assets in core locations.  “While the low Loonie sweetens the deal, few are buying on the basis of a currency play alone. This capital could easily go to any market in the world.  The reason so much of it is looking to be placed in Canada speaks to the global trend to de-risk and to seek security and safety.”

Download a copy of Paul Morassutti’s speech and accompanying slides from CBRE’s Market Outlook Breakfast on our website:​kbreakfast


About CBRE

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2015 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and​ occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at

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