A Wave of Investment Capital to Propel Commercial Real Estate in 2015

TORONTO – February 24, 2015 – Canadian commercial real estate has been synonymous with stability, low vacancy, and record pricing, which has garnered the attention of global media, businesses and investors in recent years. The drop in oil prices and Target’s decision to pull out of Canada has taken some of the shine off the Canadian marketplace; however, Paul Morassutti, Executive Managing Director of CBRE Limited, reminded attendees of CBRE’s Market Outlook Breakfast that record investor demand for commercial property is indicative of long-term confidence in Canadian commercial real estate.

“For the first time in a number of years, we are seeing a bit of a divergence between the strength of property fundamentals and investment activity,” said Morassutti. “The buyer pool remains deep as a range of investors continue to pursue commercial property purchases across the country, but there is no doubt that vacancy and rental rates are under pressure in Alberta, particularly in the office market. It remains to be seen whether low oil prices will impact confidence, job growth, and demand for housing and commercial space in other parts of the country. Thus far, there have been limited repercussions outside of Alberta.”

Investors are likely to face increased competition for commercial property in 2015 as Canada’s largest pension funds raise their allocation to real estate. An expected 80 basis point hike in pension funds’ target allocation to real estate, from 12.0% to 12.8%, equates to an additional $4.5 billion chasing commercial assets. In addition to pension funds, REITs will be selective buyers in 2015, as lower interest rates decrease their cost of capital, while private buyers will remain a powerful force in the market.  

“In terms of tenant demand and rental rates, whether we are talking about office, industrial or multifamily properties, much of the country is posting solid numbers. And we should not be surprised when Alberta acts like the cyclical market that it is,” said Morassutti. “In 2015, I think we’ll see some of the questions around the Canadian retail market put aside. Retail is a dynamic property type. We’ll see a number of new successful retailers enter Canada, while retail innovations force bricks and mortar locations, as well supporting industrial logistics operations, to evolve.”  

Morassutti identified the following major trends in Canadian commercial real estate in 2015:

  • Investment capital will be readily available and cheaper than ever, with investor interest shifting to quality assets in Central Canada.
  • Do not expect fire sale pricing in Alberta; however, liquidity will be impacted and investment property transactions curtailed.
  • Retailers will pursue seamless omni-channel strategies which will force power centres and malls to deliver what online shopping cannot.
  • Suburban markets should not be overlooked. Transit oriented development and selective intensification will not be limited to downtown cores.
  • Do not be surprised by the rise of unexpected economic or geopolitical events. Uncertainty and rapid change have been the norm since the Great Recession.
Download a copy of Paul Morassutti’s speech and accompanying slides from CBRE’s Market Outlook Breakfast on our website: http://www.cbre.ca/marketoutlookbreakfast

About CBRE Group, Inc.
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 2014 revenue).  The Company has more than 52,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 370 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 www.cbre.com.

In Canada, CBRE Limited employs approximately 2,080 people in 23 locations from coast to coast. Please visit our website at www.cbre.ca.