Lenders Are Feeling Bullish About Canadian Real Estate in 2020

03 Dec 2019

The majority of lenders surveyed by CBRE plan to maintain or increase allocations to real estate, and some cities will benefit more than others

 

As 2019 draws to a close, lenders are feeling optimistic headed into next year. Buoyed by near-record investment in Canadian commercial real estate over the past three years, the vast majority of respondents to CBRE’s Canadian Real Estate Lenders’ Report said they plan to maintain or increase portfolio allocations to real estate lending in 2020.

Our annual Lenders’ Report analyzes the responses of both domestic and foreign lenders to a 32-question survey. The survey gauges lender confidence in real estate, as well as lender preferences over financing terms, property types and geographies for the year ahead. This report reveals what developers, investors and tenants can expect as they look to finance real estate in 2020.

Lenders expressed a strong desire to support transactions in gateway markets like Toronto, Ottawa, Vancouver and Montreal. Ottawa rose in the rankings to displace Vancouver as the second-most desirable market in the eyes of lenders, after Toronto. The biggest mover overall was Hamilton, which jumped four spots in the rankings to ninth place. This reflects strong demand for the Greater Toronto Area and surrounding region. There was also increased interest in London, ON, and Quebec City, while lenders continue to express caution for assets in the Prairies.

“For lenders looking for stable returns on investment, Canadian real estate stands out amid global uncertainty and persistently low bond yields,” said Carmin Di Fiore, Executive Vice President, Debt & Structured Finance, CBRE Canada. “Lenders remain confident about commercial real estate and are looking to deploy capital into the sector. However, lenders are also cognizant of global risks and some will be slightly more selective with their capital in 2020.”

Here are key takeaways from CBRE’s report on lender sentiment for 2020:

  • Multifamily and industrial are king: Lenders are keen to facilitate rental apartment and industrial transactions, with notable demand for seniors housing and hotels. Apartments saw the largest improvement in sentiment and almost no lenders reported concern with the asset class. The industrial sector is seen as a safe bet as occupancy is being bolstered by record demand stemming from the e-commerce boom.
  • Retail languishes: Lenders continue to be cautious regarding retail transactions: 26% of lenders reported their intention to decrease exposure to retail in 2020. Accordingly, of the asset classes that cause concern for lenders, four of the top five spots are occupied by select retail formats: regional secondary markets, power centres, value-add and entertainment and food services. The exception to this is grocery-anchored properties, in which lenders remain confident.
  • Alberta’s alright: While Alberta faces challenges, lenders haven’t ruled it out, nor have opinions changed materially since the energy downturn. Respondents continue to express interest on lending in Calgary or Edmonton. However, lender activity remains deal-dependent or relationship-specific.
  • Recession risk: Nearly 72% of lenders surveyed do not expect a recession in 2020. Some caution was evident among lenders, who identified bond yields and yield curve inversion as events they’ll be watching most closely.
  • Continued growth in capital deployment: Though the breakneck pace of loan book growth moderated somewhat, lenders directing additional capital to the real estate sector will direct 10-20% net new capital next year. For the few lenders looking to decrease their real estate exposures, it is mostly isolated to retail or land asset classes, where 26.1% and 15.2% of respondents respectively signaled an intention to decrease exposure.

 

View the full Canadian Real Estate Lenders’ Report here.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

In Canada, CBRE Limited employs 2,200 people in 22 locations from coast to coast. Please visit our website at www.cbre.ca.