Article
Why Canadian Commercial Real Estate is a Safe Bet for Investors
November 14, 2019 3 Minute Read
It’s a stressful time to be an investor, waking up every morning to news of global trade disputes, political scandal and failed IPOs.
Now more than ever, investors are looking for “safe harbours” to park their money, sectors that offer stability while providing steady returns.
That’s where Canadian commercial real estate comes in. The industry is supported by strong fundamentals which, paired with the country’s resilient economy, make it a natural choice for those looking to make a smart choice with their money.
Bad News Heard Round the World
The investing headlines haven’t been encouraging this quarter, with the International Monetary Fund (IMF) downgrading its 2019 global economic growth projection for the fifth time in a row last month. The IMF now predicts that the global economy will expand at 3.0%, a post-financial crisis low and well under the 3.9% it forecast nearly a year ago.
Prolonged trade uncertainty, lower business confidence and investor risk aversion were all named as reasons for the lower forecast.
Meanwhile, China reported a Q3 GDP growth rate of just 6.0%, a 27-year low, while the U.S. reported 1.9% growth, down from 2.0% the year before.
The Federal Reserve is now expected to pause its central interest rate, as it waits to see how inflation numbers and U.S.-China trade negotiations pan out.
Canadian Economy Holds Strong
Meanwhile, the Bank of Canada (BoC) has managed to stay on course, holding firm on its central interest rate at 1.75%. It’s now higher than the U.S. for the first time in the three years, and the highest in the developed world.
“Governing Council considered whether the downside risks to the Canadian economy were sufficient at this time to warrant a more accommodative monetary policy… and we concluded that they were not,” said BoC governor Stephen Poloz last month.
The move reflects the overall resilience of the Canadian economy. The central bank recently conducted a study which found that Canadian firms expect moderately strong sales over the next 12 months.
Investors are taking note – a stable economy is attractive, as are certain sectors that operate inside it.
Commercial Real Estate A Smart Choice
Commercial real estate is both resilient and vibrant, attracting near record levels of investment despite global volatility.
Sectors like multifamily are particularly attractive, with strong returns that come from tight housing markets in the country’s largest cities.
Investors spent a record $8.4 billion on Canadian apartment buildings in 2018, a number they could match this year, with $4.0 billion spent in the first half of 2019.
Local office and industrial markets are also performing at record levels. Toronto currently holds the title of North America’s tightest office market, while Vancouver lays claim to the number two spot. Both cities’ industrial markets are struggling to meet demand for new supply, amid a rush of activity surrounding ecommerce sales.
All this demand is translating into rising rents, which means that reliable income streams from commercial real estate are likely to grow and, in turn, lift property values. Other global markets are further along in their development, but it seems that Canadian real estate has significant runway for growth.
Investors looking to build or enhance their commercial real estate investment strategy should work with a partner they trust. CBRE Canada leverages a network of local relationships and global best practices to build client advantage from Canadian real estate.
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