Rising interest Rates Could Create Record Year For Commercial Property Sales In 2017

Image Credit: 401(k) 2012

Image Credit: 401(k) 2012

Canadian commercial property sales are on track for a new record this year. Could rising interest rates drive even more activity in 2017?

The latest data from the Financial Post and CBRE shows that Canadian commercial real estate sales hit a new record in Q3 and could beat the standing 9 year high of 2007, by the end of the year. New rate hikes may create even more demand in this sector over the coming months.

Third quarter sales of Canadian retail properties, office buildings, apartments, and other commercial real estate topped $11B during the three months ending in September. Estimates put the full year at over $35B in transactions. Experts credit this new push with need for yield, and a combination of investors seeing sustainability in growth thanks to a diversified economy, and rebounding energy markets.

Some of the biggest jumps in commercial property sales have been seen in:

  • Toronto
  • Vancouver
  • Calgary
  • Edmonton

Sales shot up 146% in Calgary, and 55% in Edmonton.

A new U.S. Federal Reserve interest rate hike was introduced in December 2016. The Fed is also calling for 3 more rate hikes in 2017. The Globe and Mail warns that this is likely to spill over across the border and lead to higher mortgage rates and costs for Canadian homeowners and buyers. The report urges borrowers to speed up the refinancing process and get ahead before bank lift rates.

A decrease in profitability of investing in residential properties could shift more investors to invest in the booming commercial property market. There is certainly a sense of urgency about locking in to solid assets, which offer good yields, and before prices and rates rise. Once the bustle of the holiday season slows down we could see much more activity.

Figures show that investments are being made almost equally between several groups with foreign investors slightly in the lead for deals above $10M. That’s followed by private investors in Canada, and pension funds. Foreign investment alone rose 22% in the last quarter. Thankfully private investors have been able to gain traction and access great opportunities by collaborating and partnering together on larger deals than they could take on alone.

Summary

This year has proven to be a record and expectation setting year for Canadian commercial property. Rising interest rates south of the border could begin impacting Canadians in 2017. That is only likely to speed up the action as investors rush to beat the market and competitors for the best acquisitions. Fortunately private domestic investors don’t have to be left out of the best opportunities and yields if they find the right vehicles to invest through