Canadian commercial property is surging, with a bright forecast for 2019. The big question is, will Canadians bring their investment dollars home in time to benefit from it?
According to Canada’s Real Estate News Exchange (RENX), investment in commercial property hit a new record high in the first six months of 2018, at $26.8 billion. That could put the entire year well above the annual record set in 2017 of $43.1 billion.
Current appetite for investment together with the safety and yields Canadian commercial property offers leads experts to believe that this trend is unlikely to waiver in 2019. Everyone wants a bit of the action, including big tech giants like Google.
In fact, broader factors such as politics, global stock correction, and new visa requirements for international investors in London could all bring more capital to these Canadian assets over the next 12 months.
The question is whether Canadians will act in time to withdraw their capital and equity from other declining marketing and sectors in time to preserve their available investment dollars and wealth, and to benefit from the best growth in this asset class?
This applies not only to individual Canadians, but family offices and funds.
While many analysts and biased promoters are doing a smooth job of downplaying the risks in these other markets and sectors, individuals need to be realistic about the dangers and look at the data for themselves.
Some are trying to mask the depth of the last crises with averaged data. Numbers which may allude more to a soft correction of 10% or so a year. When in reality, those that lived through those years often saw their residential property investments in the US fall by 50% to 70% in value in a matter of months, and entire stock portfolios virtually vaporized.
Some of the hardest hit markets were Florida and Phoenix, Arizona. These areas are some of Canadians’ favorite places to invest and they are known for their infamous boom and bust market cycles. Markets like NYC have already been in a correction for a year, and are experiencing double-digit moves in the wrong directions. The December 2018 ‘rebound’ in stock prices could also be the classic bear market fate that opens up the real nose dive to the bottom after more capital is captured.
It’s true that while commercial properties may offer brick and mortar security, the yields on many prime properties are trading low. Yet, many will find greater returns and yields in more localized properties just out of the center, and in more suburban and secondary markets. Of particular note, according to RENX, the reinvention of retail and spending patterns are expected to keep boosting retailer expansions at the discount and luxury ends of the market. Furthermore, mixed-use properties with retail and apartments could perform well, as vacancy rates dip below 3% and encourage rental rate increases.
ReDev Properties Group has been one of the prominent leaders in delivering on investment performance in this arena. View our portfolio and upcoming opportunities to see how we’ve helped investors optimize their portfolios during all phases of these economic cycles.