Optimizing Investment Portfolios and Retail Investments In 2017
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This is a significant year for restructuring investment portfolios and assets. There are a lot of changes in play, in consumer trends or at every level of finances. The right moves in the first half of 2017 could make a sizable difference in the portfolio performance of Canada investors over the next decade or longer.
What adjustments should investors make in regards to how their portfolios are weighted? How can asset managers help clients and partners get the most out of their investments?
You're Underexposed to This Asset Class
A new Globe and Mail special report suggests that the majority of Canadians are likely underexposed to real estate investments, and says "real estate could be the multivitamin your portfolio needs."
The problem outlined in this report focuses on the fact that while many Canadians have stretched to buy homes, your personal residence isn't really a pure investment. It rarely produces income for you in terms of monthly cash flow and paper value gains are normally meaningless as you'll continue to need somewhere to live after your current property is sold.
Stocks, bonds, precious metals, tech startup investments, publicly traded REITs, and other basic investments make the bulk of investment portfolios for the average Canadian investor. Yet, these can all be highly volatile and unpredictable, regardless of how much you are diversified within each of these sectors. When it comes to security and planning for passive income, even the best dividend stocks fail to provide adequate returns, especially after taxes and fees.
Then there is commercial real estate. It's a true investment, it's not subject to the emotional swings of the stock market, and it can provide both capital growth and cash.
Are Retail Properties Really a Sound Move?
A great, straightforward, and enjoyable way to invest in commercial real estate is in retail properties, like local shopping plazas. Office, industrial, and mixed use developments may offer additional options. Though one question being raised is how Canada's shopping centers will perform with the rise of Amazon, technology, and online shopping.
It is a good question, as we've seen the announcement of closing many large store chains like Macy's, Kmart, and Sports Authority just south of the border in the United States. However, things are a little different up here in the Canadian market. The Financial Post argues that "better design and atmosphere," are why Canadian malls are thriving. That sounds great and may be true, but the real answer is deeper and more technical than that.
Canada has a far smaller amount of shopping space per capita, which results in more customers per square foot of shopping area. This translates into far higher retail sales per square foot and highly profitable Canadian shops that can still afford to pay more in rent to commercial property landlords.
Consider that Macy's average sales per square foot in America are only around $200. Compare that to Lower Mainland BC at $1,019 or the Chinook Centre in Calgary at $1,057. If you look at an international scale and specific retailers it gets even more interesting. Apple rules with the highest sales per foot per Fortune. Time magazine ranks Canadian retailers Lululemon Athletica and Birks Group as two of the retailers with the highest sales per square foot. Lululemon brings in $1,657 per square foot per Mobile Outfitters and Birks is pushing close to $1,500 per square foot.
Smart asset managers also play a significant role in performance as well. The truly experienced know how to optimize the number of tenants and rentable and useable square feet of retail space so that properties and yields are sustainable and perform above average. They also know how to take advantage of emerging trends.
Commercial real estate may be an important factor for the health and performance of Canadian investment portfolios over the year ahead. Smart positioning executed by experienced asset managers, could deliver some of the best results for Canadian retail. The only question is how will you restructure your holdings this year?