Tenants’ financial stability and increasing vacancy rates are the two major concerns keeping Canadian institutional commercial-property investors awake at night according to a survey conducted by Colliers International, and unveiled at York Communication’s Real Leasing event in Toronto.
“Landlords are really concerned about tenant stability and the time it might potentially take to lease up vacant space in their assets,” said David Bowden, Canadian president at Colliers International. “As a result we are seeing landlords aggressively trying to retain good quality existing tenants by engaging their tenants in negotiations sooner and remaining flexible on rents in an effort to secure longer term leases.”
The survey of 30 institutional investors across Canada also found:
- Ninety-two per cent of respondents ranked ‘tenant financial credit rating’ among the top two most important factors when making a leasing decision. This is in comparison to only a third (33 per cent) of respondents who would have ranked it so highly in 2007.
- Investors remain the most optimistic about Ottawa and Vancouver markets, but had concerns about Calgary’s oversupply.
- Two-thirds of survey participants (67 per cent) said they would pay between three to seven per cent premium for green credentialed buildings.
- Three-quarters of investors surveyed (76 per cent) expect values to increase by less than five per cent over the next 12 months, yet more than half (56 per cent) still expect to grow their overall property holdings over the same time horizon.
Colliers surveyed 30 institutional commercial investors across Canada by phone throughout August and September. Respondents were high level decision makers each controlling at least $500 million in property assets in two or more Canadian locations.
“If you look back over the past year some experts believed we were entering a depression, not a recession. Fear was really ruling the market,” explained Scott Addison, executive managing director at Colliers International in Toronto. “Looking forward, the industry’s highest expectations won’t be achieved, but its worst fears won’t be realized either.”
Addison also identifies a window of opportunity for tenants, as the general economy shows signs of improvement. “The real estate market typically lags behind the general economy anywhere from six to 12 months,” said Addison. “As a result, tenants are in the position to strike some good deals.”