As the global economy is plowing through challenges and uncertainties still lingering from the last recession, Canadian commercial real estate investors are optimistic about market conditions, yet somewhat cautious about taking on more risk, according to Colliers International’s 2012 Global Investor Sentiment Survey. Although the Investor Sentiment Index rises to 104.1 points over the five-year time frame, which indicates a positive stance, less than half (45 per cent) of respondents said they are likely or highly likely to move up the risk curve to reap better yields. This risk tolerance level is lower than the one expressed by investors last year when nearly two-thirds (64 per cent) of Canadian investors were willing to take on more risk.
This somewhat conservative mindset to risk is also reflected in investors’ views on returns as 58 per cent of Canadian respondents target their Internal Rate of Return (IRR) below 10 per cent. Nevertheless, Canadian investors have not lost their appetite for deal-making with an overwhelming majority (78 per cent) confirming plans to expand their portfolios in the near future.
“Market activity to date indicates that 2012 is on track to exceed commercial transaction volume last seen before the recession,” says Ian MacCulloch, national research director with Colliers International in Canada. “However, while appetite for deals is still strong and lending conditions are favourable, investors are challenged by the relative scarcity of property for sale in Canada, which is a key investment destination.”
According to the survey findings, more than half (54 per cent) of Canadian investors cited “lack of property for sale” as a major challenge. This obstacle is further heightened considering the target markets investors are eyeing. Canada is considered a key investment destination by both domestic and foreign investors. Nearly six in ten (58 per cent) of Canadian investors confirmed their local market is their main investment focus, followed by investment in the U.S. (20 per cent) and Western Europe (12 per cent). Global respondents ranked these markets similarly with Canada and the U.S. switching spots.
“The property investment market in Canada has had an exceptional year, with investor outlook, financing and general market conditions remaining positive. Colliers believes that Canada is emerging from the shadows as a player in the international property investment arena and we are projecting an increase in cross border capital flows. Canadian investors are increasingly looking abroad and interest from foreign investors will manifest as transactions when conditions are right,” adds MacCulloch.