Investment in Canadian commercial real estate bounced back last year with the strongest performance in three years, at 11.1 per cent, as measured by the rebranded REALpac / IPD Canada Annual Property Index.
The annual total return — a marked turnaround from 2009’s negative return, at -0.3 per cent, and 3.7 per cent in 2008 — is underpinned by a 4.0 per cent capital growth and a 6.5 per cent income return.
The REALpac / IPD Canada Annual Property Index measured C$97 billion of directly-held commercial real estate as at the end of 2010.
“A rebound in property values was entirely responsible for boosting the total return back into double-digit territory in 2010,” said Simon Fairchild, managing director of IPD North America. “The return to capital growth last year follows two consecutive years of write-downs worth 9.3 per cent at the all property level.”
Stronger returns were posted in all of the four major sectors. For the second year in a row, Retails were the top performing sector with a total return of 15.6 per cent in 2010, followed by Industrials at 8.8 per cent, Offices at 8.5 per cent and Residential at 7.6 per cent.
Montreal led the six largest commercial property markets, with a total return of 14.2 per cent; Edmonton trailed in last with 6.5 per cent, the only market among the six where capital values did not show any recovery. Returns in the other four major markets were as follows: Vancouver (13.7 per cent); Toronto (10.9 per cent); Ottawa (10.6 per cent); Calgary (8.7 per cent).
Direct property investment underperformed the REIT market, which rebounded by 27.1 per cent in 2010 according to the FTSE EPRA/NAREIT Index for Canada, as well as stocks which returned 14.9 per cent according to the MSCI Canada Index, but outperformed bonds which returned 7.6 per cent, as measured by the JP Morgan 7-10 Year Government Bond Index.
REALpac & IPD Partnership
On December 31, 2010, REALpac assumed the functions of the Institute of Canadian Real Estate Investment Managers (“ICREIM”), an organization originally formed to manage the Frank Russell Index for Canada and subsequently, the ICREIM / IPD Canada Property Index. A new REALpac / IPD Canada Property Index Committee has been formed of former ICREIM members within REALpac. “REALpac looks forward to working with ICREIM’s former members to enhance the Canada Property Index,” said Michael Brooks, CEO, REALpac. In turn, REALpac and IPD signed an agreement on January 27, 2011, to work together and to rebrand the Canada Index as the REALpac / IPD Canada Property Index.