Building Magazine


New Sentiment Report reminds us: you can’t please everyone all of the time

Despite continuing strong market fundamentals for real estate, commercial real estate leaders’ are more pessimistic about the future than they have been since 2009 due to rising concerns about the state of Canada’s economy, according to the Second Quarter 2013 Canadian Real Estate Sentiment Survey by The Real Property Association (REALpac) and FPL Advisory Group.

The quarterly survey measures the current and future outlook of Canada’s top commercial real estate executives regarding overall real estate conditions, real estate asset values, and availability of capital. Top findings for 2013’s second quarter included:

  • The Q2 index of executive sentiment fell to its lowest level since 2009, due to concerns about the state of the Canadian economy
  • Many Canadian market participants cite the future interest rate environment as an area of anxiety
  • While real estate continues to trade at compressed cap rates, views regarding the sustainability of current asset pricing are mixed
  • Debt is still seen as widely available; lenders are eager to lend and continue to search for returns
  • Equity capital is also plentiful as investors continue to turn to real estate in search of higher returns.

“Canada’s real estate industry has been on a tremendous run since 2009 and the question we keep hearing is how long will it last?” said Carolyn Lane, Vice-President, Membership, Marketing and Communications of REALpac. “Our members are keeping a close watch on interest rates, economic growth here and in the U.S., and also debating whether asset prices can keep rising.”

The survey’s mixed findings were echoed by respondent comments such as:

  • “In Canada, property markets are very stable but the economy itself isn’t great. I’ve felt since mid-last year that Canada is sort of flat. It worries me going forward.”
  • “Canadian fundamentals are quite good with demand and supply in balance. Development is ramping up, and access to debt and equity has never been better or cheaper; this continues to push rates down and prices up.”
  • “The market, I believe, is just not sustainable. There may be a slight correction or slow down. The rates and terms are excellent; I just don’t know how that’s going to last.”
  • “Real estate investment opportunities in many parts of the United States continue to become a more compelling part of the opportunity landscape. Talent and capital will pursue those opportunities, to an extent, while the Canadian markets cool in response to a weaker economic climate, concerns over eventual higher interest rates, and the sustainability of currently low cap rates.”

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