Dec
26
2009
Canada boasts an unmatched potential for international real estate investors who seek investments in commercial real estate markets that are able to weather the current instability well and grow once the market conditions improve. The market for commercial real estate in Canada has performed exceptionally well in the current downturn, which has boosted vacancy rates to multi-year highs throughout the world, especially in the United States. In Canada, despite the weakness, rents on commercial real estate investments have so far outperformed those in the real estate markets overseas. Therefore, in most economies, commercial real estate is in for an extended downturn that will slash income flows and returns for many investors. However, Canadian investments in Canadian commercial real estate are likely to fare much better than most comparable markets in the world.
REMA Commercial properties specialist
Low vacancy rates amidst a limited supply of new commercial properties and good demand have kept rents on investments in commercial real estate in Canada stable. The recent increase in office vacancy rates to 6 per cent is considered modest by historical patterns. In fact, there are even some localities, such as Ottawa, which are bucking the trend. While commercial real estate vacancies have clearly increased over the past several quarters, they still remain exceptionally low compared to other countries in the world, especially the United States. What is working to the benefit of the Canadian commercial real estate investments, however, is that vacancies are increasing from a low base because, in general, there has been a limited supply of new commercial properties in most local markets. This supports the good outlook for rents on investments in commercial real estate in Canada, especially in comparison to investments in other markets in the world. As a result, real estate investors buying property abroad should be able to find many opportunities in Canada that guarantee a stable return on investment.
Another benefit of investing in Canadian commercial real estate market is that the current downturn in Canada should be both shorter and milder than in most developed economies abroad. The economic recession in Canada will likely end in the second half of this year. An imminent rebound in the Canadian economy will take place sooner than in other economies, thereby boosting prospects for a shorter cycle in commercial real estate. As a result, utilization rates for vacant commercial properties in Canada should improve sooner, helping the market stabilize. The only two exceptions to this positive outlook are Toronto and Calgary, which will continue to see rising vacancies and falling rents due to oversupply issues. However, this will mean that commercial real estate prices in those markets will decline, creating opportunities for foreign property investors to buy investment property in Canada at a lower cost.
Commercial real estate market in Canada in the current cycle should also turn around much quicker than in previous cycles because this time the Canadian commercial real estate market does not suffer from the excessive supply of commercial properties. Therefore, the market rebound is expected to happen within two years, which is only a half of the time it usually takes for commercial real estate markets to stage a comeback from recession.
Even though the number of commercial property purchase transactions has dropped precipitously over the past several quarters, many investors interested in buying commercial real estate abroad, will likely flock to Canada’s commercial real estate market seeking good investment opportunities for the economic expansion that lingers ahead. Canada’s commercial real estate traditionally offers strong income opportunities to foreign investors that seek to make an investment in commercial real estate in the markets characterized by long-term stability.
REMA Commercial properties specialist
