Mario Furlan, Vice President, Real Estate Lending, British Columbia, Canadian Western Bank
When asked to assess current confidence in Western Canada's commercial real estate market, Mario Furlan, vice president, Real Estate Lending, British Columbia for Canadian Western Bank (CWB), throws out a number: $1 billion.
That's how much CWB has loaned to developers and investors in commercial real estate in the Vancouver market alone so far this year, and he's happy with it.
"And while the Lower Mainland of British Columbia benefits from its proximity to Asia and Asian investors, we see a similar pattern throughout the West," says Mr. Furlan.
CWB is active in all facets of real estate lending, he says. On its own, the bank is well positioned to finance projects in the $40 million to $50 million range, including shopping centres, high-rise condo development and residential subdivisions, acquisitions and the re-financing of revenue properties. It also participates in higher-value financing syndications in partnership with other financial institutions.
"There will always be ebbs and flows, but in general, we have a very positive view of real estate in Western Canada," says Mr. Furlan. "We are continuing to see foreign investment flowing into the region, particularly the Lower Mainland of B.C."
In addition, he says the West tends to have a well-disciplined developer community that avoids over-supply and delivers what customers are looking for.
Don Campbell, president of Real Estate Investment Network, an exclusive membership program dedicated to educating its members about how, where and when to buy Canadian real estate, notes that while Western Canada's economy may be seen as generally strong, there is not a contiguous western Canadian real estate market.
"It's actually very regional. For instance, the commercial real estate markets in Edmonton, Calgary and Red Deer are much more stable than in the Fraser Valley in B.C. That's why it is important for investors and owners to study their region's economic and job growth rate," says Mr. Campbell.
He believes demand for commercial real estate will begin to ramp up further in Edmonton, Red Deer, Calgary, Grande Prairie and Saskatoon as job growth and economic growth continue on their upward trend. However, the scrapping of HST in B.C. will negatively impact the expansion plans of many small businesses and will have a softening effect on commercial demand between now and the reversion to PST.
Mr. Furlan says the West is clearly not insulated from world events such as the weakness of the U.S. and European economies, and stock market volatility, which impact confidence and could negatively affect markets for Western Canada's resources.
Nevertheless, says Mr. Campbell, demand in the West remains strong. And while it may not be as good as it was when the economy was booming in 2006 and 2007, he says it is still robust compared to Eastern Canada, where there is an over-abundance of B- and C- rated properties and brown-fields in regions with limited economic growth.
For Mr. Furlan, CWB's understanding of the nuances of the western Canadian market is what differentiates the bank from its competitors.
"We are headquartered in the West and that means we have a very different perspective of the region than banks that may be basing their outlook on eastern Canadian criteria. This is our market and it's our home. We understand our customers' vision and react to their needs quickly and efficiently," says Mr. Furlan.
Across the West, provincial economies expected to stay warm
C.'s economy may be cooling somewhat due to a downturn in construction activity, but Alberta, Saskatchewan and Manitoba's economic climates remain warm.
That was the story in May when the Conference Board of Canada (CBoC) released the Spring 2011 edition of its Metropolitan Outlook, which provides a five-year outlook for 13 of the country's largest metropolitan areas. Three months later, nothing much has changed.
The longer-term outlook for the construction sector in the West through 2012 and beyond is promising, which should mean a continuation of healthy GDP growth for Alberta, Saskatchewan and Manitoba.
Reed Construction Data, a Norcross, Georgia-based construction industry market intelligence company with Canadian offices in Toronto and Burnaby, B.C., expects the value of new construction projects will increase by 13.8 per cent over 2011 estimates in Saskatchewan and by 8.5 per cent in Alberta. In B.C., the increase is expected to match the national average of 6.6 per cent.
These projections are in line with a CBoC analysis released earlier this year that named Saskatoon, Calgary, Regina and Edmonton as the four Canadian cities whose resources and energy sectors will allow their economies to post noticeably stronger growth than the other nine major cities covered in its report.
CBoC's Mario Lefebvre, director, Centre for Municipal Studies, said Saskatoon and Regina are benefiting from strong resource development in the province, while healthy population growth is bolstering the housing markets in both cities. The medium-term outlook is also bright, with both economies expected to grow at an even faster pace. Saskatoon's economy will expand by 4.1 per cent this year, while Regina's real gross domestic product (GDP) is slated to rise by 3.1 per cent in 2011.
In Winnipeg, after three years of declining output, CBoC found the manufacturing sector to be on the road to recovery due to increasing demand in the aerospace industry. However, construction activity was expected to decline for the second straight year. Overall, Winnipeg's GDP is forecast to rise by two per cent in 2011.
Calgary and Edmonton will benefit from the promising outlook for the Alberta energy sector, with Calgary forecast to post the second strongest economic growth rate (behind Saskatoon) at 3.4 per cent this year. Although the energy sector will bolster Edmonton's outlook, real GDP is forecast to increase by 3.1 per cent in 2011 – down slightly from its 2010 pace – due to more moderate growth in the construction, manufacturing and services sectors, according to CBoC.
In B.C., Vancouver and Victoria can expect moderate economic growth. Following a strong post-recession rebound, all sectors of the Vancouver economy will grow at a slower pace this year, resulting in a forecasted 2.4 per cent increase in GDP. In Victoria, weak housing demand is expected to limit GDP growth to 1.7 per cent in 2011.