Canadian real estate executives are growing more anxious about the state of the market, which might explain the increasing tendency to look abroad.
The Real Property Association of Canada (REALpac) recently released its second-quarter measure of the confidence that senior executives have in this country's commercial real estate industry. It's based on a survey of leaders such as Sam Kolias, the chief executive officer of Boardwalk REIT, Pierre Bergevin, the CEO of Cushman & Wakefield Ltd., Peter Menkes of Menkes Developments Ltd., and Phil Gillin, head of Canadian real estate at Sun Life Financial.
While opinions are divided, the group has become more bearish. The sentiment index has sunk to its lowest level in four years as a result of concerns about the Canadian economy. The main fear seems to be that the industry's good times can't last, with the prospect of higher interest rates being a key source of concern.
"The market, I believe, is just not sustainable," one leader told REALpac (all comments were anonymous).
"We're living through uncharted territory," said another. "Nobody knows if we have a housing bubble or not, and what the impact of that could be. I think everybody had thought by now the economy would recover and rates would start to go up and it hasn't happened. It's spooky."
"In Canada, the property markets are very stable but the economy itself isn't great," said a third.
These opinions might go part way toward explaining the amount of attention that Canadian real estate players are paying to other countries these days.
"Real estate investment opportunities in many parts of the United States continue to become a more compelling part of the opportunity landscape," one leader told REALpac, which is a national industry association for owners and managers of investment real estate. "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."
Canada is increasingly punching above its weight when it comes to real estate investment abroad, according to Jones Lang LaSalle. Last year at least 20 per cent of all cross-border international real estate investments were coming from Canada, according to Jones Lang LaSalle global capital markets research director David Green-Morgan.
Pension plans are a big part of that story. But the real estate investment trusts and insurers made close to half their investments outside of Canada last year, Mr. Green-Morgan said in an interview.
"We don't see that often, that half of activity is outside the country," he said of the global flows. "It's not typical investment strategy, but I guess it reflects the nature of the Canadian market at the moment."
Blake Hutcheson, the CEO of Oxford Properties Group, which just announced that it is partnering with the Crown Estate on a $500-million project in central London, said that even as Oxford expands abroad it remains confident in the state of the Canadian market. While Oxford is indeed being cautious at home, and not trying to underwrite massive growth, he suggested that the country is in a relatively good spot.
"Clearly Canada is in a slow-growth mode, where other countries are coming out of deeply difficult times and showing more relative improvement," he said. "But from a real estate standpoint, the fundamentals are as strong or stronger than ever, and our portfolios are north of 95 per cent leased – in most cases 97 or 98 per cent leased across all asset classes."