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Property investment report says U.S. woes don’t extend to Canada
Nov 13, 2008

While the U.S. real estate market is bottoming out, according to the annual Emerging Trends in Real Estate 2009 report released by Pricewaterhouse-Coopers (PwC) and the Urban Land Institute (ULI), commercial and housing developers and investors in Canadian real estate are approaching 2009 with caution, but are somewhat more positive.

“U.S. housing woes haven’t extended to Canada, where banks and regulators have managed the excessive mortgage lending practices of our neighbours to the south,” said Frank Magliocco, a PwC partner. “Property markets, including housing, track at or near equilibrium with high occupancies and controlled development. We always get caught up in U.S. trends, but given our strong fundamentals they shouldn’t affect us to the same magnitude.”

In a recent quarterly update, Canada Mortgage and Housing Corporation predicted that over the next five years, Manitoba home builders  will experience the most consistent demand across Canada.

Respondents to the PwC and ULC report remain positive about sidestepping any serious impacts of a possible U.S. correction. Western provinces showcase the strongest growth trends and lowest vacancies in North America. All property sectors share positive prospects, especially industrial and retail.

Overall, the emerging trends barometer highlights that it is a moderately good time to sell followed by a high “fair” rating or holding property. Furthermore, the majority of firms remain positive in their prospects for profitability.

The report shows that compared with the U.S., capital has remained disciplined in Canada with pension fund investors still eager to increase portfolio holdings.

“Those companies that have cash and established balance sheets are and will continue to do relatively well,” said Chris Potter, a PwC partner and leader of the firm’s Canadian real estate tax practice. “Financing will cost more and take longer than expected but they will come out ahead in the end. In fact, Canada ranks third in the world (preceded by Asia Pacific and the Middle East) for a moderate to high increase in the availability of capital for real estate.”

In terms of specific sectors, industrial outpaces retail in favoured property categories, but all sectors show strength.

Retail has been on a roll, thanks to the booming economy and the report shows that the home for sale market seems to be holding up but new home development will slow. Respondents see a market crest rather than a slump unless interest rates head north.

Office stock is seeing limited inventories and dated product filled up with tenants. Hotels are prospering with the strong economy and investment and development prospects are modestly good, with most respondents rating the sector either a buy or a hold. Rental apartments are doing well in major cities with high immigration flows such as Manitoba.

CMHC said immigration gains will be a dominant factor driving new housing demand in Manitoba in 2009.