Slower economy may improve 'cap rates'

A new quarterly survey by REALpac has revealed that executive sentiment is at the lowest level since 2009, with a majority of participants citing future interest rates as a cause of anxiety as well as uncertainty relating to the U.S. economy.
"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 of membership, marketing and communications for 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 Canadian Real Estate Sentiment Survey also revealed that while commercial real estate continues to trade at compressed cap rates, views regarding the sustainability of current asset pricing are mixed.
“Prices will probably plateau,” said one survey respondent. “Because yields are so low in other investments and because the market has been quite stable, real estate prices are quite high. We’re seeing a lot of foreign money coming into the country
Despite such cautious remarks by participants, the report also highlights that investors continue to turn to the commercial real estate market for high returns while lending in the market remains active.
All of that casts doubt on hopes that prices will level off and the Canadian economy will pick up steam allowing commercial investors to improve cap rates.

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