Attractive returns to come for commercial investors

Commercial real estate investors will achieve attractive returns, driven in large part by the stability and growth in rental income, according to a new report.

“Investment returns will be largely income-driven, with some investors looking increasingly to new construction as a core strategy," said Keith Reading, director of research at Morguard, which published the report today.

“Boosting income performance will be a focus for existing portfolios. Investors have already shown a willingness to move up the risk ladder in sourcing value-add opportunities to achieve their investment objectives."

Morguard’s 2015 Economic Outlook and Fundamentals Research Report predicts a fourth consecutive year of positive performance for Canada’s commercial property sector in 2015.

It forecasts that commercial property will top $25 billion, slightly below the 2014 total, but higher than the long-term average of $20.7 billion.

While it believesthat healthy and stable fundamentals will attract a range of investors armed with low-cost debt and equity capital, the oil price plunge that took place through the second half of 2014 is expected to dampen economic growth.

The report’s highlights include:
  • Owners of high-quality commercial property will be able to achieve satisfactory yields over 2015, as values hold at the peak for the cycle and income characteristics remain stable and healthy.
  • Lenders will be aggressive in their attempts to place debt in the real estate sector in 2015, while consumers look to take advantage of the recent decrease in mortgage rates.
  • Investor appetite will continue to surpass the supply of available income-producing property.
  • The recent plunge in oil prices will affect economic growth rates in resource-driven regions and the country as a whole, which will impact the property sector as a service provider to the economy.
  • Western Canada's reign as the nation's economic growth leader will likely come to an end in 2015, as non-resource dominated regions like Ontario move to the forefront.
  • Supply risk will continue to impact the nation's office markets, given the construction and completion of more than 13.0 million SF of newly built space over the next few years.
  • Older properties will be faced with increased vacancy levels in 2015, as tenants look to relocate to newly building and more efficient properties.
  • Income performance will be the major driver of investment returns, supported by occupancy characteristics, moderately positive demand, and rising rents for the best assets in each property sector.
  • Rental growth will be recorded in the industrial and multi-unit residential sectors, with a less positive trend anticipated for office and retail.
Do you know any commercial real estate investors worthy of the industry’s accolades?

Nominate your colleagues, mentors or even yourself for Alternative Investor of the Year in the Top Investor Awards 2015.

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