“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.
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- 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.
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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.