Cap rates to remain stable: report

by John Tenpenny05 Oct 2015
The good news for investors is that the demand for well-positioned properties with strong fundamentals will continue to keep cap rates stable, while on the flip side, a lack of supply of those same types of properties will be hard to find, as development attempts to catch up.

Despite concerns about the national economy and upcoming election, capitalization rates across Canada remain in relatively good health, according to the Colliers International Q3 2015 Canadian Commercial Real Estate Capitalization Rate Report.

Each quarter, Colliers surveys its top investors from across Canada regarding current market conditions, with the capitalization rate as a leading indicator of market health. The capitalization rate measures the rate of income return on any real estate investment, applied as a percentage.

“Despite weak energy markets and a slowing Canadian economy, demand for good-quality, well-tenanted assets remains strong, particularly in Toronto, Montreal and Vancouver,” said Chris Marlyn, senior vice president of Colliers’ Valuation and Advisory Services team.

According to the report, Alberta has seen a shift taking place in the economy due to the current commodity environment that has caused companies to undergo significant changes in order to operate. Investment in Calgary’s commercial real estate market is trending well behind the previous year’s third quarter levels. However, Alberta is still very active with new projects under construction, from office towers and hotels, to condominiums and extensive development at both international airports.

Smaller markets such as Ottawa, Winnipeg, Halifax and Victoria are slow with few assets trading, noted the report, adding that ongoing limited supply of good-quality assets and ample availability of low-cost financing have contributed to reduced activity in those markets.

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