Interest rate hike might threaten Canadian commercial real estate sector's prospects

In a report released last week, TD Economics cautioned that an increase in interest rates “could be the number one risk” to the Canadian commercial real estate segment in the near future.

“Developments of the past several weeks have highlighted what could be the number one risk facing Canada’s [commercial real estate] outlook over the coming years — the possibility of higher interest rates,” TD’s research department wrote in its Canadian Commercial Real Estate Outlook, as quoted by BuzzBuzzNews.

Among these developments are the upturn in Canadian 10-bond yields and U.S. Treasuries spurred by the global uncertainty amid Donald Trump’s victory in the November presidential elections.

Investors in Toronto and Vancouver commercial properties will begin to feel the pain should these trends continue, TD said.

“Spreads in the office sector are now estimated to be below historical averages.”

And the threats do not end there, the report warned.

“Housing markets are likely to lose steam over the next several quarters on the back of recent increases in borrowing rates and tightening in federal mortgage regulations,” TD stated. “A housing slowdown will ultimately spill over to demand for office and retail space through reduced employment and household spending.”

MBN

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