Record-low capitalization rates in ‘safe haven’ Canadian real estate sector

Canada’s real estate sector remains an attractive “safe haven” for enterprising individuals and entities looking to bet on reliable, risk-averse investments amid global fiscal and political instability, according to CBRE Canada executive vice-president and executive managing director Paul Morassutti.

“Skittish capital is being driven to Canada,” Morassutti said in late February, as quoted by Property Biz Canada.

“Investment activity was at record levels in 2016, when every asset class outperformed its 10-year average. This activity included a record level of foreign investment, the vast majority of which was Chinese.”

Morassutti added that this has led to rock-bottom capitalization rates for high-end properties in Toronto and Vancouver, to the point that these are now similar to yields in other global markets like New York, London, and Paris.

Another effect is the strong performance (18 per cent return) posted by Canadian real estate investment trusts last year, especially when compared to their unsteady 2015 numbers.

“After more than two decades of being almost exclusively asset acquirers, REITs are now focused on capital recycling, strategic development and de-risking their distributions and portfolios,” Morassutti explained.

“For the most part, rather than chasing acquisitions in a frothy environment, [domestic pension funds] have principally chosen to squeeze out higher yields by developing brand new product and repositioning assets.”

MBN

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