ONE | BUOYANT DEBT MARKETS
Lenders remain aggressive as competition for prime real estate lending opportunities in Canada intensifies. Borrowing rates remain at historical lows and other lending terms have become increasingly favourable for borrowers. The relaunched commercial mortgage-backed security lending programs in Canada have started to pick up steam and, together with life insurance companies, pension funds and Canadian banks, are the dominate lenders in the Canadian lending market. With resilient market conditions, U.S. and international players have also been attempting to deploy real estate loans for real estate investments in Canada, while borrowers are working to lock in loans before interest rates rise.
TWO | ASSET COMPETITION
International investors continue to actively seek investment opportunities in Canadian real estate, and European and Asian investors are aggressively bidding on core assets. Well-located office, industrial and retail assets all attract multiple bidders when brought to the market. While owners are reluctant to part with assets, some generational shifts are leading high-net-worth individuals to divest long-held assets.
THREE | LEASING
Although the demise of Target in Canada has made U.S. and international retailers more cautious and restrained regarding their Canadian expansion plans, leasing interest among foreign retailers remains fairly strong. While the vacancies left by Target have caused some turmoil for several weaker suburban retail centres, demand for centrally located urban retail space (particularly, high street retail space) remains very robust. Office leasing activity and office rents remain sound across Canada, except in Alberta where the drop in global oil prices has caused many oil and gas companies to shrink their operations.
FOUR | ASSET MANAGEMENT
Large asset managers continue to consolidate operations, as the valuation of asset-management fee income continues to rise. Canadian financial institutions seeking to expand their active asset-management businesses for institutions and high-net-worth individuals are considering acquisitions of all types of asset-management platforms to meet their customers’ needs. In this dynamic market, asset managers are devoting more attention to anticipated heightened regulatory scrutiny regarding their fiduciary obligations.
FIVE | GLOBALIZATION OF REAL ESTATE
Pension funds and insurance companies from all over the world are investing in Canada and elsewhere as they strive to diversify risk. With increasing activity in diverse markets, pension funds and insurance companies need to create global teams with local knowledge and credentials. Due to the capitalization rate compression in traditional core assets and in response to the changing demographics of urbanization and aging, international investors are turning to development of multifamily housing and acquisition of seniors’ accommodations. At the same time, Canadian pension funds are devoting greater attention to investing in U.S. and global markets to diversify their holdings and manage risk.