Some signs of CRE cooling but the party continues

Investors in Canada’s commercial real estate market are still seeing good returns but there are signs that things are cooling.

A report from global real estate firm Cushman & Wakefield says that there is still life left in the current investment cycle even as interest rates rise and subtle changes occur in some asset classes.

Although there are some signs of cooling, the report says, the fundamentals of the market remain strong and cap rates are generally stable.

There could be a tipping point in some markets and asset classes though.

“With five-year BOC bond rates up by between 100 and 110 basis points, we are starting to see key asset classes in Toronto such as street-front retail product under $30 million and low-rise multi-residential housing experience buyer resistance to cap rates that were achievable one year ago,” the report says.

The CRE assets that are in hot demand
Demand for Canadian hotel and Class B industrial properties remain strong.

Hotels have outperformed for investors in recent years and Cushman & Wakefield says there is a yield advantage with rising occupancy and room rates.

With Montreal, Toronto, Ottawa, London, and Kitchener Waterloo all in high demand among investors, 2017 saw a record $3.5 billion of sales in this sector.

The industrial sector continues to rise with e-commerce driving the growth in this asset class.

Class A cap rates were stable in major markets in Q1 2018 but class B has gained strength.


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