CRE investment stays sluggish in Canada

Investors in Canada’s commercial real estate market are exercising caution due to concerns over rising interest rates and inflation, according to the Altus Group’s Canadian Investment Trends Survey. The survey reveals that the Overall Capitalisation Rate (OCR) for the four main asset classes in the second quarter of 2023 increased to 5.62%, up from 5.47% in the previous quarter.

Certain sectors of the market are more appealing to investors than others, with suburban multiple unit residential properties, food-anchored retail strips, and single-tenant industrial assets being the top three preferred property types in the second quarter. The report attributes this preference to macroeconomic headwinds, which have led investors to seek assets with minimal risk and stable returns, particularly in the residential and industrial real estate sectors.

In terms of preferred markets, Ottawa has surpassed Toronto as investors’ top choice, with Vancouver ranking third. Ottawa was the only city among the top three to maintain a positive momentum ratio, indicating a higher percentage of investors looking to buy rather than sell. Montreal, Quebec City, and Hamilton also showed positive momentum ratios, while Calgary and Edmonton had a higher share of investors looking to sell.

The survey highlights other key findings, including increased capitalisation rates for single-tenant industrial properties (5.53%) due to tight supply and high demand. Capitalisation rates also rose for downtown class “AA” offices (6.50%) and tier 1 regional malls (6.01%), while there was a slight decrease for suburban multiple unit residential properties (4.44%).

Investors are navigating the Canadian commercial real estate market carefully, seeking opportunities that provide stability and lower risk amidst concerns about interest rates and inflation.