Insights into the global market, think-pieces on where the real estate industry is headed

Our viewpoint on the impact of economic forces on property markets worldwide - Discussing the impact of the COVID-19 pandemic on global real estate-

The priorities of Real estate have altered during the COVID-19 crisis and has affected the long-term implications on global Commercial Real Estate (CRE) strategies. The global economy bounced back in Q3 but the revival of COVID-19 cases caused ongoing uncertainty overall. Considering the current scenario, the decision-making processes continue to prolong as companies remain cautious and are reviewing long-term strategies.

The global office leasing activity, in Q3 2020, was lowered by 46% than in 2019. But it showed an improvement on Q2 as volumes were down by 58% in 2019. The third quarter is indicated as an inflection point in real estate capital markets. Direct transaction volume decrease got slow down during the quarter, from Q3 2019 down to 44%. Capital markets in Asia Pacific and Western Europe are leading the revival and recovery. Although the U.S. is behind, still it remains the most active market with high investor interest globally.

Real estate investment market appetite, trends and activity globally-

1. Real estate investment demand is recovering gradually as investors are becoming customary to operating situations in the COVID-19 environment, globally.
2. Inquiries and marketing volumes are returning back from the lows recorded in Q2, 2020
3. Investors across the regions have preferences for property sectors less affected by the pandemic such as multi-family and industrial, and those who entrust strong and long-lasting income streams.
4. The low-yield investment causes real estate to be highly attractive on a comparative basis and a considerable amount of capital is awaited to be deployed into property.

Real Estate Capital Flows: Q3 2020-

1. In Q3 2020, global commercial real estate (CRE) investment totalled US$147 billion showing improvement from Q2’s trough but was observed to fall by 49%, compared to Q3 2019.
2. It was observed that Q3 investment recovery was majorly due to the effective management of the pandemic. Asian and European markets (including the U.K)., led the rebound.
3. A 54% fall was seen in cross-border investment volumes in Q3 2020. Germany and India were deemed to be the prime destinations for foreign investors in Q3 2020.

Global industrial and office yields were stable, while the retail yields were higher in Q3 2020.

Canadian Real estate- Current scenario and future outlooks-

Vancouver condominium was described as a store of gold better than wealth, by the head of the world’s biggest asset manager in 2015. Canadian housing once seemed so infallible has been put to test by COVID-19. Canada’s Real estate industry in a state of paralysis now.

Policy makers are competing to reinforce the property market, as the economy began to shake in mid-March due to the preventions taken during COVID-19. 

It is important to seek the most productive use of the existing assets of Real estate in addition to identifying new construction types by size, design, and functionality. Increased risk is indicatory with slower growth rate and lower future demands. But slower growth doesn’t always mean less opportunities.

With innovative problem-solving technique success will emerge. The key elements that would lead Real Estate to the door of success are the transformation in technology, generational preferences, type of property to be endured, area preferences by geography. However, the market is confronting business challenges faced due to labour shortage and skill gaps. To overcome these barriers new strategies must be applied, new themes must be set on the table.

Canadian Cap Rates & Investment Insights

Vancouver- Lenders continue to look for confirmation on primary land values for various residential condos sites. Refinancing alternates and capital partners are discovered by borrowers and developers. Investment interest continues to be powerful in the industrial, multifamily sectors and offices (despite increased sublease activity in offices). Retail sectors continues to struggle outside of urban centres.

Calgary- There is upward pressure on cap rates in Calgary (outside of multifamily and industrial sectors) dur to high yields required by investors – to balance the impact of COVID-19. Challenges have been created for the future of office and retail leasing markets due to underlying questions and uncertainity.

Edmonton- Industrial demand continue to be powerful and strong in Edmonton over Q3 2020. However, Investors emphasize on quality and functionality. With uncertainty in the broader office sectors remain uncertain and buyers focus is long-term. Attractive price-per-foot metrics enables the buyers to complete future leasing. Demand for multifamily sectors remains strong due to private buyers.

Saskatoon- Investment demand continues to remain stable, but with a limited investment transaction volume due to COVID-19 and impact of potential second-wave. Investment demand for rental properties is increased due to the performance of multifamily sectors. Institutional and private capital have kept cap rates low. With the delivery of new office projects (brought by the River Landing development) remain uncertain for investors and users in Saskatoon’s downtown office market.

Winnipeg- Potential sellers of larger assets are postponing to take these assets to market. The market performance in industrial sector was strong in Q3 2020. The office sector continues to remain stable through the third quarter, while the retail market is floating with retailers remaining in the business due to government’s efforts. Capitalizing opportunities within the industrial, retail and multifamily sector results in strong investment demand (amongst private buyers).

London- Yields for multifamily assets compressed over the third quarter and are in high demand. The industrial asset class remains strong while supported by resilient fundamentals. 

Kitchener-Waterloo- Private capital groups remain the most active buyers in the market. Industrial and multifamily assets continue to lead the way as investors remain confident with their abilities. No interruption is observed in activity for residential land transactions and values for these sites continue to rise.

Toronto- The greatest liquidity is observed for properties having strong tenant covenant and long lease terms (irrespective of the asset class). Sentiment remains favourable towards- real estate as an asset class and Canada as a country, despite the careful outlook. 

Ottawa- During these uncertain economic times, industrial and multifamily assets are proving to be continued standouts. Capital is available for the right assets, despite the shaking of the active buyer sectors for fixed asset classes.

Montreal- Montreal experienced an increase in investment activity as Q3 2020 progressed. Industrial sectors remain in-demand asset class. Investors are open to consider office and retail offering while being cautious.

Quebec City- Cap rates remained unchanged across all major asset classes in Q3 2020. Investors continue to focus on single or multi-tenant industrial assets with long lease terms and secure in-place income. Strong fundamentals are demonstrated by multifamily assets. Multiple projects that are under construction continue to see exceptionally high investor appetite. Urban residential and industrial development sites continue to observe strong interest from investors

Halifax- Significant activity in the apartments and development land sectors remain active in Halifax. Atlantic Canada remain open with caution, “Atlantic Bubble” still continue to remain in place. Demand is observed from large distributors (looking for new format logistic facilities) in the industrial market. It is assumed that Halifax could see new large warehouse builds, however there is limited availability of industrial development land.

Vancouver and Toronto real estate markets turns out to be the leading cities of Canada as regards of investment and development potentials although every region encounters its own alternatives and challenges.

Credits –

Global Real Estate Perspective: JLL

Real Estate Capital Flows - Global Deck Q3 2020: CBRE

Financial Post

Emerging Trends in Real Estate 2020 – PWC Canada

multifamilybc.cbrevancouver.com