Canada boasts an unmatched potential for international real estate investors who seek investments in commercial real estate markets that are able to weather the current instability well and grow once the market conditions improve. The market for commercial real estate in Canada has performed exceptionally well in the current downturn, which has boosted vacancy rates to multi-year highs throughout the world, especially in the United States. In Canada, despite the weakness, rents on commercial real estate investments have so far outperformed those in the real estate markets overseas. Therefore, in most economies, commercial real estate is in for an extended downturn that will slash income flows and returns for many investors. However, Canadian investments in Canadian commercial real estate are likely to fare much better than most comparable markets in the world.
Jimco International Overseas properties specialist
Low vacancy rates amidst a limited supply of new commercial properties and good demand have kept rents on investments in commercial real estate in Canada stable. The recent increase in office vacancy rates to 6 per cent is considered modest by historical patterns. In fact, there are even some localities, such as Ottawa, which are bucking the trend. In addition, Canadian vacancy rates are way lower than those in some other developed countries, most notably the United States. What is working to the benefit of the Canadian commercial real estate investments, however, is that vacancies are increasing from a low base because, in general, there has been a limited supply of new commercial properties in most local markets. This should keep rent declines small and therefore should offer to foreign investors buying property abroad a rent yield that will be better than that provided by comparable investments in commercial real estate in the United States and similar markets. Stable rental income flows should thus appeal to foreign commercial property investors interested in buying property abroad.
Another benefit of investing in Canadian commercial real estate market is that the current downturn in Canada should be both shorter and milder than in most developed economies abroad. The economic recession in Canada will likely end in the second half of this year. An imminent rebound in the Canadian economy will take place sooner than in other economies, thereby boosting prospects for a shorter cycle in commercial real estate. As a result, utilization rates for vacant commercial properties in Canada should improve sooner, helping the market stabilize. Because of local market oversupply issues and exposures to severely bruised industries, such as the financial services industry, Toronto and Calgary may see an extended slump. But, as property prices decline, even the substantial downturns in some local commercial real estate markets in Canada may offer opportunities for international property investors to buy cheap properties with a major earning potential.
Limited supply of new developments also bodes well for a short downturn in commercial real estate market in Canada. Therefore, the market rebound is expected to happen within two years, which is only a half of the time it usually takes for commercial real estate markets to stage a comeback from recession.
Good opportunities exist in Canada for international real estate investors considering investment in commercial real estate. Canada’s image of a stable and secure market for property investments should appeal to international real estate investors seeking refuge from the generally slumping commercial real estate worldwide.