Canada shares real estate's global value dip

Canada shares in real estate’s global value dip

Thursday, August 3, 2023

The global value of professionally managed real estate fell by 4.1 per cent last year relative to 2021, representing a USD $600 billion year-over-year drop. Canada’s weight in those holdings likewise fell, slipping to ninth among the 37 countries MSCI tracks in its annual summary of global and regional market size.

For 2022, MSCI pegs the professionally managed real estate universe at USD $13.3 trillion. Canadian inventory contributes USD $403 billion (CAD $532 billion) to that total, down by USD $44 billion since 2021. After ranking eighth in 2021, Canada was surpassed by Hong Kong last year. Meanwhile, the United States expanded its dominance atop the chart with a USD $90 billion increase, pushing the value up to USD $5.375 trillion or 40.3 per cent of the global professionally managed market.

After the U.S., China, Japan, the United Kingdom and Germany are the next largest markets. These five collectively make up two-thirds of the global market size, while France, Australia, Hong Kong, Canada and Switzerland round out the top ten, accounting for roughly another 17 per cent of the total.

Inflation, rising interest rates and strengthening of the U.S. dollar against 34 of 36 other national currencies in the survey are all cited as reasons for the general drop in value. Just four countries — the U.S., Australia, South Korea and Ireland — registered year-over-year gains. On the flipside, the United Kingdom suffered the steepest drop in value, at USD $132 billion, and Japan, Sweden, Germany and Spain also logged greater losses than Canada.

Globally, the acquisition of investment properties fell off by nearly 20 per cent last year. The global turnover ratio, which measures transaction volume relative to market size, shrank from 10 per cent in 2021 to 8.7 per cent in 2022. Canada’s 7.7 turnover ratio was among the 22 countries falling short of the global average, while the U.S. posted a ratio of 11.7 per cent. Nevertheless, MSCI analysts theorize that the U.S. outperformance may not last into 2023.

“The decline in activity feels more intense as it comes on the back of a record 2021, when the U.S. in particular saw a surge of deals. From the second half of 2022 onward, however, we have recorded declines in deal volume of more than 50 per cent in all three global regions,” René Veerman, MSCI’s head of real assets, notes in the introduction to the report. “A slowdown of this scale inevitably impacts valuations, but whereas we have seen transactions consistently decline globally, valuations have adjusted at different speeds from country to country. The U.K. led the price adjustment, followed by continental Europe, but the U.S. and Asia Pacific, particularly, have lagged.”

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