Senior executives in various commercial asset classes face ongoing concerns regarding the future success of Canada’s real estate market, according to recently released Q4 results of the Canadian Real Estate Sentiment Survey.
The FPL Advisory Group and REAlpac’s comprehensive survey measures senior executives’ current and future outlook of overall real estate conditions, access to capital markets and real estate asset pricing. The findings are based on the views of a wide variety of industry leaders from chief executive officers and board members to asset managers and service providers.
At the moment, consensus suggests a more realistic turn from the fruitful dynamics of the last four years, like capital availability and continued activity.
Real estate is believed to remain fully priced as no evidence suggests an upward shift in interest rates. Some forecast these rates will remain low through 2015.
Across the country, Ontario is viewed as somewhat stable, while Canada’s western market, particularly British Columbia and Alberta, is seen as more unpredictable.
Outside the borders, many believe economic recovery in the United States will help Canada’s commercial market as this growth can drive higher domestic interest rates. On the other hand, international conditions are seen as a threat, with soft economies causing uncertainty.
One thought that the demand for quality investments still exceeding supply won’t change until interest rates accelerate. However, according to some, that shift seems uncertain, given the bias of many central bankers across the globe.
Some respondents suggest a strong institutional demand for real estate will offset any interest rate increases, while there are mixed views concerning whether cap rates will continue to flatten under pressure.
Due to continued low interest rates and a stable market, the availability of debt and equity financing remains strong.
Some industry players point to the conservative nature of Canadian lenders. Lending standards and regulations have helped Canada from reaching high levels of inflation.
Looking ahead, this mindfulness is expected to cause future scrutiny from banks, with regulators monitoring commercial real estate portfolios.