- What Real estate professionals have mixed opinions on the state of the Canadian commercial properties market, Altus finds
- Why Nearly 20% of respondents expect to deploy capital, while 17% will either pause activity or sell assets
- What next Altus expects sales activity to pick up amid expected interest rate cuts and strong foreign investor interest in major Canadian markets
Canadian real estate professionals are divided on the state of the market, Altus Group found in a second-quarter survey.
Half of the 333 respondents expect to continue managing their existing portfolios over the next six months, roughly even with last quarter, while the percentage of those aiming to deploy capital ticked up 3 pps to 18%. Seventeen percent will either pause or sell assets. Survey participants include developers, brokers, asset managers and banks.
Some 32% of respondents have higher expectations for their firm’s revenue growth compared with 12 months ago, while 30% have downgraded their revenue forecasts. Similarly, about 30% of respondents have lower expectations for capitalization rates versus a year earlier, while another 30% believe in the opposite. For both metrics, about 40% have unchanged expectations.
The findings indicate a pronounced gap in sentiment among real estate practitioners, Omar Eltorai, director of research for Altus, said.
“I think that difference in opinion is only growing by market and sector and role,” Eltorai told Green Street News. “So, whether you’re a lender or an investor, those differences are getting bigger.”
There was more consensus on perceptions of pricing. A majority reported multifamily properties and land/development costs as being overvalued, while at least half of respondents believe industrial, hospitality and retail properties are fairly priced.
Eltorai said in previous surveys, respondents indicated a persistently “moderate conviction” in the strength of Canadian commercial real estate, leading to a more optimistic outlook for growth. But such sentiments have begun to shift as the economy remains sluggish, hampered by high interest rates.
“With that theme of divergence in performance, I think that you are starting to see that very much come through in Canada, where there has not been the same robust economic growth as south of the border,” Eltorai said.
Raymond Wong, the firm’s vice president for data solutions client delivery, believes that the Bank of Canada’s recent interest rate cut — with more cuts before yearend — eventually will result in a rebound of commercial property sales activity.
Speaking at the Connect Canada conference in Toronto this week, Wong noted that while overall commercial investment activity continues to drop across all sectors, the rate of decline is slowing. According to Altus, sales dropped 35% quarter over quarter in the final three months of 2023. That slowed to 20% in the first quarter, and Wong expects smaller declines as market conditions improve and investors start to transact. He expects activity to pick up by the end of 2024.
“I think there’s going to be a lag in transactions, but overall, there’s momentum,” Wong said. “[Investors] are getting their strategies in place in anticipation of future cuts.”