CRE in Canada continues gaining weight despite various concerns

Paul Morassutti who is the Executive Managing Director of CBRE Canada gave a year-end review just before CBRE released its annual Canadian Real Estate Market Outlook report.

Morassuti cast doubts on the assumptions proposed by some experts who predict everything from the downturn of CRE in Canada in late 2018 to 15 years of anemic growth. Concerns are raised that the retail sector will be negatively affected by 2018 developments. Speculations are also made on the negative impact of NAFTA on CRE in Canada.

CBRE, however, questions these assumptions saying “commercial real estate industry is not overleveraged.”

Negative Forecasts on Retail Market Not Realistic

Negative market perceptions are particularly sound when it comes to retail market. The changing shopping habits and technology seems to affect the industry in the negative way. However, Morassuti is more positive. “Our fundamentals are solid, our ownership base is strong and well-capitalized, our immigration policies are attractive to global talent, and our government, at time flawed, is not bat-shit crazy,” he said.

Giving more importance to creativity and stewardship, the expert said: “If we have to summarize this trend into one sound bite: Retails isn’t dead. Boring retail is.”

NAFTA Too Important to Tear Up

Another possible scenario experts predict is that NAFTA’s unsuccessful negotiations will dramatically affect CRE. Experts speculate that the changes of NAFTA will affect business investment. Stephen Poloz, the BoCGOvernor, said: “it will have an impact on business investment not only by sector but also firm to firm.”

Particularly, assumptions are made that the retail and the industrial sectors would be the most affected by NAFTA negotiations. One of many possible scenarios is that U.S will return to protectionism measures and that will impact the retailers directly in the sense of higher costs of goods sold and indirectly – as lower sales.

However, CBRE is confident that NAFTA is too important for the American society. David Frum who is an author/political commentator, contemplated on the role of NAFTA disputing that NAFTA will ever be downgraded. “NAFTA is deeply woven into American life; it is deeply woven into the economy of the States. The end of NAFTA would be devastating for American agriculture. The end of NAFTA would upend job markets all over the world,” he said.

Frum said he was less worried about the threats voiced by president as negotiations proceed because “NAFTA may prove too important to the American economy to tear up.”

This seems to make more sense when you look at the Canadian CRE setting another record in 2017 with $43.1 B in investments which has surpassed 2016’s record volume of $34.7 B. The market is expected to set another record in 2018.

Morassutti’s advice for 2018 is to stay calm and keep adapting to the changing times.

“The industry is slowly morphing from one that owns boxes that contain long-term leases that generate predictable cash flow, to something that requires a higher degree of stewardship. Vision and creativity will be rewarded,” he said.

 

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