Canadian property markets cushioned for 2009Mar. 09, 2009 Canadian property markets cushioned for 2009 Posted: March 05, 2009, 10:32 AM by Jonathan Ratner Real estate, credit crunch, Market Call - The National Post CIBC real estate analyst Rossa O’Reilly says the latest statistics on commercial real estate prices bode well for Canada. The Canadian Property Investment Index, which tracks a diversified investment portfolio of 2,569 properties in 34 property funds, had a 4.7% total return in 2008. By category, the ICREIM/IPD Index found office properties returned 7.6%, residential 6.4%, industrial 2.3%, retail lost 0.1%, and other segments were off 0.3%. Mr. O’Reilly said in Canada stronger occupancies and lower development activity along with a stronger economy supported the 3.7% return, which was broken down as 6.2% in income grown and a 2.3% decline in capital growth. By comparison, Australian commercial properties return 1.8% last year, U.S. properties were down 11.2% and United Kingdom properties were off 22.1%. While income growth is strong in all categories in Canada, rising cap rates are cutting into total return. The cap rate reflect the rate of return on a property and as it goes up the value of the property declines. “In 2009 it appears likely that capital erosion will continue and our estimate is that 2009 will see total returns in the 0% to -5% range,” said the analyst. “The absence of a prior sharp escalation in property values, excessive development or highly levered investment activity, as well as a less severe credit crunch, have served Canadian property markets well in the current downturn and should continue to cushion them in 2009.” |