A report out Monday suggests worldwide commercial real estate investors may bypass the United States in favour of Canada because of a Trump effect generating concerns about the market south of the border.
CBRE said Canada is coming off a record-breaking year for commercial real estate transactions with $34.7 billion in property changing hands in 2016. The organization is forecasting investment activity to drop to $31.9 billion in 2017 but the real estate company says the demand from foreign buyers will not slow down.
Foreign capital captured 27% of all sales over $10 million in 2016. Chinese investors accounted for 71% of all foreign transactions in 2016, but could be forced to navigate capital controls when it comes to getting money out of the country in 2017.
The real estate company ascribes some of this new demand for what it calls "Toronto envy" is driving some of the demand, saying "Toronto starts 2017 on the A-list of commercial real estate markets. Real estate players from cities across the globe are casting envious glances at its performance."
CBRE goes on to say capitalization rates will probably stabilize this year after dropping as low as four per cent in 2016 for what it calls "trophy office product" in Toronto. (The capitalization rate is the ratio of net operating income to property asset value: the lower the cap rate, the more a property is worth. A 4% cap rate assumes it will take 25 years for a property to pay for itself based on its income stream.)
CBRE says the national vacancy rate for office space is expected to climb to 14% in 2017, up 13.3% but that figure is being driven by some weaker spots in the country.
The vacancy rate in Calgary is expected to increased mildly, to 28% in 2017 from 25% in 2016. By comparison, Toronto’s vacancy rate in its core is expected to climb to 5.1% in 2017 from 4.4% in 2016 while Vancouver’s core vacancy rate is expected to shrink to 7.4% from 7.7% during the same period.
