Is the tide turning for commercial real estate in Canada?

REALpac's sentiment survey indicates growing concern about the impact of higher interest rates

TORONTO, Aug. 8, 2013 /CNW/ - In spite of strong fundamentals, confidence among Canada's commercial real estate leaders continued to wane as go-forward concerns about the Canadian economy, as well as external factors persist. This and other findings were revealed in the Third Quarter 2013 Canadian Real Estate Sentiment Survey released today by the Real Property Association (REALpac) and FPL Advisory Group.

"Higher interest rates and higher volatility in the equity markets will likely make for more challenging times in the coming year. Perhaps this will lead to a greater separation in values between higher and lower quality assets. This range compressed significantly during the recent period of high liquidity in debt and equity markets," commented survey participant Allan S. Kimberley, Vice Chairman & Managing Director, CIBC World Markets.

The quarterly survey measures the current and future outlook of Canada's top commercial real estate executives on overall real estate conditions, values, and availability of capital. Top-line findings for 2013's third quarter also included:

• Interest rate increases over the coming year are seen as inevitable by most and will have widespread implications throughout the industry
• Capitalization and interest rate changes are expected to counteract strong demand for real estate, keeping asset values mostly flat
• Although still seen as available, debt capital is becoming more selective and expensive in response to rising rates
• Equity capital is accessible for the right kind of assets, though there is a concern that a growing number of investors view opportunities abroad as more attractive

As participant Larry Dybvig, President, Grover, Elliott & Co., put it: "The expectation of rising interest rates will push capitalization and yield rate requirements up, and that will likely slow transaction activity and flatten asset value trends."

In addition, "the markets are cooling as the inevitable rise in interest rates starts to materialize. Many long-term asset owners seem to have taken advantage of historically low rates and have stable portfolios and cash flows, but new and future acquisitions will have to contend with rising rates and a slower market," said Jeff Devins, President, Crestwood Capital Partners Ltd.

For more information and to download a copy of the Canadian Real Estate Sentiment Survey, go to www.realpac.ca > Publications > Canadian Real Estate Sentiment Survey.

About the Real Property Association of Canada

REALpac is Canada's premier industry association for investment real property leaders. Our mission is to bring together Canada's real property investment leaders to collectively influence public policy, to educate government and the public, to ensure stable and beneficial real estate property and capital markets and to promote the performance of the Real Property sector in Canada.

REALpac members currently own in excess of $180 billion CAD in real estate assets located in the major centres across Canada. Members include real estate investment trusts, publicly traded and large private companies, banks, brokerages, crown corporations, investment dealers, life companies, lenders, and pension funds. For more information, please visit us at www.realpac.ca.

About FPL Advisory Group

FPL Advisory Group (FPL) is a family of companies focused on providing highly specialized advisory services to the real estate and related operating and financial services industries. Through our complementary practice areas, we work with our clients to develop the right talent, leadership, structure, and strategies for success in today's intensely competitive marketplace.

FPL is comprised of two primary operating companies that work together to serve a common client base. Ferguson Partners provides executive, director, and professional search services.  FPL Associates provides a range of specialized consulting and finance-related services in the areas of compensation, management consulting, executive onboarding, and succession planning. The firm is headquartered in Chicago and maintains offices in London, New York, Boston, and Tokyo. For more information, please visit www.fpladvisorygroup.com.

SOURCE: Real Property Association of Canada