investment
OPTIMISM FALTERS Investment Confidence Awaits Vaccine Boost
A SURGING SECOND WAVE of COV I D -19 t emp ere d i nvest ment confidence in commercial real estate during the fourth quarter of 2020. Results of the REALPAC/FPL Canadian Real Estate Sentiment Survey show p a r t ic ip a t i ng s e n io r exe cut ive s expressing slightly less optimism in market conditions than exhibited three months earlier. Notably, though, data was collected in October before the confirmation of approved vaccines. In assessing both survey responses and accompanying insight from interviews with more than 50 influential Canadian players, analysts with FPL Advisory Group conclude that some indicators aren’t telling much of a story. In particular, the survey’s conventional focus on real estate asset pricing has shifted more to macro-level observations, but there are more details to report on access to capital. “Transaction volume remains low, resulting in inconclusive asset valuations. Distressed transaction activity has yet to emerge in Canada,” the survey summary states. “Lenders remain active. There is an increased level of scrutiny during the due diligence process with many less willing to engage in higher risk 12 April/May 2021 | Canadian Property Management
investments. Equity capital is available; however, investors are increasingly discerning when evaluating investment track records and leverage ratios.” Analysts also suggest “uncertainty” characterized the October snapshot, but that came with some perspective on a potential stabilizing force. “Many remain hopeful that a vaccine is imminent,” they advise. Survey respondents — representing owners, asset managers and affiliated professional service providers in all property sectors — collectively nudged the overall index score down to 43 on a scale of 100. Confidence ebbed in both current and future market dynamics compared to the third quarter outlook. Canadian executives were somewhat more positive about current conditions than were their U.S. counterparts — delivering an index score of 28 versus the U.S. consensus at 27. However, Canadian expectations for a future bounce-back were more modest — translating into an index score of 58 compared to the U.S. score of 61. Nearly one-third of Canadian respondents deemed market conditions in the fourth quarter to be “much worse” than they had been 12 months earlier. That’s a sig n i f ica nt ju mp f rom t he 13%
expressi ng t hat v iew i n Q3. Nevertheless, there was a small gain in respondents who perceived conditions were “much better”— climbing to 14% from 10% in Q3. A larger share of respondents expected a longer-lasting downturn, with 27% suggesting that market conditions will be somewhat or much worse by Q4 2021 compared to 23% in Q3. Accordingly, fewer respondents foresaw “somewhat better” times ahead, with 47% making that prognosis for 12 months in the future versus 51% in Q3. A steady 18% of respondents in both quarters predicted conditions would be about the same one year hence. Despite the lack of transactions, 86% of respondents pegged asset values at somewhat or much lower than they had been one year earlier. That’s an increase from 72% expressing that view in Q3, which also encompasses a sizeable jump — from 6% to 24% — in the quotient calling values much worse. Looking forward, 35% of respondents expect asset values to drop further during the next 12 months, while 39% of respondents expect “somewhat” improvement. That’s also more pessimistic than Q3. The report’s selection of anonymous quotes from leading industry sources
