investment
CAPRICIOUS 2020 Challenges Tinge 2019 Investment Returns By Barbara Carss The Canadian commercial real estate industry’s outlook and expectations offer a “before” and “after” picture of COVID-19’s sudden descent into the market during the early months of 2020. The following juxtaposes the perspectives from late January and early April – Editor. THE INDUSTRIAL-RETAIL seesaw continued to epitomize investment performance last year for the 47 institutional real estate por tfolios participating in the MSCI/REALPAC Canada Property Index. Results from the index producer peg the 2019 total return on 2,723 directly held standing assets scattered across eight major markets at 6.65%, but that overarching number cloaks significant variances between property sectors, and from market to market. “It’s a rate that, in general, was maybe a bit lower than people were expecting,” James Harkness, Executive Director with MSCI, told a late January gathering in Toronto. The slip from a 7.3% total return in the previous year is attributed to a decline in capital growth — at 2% versus 2.6% in 2018 — and to the lowest yet recorded income return, which nudged down 10 more basis points to rest at 4.6%. However, Harkness pointed to another unprecedented metric. 12 April 2020 | Canadian Property Management
“We’ve had 10 years of capital growth being positive and that’s a cycle we have not seen before,” he said. The 2019 total return marginally surpasses the four-year average of 6.5%, while trailing a 10-year average of 9.2%. Drilling down to the component sectors, industrial properties soared above the allasset average, delivering an average total return of 16.4%. Retail properties slumped in the opposite direction, eking out an average total return of 1.8%, but losing 2.4% of capital value since 2018. “You can’t sugar-coat this,” Harkness ack nowledged — refer ring to the potpourri of assets, from super-regional malls to neighbourhood food-anchored convenience centres, falling into the retail category. Regionally, retail was healthiest in Vancouver, Toronto and Ottawa, albeit consistently the weakest performer, trailing generally strong returns for office, residential and industrial in the three cities. Total retail returns dipped below 1%
in Calgary and Montreal, while sliding into negative territory in Edmonton, Winnipeg and Halifax. “For anyone who is long on retail, it’s a tough number,” observed Michael Brooks, Chief Executive Officer of REALPAC, who steered the discussion as a panel of industry insiders was tasked with providing on-thespot reaction to the results. INDUSTRIAL RUNWAY On the upside, Teresa Neto, Chief Financial Officer of Granite REIT, predicted continuing industrial gains as e-commerce flourishes, new types of demand arise and new customers — also known as immigrants — steadily arrive. In the United States, e-commerce boasts a share of retail sales that’s about double its current stake in the Canadian market, and analysts there expect it to expand further. Already, the strongest industrial returns were found in Canada’s most populous regions: 22.8% in Toronto; 21.4% in Montreal; 15% in Vancouver; and 14.8%
