Bid / ask price gulf slows Canadian investment in CREs: JLL | RENX

Scott Figler, JLL National Director, Research, Capital Markets. (Courtesy of JLL)

Investment volumes in Canada in the first half of 2020 reached $ 16 billion, down about 20% from 2019, with buyers and sellers generally remaining distant on asset prices, according to JLL. Investment Outlook in Canada – Mid-year 2020.

“Most sellers are well capitalized and are unwilling to sell in a downturn or offer a ‘COVID discount’,” the report says. “The very logistics of touring assets have been a challenge and have contributed to the friction in the market. The resulting lack of comparables makes it even more difficult for groups to assess and agree on value.

The report indicates that acquisition loan activity has slowed in line with the slowdown in overall investing activity. However, this was offset by an increase in refinancing activity by borrowers seeking to take advantage of lower mortgage rates.

During the third quarter, JLL said lenders were increasingly open for business after largely halting new commitments in the second quarter.

Allocations continue to view multi-family, industrial and essential businesses (including grocery and pharmacy) favorable, while lenders are reluctant to finance hotels and secondary businesses.

The Canadian ERC market “on hold”

“I would describe (the commercial real estate market) as on hold, but I would also say that there is certainly pent-up pressure to get things started,” said Scott Figler, JLL national director, research , capital markets, in an interview. with RENX.

“I see the investment market like the stock market, where values ​​can drop, but at some point someone is going to look at the value of a building and say, ‘Wow, this is a hell of a deal. . I think we are approaching that point.

“There are a lot of investors who want to buy. The main problem right now is that buyers expect a discount and sellers don’t expect a discount and just want to take it.

“Sellers think asset prices, like the stock market, are going to peak very soon, so they see no incentive to sell at a discount.”

IMAGE: Matt Picken, Managing Director and National Head, Capital Markets, JLL Canada.  (Courtesy of JLL)

Matt Picken, Managing Director and National Head, Capital Markets, JLL Canada. (Courtesy of JLL)

Matt Picken, managing director and national head of capital markets, JLL Canada, said a lot of capital was chasing “beds and sheds” – multi-family residential assets and industrial real estate.

“Amazon and other e-commerce giants are really expanding their footprint,” Picken said.

“In multi-family housing people need places to live and if things really go wrong I would suggest people look more towards renting than owning. These are the most resistant sectors. I would call these lights green.

“The red light right now would be hotels. This would include closed retail businesses in which there are not many anchors or large commitments. These would be some properties for the elderly. . . . The yellow light would be the office. When I say yellow light, it’s because we just don’t know what the future of the office will look like.

Record-breaking expansion comes to an end

The JLL report says 2020 ended the longest market expansion since WWII.

Figler said the total investment in the first quarter of 2020 was around $ 9 billion, with around $ 7 billion in the second quarter when the COVID-19 pandemic took hold. In recent years, the total annual investment in Canada has been in the range of $ 47 billion to $ 50 billion.

“From our conversations with investors, a lot of people want to get in the game right now,” he said.

“I think we’ll start to see things thaw out a bit. It’s hard to say where we’ll end up, but I think we’re pretty optimistic for the third and fourth quarters of the year.

“We’re starting to see this geographic divide in the country where Western Canada has really slowed down. Previously it was only Alberta, but in the last 12 months we can probably fit the Vancouver market there.

“When you look at the panorama of the country, it’s really a bit East vs. West Canada right now.

“Montreal continues to be a very dynamic investment market and the reason is that you can get assets with very good fundamentals, a fairly low vacancy rate, high demand.

“You can get it in Montreal for cheaper prices than you can find in Toronto. “

He said many institutional investors want to stay active in Ontario and Quebec.

Here’s a 2020 retrospective of Canada’s six largest urban markets:

Toronto

Investment sales in the Greater Toronto Area reached $ 5.5 billion for the first half of 2020, about half the pace of the previous three years. The most traded property type was building land, with $ 1.7 billion in cash.

“We have to point out that most of the 2020 sales are based on deals made before COVID, so the full impact on the investment market is just starting to be reflected in the data,” JLL said.

“There is a great appetite on the buyer side, especially from private groups who see the downturn as an opportunity to gain a foothold in Toronto’s highly competitive investment market.

“However. Owners are reluctant to sell, as many are convinced that pre-COVID values ​​will be restored at some point.

“In any case, many landlords focus less on wallet disposal and more on asset management, as they reconfigure their spaces to comply with social distancing guidelines and work with tenants on rent collection agreements. . “

Montreal

Despite being the hardest-hit Canadian city during the pandemic, JLL predicts that Montreal will continue to attract investors looking for an attractive mix of fundamentals and returns.

“Population growth is expected to be stable over the next two years, but with a very diverse economy and a young, educated workforce, Montreal is able to absorb the shock better than most major cities. ‘North America,’ the report says.

“Montreal has just had a record year which saw its investment market reach nearly $ 9 billion in liquidity, almost double the previous record. So far this year, the market is showing its resilience with over $ 2.8 billion in mid-term investment volume.

“The office continues to be the most coveted industry with over $ 1 billion in sales. Multifamily ($ 580 million), industrial ($ 540 million) and retail ($ 425 million) are following suit.

Vancouver

The JLL report says investment volumes in Vancouver have totaled $ 2.3 billion so far, with the most liquid sector being land ($ 747 million), followed by industry ($ 497 million). dollars), multi-family ($ 382 million) and offices ($ 380 million).

“Vancouver has now had four consecutive quarters with investment volumes well below its 10-year quarterly average of $ 1.6 billion. The inflated asset values ​​combined with the uncertainty of the pandemic have significantly slowed the city’s investment market, ”JLL said.

While there is uncertainty in the short term, in the long term Vancouver remains well positioned, he added.

Ottawa

Investment volumes in the nation’s capital reached $ 670 million for the first half of 2020. Ottawa’s three-year streak of over $ 2 billion in total sales is likely to come to an end, JLL said.

Overall, however, the conditions continue to attract attention.

“On an encouraging note, several high-profile deals closed in the second quarter, suggesting that investors are not scared of the pandemic,” he said.

Calgary

Calgary’s commercial real estate market continues to face a double whammy – the economic fallout from COVID and low oil prices.

By mid-2020, investment volumes in the city were only $ 890 million. Industrial ($ 325 million) and development ($ 170 million) land led the way.

“In this current dynamic, 90 percent of Alberta’s oil rigs are idle and many will not be recertified. Calgary’s tourism industry also faces immense challenges during the pandemic.

“With international passenger traffic on hold, resorts in the Rocky Mountains have seen their clientele decline dramatically,” JLL said.

Edmonton

Investments in commercial real estate in the first half of 2020 were mainly driven by a strong multi-family sector, pushing sales to over $ 1 billion.

“Edmonton City Council Voted To Eliminate Minimum Parking requirements for new projects, giving developers more discretion and paving the way for more workable development models, ”the report said.

“This move has been widely applauded by a broad coalition of stakeholders: developers are happy to have more control and more revenue-generating floor space, while city planners applaud it as a step that will create more revenue. pedestrian spaces and reduce traffic jams. ”


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