Institutional investors should diversify their real estate holdings to avoid overexposure to the Canadian markets, says UBS Global Asset Management.
The company is forecasting positive intermediate-term results centred on 6% total return for the Canadian market.
William Hughes, global head of UBS Global Asset Management Real Estate Research & Strategy, suggests that near-term performance will be more impacted by perception and pricing than fundamental changes; the timing of which is very difficult to predict.
“Canadian commercial real estate has enjoyed the status of safe haven, attracting new investment capital and driving down yield. If capital becomes less risk averse and seeks higher yield, commercial real estate values may be affected,” he says, adding that investors may see changes in market supply and demand but perception may change quickly or may not change at all.
Given the recent universal success of commercial real estate markets across Canada, diversification could be sought through investment outside the country.
Hughes is starting to see improvement in some of the markets that were hurt during the global financial crisis. “Growing confidence and increasing yield desire may lead investors to diversify their domestic exposure.”
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