The Canadian and U.S. real estate markets are expected to show strong performance in 2019 and into 2020, according to a new report by LaSalle Investment Management.
“This stability does not extend to every facet of either market, but core values should demonstrate resilience, despite the potential challenges of inflation and late-cycle anxiety that have permeated the North American economy,” said a press release, noting that to mitigate these potential risks real estate portfolios should consider defensive low beta positioning, while still dedicating a portion of investment to higher alpha-seeking return strategies.
For Canada, the release noted that despite a lower level of Chinese investment in Canada in 2018 relative to recent years, capital interest from other countries is growing.
“Canada remains a compelling destination for real estate investment among foreign and domestic investors — particularly in the industrial and apartment sectors, which have seen benchmark-beating returns in recent years,” said Chris Langstaff, head of research and strategy for Canada at LaSalle. “The office and retail sectors are also attractive for their repositioning, redevelopment and densification opportunities. Investors seeking higher-return strategies in Canada should focus on these value-add plays to grow net operating income.”
While interest rate increases have raised borrowing costs, capitalization rates have remained steady, the release said. Yet it noted potential further rate increases could put upward pressure on capitalization rates, particularly if rent growth slows.
Furthermore, when looking at progress on pipeline approvals and construction or slowdown in energy demand, the markets in Calgary and Edmonton could see a prolonged recovery.