While real estate investment trusts (REITs) have become more hesitant at making acquisitions, pension funds and private equity are seizing the opportunity to purchase quality assets.
In four of the last six months, private investors have outspent all other buyers, according to CBRE’s Canada Investment MarketView.
In the first half of 2013, REITs and real estate operating companies accounted for 26.5% of activity, down from 35.8% in 2012. Pension funds and advisors, along with private equity buyers have taken up the slack, accounting for 13.2% and 13.6% of activity, respectively.
Pension fund allocations to real estate in Canada increased to 10.2% of total assets in 2012, the highest percentage on record, with the total value of their real estate holdings hitting $116.1 billion, according to the Pension Investment Association of Canada.
“The pool of buyers for Canadian commercial real estate is deep and this period of opportunity is not being overlooked by those who struggled to complete with the REITs last year,” says John O’Bryan, chairman of CBRE. “If anything, it is now a more even playing field, but there is no shortage of competition for quality assets.”
While deal activity remains strong, investment volume in the second half of 2013 is not expected to exceed the first-half volume. Still, volume for the year is expected to be higher than previously forecast.
CBRE initially estimated that the Canadian commercial real estate investment volume would reach $24 billion to $25 billion in 2013, but that forecast is being revised upwards to $26 billion to $27 billion for the year.
While year-end volume is still forecast to fall below the $30.5 billion recorded in 2012, the total forecast for 2013 would be the third highest year-end volume in Canadian history.
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