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4.6%SATURDAY, FEBRUARY 22, 2020 | THEGLOBEANDMAIL O B9
L
ow vacancy rates and rising
rents at many of Canada’s
office and apartment build-
ings are driving interest in com-
mercial real estate investments,
everything from physical assets
to stocks, real estate investment
trusts and exchange-traded
funds.
Except for Alberta, where the
weakened energy sector has hurt
economic growth and caused of-
fice vacancy rates to soar in plac-
es such as Calgary, experts fore-
cast continued growth in com-
mercial real estate assets across
Canada’s biggest cities.
“Generally what’s happening
is, if you’re buying stocks or di-
rect real estate ... in the office,
apartment and industrial sectors,
you’ll fare really quite well,” says
Keith Reading, director of
research for Morguard Corp. in
Toronto.
Growing demand for industri-
al space among technology and
e-commerce companies is fuell-
ing a lot of the activity in com-
mercial real estate, as is the ap-
peal for apartment buildings
amid a growing population. Re-
tail real estate is creating a bit of
a drag on the sector as e-com-
merce eats into bricks-and-mor-
tar store growth.
“With respect to stocks, peo-
ple are looking to reduce their
exposure to retail as an example,
but I think they’re definitely
looking at other forms of real es-
tate,” Mr. Reading says.
The key to choosing a profit-
making real estate investment is
due diligence and targeting port-
folios that have invested in
regions expected to see some ex-
pansion.
“Make sure you know the full
portfolio,” said Jennifer Hunt,
vice-president of research at the
Real Estate Investment Network
(REIN) in Vancouver. She recom-
mends investors pay attention to
the economic health of the area
where real estate is located.
While REITs, ETFs and stocks
offer the opportunity to diversify
real estate investments to in-
clude building types ranging
from offices to automotive body
shops to senior housing, paper
assets such as stocks run the risk
of inflation and market crashes.
“They’re highly liquid, basical-
ly on a daily basis, but that liq-
uidity causes some issues with
them,” says Chris Catliff, presi-
dent and chief executive of
BlueShore Financial in Vancouv-
er. “When you buy stock, you’re
often buying a commercial in-
vestment company, and you can
sell it minute-by-minute. When
you’re buying a REIT, often
you’re buying into a trust and
that trust owns the real estate.”Physical property purchases,
on the other hand, are seen as a
hedge against inflation, much
like gold.Similarly, REITs, which repre-
sent trusts that own physical
property that generate income,
tend to focus on bigger proper-
ties that provide investment re-
turns, but there’s a limit to
what’s available.
“REITs are so well capitalized
right now. With the lack of sup-
ply, the demand and the well-
funded REITs, there’s just notenough product to go around,”
says Daniel Holmes, senior ma-
naging director of Colliers Inter-
national’s Office Practice Group
in Toronto.
REITs are attractive for “some-
body who wants to hold hard as-
sets with an inflation hedge and
liquidity without all the hands-
on tribulations of managing ten-
ants,” Mr. Catliff says. “The return
on a REIT, because it’s so diversi-
fied and well hedged, will be low-
er but more constant.”
Investing in Canada’s com-
mercial real estate scene is more
challenging today than in the
past: The Canadian economy
and real estate market have been
stable over the past decade, at-
tracting foreign capital, driving
up prices, and making it increas-
ingly difficult to buy into the
market, Mr. Reading notes.
This reduced availability
means that Canadian investors,
in particular pension funds, are
putting their money into Europe-an and U.S. commercial real es-
tate funds, where financial re-
turns are often higher.
Real estate purchases in both
Europe and the United States,
however, have also recently be-
come more expensive, “so the
differential is not as attractive
but it certainly is a way to diversi-
fy exposure,” Mr. Reading says.
Vacancy rates in apartments
and office buildings are notably
low in cities such as Vancouver
and Toronto, which means de-
mand for this type of space is ex-
pected to remain strong for years
to come, he adds, making these
good investments.
“If I think about people who
are investing in the stock market,
they can get exposure to real es-
tate through a REIT and that way,
depending on the investor, if
they don’t know that much
about real estate and want some
exposure, they’re going to look at
apartments, industrial and prob-
ably office because there’s lower
risk,” Mr. Reading says.
A lot of pension funds and in-
stitutional-type investors have
“maxed out a little bit” with their
real estate purchases, Mr. Read-
ing says, raising prices and caus-
ing them to prune their portfo-
lios by “getting rid of what’s not
the cream of the crop.”
Blair McCreadie, executive
vice-president and fund manager
for Fiera Capital Real Estate, has
seen increased interest in com-
mercial real estate investment
because of the income that core
real estate generates. He says
warehouse and distribution facil-
ities “are the hottest asset class”
in Canada and globally.
“[Commercial real estate] is
being viewed as a must-have in-
vestment in your portfolio,
whereas it used to be viewed as
riskier. There’s a lot of demand
for the rental stock,” Mr. Mc-
Creadie says. “We’ve seen a sig-
nificant increase in investment
in commercial real estate be-
cause of the characteristics of the
asset class, because of the in-
come.”Special to The Globe and MailHowtoplayCanada’shotcommercialpropertymarket
Choicesrangefrom
buyingabuilding
topurchasingstocks
orfundsthatarebased
intherealestatesector
MARCY NICHOLSON
Vacancy rates in apartments and office buildings are notably low in cities such as Toronto, which means
demand for this type of space is expected to remain strong for years to come, one researcher says.ISTOCKThekeytochoosinga
profit-makingrealestate
investmentisdue
diligenceandtargeting
portfoliosthathave
investedinregions
expectedtoseesome
expansion.REALESTATEINVESTING