Northern Exposure: An Effervescent Canadian Real Estate Scene
By Bashar Ellayan
NAREIM traveled to Toronto, Canada this week to connect with NAREIM members and interface with our sister organization Real Property Association of Canada (REALPAC).
A striking contrast to economic conditions in the U.S., Toronto’s real estate is positively effervescent as a newly expanded jungle of glass towers rises in a sophisticated urban landscape that buzzes with activity.
During a breakfast round table discussion with business leaders, a few insights were an interesting contrast to much of the rest of the world:
- 175 cranes are currently present and involved with new tower construction in Toronto. Questions of overbuilding or bubble creation continue to arise, but there still remain demand drivers that could delay or mitigate future troubles.
- Capital is flowing into real estate development. Pension funds and insurance companies are increasing allocations. This seems to be driven, in part, by a shortage of domestic assets to acquire – combined with continued strong demand for high quality space.
- As office space comes on-line, owners are quickly leasing 90-100% of the new space. Despite a decrease in square foot per worker, there is a strong demand for central business district office space.
- Two factors pushing demand: continued growth in the energy sector across Canada, and a relatively open immigration policy. Oil and gas extraction is literally pumping new money into the economy while over 300,000 new immigrants are coming into the country every year, with half of those going to Toronto. Canada is attracting the best, the brightest and most well off immigrants. These waves of newcomers have helped fuel the increased demand for high quality housing, retail and office space.
- Canada’s demographics are dominated by a young and astonishingly diverse population.
- Canada banks’ conservatism in lending practices and their aversion to complex financial derivatives may soften any downturn and help avoid the worst of U.S. and European financial issues.
- Of some concern to real estate investors is the continued climb of condominium development and pricing. There are rumors floating that 70-80% of all condo buyers are in fact speculators which is fueling fears of a potential condominium bubble.
These are interesting times for Canada and Canadian real estate investors.← 6 short questions about advertising Advertising Expenditures – Survey Results →