Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about opportunities and challenges in the Canadian real estate market with Steve Marino, executive vice-president, portfolio management with GWL Realty Advisors. We talked about key factors driving real-estate opportunities, and we started by asking about current trends in the various real estate segments.

Steve Marino (SM): The real estate headlines of the day are certainly creating heightened levels of anxiety, especially as it relates to concerns around valuation and the positioning of some asset classes, and in particular office. Maybe somewhat surprisingly, though, the Canadian market realized almost $50 billion in total real-estate transaction activity in 2023, driven primarily by private and foreign investment. Investors who historically prioritized disciplined real-estate strategies with robust valuation practices, and well-managed capital stacks are relatively well positioned. They are becoming more comfortable making new commitments in this environment, and looking to be more opportunistic, really looking to make tactical shifts in their overall portfolio exposure.

Key factors driving opportunities

SM: The combination of Canada’s strong, stable banking and political system, it’s forecasted G7-leading economic growth, and continued robust population growth really help to position Canada as an attractive global arena for real-estate investment. And then, within Canada, it’s really the strength of the property market fundamentals. So we have historically strong vacancy rates within the industrial, multifamily and retail sectors. Within the vast majority of our asset classes, there does continue to be very strong fundamentals in place. And that is providing confidence for investors looking to make those commitments in the near term.

Regions he likes

SM: Real estate continues to be quite compelling across the country. I think there are opportunities aplenty. We typically focus our attention on communities that are positioned to realize higher economic growth and diversification. And so we continue to be very focused on the MTV markets of Montreal, Toronto and Vancouver. We really focus capital thereafter in other high-growth markets, like a Kitchener-Waterloo or like a Victoria, that continue to see very strong population growth and economic growth.

Developments in the office space

SM: While the broader office market’s recovery continues to be protracted, there are a few green shoots that I would say are proving to demonstrate the market is on a good path. According to a recent Colliers Report, the average in-office mandate has increased from 2.5 days at the end of 2022 to 3.3 days at the end of 2023. And, as importantly, 62% of companies have now established plans to work from the office, as opposed to 49% last year. So, really, the continued trend of return to office is on, and I think we are seeing organizations cementing their plans on the need for office. Another trend that is constructive to the broader stabilization of the office market, is the end of the development cycle. A number of office buildings that were started pre-Covid have continued to deliver into the marketplace. And I think 2024 will really mark the end of the vast majority of that stock. There are a couple buildings that will leak into 2025. But with the advent of no new supply, that will help to stabilize markets. And then, thirdly, just the continued selective redevelopment and re-purposing of assets that I would describe to be otherwise obsolete. Their removal from the inventory will also be constructive to helping to stabilize markets over longer term.

Opportunities in multifamily housing

SM: I’d say the essential nature of housing, it’s chronic undersupply, and the elevated cost of homeownership have combined to create very strong purpose-built rental fundamentals. And I’d say those challenges are further exacerbated for younger Canadians who are struggling to meet the down payment realities or conditions related to homeownership. So those factors really continue to position multifamily as one of our highest-conviction sectors and a foundational element of our portfolio construction. The asset class is continuing to deliver very attractive income returns, with potential for capital appreciation across economic cycles. And it’s really that resilience that is giving more investors confidence in the asset class moving forward.

And finally what’s the bottom line on real estate investing in Canada?

SM: I think investors need to remain focused on the long-term benefits of real-estate investment. And that’s really the focus on generating resilient cash flow, and the opportunity to participate in meaningful capital appreciation. A disciplined portfolio investment strategy with active management and risk-mitigation practices provides a critical framework for success. Investors who can remain focused and disciplined on executing those strategies are well positioned to take advantage of dislocation opportunities that may present in the marketplace.

Well, those are today’s Soundbites, brought to you by Investment Executive and powered by Canada Life. Our thanks again to Steve Marino of GWL Realty Advisors. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.


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