Cushman & Wakefield's Investment Digest Report Finds Innovative Strategies Offsetting Lack of Product
TORONTO, ON--(Marketwired - September 30, 2015) - In the face of global economic uncertainty, marked by the ongoing slowdown in China and sustained weakness in oil and overall commodity prices, commercial real estate continues to shine as an investment alternative according to the latest Investment Digest Report from Cushman & Wakefield.
"Commercial properties, as an investment class, continue to far outperform bond markets and other investment vehicles," said Stuart Barron, National Director of Research, Canadian Markets. "A hallmark of this investment class is its flexibility, enabling investors to continue driving returns and growth through creative strategies even in a mature part of the cycle."
Total returns over the past 20 years have averaged more than 11% and capitalization rates are at record lows, highlighting the fierce interest in top-tier product. Within this "new normal" investment environment, creative strategic approaches to acquiring assets are becoming more commonplace.
Development If you can't buy it, build it. Pension funds, Lifecos and REITs are walking up the risk-and-return curve by developing property across Canadian markets.
Strategic Partnerships Increasingly, long-term partnerships focused on development or existing assets are being formed to provide access to product, operational expertise, and to diversify risk. Examples include joint venture arrangements between Allied Properties REIT and Westbank, Riocan REIT and Hudson's Bay Company, and Cadillac Fairview and the Ontario Pension Board (partial share of TD Centre and 16 York Street).
M&A Activity Transactions include mergers between Slate Office REIT and Fortis Properties, Northern Property REIT and True North Apartments (announced), and the Ontario Teachers' Pension Plan Board and Amica Mature Lifestyles (announced). While not only about real property, the acquisition of Standard Life Canada by Manulife and Bentall Kennedy by Sun Life Financial will undoubtedly give rise to new partnerships that will impact the Canadian real estate scene for years to come.
Capital Restructuring Several REITs are purchasing back their shares as a means to access product. The Automotive Properties REIT is an example of a successful IPO emerging from this strategy.
Operational Focus After years of aggregation, landlords are more focused than ever on operational efficiency. While smart investors have always focused on NOI, in the absence of new growth opportunities outside of existing portfolios, "same store" performance has become more imperative.
"Given Canada's limited national transaction volume, it is difficult to accurately gauge how capitalization rates have shifted in the last six months. However, a number of significant national transactions, such as the sale Tour KPMG in Montreal and 70 York Street in Toronto, will likely demonstrate a drop in rates for 'core' product once finalized. Investment sentiment is improving for suburban office product, with investors driven by the lack of alternative core investments and aggressive valuation parameters when quality product becomes available," said Barron.
The successful merger of Cushman & Wakefield and DTZ closed September 1, 2015. The firm now operates under the iconic Cushman & Wakefield brand and has a new visual identity and logo that position the firm for the future and reflect its trusted global legacy and wider history. The new Cushman & Wakefield is led by Chairman & Chief Executive Officer Brett White and Global President Tod Lickerman. The company is majority owned by an investor group led by TPG, PAG, and OTPP.
About Cushman & Wakefield
Cushman & Wakefield is a global leader in commercial real estate services, helping clients transform the way people work, shop, and live. The firm's 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with revenues of $5 billion across core services of agency leasing, asset services, capital markets, facility services (branded C&W Services), global occupier services, investment management (branded DTZ Investors), project & development services, tenant representation and valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
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