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Cap rates up at least 1% in Canada over past year

As real estate markets globally start the process of deleveraging and repricing, private equity real estate veterans in Canada say the country is well placed to handle the downturn – but warn deal flow is off at least 40% over the past year, with cap rates up at least 1%.

Cap rates are on the rise in Canada with many properties trading with rates up to 1.5 percent higher than just six to 12 months ago, according to executives at LaSalle Investment Management.

Zelick Altman, managing director of LaSalle Investment Management’s two value-added Canadian real estate funds, said although the Canadian property market was well-placed to handle the economic downturn, it was following the global repricing trend.

“Historically, Canada has been a less volatile real estate market than say the US and UK, it has been more conservative,” he told PERE. However, the credit crunch was impacting all parts of the globe, with Canada no exception.

“The real estate markets in Canada are undergoing a repricing. And although there are some motivated sellers in Canada there currently does not appear to be any desperate sellers. If sellers are unable to achieve the price they perceive as being decent, many are happy to hold onto their assets,” Altman added.

He said transactions in Canada were down around 40 percent in the three months to September, with cap rates “100 to 150 basis points over what might have been traded six months to 12 months ago”.

LaSalle, Altman said, was concentrating its Canadian activities on the country’s major cities, targeting value-added investments in office, industrial, retail and multifamily. Office, Altman said, was one of the biggest opportunities in Canada and where most value-added investments could be found.

Chris Langstaff, research and strategy vice president at LaSalle, said there was a traditionally high demand for core investments, with the country’s pension funds making up the bulk of direct office and retail investments.