BC commercial activity remained stable in the third quarter

Provincial economic conditions in British Columbia continued to slow in the third quarter of 2019 with weakness in some sectors.

But the overall picture for commercial real estate was stable despite a slight drop in the Commercial Leading Indicator (CLI) from the British Columbia Real Estate Association.

The index slipped to 135.3, the same level it was at in the third quarter of 2018.

Retail and manufacturing stats declined in the third quarter, with lower sales for petroleum and coal, and lower retail sales at gasoline stations and auto dealers. But there were gains for wholesale trade, especially machinery and equipment. However, the overall economic element of the CLI remained negative for the fifth consecutive quarter.

The employment element was positive as office employment gained for a fifth straight quarter – to an all-time high – while manufacturing employment weakened. Employment growth in key commercial real estate sectors such as finance, insurance, real estate and leasing continues to be strong, up by 7,600 jobs in the third quarter. Manufacturing lost 4,200 jobs.

The financial element of the CLI was also positive, for the third straight quarter, due to an increase in benchmark Canadian REIT prices, which more than offset the expansion of short term credit spreads.

The overall CLI has been relatively stable across the past five quarters.

 

by Steve Randall  |  05 Dec 2019

CBRE: Lenders are feeling optimistic ahead of 2020

A survey of lenders has revealed strong sentiment for commercial real estate lending as the new year approaches.

CBRE’s Canadian Real Estate Lenders’ Report found that most respondents plan to maintain or increase allocations to real estate lending in 2020.

The past three years has seen near-record investment in Canadian CRE and this is boosting confidence among lenders. The survey included both Canadian and international lenders.

Gateway markets are particularly attractive for lenders with most keen to support transactions in markets such as Toronto, Ottawa, Vancouver, and Montreal.

Ottawa gained favour to be the second most-desirable market behind Toronto but Hamilton saw the largest gain, rising 4 points to ninth place. There is also strong interest in London, ON, and Quebec City.

While Alberta’s CRE market has been exposed to the energy sector’s woes, lenders are still interested in lending in Calgary or Edmonton. However, lender activity remains deal-dependent or relationship-specific.

“For lenders looking for stable returns on investment, Canadian real estate stands out amid global uncertainty and persistently low bond yields,” said Carmin Di Fiore, Executive Vice President, Debt & Structured Finance, CBRE Canada. “Lenders remain confident about commercial real estate and are looking to deploy capital into the sector. However, lenders are also cognizant of global risks and some will be slightly more selective with their capital in 2020.”

Recession risk?
Most lenders are not predicting a recession in 2020. But bond yields and yield curve inversion will be closely monitored.

Those lenders directing additional capital to the real estate sector will direct 10-20% net new capital next year. For the few lenders looking to decrease their real estate exposures, it is mostly isolated to retail or land asset classes, where 26.1% and 15.2% of respondents respectively signaled an intention to decrease exposure.

Retail continues to trigger caution among lenders with four of the top 5 asset classes that cause concern for lenders occupied by select retail formats: regional secondary markets, power centres, value-add and entertainment and food services. The exception to this is grocery-anchored properties, in which lenders remain confident.

 

by Steve Randall  |  05 Dec 2019