Despite U.S. Credit Woes, Canada Remains Strong

Despite the volatility in the U.S. capital markets, neighboring Canada’ s fundamentals and investment activity remain strong, DTZ Barnicke has found in its annual Global Views report. Last year was a strong year for investment activity, as both foreign and domestic investors continues to eye Canada’s attractiveness. Despite any impact on the global capital markets in 2008, Canada will continue to see positive investment activity, the report noted. Overall, rising prices for energy resources and lower interest rates are fueling economic growth that is driving down vacancies and spurring new development, noted Christopher Ridabock, DTZ Barnicke’s CEO (pictured). The country has missed credit market fallout due to very conservative underwriting and the fact that tangible assets, such as retail and office, are held in limited hands, Ridabock told CPN. Toronto, Montreal, Calgary and Vancouver have been seeing repeat transactions from all the major pension funds, which back these limited hands, including the Cadillac Fairview Corp., Ivanhoe Cambridge, Oxford Development Co. and Brookfield Properties Corp. “Therefore, the deals are not overleveraged and well funded,” he said. Canada is also very well endowed in its natural resources, including petroleum, which makes it an attractive investment location. “Investors consider it a safe harbor, with a strong economy, currency and growth,” Ridabock said. German and Australian investors have been particularly keen, but opportunities remain tight. On the Canadian investment side, the country has been looking to place capital in the U.S., U.K., Europe, the Middle East and Asia. The office sector remains particularly strong, with vacancy rates on the decline across the country, solid employment growth, and a relatively healthy economy driving the demand for space. Toronto and Calgary, which account for most of the approximately 16 million square feet currently under development, are seeing pre-leasing rate running in excess of 60 percent, the report said. And both American and European retailers are eyeing the retail market, which enjoys solid consumer confidence, solid job growth, low interest rates and a healthy economy, according to the report. These retailers include Brooks Brothers and Polo Ralph Lauren, who are taking a serious look at Canada as part of their expansion plans. Lowes Home Improvement and Bed, Bath & Beyond made their Canadian forays last year. The green movement is also becoming increasingly popular, both in new construction practices and the upgrading of existing buildings. Developers of most new office construction are seeking to achieve LEED certification, while BOMA of Canada has certified over 500 buildings under their “Go Green” environmental certification program, the report said. Services land is also short in demand, which has been driven by strong demand and government initiatives aimed at curbing sprawl in some markets, according the report. This, combined with rising prices, are spurring increased interest in secondary markets, especially in industrial markets like Alberta’s Fort McMurray and Red Deer. Overall, the Canadian market will be watching both the U.S. economy and upcoming elections and the high-risk credit situation and how they may affect the market. The latter has only been a ripple and not a wave, Ridabock noted.