Another Record Year.

TORONTO – Problems in the United States’ subprime market could make investors “think twice” about buying even commercial real estate, says a Canadian brokerage company. CB Richard Ellis is still predicting a record year for Canadian real estate transactions by dollar value but said there is a view in the market that the recent subprime default issue impacting the U.S. residential market could spread.

“It will have some impact on the Wall Street view of real estate in general, and it will cause some investors to think twice before investing. However, there continues to be an immense amount of money available for investing in good Canadian real estate,” said Blake Hutcheson, president of CB Richard Ellis.

The real estate company is predicting the investment market in Canada to have 30 per cent more activity this year than last despite subprime fears. The first half of 2007 has already produced stellar results. CB Richard Ellis said there was $13.1 billion in investment activity over the first six months of 2007, a 35-per-cent bump from a year ago. “To put the investment numbers in perspective and show the growth of the investment market, th $13.1 billion invested in the first six months of this year already equals the $13.1 billion invested in all
of 2001,” Hutcheson said.

CB Richard Ellis said the second half of 2006 produced some frenzied investment activity and that carried over into 2007. Much of the activity is being driven by sellers who Hutcheson said “want to take their money off the table.”

On the question of whether prices will continue to rise in the marketplace, CB Richard Ellis noted fundamentals — rising rents and high occupancy levels — remain strong. “While activity levels may slow somewhat, a huge amount of liquidity and interest will be alive and well in Canada. There are a few known cracks these days but we do not anticipate a meltdown by any
measure,” said Hutcheson.

CB, which was a part of the transaction that saw Dundee Real Estate Investment Trust sell $2.4 billion of its assets to GE Real Estate, is forecasting similar deals coming along whereby public companies sell to institutional investors. “We expect to see more and more companies do this as they realize sizable profits on thei investments,” said Hutcheson. The downside for sellers might be the activity is impacting cap rates, the rate of return on property. With so much supply hitting the market, buyers are now demanding a higher cap rate, which means a lower price for property. “We have already seen them level off in certain markets and for certain asset classes. This trend will become even more pronounced in the months ahead,” said Hutcheson.
Source: Edmonton Journal
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Published in: on September 7, 2007 at 4:08 pm  Comments (1)