Canadian investors gorging on US commercial real estate
It will come as no surprise to those who follow the worldwide real estate market to learn that Canadian investors seemingly cannot get enough of US commercial real estate. This trend began back in 2006 and seems to be gathering more pace as the years go by. There are a number of reasons why Canadian property investors are looking towards US real estate which we will cover below.
How ironic, it looks as though the tables have been turned with US real estate investors often dictating the Canadian real estate market in years gone by. It would be wrong to suggest that Canadian investors are in any way dictating the US market, but they certainly seem to have more firepower than their US counterparts at the moment.
Cheap finance
While it would be wrong to suggest that the Canadian economy has escaped the worldwide economic downturn with no repercussions, the situation is far brighter than that in the US, Europe and many other areas of the world. The Canadian government took the decision to introduce an array of austerity measures at a fairly early stage which has paid dividends in the longer term. As a consequence, interest rates are relatively low compared to historic rates and when you also take into account the currency benefits, it is understandable why many Canadian investors are looking across the border.
Quote from PropertyForum.com : “Despite the fact that the US Federal Reserve had initially indicated that it was looking to reduce the $85 billion a month stimulus program there was apparently an about-turn with decision time looming.”
If we were to tell you that Canadian real estate investors have invested US$27 billion in US commercial real estate in the last 12 months, more than US investment in Canadian real estate in the last four years, would that surprise you? If you look back in history it may come as a surprise but the fact remains that Canada, which is gushing with natural resources, has a very lucrative and a very strong economy.
Real estate is scarce in Canada
While Canada is an enormous country much of the major real estate investment is focused on a relatively small area. As a consequence, over the years, quality real estate has become relatively thin on the ground and because of demand for limited supplies, relatively expensive.
As the US economy began to struggle in the aftermath of the 2008 mortgage crisis, property prices began to fall and domestic demand for real estate plummeted, prompting many Canadian investors to rub their hands in anticipation. The trend for Canadian investment in US commercial real estate began back in 2006 but has moved to a different league of late. A variety of factors, which we have covered above, have come to light and offered perhaps a once-in-a-lifetime opportunity for Canadian real estate investors.
Conclusion
It is not very often that you see US real estate investors overpowered by Canadian real estate investors. Historically many have seen Canada as the poor cousin of the US but over the last six or seven years we have seen a significant increase in Canadian investment in US commercial real estate. Due to a mixture of low interest rates, currency benefits and extremely large pension and savings funds, very often Canadian investors have been able to outbid their US counterparts.
As the appetite for US commercial real estate continues to grow it seems that the Canadian presence in the US market will at least be maintained in the short to medium term.