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Commercial Lenders Starting to Worry about Canadian Real Estate Landscape

Well we’ve been brooding about the residential real estate market in Canada for some time now, so it makes sense that it was only a matter of time before that bled over into the commercial market. That time is now here, and according to a survey by The Real Property Association and FPL Advisory Group, sentiments from commercial lenders right now show pessimistic views of the Canadian commercial lending landscape.

The Canadian Real Estate Sentiment Survey asked 41 different commercial lenders asking them about the state of the Canadian economy and how sustainable they believe current asset prices can continue to increase. The results? Those survey participants were as pessimistic about the current and near future look of the commercial lending landscape as they were back in 2009.

“Canada’s real estate industry has been on a tremendous run since 2009 and the question we keep hearing is, ‘how long will it last?’” says Carolyn Lane, the vice-president of membership, marketing and communications of REALpac. “Our members are keeping a close watch on interest rates, economic growth here and in the U.S., and also debating whether asset prices can keep rising.”

And that can certainly be found in the survey respondent’s answers, which while published, were kept anonymous. One respondent stated,

“Canadian fundamentals are quite good with demand and supply in balance. Development is ramping up, and access to debt and equity has never been better or cheaper; this continues to push rates down and prices up.”

Another state that those high prices though, just can’t last forever. And while things might seem rosy now, we have to question what the outlook will be in the future.

“The market, I believe, is just not sustainable,” says another respondent. “There may be a slight correction or slow down. The rates and terms are excellent; I just don’t know how that’s going to last.”

“In Canada, property markets are very stable but the economy itself isn’t great,” says another. “I’ve felt since mid-last year that Canada is sort of flat. It worries me going forward.”

Another seems to sum it up by saying that while things are good now, but that a cooling is on the forefront.

“Real estate investment opportunities in many parts of the United States continue to become a more compelling part of the opportunity landscape. Talent and capital will pursue those opportunities, to an extent, while the Canadian markets cool in response to a weaker economic climate, concerns over eventual higher interest rates, and the sustainability of currently low cap rates.”

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