CANADIAN MARKET OUTLOOK BREAKFAST

Transcription

1 CANADIAN MARKET OUTLOOK BREAKFAST PAUL MORASSUTTI Executive Vice President, Valuation & Advisory Services, CBRE 1

2 IF YOU ARE NOT CONFUSED YOU ARE NOT PAYING ATTENTION ~Tom Peters FINANCIAL MARKETS IN FLUX 13,000 12,800 12,600 12,400 12,200 12,000 11, Jan 09-Jan 14-Jan S&P/TSX Daily Close 19-Jan 24-Jan 29-Jan 03-Feb 08-Feb 13-Feb 18-Feb Source: Thomson Reuters Eikon, Feb. 18,

3 REITS ARE IN TROUBLE 3

4 REITS TAKE A HIT 10% 5% 2015 Total Return: -5.0% 0% -5% -10% -15% Q Q Q Q S&P/TSX Capped REIT Total Return NAV Premium/Discount Source: BMO Capital Markets, Jan CAPITAL MARKETS CLAM UP REIT & REOC Issuance $10,000 $8,000 $6,000 $4,000 $2,000 $ Millions Source: BMO Capital Markets, Jan Equity Debentures 4

5 REITS SIDELINED FOR NOW REIT & REOC % of Investment Volume 50% 40% 30% 20% 10% 0% Source: CBRE Limited, RealNet Canada, Collette Plante, JLR Land Titles Solutions 5

6 REITS BEAT THE MARKET 160 Index(100= Jan. 2010) Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 S&P/TSX Capped REIT Index S&P/TSX Composite Index Source: Thomson Reuters Eikon, Feb. 18,

7 POCKETS OF REIT STRENGTH 2015 Total Return by REIT 100% 80% 60% 40% 20% 0% -20% -40% -60% -80% ACC EXE RLC RUF (C$) MST SRT (C$) SIA PLZ CHP SRU RUF (US$) WIR'U HOT INO SMU IIP MRG CAR CSH CRT ACR DRG KMP SRT (US$) CRR AAR NWH FCR SOT BTB TN BOX HR AX PAR GRT REF REIT Index PRV TNT REI ONR DIR INN AP CUF MRG BEI NVU MRT MEQ D TPH LRT Source: BMO Capital Markets, January REIT WINNERS 7 HAVE >10% NOI EXPOSURE TO ALBERTA Source: BMO Capital Markets, January

8 REASONS FOR OPTIMISM Unweighted Average REITs Total Return 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% -20.0% Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Source: CIBC World Markets, Jan. 10, REITs with Western Canada Exposure REITs with Limited Western Canada Exposure OFFICE MARKET IS OVERSUPPLIED 8

9 VACANCY IS HALF THE STORY Office Markets Post Higher Vacancy 800 Vacancy Change (YoY bps) Vacancy Rate (%) 24% % % 200 6% 0 0% Vancouver Calgary Edmonton Winnipeg Toronto Ottawa Montreal Halifax National Vacancy Change YoY (bps) Overall Vacancy Rate Q Source: CBRE Limited, Q TIMING IS EVERYTHING Office Construction Exceeds Demand in Some Markets 10 SF (Millions) % Of Inventory 10% 8 8.4% 8% 6 7.2% 6% 4 4% 2 3.5% 3.0% 3.5% 2% 0 Toronto Calgary Montreal Edmonton Vancouver Under Construction (L) Construction as a % of Inventory (R) 0% Source: CBRE Research, Q

10 TIMING IS EVERYTHING Calgary Office Completions Rise as Demand Slips SF 000s 3,000 2,000 1, ,000-2,000-3,000 ` 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Vacancy Rate Source: CBRE EA, Q Net Absorption New Supply Vacancy BEYOND HEADLINE VACANCY Downtown Office Markets Continue to Outperform 18% 16% 14% 12% 10% 8% 6% 4% F Source: CBRE Limited, Q Central Suburban 10

11 BEYOND HEADLINE VACANCY Toronto s Office Market is a Bastion of Strength Greater Core 3.3% Downtown South 2.0% Source: CBRE Limited, Q

12 DEMOGRAPHICS UNDERMINE DEMAND Labour Force Growth Nears Zero 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% Forecast 0.0% Labour Force Growth Trendline Source: Conference Board of Canada, Feb.17, FINTECH AS A DISRUPTOR Banks could lose 60 percent of their profits and 40 percent of their retail revenue due to financial technology and fintech startups in the next 10 years. ~ McKinsey & Co. SUPERIOR INFORMATION LOW BARRIERS TO ENTRY LOWER COST STRUCTURE ACCESS TO TALENT 12

13 They all want to eat our lunch! ~Jamie Dimon ALBERTA BAD! 13

14 Source: Statistics Canada, December Calgary CBD only accounts for 1.6% of Canadian commercial real estate Source: CBRE Limited, Q

15 RETAIL IS IN TROUBLE 15

16 Source: Statistics Canada, Forrester Research, Inc. RETAIL BOLSTERS REITS REIT Returns by Property Type 10% 8% 8.4% 6% 4% 2% 0% -2% Office Hotel Industrial Apartments Shopping Centres Source: CIBC World Markets Inc., January

17 FOREIGN INVESTORS VIEW CANADA AS A ONE TRICK PONY OVER A BARREL $1.20 $150 $1.10 $125 $1.00 $100 CAD / USD $0.90 $0.80 $75 $50 WTI $0.70 $25 $0.60 $0 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 CAD/USD WTI Source: U.S. Energy Information Administration, CBRE Research, Jan

18 DISCONNECT BETWEEN NAV S AND DIRECT PROPERTY VALUES NAVs IN CONTEXT Discount to NAV May Not Be So Significant % % Source: BMO Capital Markets; Jan. 19,

19 THE INVESTMENT MARKET IS BOOMING THE INVESTMENT CLIMATE 19

20 OWNERS HOLD TIGHT Calgary Investment Volume Declines $3,000 $2,500 $2,000 Millions $1,500 $1,000 $500 $ F Source: CBRE Limited, RealNet Canada, Q MILLENNIALS ARE THE FUTURE 20

21 SENIORS DEMAND IMPRESSES Vacancy Declines in Most Markets 20% 15% 10% 5% 0% BC AB SK MB ON QC NB NS PE NL Source: CBRE Research and CMHC Seniors Housing Survey, CAP RATE COMPRESSION CHAMP 100bps YOY Decline Betters Other Asset Classes 10% 8% 6% 4% 2% 0% Source: CBRE Research, GOC 10-Yr Apartment High Rise 'A' Seniors Housing 'A' 21

22 Seniors aged 75 years+ will grow 111% Source: Statistics Canada 22

23 CONCLUSION Pros: Diversification Cap rate declines Hotels performing well Cross border shopping slows Low dollar/shock absorber Not overleveraged Cons: End of commodity super cycle Challenging REIT environment Segmented investment market Uncertain demand Ongoing digital disruption Oil patch concerns 23

24 CANADIAN MARKET OUTLOOK BREAKFAST