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Investors spend record amount on real estate outside Canada

The Canada Pension Plan Investment Board (CPPIB) acquired a 50-per-cent stake in Britain’s Bullring Shopping Centre in Birmingham this year. It was one of the many overseas acquisitions for Canadian real estate players.

Hammerson

This year is shaping up to set a record for the amount of money Canadian investors are spending directly on commercial real estate outside of the country, according to a new report released Wednesday by Jones Lang LaSalle.

"Year to date 2013 Canadian investors have bought more direct real estate outside of Canada than inside," the report says. "The levels for 2013 are likely to be the highest on record, demonstrating that the movement of capital offshore is a structural reality rather than a cyclical opportunistic play."

There are a number of reasons for the trend, including a lack of domestic opportunities for commercial real estate investors. For example, the entire Canadian office market, at about 400-million square feet, is roughly similar in size to that of Manhattan, Jones Lang LaSalle points out.

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Canada's commercial property market is estimated to be worth about $1-trillion (U.S.) compared with $11-trillion for the U.S. market.

The record so far for the amount of direct investment Canadians have made in international commercial real estate is nearly $11-billion, a level that was reached in 2011, and which will likely be surpassed this year, according to Lucy Fletcher, vice-president of Jones Lang LaSalle's international capital group.

She pointed in an interview to the recent deal for Bayview Village, a mall in north Toronto that fetched a much steeper price than many industry observers expected, partially due to the relative lack of opportunities in the market. High prices in Canada mean lower relative returns than are available in some other countries. "So they're leveraging their domestic core portfolio with more opportunistic returns, for the most part, overseas," Ms. Fletcher said.

The report notes that in some markets, such as Australia and the United States, Canadians are the dominant offshore investor.

"The bulk of Canada's international real estate investment has traditionally taken place in the U.S. and Western Europe, but we are seeing Canadian investors in the Asia Pacific, Latin America, and Southern and Eastern Europe," said David Green-Morgan, global capital markets research director for Jones Lang LaSalle.

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