Commercial Real Estate Industry Conditions and Sentiment Survey - Canada Q3 2023

In an effort to provide insights into the market sentiment, conditions, metrics, and issues affecting the commercial real estate (CRE) industry, Altus Group recently conducted a survey across the US and Canada. We’re pleased to share that the Q3 2023 Canada results of our “Commercial Real Estate Industry Conditions & Sentiment Survey” are now available for download. (US results can be downloaded here)

The survey captured the individual practitioner's perspective, representing various functions and across the capital stack.

The Canada portion of this survey was conducted between June 28th and July 25th, 2023. There were 83 respondents, representing at least 34 different firms. This survey will be updated quarterly with new perspectives from market participants.

Questions in the survey were optional and explored two main topics: current conditions and future expectations. Percentages used throughout the Canada survey results are representative of the share of all Canada responses received for each question, excluding “blank” or “not applicable” responses.

Expectations dim moderately, pricing in less favorable reality

Despite the Canadian economy’s demonstrated resilience, the CRE industry’s expectations dimmed over the last 12 months. A third (34%) of respondents noted deteriorating revenue growth expectations and 40% have lowered their NOI growth expectations. Expectations for cap rates have also shifted – with 72% of respondents noting increased going-in/current cap rates and 70% noting higher reversion/exit cap rates.

Figure 1 - Canada results: Have your expectations for your portoflio changed compared to 12 months ago?

Lack of conviction, except for cap rate increases, cost of capital, and distress

On average, 66% of respondents had “moderate” conviction in their corresponding directional expectations. The highest net conviction (high conviction % less low conviction % = net conviction %), was exhibited with expected cap rate moves over the next 12 months. A net 30% of survey participants expect cap rates to move higher in the next 12 months. The next highest conviction calls were increased cost of capital (net 15%) and CRE credit distress (net 12%).

Figure 2 - Canada results: What changes do you anticipate to the following key metrics over the next 12 months?

Continued cost burdens

Participants indicated that costs (cost of capital, inflation, and development / construction costs) will remain top priorities for the coming 12 months. While cost of capital is expected to remain a top priority for 79% of participants, inflation was a close top-priority for 62% of respondents.

Figure 3 - Canada results: Which of the following do you expect will be high priority issues for you professionally in the next 12 months?

Quarterly surveys

Altus Group’s CRE Industry Conditions and Sentiment Survey marks the beginning of an ongoing survey program. While our initial Q3 2023 results capture a moment in time, we’re committed to conducting this survey quarterly so we can share how perspectives on the questions covered in this report trend over time.