CANADA - Canadian real estate returns fell 12.1% in 2008 to a 14-year low, according to figures released by Investment Property Databank (IPD).
The ICREIM/IPD Canada annual property index, which covers C$96.5bn (€60.5bn) of commercial real estate, showed total returns for Canadian property were only 3.7% in 2008 compared to 15.8% - the lowest levels recorded since 1994, on the back of the global property re-pricing.
"Declines in property values account for the weaker returns recorded in 2008, with on average capital value write downs of 2.3%," said Doug Rowlands, senior manager at IPD.
Offices was the top performing property sector for the third consecutive year, returning 7.6%, followed by residential at 6.4%, industrials at 2.3% and retail at 0.1%.
"We've seen offices doing rather well, particularly focused in the West, which will be down to oil prices that were still high enough in the first half of 2008 to encourage capital growth in the real estate office sector," continued Rowlands.
In terms of areas, Western Canada continued to fare better than Eastern Canada, with Edmonton recording the best performance amongst the main markets, returning 11.7%. That said, this represents a significant decline from 29.8% in 2007.
The remaining major markets returned less than 10% each as Calgary returned 7.3%, Vancouver 7%, Ottawa 5.4% and Toronto 2.7%. Property in Montreal was among the worst performers, delivering returns of just 0.3%.
Pension funds represented the majority of investor participants in the index and included Ontario Teachers' Pension Plan, ING, Caisse des Dépôts and Ontario Municipal Employees Retirement System (OMERS).
According to Rowlands, pension funds and institutional investors are likely to remain cautious about investing in property in the short-term.
"In today's market people are trying to be risk-averse, they are trying to look after their cash flows and their income profile rather than looking for capital growth as any institutional investor is anywhere on the globe," he said.
Despite shifting yields, direct property still outperformed equities, which returned -31.4% according to the MSCI Canada Index, and Real Estate Investment Trusts, which returned -31.3% according to the FTSE EPRA /NAREIT index.
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