There may be heightened demand for homes and condos as well as office towers in two of Canada’s hottest real estate markets, which already have seen prices soar from an influx of foreign money. There’s a record US$443 billion in global capital allocated to commercial property that wealthy investors haven’t deployed, according to figures from Cushman & Wakefield Inc.
Within hours of the stunning Brexit outcome, Brian Kriter, an executive managing director of valuation and advisory at Cushman & Wakefield, was on a 6:30 a.m. call from his home in Toronto to discuss the potential ramifications of the referendum with colleagues in London and New York.
In the days since, Kriter has met with one Asian commercial real estate lender who decided to freeze plans for a multimillion-dollar financing deal in London and is considering channeling that money to North America instead. Cushman & Wakefield is organizing a client day in July, potentially in New York, to discuss the early implications of Brexit’s fallout.
You have this phenomenal amount of capital that’s looking to be placed in commercial real estate, and it’s very fluid,” said Kriter. “Foreign investors view Canada as an island of certainty.”
In the last decade, central London saw the biggest increase in residential property prices of any major city as the favored destination for global capital seeking a stable sanctuary. Nearly three out of every four newly built homes in 2013 were bought by foreign buyers, half of them from Asia, according to Knight Frank LLP. Similarly on the commercial side, 70 per cent of central London purchases were by foreigners in 2015.
With China among Asia’s most vulnerable economies to Brexit risk, there could be an even greater appetite from mainland buyers for North American assets, such as Anbang Insurance Group Co., which has snapped up multimillion-dollar assets in New York, Toronto and Vancouver.
A record US$18.3 billion flowed out of China globally in 2014 and nearly half of that went to just three markets: London, Manhattan and Sydney, according to a March report from Colliers International Group Inc., the Toronto-based real estate firm. That flow has since diversified to other markets with Canada increasingly a beneficiary.
In the six months to February, foreign investment into Canadian commercial real estate surged to US$1.4 billion, more than double a year earlier, the brokerage said in a separate March report. Of that, 42 per cent came from China, compared with just 5 per cent in the previous period.
Royal LePage is advising clients that Brexit is likely to cause the Bank of Canada to hold interest rates lower for longer, which will stoke demand in the residential market. Any additional trickle of demand into Vancouver and Toronto could prove a headache for Canadian policy makers seeking to damp record high home prices.