Bank of Nova Scotia may have found the perfect time to sell Scotia Plaza, a Toronto office complex that’s expected to fetch as much as C$1.5 billion ($1.5 billion), a record for Canada.
Office vacancies are falling in Toronto and the rest of Canada amid economic growth led by the oil and natural-gas industries. Investor interest in commercial property is rising after the total return on real estate climbed almost 16 percent last year, the most since 2006 and outpacing gains in the U.S., according to the REALpac/IPD Canada Annual Property Index.
Low vacancies and increasing demand are pushing developers to build 8.9 million square feet (827,000 square meters) of office space in Canada, the most since the first quarter of 2010, according to CBRE Group Inc. (CBG) Calgary, the center of the energy business in Canada, is leading the way with more than 3 million square feet under construction.
“They have had a commodities-fueled boom across the country,” Dan Fasulo, managing director at property-research firm Real Capital Analytics Inc. in New York, said in a telephone interview. “The fundamentals of the property markets are in very good shape.”
Office property values probably will rise 20 percent this year in Calgary and about 10 percent in Toronto and Vancouver as low vacancies help landlords raise rents, according to estimates by CoStar Group Inc. (CSGP)’s Boston-based Property and Portfolio Research Inc. Montreal values are expected to gain 4 percent.
The increase in rents and occupancies has helped Canadian real estate investment trusts. The 13-member S&P/TSX Capped REIT Index (SPRTRE) had a total return of 13 percent in the 12 months through March 29. Canadian REITs are likely to have strong returns in 2012 as well, said Heather Kirk, an analyst at National Bank Financial.
“The key Canadian office markets are doing very well,”she said in a telephone interview from Montreal. “The demand is very robust right now.”
Canadian REITs are estimated to have a total return of 15 percent to 25 percent this year, partly because of low and falling vacancies, limited new construction and demand from investors for income-producing securities, according to a Feb. 29 report by CIBC World Markets Inc. analysts led by Alex Avery. The REITs gained 22 percent last year, including reinvestment of dividends.
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