Investment in Canadian commercial real estate bounced back last year with the strongest performance in three years, at 11.1%, as measured by the rebranded REALpac/IPD Canada Annual Property Index.
The annual total return, a marked turnaround from 2009's negative return, at -0.3%, and 3.7% in 2008, is underpinned by a 4% capital growth and a 6.5% income return.
The REALpac/IPD Canada Annual Property Index measured CA $97 billion of directly held commercial real estate as at the end of 2010.
‘A rebound in property values was entirely responsible for boosting the total return back into double digit territory in 2010,’ said Simon Fairchild, managing director of IPD North America.
‘The return to capital growth last year follows two consecutive years of write-downs worth 9.3% at the all property level,’ he added.
Stronger returns were posted in all of the four major sectors. For the second year in a row, Retail was the top performing sector with a total return of 15.6% in 2010, followed by Industrial at 8.8%, Offices at 8.5% and Residential at 7.6%.
Montreal led the six largest commercial property markets, with a total return of 14.2%; Edmonton trailed in last with 6.5%, the only market among the six where capital values did not show any recovery. Returns in the other four major markets were Vancouver on 13.7%), Toronto 10.9%, Ottawa 10.6%, and Calgary 8.7%.
Direct property investment underperformed the REIT market, which rebounded by 27.1% in 2010 according to the FTSE EPRA/NAREIT Index for Canada, as well as stocks which returned 14.9% according to the MSCI Canada Index, but outperformed bonds which returned 7.6%, as measured by the JP Morgan 7 to 10 Year Government Bond Index.
On December 31, 2010, REALpac assumed the functions of the Institute of Canadian Real Estate Investment Managers (ICREIM), an organization originally formed to manage the Frank Russell Index for Canada and subsequently, the ICREIM/IPD Canada Property Index.
A new REALpac/IPD Canada Property Index Committee has been formed of former ICREIM members within REALpac. ‘REALpac looks forward to working with ICREIM's former members to enhance the Canada Property Index,’ said Michael Brooks, chief executive officer, REALpac.
‘We are looking forward to developing a strong working relationship with IPD. Service levels will be maintained and enhanced within REALpac, and the new committee within REALpac will be focused on both expanding the number of participants in the IPD data set and improving the value reporting standards for the Index,’ he added.