REIT returns to remain attractive, fuelled by low rates and solid fundamentals
April 10, 2013
commercial real estate sector and REIT investment market appear set to outperform for a fifth-straight year, according to CIBC World Markets Inc.
"All of the fundamentals seem to be supporting [the] continuation of [an] extended recovery" from the market lows of 2008, says
, Vice-Chairman, Real Estate Investment Banking at CIBC.
In a series of notes released today at the bank's 18
annual real estate conference in
, CIBC says low interest rates, the continued availability of equity and debt, and healthy supply-demand fundamentals have set up
real estate capital markets for another strong year. These conditions are relatively unchanged from 2012 which saw "record levels of new issuance, total returns exceeding those of the broader S&P/TSX Composite index, a growing list of IPO and M&A activity, against a backdrop of declining volatility," says Mr. Kimberley.
, a CIBC Equity Analyst who covers the commercial real estate sector, also sees favourable property and REIT market conditions continuing in 2013, with one caveat. "While current real estate and REIT investment market conditions remain highly attractive in many respects, property and REIT pricing have risen largely to reflect the favourable current environment. We expect attractive returns from Canadian REITs in 2013, but more modest than seen in recent years."
Mr. Avery says returns from REITs in 2013 will be driven by attractive distribution yields and modest further appreciation in unit prices. Over the next 12-18 months he's forecasting returns to "average 5-10 per cent, comprising close to 6 per cent in average yield and 0-5 per cent in capital appreciation." REITs most likely to outperform will be ones that deliver the highest funds from operations (FFO) growth, he says.