Is Europe Stealing Canadian Investors From US?

MIAMI—US has seen plenty of Canadian money flowing into the commercial real estate industry in recent years, but could that slow? Is Europe turning the Canadian investor's head? Should the US be worried?

GlobeSt.com caught up with Ciro DeCiantis, a partner from the Toronto office who leads Deloitte's Canadian Real Estate Practice, to get his take on these questions in part one of this exclusive interview. Be sure to return for part two this afternoon where Anthony Cocuzzo, a partner from Deloitte's Toronto office who leads the company's Americas regional real estate practice, chimes in.

GlobeSt.com: There's a lot of talk about Canadian dollars flowing into the United States seeking commercial real estate investments. Are you seeing an uptick over the past couple of years?

DeCiantis: Approximately the same and perhaps slightly increased, although we have started to see investment looking more toward Europe.

GlobeSt.com: What is driving the appetite among Canadian investors? Why U.S. commercial real estate and why now?

DeCiantis: Yields in Canada have compressed much further and there is the perception that income growth in the near term will be flat. The thought is that the US market is undervalued, there are strong markets and even secondary markets with good returns and potentials for income growth in the US. The projected decline of the Canadian dollar to around 80 to 85 cents is a strong motivator. Also, there is almost no product available in Canada.

Outside of major centers like New York, US real estate offers better relative value than Canadian real estate which are at cyclical highs: Yields in Canada have compressed much further and there is the perception that income growth in the near term will be flat; the thought is that the US market is, relatively speaking, undervalued, there are strong markets—even secondary markets—with good returns and potential for income growth in the US.

The US is the preferred destination for outbound investment owing primarily to Canadians' familiarity with the US legal and tax regimes and how to navigate them; the transparency of the US market; and a favorable exchange rate—although that has deteriorated somewhat recently and it will be interesting to see what the impact of the weakened or weakening Canadian currency is on the appetite for US real estate.

GlobeSt.com: What product types, specifically, are Canadian investors hungry for and why?

DeCiantis: Office and retail, to capture rebound in the US economy; Industrial, primarily logistics and distribution, assets located near major transportation hubs or adjacent to metropolitan areas also gaining momentum to capitalize on continued rise of on-line retail and the repatriation of manufacturing.