Canada’s commercial real estate landscape is set for a “seismic shift” not seen since the early 1990s as the cost of capital winnows out under-capitalized players and ushers in a new generation of investors.
“There’s going to be a seismic shift in what’s going to happen with the commercial landscape in Canada in the next three, four years,” Avtar Bains, founder and principal of Premise Properties Ltd. told commercial real estate association NAIOP in a Feb. 1 discussion of investment markets.
While the high interest rates of 1982 ruined many, Bains said the downturn of 1993 was even worse for the Vancouver real estate market in terms of liquidity.
The liquidity challenges have returned in the current environment, where interest rates have risen faster and stayed high for longer than they did 40 years ago.
The result has been a reset in people’s expectations of the cost of capital, heralding a changing of the guard similar to the late 1980s and early 1990s.
Bains did a roll call of names from the era: TrizecHahn, Olympia & York, Bramalea, Campeau Corp.
The watershed moment as the tide went out on their ambitious plans saw them succeeded by the institutional investors who have come to dominate the commercial real estate market. Backed by billions worth of retirement savings and with a mandate to invest them on behalf of public sector workers, they scooped up a range of properties with strong fundamentals and good cash flow.
The new normal following the pandemic, with its hybrid work arrangements and close scrutiny of risk, has seen the institutional investors pull back from certain asset classes and reallocate funds.
“When Trizec and Bramalea and O&Y and all those guys went through trouble, the pension funds were there to backfill, right?” Bains asked. “If these billions and
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