According to a new report issued by ReMax, the Canadian commercial real estate sector is booming. Major construction projects are under way and American retailers are moving into the country and vying for a piece of the consumer market. Pension plans and real estate trusts have been important players for many years, but smaller investors are now getting on board.
Smaller investors who are looking for a way to supplement other sources of retirement income are actively seeking out specific types of properties like small apartment complexes, duplexes, and small storefront units. Current low interest rates for mortgages are driving the market, and returns on investment for rental properties are coming in at a very respectable three to six per cent.
Commercial investors are comparing the low returns they are getting on savings at the bank (which can be as low as one quarter of one per cent in some cases) and are looking favorably at the real estate market. So called “mom and pop” investors who don’t feel they trust or understand the stock market feel more comfortable putting their money into something tangible.
They can see and feel a building. They know that the property will be paid for in 25 years and in the meantime, they are getting a monthly income from their tenants (as long as the property remains occupied).
The issue smaller investors are running into is lack of inventory, especially in Toronto. In that city, the condominium market is currently in high gear, which has led to strong demand for eateries and boutique retail establishments, as opposed to the big box stores you would expect to find in the suburbs. Prime storefront locations can be difficult to pry from long-term owners, who “think they are sitting on oil.”