Search this blog:
Follow Avison Young:

Thursday, December 29, 2016

Toronto Real Estate Forum: The Ying and the Yang?

By Robin White (Toronto)

The 25th Toronto Real Estate Forum wrapped up earlier this month, and a soldout audience was treated to a potpourri of executives from major real estate companies, banks and pension funds; developers, economists and politicians opining on a variety of topics relating to the real estate business.

Having attended all 25 Forums, as well as many of the Property Forums that preceded the Real Estate Forum, I always found that I came away with a consensus on the state of the real estate markets, and where the business was headed.  

This time, it felt different. There were many contradictory opinions; here are just a few:

·         Interest rates were going up; interest rates were going to stay lower for longer.

·         Bond yields were heading up leading to higher financing costs; therefore, higher cap rates and, thus, lower prices. The recent rise in bond yields is short term, and they will revert to their previous levels or drop even lower, thereby reducing financing costs and, consequently, cap rates.

·         There will be an ongoing trend towards urban development as millennials seek opportunities to live and work in the urban core; the suburbs will experience a rebirth as millennials seek more attractively priced homes in which to raise a family.

·         The effects of the Trump presidency and Brexit will have a major impact on the future of the U.S. and European economies; the powerful secular forces that are present around the world will transcend any of the impact of Trump or Brexit.

·         Canada is in a wonderful place right now. We are seen as a good place to invest, because of our stable and transparent government and economy; Canada is irrelevant in the global scheme of things.

·         All levels of government have massive levels of debt to contend with, and are still running deficits; we have never amassed such a high level of cash looking for a home.

·         In the next 10 to 20 years, technology could affect up to 70% to 80% of the existing workforce; unemployment levels in the U.S. are at a low point.

My father used to say if you are not confused, it is because you have not been paying attention.  There is no question that anyone who was paying attention at the forum must have been somewhat confused.

So what are we to make of it all?

In my career, I have been through four recessions. Some have been more severe than others. Looking back at all of them, there were telltale signs in advance of the recession that should have been harbingers of things to come. These signs included companies overleveraging, undisciplined financing, speculative development, undercapitalized developers, junk bond activities, commercial mortgage- backed securities and so on.

There will be another recession. That is a fact. The questions are: When? And what can we do to prepare?

Coming away from this year's forum, although there were many conflicting views expressed, it is difficult to pinpoint any particular reason why we will see a recession in the near term. I am in the camp of interest rates being lower, at least for the next few years. There may be some short-term corrections, as we saw with the recent rise in bond yields, but I do not see any major forces likely to increase long-term interest rates – a situation that is good for our business.

Possibly, the biggest takeaway for me was the air of positivity that existed throughout the conference. Despite the confusing signals expressed in the breakout sessions, my many conversations with attendees at the coffee breaks, the cocktail parties and the dinners were all extremely positive and uplifting. 

And, perhaps, this is the most important takeaway of the 25th Real Estate Forum. When the attendees are positive and the mood is uplifting, they generally spell a positive outlook moving forward.

So let's make a toast to that, and may I wish everyone the best for a very happy and prosperous New Year.


(Robin White is Chair of Avison Young’s capital markets group and a founding Principal of the firm. He is also a Company Board Member and sits on the firm’s Executive Committee. During his career, which began in 1977, he has co-ordinated the sale of more than $5 billion worth of commercial real estate and completed several significant lease transactions, including several high-profile office buildings and industrial properties.) 

The postings on this site are those of the bloggers and do not necessarily represent the views or opinions of Avison Young.