PwC Is “Pessimistic” on Commercial Real Estate

Commercial-Real-Estate-Trouble-Canada PricewaterhouseCoopers (PwC) issued a somewhat alarming report on Canadian commercial real estate yesterday.

Among the key points, PwC said:

  • “We’re very pessimistic, and we think there are going to be big issues in the Canadian real estate market.” (Canada.com)
  • “Credit markets remain tight in commercial real estate, with many companies facing the high cost of capital and others struggling to simply access funds.”
  • There is very little appetite for commercial mortgage-backed securities (CMBS). Yet, PwC says: “In each of the next three years, approximately $1 billion in Canadian CMBS alone will be maturing, with no clear directive on how funding gaps will be met.”
  • “We think there are going to be foreclosures and default situations…”
  • Alberta is especially vulnerable with resource money drying up
  • The market is expecting notably “higher capitalization rates.”

Frank Magliocco, a partner in PwC’s Canadian real estate division, warns:

“Owners need to immediately implement monthly or quarterly cash flow reviews to understand exactly what their short-, medium- and long-term capital needs are and, perhaps even more importantly, immediately identify what options are available to overcome inevitable refinancing hurdles.”

Properties that PwC thinks are especially risky include:

  • Commercial real estate in rural or industrial areas
  • Small-to-medium-size strip malls
  • Hotel and leisure properties
  • Suburban office and industrial space
  • Properties with economically challenged flagship tenants

PricewaterhouseCoopers (PwC) is one of the world’s largest professional services firms.  It focuses on auditing and consulting services and has over 5,200 partners in Canada.

  1. Thanks for sharing the report by PwC. I agree that the property types identified will be the riskiest in the next 18 to 24 months – that’s why they’re also the best opportunities. Our clients have started asking us to search for some of these kinds of properties specifically because of the great opportunity that they’ll represent going forward.
    “Owners need to immediately implement monthly or quarterly cash flow reviews…” – Aren’t prudent owners doing this already?!
    While the next couple of years will see a lot of property come onto the market at lower valuations than we’ve become accustomed to seeing over the last several years, property will start to change hands again and those who get back in the game will reap the benefits.

  2. PWC are about 12 to 18 months too late with coming out with this report. Businesses will begin recovering next year and instead of downsizing, they’ll be expanding once again. Wait until Oil breaks above $100 per barrel again and Alberta will be the hotbed of action like it was the past few years. It could happen sooner than you think….

  3. To answer Peter’s question, I doubt commercial values will go down enough for this to cause financial market problems or impact homeowners. Just my opinion.

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