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New JLL report details why Canadian pension funds and firms are in hot pursuit of foreign assets
TORONTO, Dec. 12, 2013 — Faced with a relatively small domestic property market, Canadian investors are on pace to eclipse their single-year record for direct investment in international commercial real estate assets in 2013. Furthermore, with Canadian pension funds growing and allocating a significant portion of their capital to commercial real estate, the flow of funds outside of the Great White North isn’t likely to abate anytime soon.
Those are some of the insights and conclusions contained in “Smart Partnering Puts Canadian Investors in the Lead,” Jones Lang LaSalle’s new report on Canadian commercial real estate investors. The report was released last week at The Real Estate Forum conference in Toronto.
“A wide range of Canadian real estate investors — pension funds, REITs and developers — are buying properties in a wide range of places,” said David Green-Morgan, Global Capital Markets Research Director for JLL. “The bulk of Canada’s international real estate investment has traditionally taken place in the U.S. and Western Europe, but we are seeing Canadian investors in the Asia Pacific, Latin America, and Southern and Eastern Europe. They’re being smart about these moves, securing best-in-class operators and asset managers as joint venture partners to provide local market expertise.”
While Canada is a giant country in terms of geography, its domestic property market is small compared to other countries, leaving a fairly small amount of assets for investors to purchase. For example, the Canadian office market is largely confined to nine major cities with a total of slightly more than 400 million square feet, roughly the size of the Manhattan office market. Combine this with investors’ hearty appetite for commercial properties – Canadian pension funds typically allocate between 10 and 15 percent of their capital to real estate, compared with 5 to 10 percent for the standard Western pension fund— and the conditions are ripe for aggressive investment in foreign locales. The lack of distressed domestic properties for sale — a result of Canada’s highly regulated lending market — is another factor fueling the trend.
”The result of all that is, year to date, Canadian investors have purchased more direct real estate outside of Canada than inside. They’re also on pace to surpass their single-year high for direct investment in international real estate, which is nearly US$11 billion in 2011,” said Lucy Fletcher, Vice President, Jones Lang LaSalle’s International Capital Group. Fletcher notes that Canadian public REITs have led the way this year, spending more than US$5 billion on the direct purchase of international properties.
Canadian pension funds have spent US$2.5 billion so far. In the U.S., Canadian investors are seeking opportunities in all asset classes and have shown considerable interest not just in core markets but in secondary and tertiary areas as well. Chicago, Dallas, Denver, San Francisco, Phoenix, Portland, Ore., Seattle and Sacramento are some of their preferred locations.
While Canadian investors are showing growing interest in overseas markets, international investors are pursuing Canadian properties as well, according to JLL’s report. Buyers from the U.S., Germany and United Kingdom make up the bulk of foreign investors who are acquiring properties in Canada, but Chinese capital has become increasingly active in the country this year, buying assets across the country.
Jones Lang LaSalle Capital Markets is a full-service global provider of capital solutions for real estate investors and occupiers. The firm’s in-depth local market and global investor knowledge delivers the best-in-class solutions for clients — whether a sale, financing, repositioning, advisory or recapitalization execution. In 2012 alone, Jones Lang LaSalle Capital Markets completed $63 billion in investment sale and debt and equity transactions globally. The firm’s dealmakers completed $60 billion in global investment sales and buy-side transactions, equating to nearly $240 million of investment trades completed every working day around the globe. The firm’s Capital Markets team comprises more than 1,300 specialists, operating all over the globe.
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About Jones Lang LaSalle Jones Lang LaSalle (NYSE:JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual revenue of $3.9 billion, Jones Lang LaSalle operates in 70 countries from more than 1,000 locations worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services to a property portfolio of 2.6 billion square feet and completed $63 billion in sales, acquisitions and finance transactions in 2012. Its investment management business, LaSalle Investment Management, has $46.7 billion of real estate assets under management. For further information, visit www.jll.com.
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