North America real estate remains stable, LaSalle midyear report finds
Real estate market fundamentals in North America performed in line with expectations during the first half of 2017, with a few variations — primarily in the United States — stemming from the pace of change within the retail sector, the sharper-than-expected slowdown in transaction volume, along with the sustained political turbulence and slower-than-expected progress on key policy initiatives, according to LaSalle Investment Management’s Mid-Year Investment Strategy Annual 2017.
The U.S. and Canadian real estate markets continue to attract investor interest despite these trends.
The report also reinforces the case for adding environmental factors to the DTU (demographics, technology and urbanization) secular drivers of real estate demand. LaSalle does not see the U.S. pull-out from the Paris climate treaty affecting the long-term importance of these “E-factors.”
In the United States, several factors such as below-trend economic growth, slowing rent growth and a decrease in transaction volume have caused U.S. real estate values and returns to moderate. While the U.S. real estate market remains healthy, this trend is a reversal from the strong growth of the past six years.
Investor appetite for Canadian real estate continues to grow, driven by a strengthening Canadian economy, strong fundamentals in gateway markets and a low Canadian dollar. However, high average household debt levels nationally and frothy housing markets in Toronto and Vancouver remain risks, while ambiguity still looms concerning the renegotiation of the North American Free Trade Agreement (NAFTA), which is slated to occur later this year.
The report notes that capital flows to U.S. real estate are above long-term levels but decelerating. Trading volumes are down 15 percent to 20 percent through April; however, full-year 2017 volumes are likely to be down less. Activity has fallen the most in major markets, as investors have shifted to secondary markets searching for higher yields. Conversely, Canada continues to experience record levels of real estate transaction volume. Of note, first quarter 2017 transaction volume in Canada reached $9.1 billion — a five-year quarterly high — with foreign capital accounting for $1.7 billion or 19 percent of the total.
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