Canada’s real estate industry has been through much uncertainty these past two years thanks to the COVID-19 pandemic. When it comes to financing, lenders are now breathing a sigh of relief and are approaching 2022 with a more positive outlook, yielding new potential investment opportunities.
It’s 2021 Canadian Real Estate Lenders’ Report released this week, CBRE stated that lenders are feeling more optimistic about the real estate sector, a “significant shift” in lender sentiments over the past two years. As a result, two-thirds of lenders are planning to increase their portfolio allocations to real estate lending in 2022 and the remainder will maintain their current allocation levels, according to CBRE.
The report, which surveyed domestic and foreign lenders from early October to November, was generated to gauge lender confidence in commercial real estate and Canadian financing outlooks for 2022.
“The survey results represent a significant shift in lender sentiment from caution to opportunity and real estate lenders are ready to support businesses and investors looking to finance real estate transactions,” said Carmin Di Fiore, executive vice president of CBRE’s Debt and Structured Finance team, in a press release.
“After the highly disruptive year in 2020, we’re seeing renewed demand and competition for Canadian real estate, which is building momentum for a strong and well-capitalized 2022,” he added.
With the pandemic dominating most of 2020, many lenders were hesitant to make real estate deals. However, “increased clarity in the market” has prompted lending conditions to return to normal, with 90 per cent of lenders planning to “actively” or “very actively” bid on deals over the next 12 months.
This renewed bullishness from investors would translate into 10 per cent to 20 per cent of additional net new capital available for Canadian real estate next year. Approximately one in two lenders plan to materially increase their loan books by releasing 20 per cent to 30 per cent net new capital in the year ahead. Looking into the future, this means that borrowers can anticipate stronger capital availability for their real estate financing needs in 2022, CBRE said.
Retail is the hottest
Lender sentiments improved the most within the retail sector, particularly around entertainment and food services, CBD regional malls and power centres. However, asset concerns around regional malls in secondary markets, Class B offices in core and suburban markets are still prominent.
Single-family housing, apartment buildings and grocery-anchored retail were among the property types that lenders were the least concerned about. Apartments were especially in favour for lenders this year, with nearly half coming in above budget.
“Looking ahead, lender demand for apartments are only going to get stronger in 2022 with 75 per cent planning to further increase their budgets next year,” said the report.
Canada’s biggest cities have and will continue to draw lender financing into the real estate market. CBRE noted that lender appetite for Canadian real estate markets were stronger than 2020 and 2019 in some areas. The Greater Toronto Area, Vancouver, Montreal, Ottawa and the Waterloo region continue to attract the strongest desire for lending in the country. Despite headwinds over the last couple of years, lenders also continue to be active in Alberta, namely Calgary and Edmonton, with about 80 per cent willing to transact in the region.
“This proportion of lenders is in fact comparable to other markets – the willingness of lenders to transact in Montreal, Vancouver and Ottawa fall in the range of 80 per cent to 83 per cent of lenders,” said CBRE.
