Canadian real estate investment trusts (REIT) have begun to rebound after being in the red, thanks to ongoing rate cuts, return to office procedures and increasing confidence in the market, a researcher said.
Speaking with BNNBloomberg.ca on Friday, Adam Jacobs, head of research at Colliers Canada, explained that because REITs are oftentimes dependent on borrowing or re-financing, they took a hit following the COVID-19 pandemic.
“[REITs] are a very, very capital-intensive business, you have a lot of borrowing, you have a lot of re-financing you need to do, and a lot of REITs have taken on some pretty big development projects, which are a leap of faith,” Jacobs said.
He used Toronto’s new building, The Well, as an example. The Well was pitched and conceived before the COVID-19 pandemic, and in the years since, demand has changed.
“[It] made perfect sense,” Jacobs said about the investment. “It (was) going to be a tech hub (with) Shopify and Amazon…then you wake up in 2024 and everybody is working from home and Shopify walks away from their lease, so they obviously borrowed a lot of money due to construction, to buy the land, and to do the leasing and everything. So, it’s been a difficult time for them, because they are in a constant state of needing to borrow and re-finance.”
Jacobs said that REIT stocks have jumped upwards 10 to 25 per cent in stock value over the last few months – mostly due to interest rate cuts -- however, it’s an area that’s “taken more of a hit than other areas of real estate.”
“…I’d say there are three megatrends: interest rates, one, work from home and the housing crunch are the two other ones which, depending on the type of REIT you have, they’ve either had a somewhat positive effect or a negative effect,” he said.
The re-surge in interest wasn’t unprecedented. Speaking with BNN Bloomberg last month, TD analyst Sam Damiani shared news that the S&P/TSX Capped REIT index had its second-best week since November 2024.
TD analysts said that they had been expecting Canadian REITs to outperform, “as they have in similar periods since 1988.”
“It’s pretty across the board,” Jacobs said about REITs. “…It’s just kind of a general like ‘the worst is over; we can put our money back into this sector and probably get a good return over the next couple of years.’”