Economic News/Trends and Analysis — February 3, 2010

Canadian investment real estate market breathing a sigh of relief, Economic fundamentals show upward trajectories

TORONTO, Feb. 3 /CNW/ - Predicting the future is a near impossible task, but each quarter, the Real Property Association of Canada (REALpac) and FPL Advisory Group (FPL), ask the leaders of the Canadian real estate industry to do just that, as we conduct the REALpac/FPL Canadian Real Estate Sentiment Survey. Today, REALpac and FPL Advisory Group were pleased to release the First Quarter 2010 results.

While many things can be said about the year to come, perhaps the best is that it's neither 2008 nor 2009. Both were challenging years, though 2009 saw some positive surprises. Most notable is the fact that the downturn in Canada ended up being milder than expected and far milder than the one experienced in the U.S.

The current REALpac/FPL Canadian Real Estate Sentiment Index came in at 76 on an overall basis, up from 68 last quarter, which in turn marked a significant improvement from the 50 we saw in the third quarter of 2009. The Overall Index is measured on a scale of 1-100 and represents an average of the Future Conditions Index and the Current Conditions Index. To register an Index of 100, all respondents would have to answer that they believe conditions are "much better" today than one year ago and will be "much better" one year from now. Also, for the first time, we're seeing respondents feel better about where the industry is today compared to where the industry will be in 12 months, though by a very slim margin (78 and 75 respectively). As in the past, this data is consistent with the trajectory of The Real Estate Roundtable Sentiment Index in the U.S., though the Canadian results continue to reflect somewhat more optimism, particularly in perspectives on current conditions.

If we were to summarize overall expectations for the coming year, we would say that respondents are "cautiously optimistic. Similar to last quarter, a majority of respondents (58%) indicated that they expected the coming year to be "somewhat better", but now a further 23% are expecting the next year to be "much better", up from 14% last quarter. While the trading volume was thin in the past quarter, many respondents have expectations for increased volume and pricing stability in the coming year. Our survey and interviews reflect the sentiment that capital, particularly equity capital, is no longer a barrier to doing business in Canadian commercial real estate.

Throughout interviews, survey responses, and other discussions with Canadian real estate leaders, it seems clear that there is some hope for 2010. Most seem to expect a mild recovery that will pick up steam going into 2011 and 2012. Respondents are already noting debt and equity capital becoming more readily available and pricing stabilization, both of which bode well for the coming year. Metrics around economic fundamentals, while still relatively weak, are showing the right trajectories. Additionally, our respondents seem to expect improvement, both in their businesses and in the investment real estate market more broadly.

Unfortunately, weaknesses in key areas counter these reasons for optimism. Large transactions haven't resumed, and overall transaction volume is still light. The kinds of "great deals" on properties that can motivate more aggressive entry into the space don't seem to be appearing. The CMBS market is still largely frozen. Additionally, the U.S. is still reeling from its downturn, and the market there is well behind the Canadian one, potentially weakening Canadian economic fundamentals, lengthening the time to recovery, and siphoning off capital that could be deployed domestically.

Taken together, this picture offers reasonable grounds for optimism, though of the milder sort. Let's hope that the coming year delivers on its promise and that all of us experience a more profitable and rewarding one than in the recent past.

To download a copy of the survey report, please visit the REALpac website at www.realpac.ca.

About the REALpac/FPL Canadian Real Estate Sentiment Survey

As Canada's most comprehensive measure of senior executives' confidence in the Canadian commercial real estate industry, the Q1 2010 survey captured the thoughts of 62 leading real estate executives, including CEOs, Presidents, Board Members, and other leading executives from a broad set of real estate sectors including owners and asset managers, financial services providers, and building operators and related service providers. Survey respondents represent income producing real estate including office buildings, retail shopping centres, industrial buildings, hotels, multi-family residential (apartment buildings), and seniors residences. This quarterly economic survey serves as a gauge of senior real estate executives' confidence in financial and real estate markets in Canada. The REALpac/FPL Canadian Real Estate Sentiment Survey measures executives' current and future outlook in three areas including overall real estate conditions, real estate asset values, and availability of capital. Three Sentiment Indices comprise the survey including a Current Conditions, Future Conditions and Overall Conditions Index. The "REALpac/FPL Canadian Real Estate Sentiment Survey" is directly comparable to the "Real Estate Roundtable Sentiment Survey" in the U.S. (also conducted by FPL Associates, using an identical methodology).

About the Real Property Association of Canada

REALpac is Canada's premier industry association for investment real property leaders. Our mission is to collectively influence public policy, to educate government and the public, and to ensure stable and beneficial real estate capital and property markets in Canada.

REALpac Members currently own in excess of $150 Billion CAD in real estate assets located in the major centres across Canada. Members include real estate investment trusts, publicly traded and large private companies, banks, brokerages, crown corporations, investment dealers, life companies, lenders, and pension funds. For more information, please visit us at www.realpac.ca.

About FPL Advisory Group

FPL Advisory Group ("FPL") is a family of companies focused on providing highly specialized advisory services to the real estate and related operating and financial services industries. Through our complementary practice areas, we work with our clients to develop the right talent, leadership, structure, and strategies for success in today's intensely competitive marketplace.

FPL is comprised of two primary operating companies that work together to serve a common client base. Ferguson Partners provides executive, director, and professional search services. FPL Associates provides a range of specialized consulting and finance-related services in the areas of compensation, management consulting, executive onboarding, and succession planning. The firm is headquartered in Chicago and maintains offices in London, New York, San Francisco, and Tokyo. For more information, please visit www.fpladvisorygroup.com.

For further information: Michael Brooks, CEO, REALpac, (416) 642-2700 x.225, or Jonas Bordo, Senior Director, FPL Advisory Group, (888) 368-6598 (toll free)

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