Most Canadians are familiar with residential mortgages. After all, homeownership is something most people aspire to, so the ins and outs of home loans and mortgage rates tend to reveal themselves to consumers as they take their first steps toward purchasing a property. However, unless an individual is a business owner or investor, they might not understand the intricacies of commercial mortgages.
What is a commercial mortgage?
Put simply, a commercial mortgage is a loan for real estate that is used for business. Whereas a person's house or condominium may require a residential mortgage, commercial mortgages are used for properties that are used for office space, retail, manufacturing and other non-residential services. Continue reading
While Canadian mortgages have been a hot topic for quite some time, the spotlight is usually trained on the residential variety. After all, more people are buying homes for their families than purchasing buildings for businesses. But the commercial mortgage market is just as important for the economy as residential housing, if not more so. The commercial mortgage market often acts as a barometer for more than just real estate. More commercial mortgages tends to mean more jobs, which usually means higher household incomes and a healthier economy.
While the ins and outs of commercial mortgages are similar to residential mortgages, there are some key differences as well.
When it comes to residential mortgages, qualifying for a loan falls squarely on the borrower. Income and credit history are taken into account, and if a borrower doesn’t meet a lender’s standards, the loan is denied. Commercial mortgages, on the other hand, are more about the property itself and the cash flow the property will be earning. Lenders take into account the net operating income of a property, meaning how much money it will be bringing in after payments and depreciation. They also look at the debt service coverage of a property, comparing income against the costs of principal and interest payments. Continue reading
Everyone who knows somebody contributing to the commercial mortgage sector – whether he or she is a small business owner who buys office space or part of a larger company that employs commercial real estate professionals to find that perfect available space – needs to thank that person for contributing to the Canadian economy.
Yep, it's true. The latest research from the Real Property Association of Canada and the NAIOP Research Foundation discovered that the commercial real estate sector contributed $63.3 billion to Canadian economic activity last year alone, and the sector is reportedly twice the size of the economies of Newfoundland and Labrador.
But where does all of this economic support come from? Surely it's acknowledged and appreciated, as various rating services have commended Canada on its strong, stable economy. However, the commercial real estate sector provides an abundance of jobs – 340,000 of them, to be exact. Most of these jobs are high-paying professional jobs, according to the report, and equal to the total employment force of the entire Canadian agriculture industry. All of the income from those jobs combined total more than $18.1 billion, roughly twice the income of the agriculture, forestry and fishing industries combined. Continue reading
It sounds like a situation straight from the set of "Green Acres" or a blockbuster movie: A city-born, educated person in their mid-20s decides to ditch their metro condo and cramped corporate life for farm life. Hilarity may ensue. Cows, horses and chickens may be included (but cost more).
Except this isn't a situation limited to screen-worthy-yet-fictional stories: Recent agricultural surveys have showed a major trend shift, including more Canadian farmers being younger than their predecessors and decidedly more female. In fact, a majority of farms report that most of their interns are young women fresh out of university.
Young people's desire to quickly sell their city properties and condominiums could potentially increase the possibility of condo oversupply, which may result in unsold properties and a decline in home values. Continue reading
Many experts will attest that the Canadian housing market is inflated and seemingly oversaturated thanks to incredibly low interest rates, but how is the commercial real estate outlook for business owners looking to buy a space to expand or to lease to other businesses? The Bank of Montreal says now is a particularly good time for investors and businesses of all sizes to invest in commercial property.
"There is a strong demand for these properties by users, who are often able to lease out part of the property for additional rental income," said BMO vice president Steve Murphy.
Commercial investment properties have the potential to do well in the current economy, making it a generally low-risk option for business owners looking to get a bit of financial cushion for their balance sheets. Additional factors that make the investment prospect attractive include:
– Higher occupancy rates, which affects availability and reduces vacancies
– Increased lease rates
– Predicted continual Canadian economic growth Continue reading
Canada may see a surge in commercial mortgages in the coming years, according to a recent analysis from the BMO Financial Group. While the market for commercial real estate has been pretty sluggish since the early 1990s, low mortgage rates in Canada may spark renewed interest from investors.
"The commercial real estate industry benefits from the healthy condition of Canada's financial institutions, the participation of large, well funded operators and institutional investors, whose long-term objectives reduce volatility during downturns," said Earl Sweet, senior economist and managing director with BMO Capital Markets.
According to BMO, there are a number of factors at play in the expected rise in the commercial real estate market:
• A low vacancy rate has limited commercial real estate supplies across Canada
• Canada's businesses have largely dodged the global economic crisis and maintained a high level of performance
• Strong risk aversion from construction, real estate and development firms have kept those balance sheets high
• The continued availability of low-interest loans has helped real estate development nationwide
An analysis from The Canadian Press backs up BMO's findings. The source pointed to a conference call with the president and CEO of Brookfield Canada Office Properties, who said her company is in a strong position and hasn't seen any fallout from the turmoil in Europe.
Canada has been fortunate in that it has been relatively untouched by the economic calamities affecting parts of the world, but businesses have still been facing some challenges. The commercial real estate market is tightening as Canadian businesses continue to expand, but with fewer offices available, the country is seeing a chilling effect on hiring.
A recent report from the CBRE Group showed the state of Canada's commercial real estate market:
• Across the country, office space vacancy is 8.2 percent
• Vacancy rates in downtown areas are 6.1 percent
• Vacancy rates in suburban areas are 11 percent
• The second quarter of 2012 saw office space absorption of 1.3 million square feet, down from 2.1 million in the first quarter
"There was reduced demand for Canadian commercial real estate in the second quarter as global economic instability continued to contrast with the relative strength and stability of the Canadian market," according to the report. "The fate of the Euro, and with it the confidence in the European and World economies, continues to lurch from impending crisis to potential crisis." Continue reading
Canada's housing market has been on an upward trajectory for the past few years, with no real end in sight. In Ottawa, bank leaders and financial regulators are at loggerheads over the best course to take to avoid a serious meltdown. Among commercial real estate professionals, however, attitudes and outlooks are good.
The results of the Second Quarter 2012 Canadian Real Estate Sentiment Survey from the Real Property Association of Canada indicated most commercial real estate leaders see continued growth in the sector over the coming year, which will plateau sometime around the fourth quarter. The Overall Real Estate Sentiment Index climbed two points in the second quarter to land at 63 out of a possible 100. Anything over 50 signifies a positive trend, anything below 50 a negative trend. This marks the 11th consecutive survey in which results reflect a positive outlook. Continue reading
As the American economy continues its climb out of recession, more Canadian financial experts are gaining confidence in their southern neighbors. Still, any slips stateside could carry significant consequences for Canada.
Canadian optimism in the U.S. market was recently measured by the Canadian Institute of Chartered Accountants, along with the Royal Bank of Canada. The agencies found just 22 percent of chartered accountants feel the United States is likely to fall back into a recession, down from nearly two thirds over the previous two quarters. Positive views on the Canadian economy rose during that time as well, with 32 percent now reporting confidence at home.
Still, fears abound. Roughly 63 percent say continued economic calamity in America would negatively impact their business, and 43 percent see the United States as the biggest hurdle to continued Canadian growth. Continue reading
The Toronto Real Estate Board Commercial Division Members recently reported there was a total of 464,008 square feet of total leased commercial space in January 2012.
This is a 41 percent decline from the total square feet of leased commercial space in January 2011. In addition, industrial space made up for 86 percent of of the total square footage leased, which was a 46 percent drop on a year-over-year basis.
"Firms in the GTA industrial sector have a very cautious outlook right now," said Larry Purchase, commercial division chair. "While the prospects for the United States economy are looking more positive, there continues to be substantial concern surrounding economic recession in Europe and what the implications could be for the global economy." Continue reading