Canadian REITs are making a comeback after four years of turbulence, according to commercial real estate investment experts.

Seniors housing, industrial properties and retail assets are leading the recovery as investors anticipate a return toward historical performance levels, the experts told The Toronto Star, citing improving investment and market conditions.

The sector has improved as interest rates have stabilized and several asset classes have demonstrated resilience after pandemic-era challenges that included rising borrowing costs, falling rents and elevated office vacancies.

“REITs are a great way of gauging general sentiment on the street towards an asset class,” Benjamin Haythornthwaite, director of market analytics at CoStar, told the Star. “In its simplest form, it comes down to what the value trajectory is for that asset class, and right now industrial and retail are carrying strong returns so far.”

While performance remains below historical levels, market participants expect further improvement.

“Historically, you could say, pre-2022 we would expect 8% to 10% compound annual growth,” Michael McNabb, portfolio manager at Purpose Investments, told the Star. “Right now, just due to the last four years of underperformance, it looks like you’re sitting more on 5 or 6% (of growth). But I do think we are going to get back to that historical norm.”

Seniors housing has emerged as one of the strongest-performing sectors as demographic trends drive demand.

“The strongest-performing sector in Canada has been the senior sector,” McNabb said in the interview with the Star. “Demand is outstripping supply.”

Industrial REITs tied to warehousing and logistics have also benefited from strengthening fundamentals and lease renewals, while grocery-anchored retail centres continue to perform well because of limited new supply and demand for essential-service tenants, according to the report.

Not all segments are recovering equally. Multi-family real estate remains under pressure amid declining rents, while office REITs continue to recover from sharp valuation declines.

Despite improving conditions, REITs are still catching up to broader equity markets, the Star reported.

“Last year wasn’t awful for REITs, it was up 8% to 9%, so not horrible, but when you compare that to the overall market in Canada, which was up 30 plus %, it wasn’t that great,” McNabb told his interviewer. “Now this year, we’re kind of on pace with the market, which is nice to see.”

Pictured: Erinview seniors home in Mississauga, Ont.

Photo: Fryett Turner Architects

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