Which North American Markets Offered the Best Returns in 2017?

Direct real estate investments in Canada’s major cities continued to provide investors with strong, risk-adjusted returns in 2017. Canadian real estate, as measured by the MSCI/IPD direct property index[1] generated an annualized return of 6.3% as of the third quarter of 2017. Strong returns were led by Vancouver and Toronto across all asset classes (Fig 1).

Fig. 1: Annualized MSCI/IPD Total Returns through to Q3 2017 – Standing Investments

City/Asset Office Industrial Multi-Family Retail
Calgary -3.3% 2.1% -3.6% 1.8%
Edmonton -4.9% -0.3% -2.1% 3.7%
Montreal 1.5% 6.4% 6.1% 2.3%
Ottawa 5.5% 7.1% 6.3% 2.7%
Toronto 9.2% 13.3% 11.2% 8.7%
Vancouver 11.3% 12.6% 13.9% 11.0%
Winnipeg 5.2% 3.4% 5.4%

With real estate capital increasingly global, it is helpful to examine how Canada’s major markets fared from a North American perspective.

Looking at the largest metropolitan regions across Canada and the United States (Fig. 2) tracked by MSCI/IPD, we see that Vancouver and Toronto were among the best performing North American markets in 2017. Los Angeles and Seattle were also strong across asset classes.

The review of North American real estate performance highlights several interesting trends for property investors, notably the broad-based strength of the industrial market and the continued influence of technology on office demand. From an office perspective, tech-oriented cities such as Portland, Seattle, Dallas and San Francisco were the top US markets while Toronto and Vancouver (also sites of strong technology growth) led the way in Canada. Meanwhile, large trade and port markets such as Orlando, San Francisco, Seattle and New York performed well for industrial, in addition to Vancouver and Toronto which are major Canadian coastal and inland ports, respectively. Generally, across both Canada and the US, we are seeing strong broad-based performance for industrial led by limited supply, strong tenant demand and the continued rise of e-commerce. Average total returns for industrial were nearly double that of other asset classes last year at 10.1%

Fig. 2: Annualized MSCI/IPD Total Returns through to Q3 2017 – Standing Investments

(Green denotes top quartile among category)

Metro-Region Capital Value of All Assets tracked in IPD Index
($Billions-Local Currency)
Office Industrial Multi-Family Retail
Atlanta $7.93 7.9% 10.5% 8.9% 5.6%
Austin $3.42 7.9% 12.4% 2.8% 6.2%
Baltimore $4.46 8.7% 6.2% 0.2%
Boston $22.75 7.7% 9.6% 5.6% 0.2%
Chicago $21.14 4.8% 9.5% 2.6% 4.2%
Dallas $14.34 9.1% 8.6% 5.4% 5.5%
Denver $7.43 4.5% 9.1% 7.5% 7.5%
Houston $9.87 0.2% 5.3% -0.2% 7.4%
Los Angeles $27.47 7.1% 16.0% 8.6% 7.6%
Miami $12.73 5.9% 10.2% 5.6% 6.5%
Minneapolis/St. Paul $2.47 -3.8% 4.5% 2.0% 3.6%
New York $42.57 4.8% 13.7% 3.9% 4.9%
Orlando $2.76 19.3% 7.3%
Philadelphia $3.59 6.0% 11.9% 4.5% 8.9%
Phoenix $3.05 7.7% 8.4% 7.4% 6.4%
Portland $4.24 13.9% 10.9% 5.8% 8.5%
Riverside $7.67 10.7% 15.4% 6.8%
San Diego $8.40 3.3% 13.3% 7.2%
San Francisco $25.07 8.0% 17.4% 4.1% 6.7%
San Jose $7.75 6.7% 12.0% 3.2% 6.7%
Seattle $13.92 9.9% 16.3% 7.3% 8.2%
Washington-DC $23.42 3.2% 8.9% 5.2% 4.5%
Calgary $17.54 -3.3% 2.1% -3.6% 1.8%
Edmonton $7.47 -4.9% -0.3% -2.1% 3.7%
Montreal $12.39 1.5% 6.4% 6.1% 2.3%
Ottawa $7.66 5.5% 7.1% 6.3% 2.7%
Toronto $51.25 9.2% 13.3% 11.2% 8.7%
Vancouver $16.57 11.3% 12.6% 13.9% 11.0%
Winnipeg $2.25 5.2% 3.4% 5.4%
Overall Average 5.4% 10.1% 5.7% 5.6%

Compared to other asset classes, retail performance was more balanced—the difference between the top (Vancouver) and bottom (Edmonton) performing market was only 2.7%, compared to a range of 4.0%-4.5% for other asset classes. Overall average total returns for retail assets were in line with office and multi-family.Multifamily performance was fairly dispersed across North American markets and geographies, with only one market—Riverside (CA)—exceeding 15% total annualized returns in 2017. Vancouver and Toronto rounded out the top three in terms of multi-family asset performance at 13.9% and 11.2% respectively. Beyond these three markets, total returns for multi-family averaged 4.7%.

Comparing the performance in similar and unique cities across North America helps us at GWLRA better understand trends in returns as well as the characteristics driving returns.

[1]

Source: MSCI/IPD – Denotes Standing Investments Only.

Anthio Yuen
Director, Research Services & Strategy

Based in Vancouver, Anthio brings a decade of experience to GWLRA’s Research and Strategy team specializing in property market analysis, applied research and portfolio strategy. He has a Master’s in Urban Planning and Development from the University of Toronto.