Why Canadian real estate now?

In times of uncertainty across much of the world, an allocation to Canadian real estate may provide a safe harbor in the storm. With a history of attractive risk-adjusted returns¹ in its commercial property markets, we believe Canada’s robust capital markets and strong economic fundamentals will continue to create opportunities for real estate investors.

Investors are always on the hunt for new and undiscovered opportunities. While calling Canada—with the 7th largest real estate market in the world—unexplored is far-fetched, global capital often overlooks this corner of the market; however, we believe Canadian commercial real estate is full of opportunities. For those looking to create a resilient portfolio that can navigate today’s uncertain and challenging market conditions, an allocation to a real estate market that offers economic growth, a stable capital market system, and attractive risk-adjusted returns can be a sound investment strategy. 

Canada at a glance

Large and diversified economy Fastest growing among advanced economies Strong government finances and high political stability
  • 8th largest global economy
  • Service based and rich in natural resources
  • Forecast to lead G7 GDP growth
  • Fastest population growth among G7 over the last 5 years
  • Lowest government net debt as % of GDP among G7
  • Ranks #2 in political stability among G7

Source: World Economic Outlook Database, International Monetary Fund, as of April 2023; World Governance Indicators, World Bank, as of 2021. 

A robust and growing economy may create attractive investment opportunities for global capital

Economic growth drives real estate markets. Since 2015, the government of Canada has been making significant investments in its economy; as a result, Canada entered 2023 on stronger footing compared with its G7 peers. While the short-term economic outlook is clouded by a few factors, we expect that the current period of softness will pass as investors get more clarity on what’s going on in the market, deal flow will likely pick up, and robust investment activity will resume. Real estate is long-term investing, and we believe long-term fundamentals are positive. Canada has the lowest net debt and deficit as a share of GDP in comparison to its G7 peers and is expected to lead G7 GDP growth over the next five years.

G7 GDP growth 5-year forecast (%)

This chart shows GDP growth forecast for G7 countries. Canada’s GDP forecast is 1.8%.
Source: International Monetary Fund, World Economic Outlook Database, as of April 2023.

Immigration policy is a key driver of expanding economic growth potential

A key driver of fueling long-term economic growth is Canada’s robust immigration policy. From 2016 to 2021, Canada’s population growth was the highest in the G7, even ranking ahead of high-growth countries such as India and Brazil. During this time period, Canada welcomed 1.8 million new immigrants and plans to welcome another 1.5 million more people over the next three years.

Canada’s robust immigration policy is a competitive advantage as it:

  • Attracts a rich talent pool and addresses labor shortages—Canada’s high quality of life makes it a destination of choice for skilled global labor while also helping to address labor gaps across key industries vital to economic growth.
  • Contributes to a growing labor force—Immigration is a source of labor supply and will help Canada maintain a strong, productive workforce. Between 2016 and 2021, ~64% of immigrants were in the core working age group of 25 to 54.
  • Supports an aging population—With Canada’s median age of 40.2, versus the global average of 30.3 years, immigration is vital to bringing in a younger generation that can help support a growing retired population. 

Immigration has a significant and positive impact on the Canadian commercial real estate industry. First, new immigrants concentrate in major metros such as Toronto, Montreal, and Vancouver—markets primarily favored by institutional real estate players. Second, immigration adds to consumer demand for goods and services, especially for multifamily homes that typically see increasing rental prices in tight markets. Third, with a bigger, more skilled talent pool at work, economic productivity increases and the economy expands. As a result, businesses demand more commercial real estate space, real estate owners pass on rental income increases to tenants, and commercial real estate prices increase. 

Canada's immigration level 

Thousands of people
This chart shows number of entrants into Canada since 1972

Source: Table 17-10-0014-01 and Notice–Supplementary Information for the 2023–2025 Immigration Levels Plan, Statistics Canada, as of Q4 2022. 

A stable capital market system can support well-functioning real estate markets

While economic growth is important, when allocating capital in times of uncertainty, market stability is another vital factor to consider. The Canadian real estate market is underpinned by several factors that give us the confidence to focus on the long-term opportunities across office, multifamily, retail, and industrial markets.


1.     Regulatory framework keeps the financial system in balance

Canada is home to one of the safest and strongest financial systems in the world. The combination of a robust regulatory framework and overhaul of the Canadian banking business model has seen to the creation of a financial system built on a foundation of resiliency. Today, Canadian banks benefit from:

  • Robust capital ratios
  • Diversified business models and funding sources
  • Prudent lending and risk management practices
  • Diligent federal government oversight and rigorous liquidity standards

Yet, recent global bank failures may bring up doubt about the stability of Canadian banks. While the Bank of Canada’s most recent stress testing showed that major banks would suffer financial losses in the event of a large economic downturn, the test also showed they’d remain resilient and without need for major policy intervention; in fact, according to the Bank of Canada’s most recent Financial System Survey, market participants are confident in the Canadian financial system.


2.     Highly transparent real estate market

Lending to the stability of Canada’s real estate markets is also its consistent ranking as one of the most transparent markets in the world. Transparency in regulations, transaction processes, market data, investment performance, and sustainability is critical to well-functioning markets and gives market participants faith in the stability of the financial system. Especially during times of uncertainty, transparency provides real estate players with the confidence to continue making long-term investment decisions.

Global Real Estate Transparency Index 2022 rankings

Overall score
This chart shows the Global Real Estate Transparency Index for 2022. Canada is the 5th most transparent country in the world, ranking behind United Kingdom, United States, France, and Australia.

Source: JLL, LaSalle, 2022. The JLL Global Real Estate Transparency Index is based on a combination of quantitative market data and information gathered through a survey of the global business network of JLL and LaSalle across 94 countries and 156 city markets. The 254 individual measures are divided into 14 topic areas and further grouped and weighed in the six subindexes above. The index scores markets on a scale of 1.00 to 5.00 (with 1.00 being the highest possible score). Depending on the overall ranking, markets are assigned one of the following transparency tiers: highly transparent, transparent, semitransparent, low transparency, or opaque.

3.     Strong institutional ownership

Stability within Canadian real estate is also supported by strong institutional investments across the country. Almost half of Canadian commercial real estate is owned by pension funds, life insurance companies, public corporations, and investment trusts. These types of investors are conservative, have a long-term investment horizon, and have a tendency to avoid speculative real estate development. Combined with long holding periods, these factors help contribute to an environment with relatively low levels of volatility.

Canadian commercial real estate ownership

This chart shows commercial ownership of Canadian real estate assets.

Source: Manulife Investment Management, MSCI Real Capital Analytics, as of May 2023. MSCI Real Capital Analytics ownership profile is constructed using transaction data going back to 2001 and, as such, does not include all investable real estate assets. REIT refers to real estate investment trust.

A history of attractive risk-adjusted returns

Looking beyond long-term economic growth prospects and capital market stability, Canadian commercial real estate also has a history of offering attractive returns on a risk-adjusted basis. Over the last 22 years, Canada’s Sharpe ratio, which describes how much excess return an investor receives for the extra volatility of holding a riskier asset, was 1.2—the highest among comparable markets.

Sharpe ratio: risk-adjusted returns across comparable peer markets

This chart shows risk-adjusted returns of G7 countries. Canada ranks highest among peers at almost 1.2.

Source: Manulife Investment Management, Federal Reserve Bank of St. Louis, MSCI, as of Q4 2022. G7 real estate market returns from 2000 through 2022 were used to calculate the Sharpe ratio. Calculations exclude Italy due to the lack of data for the analysis period. Past performance does not guarantee future results. 

Consider an approach that incorporates advanced analytics into decision-making

While there are risks to our outlook, including housing affordability challenges, high levels of household debt, and an elevated cost of living, we believe positive long-term fundamentals provide a strong foundation for stability and strength across Canadian commercial real estate markets.

However, uncertainty combined with less accommodative macro conditions has seen real estate markets evolve rapidly. Now, more than at any other time during the last several years, investors need to better identify the underlying drivers of returns and sources of risks. We believe real estate investors need to consider a more pointed investment approach that incorporates advanced analytics into decision-making. In today’s environment, investors that are slow to evolve may be at a disadvantage in capturing alpha opportunities.


Canadian commercial real estate: stability and growth

While Canadian investors are known for having a home country bias, the rise in foreign direct investment indicates that more non-Canadians are coming to appreciate the attractiveness of investing in the country’s economy. 

Canada's foreign direct investment

Billions (CAD$)

This chart shows foreign direct investment into Canada has been on the rise since 2008, hitting almost CAD$1,400 billion in 2022.
Source: Canada’s foreign direct investment position, Statistics Canada, April 28, 2023.

For investors looking to diversify their real estate portfolios, it might be helpful to recall that, historically, periods of uncertainty have created windows of buying opportunities. While Canadian commercial real estate has historically provided investors with stability and income, we believe the future is growth.

1 Past performance does not guarantee future results.

Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments.  

The information provided does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person. 

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the fund facts and prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. 

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Bryan Siekierko

Bryan Siekierko, 

Portfolio Manager, Real Estate Equity

Manulife Investment Management

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Kamran Soleiman, CFA

Kamran Soleiman, CFA, 

Director, Real Estate Investment Research and Strategy, Manulife Investment Management

Manulife Investment Management

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