The MSCI/Real Property Association of Canada (REALPAC) Canadian Property Index performed better in 2024 than it had a year earlier, but total returns remained well below historical norms.

The index had a total return on standing assets, excluding developments, of 3.21 per cent in 2024. The income return was 4.91 per cent while capital growth was -1.63 per cent.

These numbers are below the annualized standing investment return average of 8.5 per cent since tracking began in 1985, and the six per cent return averaged over the past 10 years. However, they’re an improvement on 2023 when the total return on standing investments was -0.05 per cent, the income return was 4.72 per cent and capital growth was -4.57 per cent.

Canada was in the middle of the pack among 21 reporting countries through three quarters and looks like it will stay there for the full year. Just three other countries have reported year-end results and Canada’s standing investment return was below the United Kingdom but above the United States and Ireland.

“Canada does hold its value in turbulent market conditions but, when things are more normal or things are recovering, Canada doesn't necessarily shoot the lights out in terms of performance,” MSCI vice-president of real estate client coverage Peter Koitsopoulos said during a Feb. 4 presentation to discuss the results at Toronto’s Vantage Venues.

“We're not necessarily the worst and not necessarily the best. We are a nice, stable performing country.”

Retail the top asset class

The total return on standing assets was highest in retail for the second straight year, but its 6.5 per cent return more than doubled last year’s 3.2 per cent. Retail was followed by residential (3.7 per cent), industrial (3.4 per cent) and office (0.0 per cent).

Community/neighbourhood retail centres had a return of 8.4 per cent — owing to a lack of supply, lower vacancy rates and better income growth — while the return for super regional shopping centres was 6.1 per cent.

The return for major metro office buildings was -0.2 per cent in downtowns and -0.5 per cent in the suburbs. Koitsopoulos attributed the difference to higher writedowns for properties in the suburbs.

Office had the highest vacancy rate at 14.9 per cent, followed by retail at 6.2 per cent, residential at 5.1 per cent and industrial at five per cent. Although the industrial rate is well above the sub-two per cent averages from earlier this decade, it’s in line with the longer-term historical average.

Office had the highest investment allocation based on capital value at 26.5 per cent, followed by retail at 24.6 per cent, industrial at 23.7 per cent, residential at 19 per cent and other smaller asset classes combining for 5.5 per cent. 

Office and retail have had steady allocation declines over the past 10 years while residential has steadily grown. Industrial was on a consistent upward trajectory before spiking earlier in this decade. It has more recently experienced a small drop.

Halifax was the top city again

The city with the highest total return on standing assets was Halifax at 10.49 per cent, repeating its title from last year when it had a return of 6.9 per cent. 

Halifax was followed by Calgary (6.54 per cent), Victoria (6.17 per cent), Vancouver (4.17 per cent), Winnipeg (3.97 per cent), Ottawa/Hull (3.21 per cent), Edmonton (2.95 per cent), Toronto and Regina (both 1.92 per cent), and Montreal (1.89 per cent).

Montreal (-0.8 per cent) and Toronto (2.1 per cent) had the lowest returns of any major city when it comes to industrial properties.

“Not too long ago those two markets were having year-over-year returns of 30 to 40 per cent for industrial, which is quite remarkable for real estate,” Koitsopoulos observed.

Those large returns spurred a lot of industrial development, new supply which is still being absorbed. This is creating a balanced market in those two cities — something which they haven’t had in several years.

CRE transaction volume dropped in 2024

Commercial real estate transaction volume dropped by 21 per cent last year compared to 2023, but the $31 billion in sales was only 10 per cent lower than the annual average for the five years before the COVID-19 pandemic.

“Most of the money moving in so far is from private investors,” said MSCI Real Assets chief economist Jim Costello. “They don't have the fiduciary challenges of the big managers.”

The absence of institutional investors is somewhat hampering liquidity, but they’re expected to come back to the market as returns start turning positive.

Challenges remain, however, with a potential tariff war between the United States and Canada now creating a major new concern.

“Uncertainty harms investment because, if you're not sure what the rules of the game are, you can't underwrite all the risks you have when you're putting money to work,” Costello said.

Composition of the property index

The MSCI/REALPAC Canadian Property Index measures unlevered total returns of directly held property investments.

The index includes buying, selling, development and redevelopment activity data provided by major pension funds, insurance companies and large real estate owners in Canada.

The 2024 index encompassed 54 portfolios with 2,255 assets totalling 489.3 million square feet and a gross capital value of $165.4 billion. 

MSCI and REALPAC

MSCI provides decision-support tools and services for the global investment community. It has more than 50 years of expertise in research, data and technology to assist in investment decisions. 

REALPAC was founded in 1970 and is the national leadership association for Canada's real property sector.

Its 135-plus members include publicly traded real estate companies, real estate investment trusts, pension funds, private companies, fund managers, asset managers, developers, government real estate agencies, lenders, banks, life insurance companies, investment dealers, brokerages, consultants, data providers, large general contractors and international members. 

REALPAC members have $1 trillion in assets under management and represent office, retail, industrial, apartment, hotel and seniors residential properties across Canada.