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Tough 2023 for MSCI/REALPAC Canadian Property Index

Standing asset returns dropped slightly after Q4 downtown

Ken O'Brien, MSCI executive director and head of Americas real estate. (Courtesy MSCI)
Ken O'Brien, MSCI executive director and head of Americas real estate. (Courtesy MSCI)

The MSCI/Real Property Association of Canada (REALPAC) Canadian Property Index had a total return on standing assets, excluding developments, of -0.05 per cent in 2023. 

The income return was 4.72 per cent, while capital growth was -4.57 per cent. The year-end numbers were hurt by a downturn in the fourth quarter, where the total return on standing assets was -1.44 per cent.

While those numbers aren’t encouraging, Canada outperformed Ireland, which had a -8.5 per cent return, and the United States (-8.4 per cent), and matched the United Kingdom at -0.5 per cent.

The total return on standing assets was highest in retail at 3.2 per cent after recording a positive return in all seven markets included in the index’s breakdown. Retail was followed by residential (three per cent), industrial (0.3 per cent) and office (-five per cent).

Halifax was the top-performing city

The city with the highest total return on standing assets was Halifax at 6.9 per cent.

It was followed by Calgary (4.6 per cent), Winnipeg (three per cent), Edmonton (one per cent), Vancouver (0.6 per cent), Montreal (-0.3 per cent), Toronto (-1.7 per cent) and Ottawa (-1.9 per cent).

“This is less of a selection story and it's more about where capital is being allocated,” MSCI executive director and head of Americas real estate Ken O’Brien said during a recent presentation to discuss the results at Toronto’s Vantage Venues. 

“Look at the bottom three. Ottawa, Toronto and Montreal have a heavy concentration in office.”

There was negative capital growth in all four asset classes and in every city except Halifax.

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

The index started in 1985 and includes buying, selling, development and redevelopment activity data provided by major pension funds, insurance companies and large real estate owners in Canada.

The 2023 index encompassed 52 portfolios with 2,264 assets totalling 478.4 million square feet and a gross capital value of $165.7 billion. 

The index has averaged an annual total return of 8.5 per cent since inception, 5.7 per cent over the past 10 years and 2.9 per cent over the past four years.

Drop in investment activity

Canadian investment activity slipped in 2023, but was on par with the averages from 2015 to 2019 before the COVID-19 pandemic and the havoc it played on the real estate market.

Activity had sharply declined in 2020, followed by two booming rebound years when interest rates were at record lows and investors were hungry for yield.

Industrial transaction volume was $15 billion last year, far outpacing the other asset classes, with apartments at $5.8 billion, office at $4.2 billion, retail at $4.1 billion, hotels at $1 billion and seniors housing and care at $700 million.

The pre-pandemic deal volume numbers were $8.8 billion for office, $6.6 billion for apartments, $6.2 billion for retail, $5.4 billion for industrial, $2 billion for hotels and $1.8 billion for seniors housing and care.

E-commerce activity as a share of retail trade spiked above 10 per cent in 2020 when many stores were ordered closed by the government in an attempt to halt the spread of COVID-19, but has fallen back to about six per cent now. 

MSCI Real Assets chief economist Jim Costello estimates that’s about the same level it would have been at if the pre-pandemic growth had continued at the same pace without the COVID-19 distortions.

Real estate investment outside of Canada by Canadian investors averaged in the 50 per cent range from 2014 to 2022 but dropped to 33 per cent last year. 

“Canadian investors aren't going into the office sector as much anymore,” Costello said during the presentation.

“People are still afraid of jumping into office until we see where the bottom is and it's not clear in every case where the bottom is.” 

Panel discussion

“If you're going to invest, this is the country that you want to invest in because the other ones have a bunch of issues,” Avison Young CEO Mark Rose said during a discussion moderated by REALPAC CEO Michael Brooks after the MSCI presentation.

Rose said the current Canadian real estate cycle is the worst he’s experienced in 40 years, but he thinks we’ve now hit the bottom. Rising inflation and interest rates are over, he believes, but the real estate market still has to stabilize.

BGO managing director and head of Canadian research Phil Stone pointed out that foreign investment in Canadian real estate has historically been around three to four per cent but rose to 23 per cent last year across multiple asset classes, indicating Canada is viewed favourably internationally.

Stone advocates for more multifamily, grocery-anchored retail and small and mid-bay logistics facilities development, all of which he said should be driven by demographics.

Canada Post Corporation Registered Pension Plan real estate investments and pension fund general manager Marie-Josée Turmel is optimistic about how Canada’s population growth will affect real estate.

She thinks there will be more writedowns in asset values this year, but expects that to turn around in 2025.

“All pension plans have diversification objectives,” said Turmel. “Canada is not a large country and there is a limit as to how much you can invest here and find the assets that meet your strategy, so you are kind of forced to look elsewhere as well to maximize your risk-adjusted return.”


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 130-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.

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