Pension funds eye real estate bargains
Canadian pension funds are seeking to boost their real estate investments, betting the slumping property market will recover as the COVID-19 pandemic recedes and office workers and city dwellers return to downtown properties.
Canadian pension funds held US$278.7 billion in property assets in 2019, up four per cent from 2018, according to the Pension Investment Association of Canada, making them the country's largest real estate owners.
In a world of slower economic growth, very low interest rates, volatility in equity markets, real estate offers an attractive opportunity for pension funds, which take a long-term investment horizon, say market participants.
“We're looking for buying opportunities,” said Hilary Spann, head of Americas, real estate at CPP Investments, which manages US$456.7 billion. CPP's real estate portfolio generated 5.1-per-cent return for the year ended March 2020.
CPP announced a U.S. joint venture with Greystar Real Estate Portfolio to build multiple separate housing units this month, a deal that was initiated pre-pandemic. In November, it signed an agreement with Hudson Pacific Properties to acquire an office tower in Seattle. Spann said a lot of buyers that would have been competitive in the Seattle deal were temporarily on the sidelines. “So we were able to step in and pick up that asset at yields that we thought were quite attractive.”
As the pandemic forced many to work from home, the office vacancy rate in Canada hit a 16-year high of 13.4 per cent in 2020, according to broker CBRE. Spann said while rental markets and office may suffer in the short-term, it was expected both would return when the pandemic comes to an end.