Canadian Real Estate 05/22/26
A new trade idea and thoughts after 1Q results
Canadian Real Estate has begun 2026 with a +10.5% total return (XRE a/o 5/22). US REITs are +9.5%, and the CAD is -0.4% vs USD. Economically sensitive Retail and Industrial equities have been strong.
Real estate fundamentals have been favorable with strong demand, limited supply, and improved credit availability in most segments. But it’s hard to assess valuation with an uncertain macro outlook:
Iran conflict is severely impacting global supplies of critical commodities (oil, LNG, refined products, fertilizer, aluminum, helium, sulphur and more). Resolution of the conflict is extremely important and also extremely difficult to predict.
Trade tension may return to the headlines in coming months. Conflict and drama are essential aspects of Trump’s personality and politics. This summer’s mandatory review of the USMCA trade agreement will not pass without bluster and confrontation.
Interest rates in Canada, the US, and globally have risen due to the inflationary implications of Iran war disruptions. Interest sensitive assets such as real estate suffer.
As an exporter of energy and food, Canada benefits in some ways from high prices resulting from Strait of Hormuz closure. The war has also made the US more dependent on imports of Canadian aluminum in spite of tariffs.
Topics
Office ($) Comments on Allied, Dream Office, and True North.
Industrial ($) Comparison of 1Q26 SPNOI growth among North American REITs. Comments on Dream Industrial and Nexus.
Residential ($) Comparison of 1Q26 SPNOI growth among North American REITs. Comments on Morguard Residential, CAPREIT, Killam, and Mainstreet.
Retail ($) Comments on Primaris and Smartcentres.
Diversified ($) Comments and H&R and Morguard REIT.
REOCs ($) Comments on Dream Unlimited.
Other ($) Comments on Dream Impact and RFA.
Sector Overview
The yield premium of real estate cap rates over 10-year bond yields is near the middle of its historical range.
The Canadian yield curve has moved higher in recent weeks, but rates are over 100bp lower than in the US at every maturity.
Canadian yields have been less impacted by the Iran war:
Insiders at 21 of 36 REIT/REOCs were buyers since 1/1/26 and 7 had net insider sales. REIT/REOCs have repurchased $309mm of equity since 1/1 (reported to 5/22) with the largest buybacks at Boardwalk (3.0% of market cap), Dream Industrial (2.4% of market cap), Dream Unlimited (1.0%), Riocan (0.7%), and CAPREIT (0.7%).