Canadian Real Estate 07/24/26
Valuation Update And Preview Of A Second New US RE Idea
Canadian Real Estate has delivered an attractive +14.3% ytd total return (XRE a/o 7/24). US REITs are +14.8%, and the CAD is -2.6% vs USD. Economically sensitive Retail and Industrial equities have been strong in Canada. Lodging and Data Centres have led in the US.
Sector Overview:
The yield premium of real estate cap rates over 10-year bond yields is near the middle of its historical range. Broker reports show little change in cap rates for 2Q26 (CBRE and Colliers) but the market tone has improved with buyer demand for multifamily properties despite weak renter demand and broadening of the GTA Class A Office leasing recovery to secondary locations.
Yields for government bonds and real estate issuers have risen 15-20bp since quarter-end. Canadian bond yields are over 100bp lower than in the US at every maturity. For real estate investors, Canadian property offers a positive return over financing cost, but US property buyers may get little or even negative return on leverage.
Insiders at 20 of 35 REIT/REOCs were buyers since 1/1/26 and 7 had net insider sales. REIT/REOCs have repurchased $449mm of equity since 1/1 (reported to 7/27) with the largest buybacks at Boardwalk (5.2% of market cap), Clarke (3.5%), Dream Industrial (2.3% of market cap), Killam (1.7%), and CAPREIT (1.1%).
Topics:
Quick Takes ($) Brief comments on Choice, Morguard REIT, Morguard Corporation, Dream Unlimited, Granite, Plaza, and GO Residential
Previously Previewed New Idea ($) Full article coming this week
New New Idea Preview ($) A real estate liquidation
CMHC Outlook
The recently issued Summer Update: 2026 Housing Market Outlook forecasts gradual housing market improvement in 2027 and 2028. It incorporates last month’s 2026 Mid-Year Rental Market Update which predicted growth in renter household formation despite the slowdown in population growth. Improved affordability and return-to-office trends will encourage young people to move out of family and shared lodgings.
These tables show data for the 6 major Canadian markets, with Halifax added for relevance to Killam, and Regina+Saskatoon added for relevance to Dream Unlimited. Home prices are expected to be relatively strong in the affordable markets:
Apartment rents will continue growing nationwide with individual markets reflecting a mixture of affordability plus economic opportunity.
This forecast implies that the weakness in asking rents (e.g. Rentals.ca monthly rent report) reflects temporary factors and that Canadian multifamily REITs are attractively valued with a gradually improving outlook.