Canadian real-estate investment trusts are set to outperform their U.S. peers largely due to the country’s strong economic fundamentals and the real estate sector’s more solid outlook, according to analyst reports.
“Compared to U.S. REITs, Canadian REITs offer investors higher yields and better historical total returns,” said Dennis Mitchell, Chief Investment Officer and Senior Portfolio Manager at Sentry Investments.
“The fundamentals of the Canadian commercial real estate market include higher occupancies, a better financing environment, higher consumer spending and lower unemployment,” Mitchell added.
Canada currently has a lower unemployment rate, 7.3 percent, compared to other major economies which lead to higher housing occupancy rates. The U.S. unemployment rate is 8.2 percent, while the euro-zone’s rate is 11.2 percent.
U.S. and Canada are both experience slow growth with only 1.9 percent gross domestic product expansion in the first quarter.
However, the weak growth, as long as it doesn’t lead to recession, can help REITs because it should allow central banks in both countries to keep interest rates low, which in turn makes borrowing costs more affordable.
These factors add up to a better outlook for REITs in Canada, even though their U.S. counterparts also offer decent returns, Mitchell said.
“The outlook for Canadian REITs is more positive than U.S. REITs right now. However, despite that fact, U.S. REITs have kept pace with Canadian REITs, possibly because they were cheaper to start with,” he said.
