In this interview, Carmin Di Fiore, Executive Vice President of CBRE’s Debt and Structured Finance team, discusses the real estate company’s latest Canadian Real Estate Lenders’ Report.
Di Fiore talks about how lenders are feeling about the market right now, what cities in Canada are seeing investment, what assets are attractive today, how the office market is still struggling and what to expect with the economy in 2024.
PRESS RELEASE 
Toronto, ON – November 27, 2023 – Lenders are signaling optimism in real estate as interest rate hikes appear to plateau. The amount of debt capital available to facilitate Canadian real estate transactions is expected to grow modestly in 2024. According to CBRE’s new Canadian Real Estate Lenders’ Report, lenders plan to add 16% of net new capital into the real estate market in the coming year, and 79% of lenders say they plan to expand their outstanding real estate loan books in 2024.
Despite this focused growth in lending for real estate, for the first time in four years a small group of lenders have reported intentions to modestly trim their amount of capital available next year. Lenders unanimously see elevated interest rates as the top challenge facing the Canadian lending market in 2024. The impact of interest rates on property cash flows and pricing has created uncertainty around property valuations, which ranks as the second greatest challenge expected by lenders next year.
Recession fears have faded and are currently not a top concern for lenders in 2024. Expectations appear to have shifted towards a “soft landing” for the economy, with only potentially moderate or minor impacts on underwriting. In fact, 12% of lenders do not plan to factor any recession into their property underwriting for 2024. It should also be noted that less than one-third of lenders expressed concern with real estate market fundamentals.
CBRE’s Canadian Real Estate Lenders’ Report surveys domestic and foreign lenders to gauge commercial real estate lending sentiment and offers borrowers insights on what to expect as they look to access real estate financing.
Toronto, Vancouver, Montreal, and Ottawa are the markets generating the strongest lender appetite. In terms of asset classes, Purpose-Built Rental (Conventional), Purpose-Built Rental (CMHC-Insured), and Industrial were cited as the most favourable property types for lenders and with the most available financing.
“The challenging conditions in real estate are no longer news and the lending community is starting to look ahead to what comes next,” notes Carmin Di Fiore, Executive Vice President of CBRE’s Debt and Structured Finance team. “The continual escalation in cost of capital, valuation uncertainty and tightening credit have impinged on the industry’s performance and reduced real estate transactions. That said, the general tone in the market has improved slightly looking ahead to 2024.”
Here are six additional takeaways from CBRE’s new Lenders’ survey:
Office Sector Poses the Greatest Challenge
Lender sentiment on office assets continues to deteriorate, as 67% intend to cut their exposures next year and none have plans to increase their budgets for office in 2024.
Class B office in the suburbs and downtown core caused the greatest concern, with 94% of lenders expressing concern for each property type. Class A office assets also recorded the largest declines in lender sentiment year-over-year, in both the suburban and downtown segments.
Through an open-ended survey question, more than half of the lenders cited work-from-home in some form as the greatest challenge facing the office lending market today. Uncertainty surrounding office valuations is another challenge given leasing demand and a lack of sale comparisons.
Property Types with Most Lender Concern
Office – Suburban, Class B
Office – Core, Class B
Retail – Regional Malls in Secondary Markets
Purpose-Built Rental in Greatest Demand
Purpose-built rental and industrial real estate remain the most desire