Global Economic Research
Global Real Estate Trends
Scotia Economics
Scotia Plaza 40 King Street West, 63rd Floor
Toronto, Ontario Canada M5H 1H1
Tel: (416) 866-6253 Fax: (416) 866-2829
Email: scotia_economics@scotiacapital.com
This Report is prepared by Scotia Economics as a resource for the
clients of Scotiabank and Scotia Capital. While the information is from
sources believed reliable, neither the information nor the forecast shall
be taken as a representation for which The Bank of Nova Scotia or
Scotia Capital Inc. or any of their employees incur any responsibility.
Global Real Estate Report is available on: www.scotiabank.com, Bloomberg at SCOE and Reuters at SM1C
After some encouraging signs of revival last year, residential real estate
markets in much of the developed world are losing momentum — or in some
cases, even reversing course. Increasing nervousness over global economic
prospects alongside rising food and fuel prices and persistently high
unemployment are keeping potential buyers on the sidelines despite highly
accommodative monetary policy. A lingering oversupply of housing and/or
still tight credit conditions are reinforcing the downward pressure on sales
and prices in a number of markets globally.
A marked improvement in housing affordability, particularly in those regions
suffering large valuation declines in recent years, will eventually put a firmer
floor under prices and underpin a gradual turnaround for the sector. For the
time being, however, the process of repairing bloated public and household
balance sheets points to a protracted period of subpar economic growth
among debt-heavy developed nations that will restrain household borrowing
and spending. A generally more cautious lending environment also will hold
back the pace of recovery.
Australia’s seemingly impermeable housing boom has languished in recent
months. While benefitting from strong economic growth and low
unemployment, record high home prices alongside a series of interest rate
increases by the Reserve Bank of Australia (RBA) are eroding the nation’s
already highly strained affordability. Average home prices in Q1 were
unchanged from a year earlier, and down 3½% adjusted for inflation. While
the RBA has put further rate hikes on hold for now, the eventual resumption
of monetary tightening will reinforce the more muted housing outlook.
U.K. real estate markets also took a step back in early 2011 following a shortlived
recovery last year. Average inflation-adjusted home prices were down
4% y/y in Q1. Notwithstanding ultra-low borrowing costs, recent tax breaks
for home buyers and an easing in lending conditions, aggressive fiscal
austerity measures and persistently high unemployment will continue to
depress activity in the near-term.
Spain’s three-year and counting housing slump shows no sign of letting up.
Following steep price declines from 2008-2010, average inflation-adjusted
home prices were down more than 8% y/y in Q1 (and a cumulative 20% from
their peak). Prices are likely to fall further in the coming year given a massive
Global Real Estate Activity Cools In Early 2011
June 9, 2011
-10 -5 0 5 10 15
Germany**
Switzerland
Canada
France
Ireland*
PROPERTY LEADERS
REAL HOUSE PRICES
(2011Q1, Y/Y % CHANGE)
*2010Q4; **2010 avg.
-10 -5 0 5 10 15
Spain
U.S.
U.K.
Australia
Japan**
Italy*
Sweden
PROPERTY LAGGARDS
REAL HOUSE PRICES
(2011Q1, Y/Y % CHANGE)
*2010Q4; **2010Q3
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Global Economic Research
Global Real Estate Trends
June 9, 2011
glut of unsold homes, soaring double-digit unemployment, the elimination of mortgage funding for low
income families at the beginning of 2011 and a dearth of foreign vacation property buyers. Average home
prices were also still declining in Italy as of the end of 2010.
U.S. real estate markets have softened again after some encouraging signs of bottoming last year. Average
inflation-adjusted home prices were down 5% y/y in Q1. High unemployment and tight credit availability are
restraining demand, while a large volume of distressed properties is adding to the downward pressure on
prices. The modest pickup in sales over the past six months has been primarily of investor-driven foreclosed
properties, with little evidence of broader homebuyer activity since the expiry of purchase incentives in early
2010. Despite gradually improving job markets and near-record housing affordability, the expected addition
of at least another 1 million foreclosed properties to the market this year suggests more downside price risk in
2011 after already falling almost 35% (in real terms) from the peak.
Not all residential property markets are in negative territory, as the housing recovery continues in some of
Europe’s better performing economies. In France, average real prices were up 7% y/y in Q1, though
weakening global growth expectations may limit further price gains in the near-term. In Germany, for which
only annual price data are available, real home prices increased in 2010 for first time in over a decade.
Demand and pricing have firmed alongside a strong economy, rising exports and the lowest unemployment
rate in three decades. Nonetheless, Germany’s declining population will limit the extent of sustainable price
appreciation in coming years.
Switzerland reported steady real price increases averaging 4% y/y through Q1, while prices in Sweden were
unchanged from a year earlier. Irish property prices rebounded sharply — and unexpectedly — in the latter
half of 2010, albeit following double-digit declines in both 2008 and 2009. With the Irish economy still
marred in recession, and facing an oversupply of housing, the recent upturn will likely prove temporary
despite the best housing affordability in a decade.
Canada also reported positive real price appreciation in the first quarter of 2011, with average inflationadjusted
home prices up 5% y/y in Q1. The national average, however, is skewed by strong sales, including
by foreign buyers, of high-priced properties in the Greater Vancouver Area. Excluding Vancouver, average
real prices were up less than 1% y/y in Q1, consistent with a more balanced national market.
Housing sales in Canada, while below the record-setting pace seen in at the height of the boom in 2005-2007,
are being supported by steady job creation and still attractive borrowing costs. Relatively tight supply is
adding to price pressures in several cities. Nonetheless, high home prices, the further tightening in mortgage
insurance rules effective mid-March, and the upward drift in fixed mortgage rates this year appear to have
slowed demand somewhat, most notably among first-time buyers. We anticipate relatively flat sales volumes
and average prices through the latter half of the year.
Focus — Canadian Commercial Market Activity Heats Up
One of the more positive developments in domestic property markets this year has been the continuing
resurgence in office market activity. Rising leasing demand helped push the national central office vacancy
rate to just 6.9% in 2011Q1, down from 7.3% in the prior quarter and a cycle peak of 7.5% in mid-2010. The
turnaround is broadly based regionally: vacancy rates in most major centres across the country are moving
lower while rental rates are either stabilizing or once again moving higher.
Rising leasing demand mirrors the resilience in hiring in traditional office-based occupations, including
finance & insurance and professional, scientific & technical services. The latter, which includes lawyers,
accountants, engineers, consultants and software developers, has enjoyed particularly strong employment
growth in recent years. These industries escaped the 2008-2009 recession with few job losses, and have been
one of the leading creators of new jobs since.
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Global Economic Research
Global Real Estate Trends
June 9, 2011
The turnaround is even more remarkable in light of the substantial new supply of available
space. A boom in office construction added roughly 10 million square feet of new central
inventory in 2009 and 2010, the largest share concentrated in Toronto and Calgary. Yet this
new space has essentially already been absorbed, and there are few major developments
under construction beyond 2011. As a result, the likelihood of new projects being
announced in the coming year has increased considerably.
Office availability is still well above the lows of 2008, when the national central vacancy
rate dipped to around 4%. However, the industry skirted the sharp correction that had been
feared at the onset of the financial crisis and global recession, and has recovered much
faster than expected. Even at its cycle peak last year, the national vacancy rate was less than
half the 16-17% level reached during the recession of the early 1990s.
Commercial real estate activity typically lags economic recoveries, making the recent
improvement particularly notable. Canada’s central office market is unusually tight at such
an early stage of an economic expansion. Canadian firms are confident adding to their
payrolls and real estate obligations, given strong corporate balance sheets and historically
low borrowing costs. If sustained, this will go a long way to supporting a successful
transition from consumer- and housing-driven growth toward a greater reliance on corporate
Canada.
Activity in Canadian retail property markets is also buoyant, with the industry’s consistently
strong performance in recent years attracting considerable foreign expansion interest. A
number of major U.S. retailers in particular have taken note of Canada’s relatively steady
sales growth, higher average sales per square foot and lower density of shopping space per
capita. Given low vacancies and limited new supply in 2010, significant retail expansion is
anticipated in 2011-2012.
However, these new entrants are coming at a time when the outlook for consumer spending
and housing activity is softening, and will intensify competitive pressures in the industry.
Discretionary retail spending has weakened sharply this year as high gas prices and rising
food costs reduced household purchasing power. Meanwhile, debt-heavy Canadian
households appear to be adopting a more cautious approach toward borrowing, a tendency
that will be heightened when the Bank of Canada eventually moves to tighten monetary
policy, and/or longer-term mortgage rates trend even higher.
2
4
6
8
10
12
00 02 04 06 08 10
%
OFFICE VACANCY RATE
Cushman & Wakefield, Scotia Economics
National
Average,
Central
Inventory, All
Classes
95
100
105
110
115
2008 2009 2010 2011
EMPLOYMENT
Total
Employment
Professional,
Scientific &
Technical
Services
index Jan 2008=100
Statistics Canada, Scotia Economics
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Global Economic Research
Global Real Estate Trends
June 9, 2011
100
150
200
250
300
90 92 94 96 98 00 02 04 06 08 10
-10
-5
0
5
10
15
20
units, thousands (annualized),
3-mth moving avg
y/y % change,
3-mth moving avg
Housing Starts
New Housing
Price Index
Source: CMHC, Statistics Canada
0
2
4
6
8
10
12
14
16
90 92 94 96 98 00 02 04 06 08 10
%
5-Year
Conventional
1-Year Conventional
Source: Bank of Canada
0
5
10
15
20
25
90 92 94 96 98 00 02 04 06 08 10
Single & Semi
Row & Apartment
units, thousands
Source: CMHC
40
60
80
100
120
140
160
90 92 94 96 98 00 02 04 06 08 10
units, thousands, annualized
Single-Unit
Multiple-Unit
Source: CMHC
Canadian Residential Markets
Inventory of Unsold New Homes Mortgage Rates
New Home Construction & Prices Housing Starts
Housing Starts
Canada B.C. Alberta Sask. Manitoba Ontario Quebec Atlantic
(000s units, sa)
2006 227 36.4 49.0 3.7 5.0 73.4 47.9 12.0
2007 228 39.2 48.3 6.0 5.7 68.1 48.6 12.4
2008 211 34.3 29.2 6.8 5.5 75.1 47.9 12.2
2009 149 16.1 20.3 3.9 4.2 50.4 43.4 10.9
2010 190 26.5 27.1 5.9 5.9 60.4 51.4 12.8
2011ytd 179 25.9 21.6 6.3 4.8 62.4 47.6 10.7
2011f 175 25 22 6 5 60 46 11
2012f 175 26 28 5 5 56 44 11
(units, nsa) Vancouver Calgary Edmonton Toronto Ottawa Montreal Halifax St. John’s
2006 18,705 17,046 14,970 37,080 8,808 22,813 2,511 1,275
2007 20,736 13,505 14,888 33,293 9,294 23,233 2,489 1,480
2008 19,591 11,438 6,615 42,212 10,302 21,927 2,096 1,863
2009 8,339 6,318 6,317 25,949 8,930 19,251 1,733 1,703
2010 15,217 9,262 9,959 29,195 9,133 22,001 2,390 1,816
2011ytd 17,107 6,746 7,997 35,129 5,894 20,304 2,386 1,284
Year-to-date data are expressed at annual rates.
Source: Canadian Mortgage and Housing Corporation (CMHC), Scotia Economics calculations and forecasts.
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Global Economic Research
Global Real Estate Trends
June 9, 2011
-4
-2
0
2
4
6
8
10
90 92 94 96 98 00 02 04 06 08 10
y/y % change
Rented
Accommodation
Owned
Accommodation
Source: CMHC, Statistics Canada
100
200
300
400
90 92 94 96 98 00 02 04 06 08 10
200
300
400
500
600
$, thousands units, thousands, a.r.
MLS Average Price
MLS Unit Sales
Source: CREA
Canadian Residential Markets
Existing Home Sales & Prices Housing Costs
1.0
1.5
2.0
2.5
3.0
3.5
90 92 94 96 98 00 02 04 06 08 10
Canada
ratio, MLS new listings-to-sales
Source: CREA
Existing Home Inventory Existing Home Inventory
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Vancouver Calgary Toronto Ottawa Halifax
2008 2009 2010 2011ytd
ratio, MLS new listings-to-sales
Source: CREA
Canada British Columbia Alberta Man.-Sask. Ontario Quebec
Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units
2006 277,211 483,137 390,963 96,671 286,149 73,970 142,668 22,549 278,364 194,930 195,383 71,619 148,277 22,851
2007 307,089 521,059 439,119 102,805 357,483 70,954 171,526 26,468 299,544 213,379 209,468 80,647 158,589 26,258
2008 304,971 431,805 454,599 68,923 353,748 56,045 205,026 24,063 302,354 181,001 220,092 76,754 171,258 24,532
2009 320,367 465,068 465,725 85,028 341,818 57,543 215,814 24,181 318,366 195,840 230,243 79,111 182,640 22,844
2010 339,030 447,010 505,178 74,640 352,301 49,723 231,235 24,036 342,245 195,591 248,697 80,126 193,174 22,461
20011ytd 365,784 458,550 580,314 84,042 354,366 52,266 239,801 25,176 358,398 196,047 250,154 77,607 198,936 22,932
Vancouver Calgary Edmonton Ottawa Montreal
Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units Avg. Price Units
2006 509,876 36,479 346,675 33,027 250,915 21,984 352,388 84,842 257,481 14,003 235,623 39,141 203,178 6,462
2007 570,795 38,978 414,066 32,176 338,636 20,427 377,029 95,164 273,058 14,739 250,213 43,666 216,339 7,261
2008 593,767 25,149 405,267 23,136 332,852 17,369 379,943 76,387 290,483 13,908 259,050 40,441 232,106 6,472
2009 592,441 36,257 385,882 24,880 320,378 19,139 396,154 89,255 304,801 14,923 271,724 41,754 239,158 6,062
2010 675,853 31,144 398,764 20,996 328,803 16,403 432,264 88,214 328,439 14,586 292,964 42,347 253,610 5,944
2011ytd 793,241 38,418 401,721 22,278 322,561 15,966 455,242 89,490 338,291 14,127 296,388 48,639 263,234 5,862
Source: Canadian Real Estate Association (CREA), QFREB, Scotia Economics calculations.
Year-to-date data are expressed at seasonally adjusted annual rates, except for Montreal which are not seasonally adjusted.
Toronto
Atlantic
Halifax
MLS Home Sales
6
Global Economic Research
Global Real Estate Trends
June 9, 2011
0
100
200
300
400
99 00 01 02 03 04 05 06 07 08 09 10 11
index: 1999Q1 = 100 Institutional &
Government
Residential
Commercial
Industrial
Source: Statistics Canada
0
2
4
6
8
10
99 00 01 02 03 04 05 06 07 08 09 10 11
%
Vancouver
Toronto
Calgary
Montreal
Source: Cushman & Wakefield Ltd.
0
2
4
6
8
10
12
14
99 00 01 02 03 04 05 06 07 08 09 10 11
%
Montreal
Toronto
Calgary
Ottawa Vancouver
Source: Cushman & Wakefield Ltd.
Canadian Non-Residential Markets
Office Vacancy Rates
Largest Five Markets
Industrial Vacancy Rates
Largest Four Markets
Building Permits
Office Markets Industrial Markets
0
2
4
6
8
10
12
14
99 00 01 02 03 04 05 06 07 08 09 10 11
%
National Office
Vacancy Rate
Source: Cushman & Wakefield Ltd.
0
1
2
3
4
5
6
7
8
99 00 01 02 03 04 05 06 07 08 09 10 11
%
National Industrial
Vacancy Rate
Source: Cushman & Wakefield Ltd.
Building Permits
Total Res. Indust. Comm. Inst. &
Gov’t
2006 66.3 41.1 4.5 14.4 6.2
2007 74.4 45.5 5.0 17.0 6.9
2008 70.4 40.9 5.1 16.7 7.8
2009 61.0 34.7 3.9 13.8 8.6
2010 72.4 43.5 5.1 15.4 8.5
2011ytd 69.6 42.3 5.4 13.5 8.4
at seasonally adjusted annual rates.
(C$ billions)
Source: Statistics Canada. Year-to-date data are expressed
7
Global Economic Research
Global Real Estate Trends
June 9, 2011
2
3
4
5
6
7
8
90 92 94 96 98 00 02 04 06 08 10
50
100
150
200
250
300
units, millions (annualized),
3MMA
Unit Sales (Singles only)
Average
Price
$, thousands,3MMA
Source: National Association of Realtors (NAR)
U.S. Residential Markets
Housing Starts Housing Starts by Region
New Home Sales Existing Home Sales
Total Singles Multiples West South Midwest North
East
Total Single Multiple
(millions of units) (millions of units)
2006 1.801 1.465 0.335 0.444 0.910 0.280 0.167 1.839 1.378 0.461
2007 1.355 1.046 0.309 0.321 0.681 0.210 0.143 1.398 0.980 0.419
2008 0.906 0.622 0.284 0.196 0.453 0.135 0.121 0.905 0.576 0.330
2009 0.554 0.445 0.109 0.117 0.278 0.097 0.062 0.583 0.441 0.142
2010 0.587 0.471 0.116 0.120 0.297 0.098 0.071 0.605 0.447 0.157
2011ytd 0.580 0.413 0.166 0.106 0.316 0.087 0.071 0.559 0.398 0.161
2011f 0.57
2012f 0.80
Year-to-date data are expressed at seasonally-adjusted annual rates.
Housing Starts Permits
Source: U.S. Census Bureau, Scotia Economics calculations and forecasts.
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
90 92 94 96 98 00 02 04 06 08 10
100
150
200
250
300
350
units, millions (annualized),
3MMA
Unit Sales
Average
Price
$, thousands, 3MMA
Source: U.S. Census Bureau
0.0
0.2
0.4
0.6
0.8
1.0
1.2
90 92 94 96 98 00 02 04 06 08 10
units, millions (annualized)
South
West
Midwest
Northeast
Source: U.S. Census Bureau
0.0
0.4
0.8
1.2
1.6
2.0
2.4
90 92 94 96 98 00 02 04 06 08 10
units, millions (annualized)
Single-Unit
Multiple-Unit
Total
Source: U.S. Census Bureau
8
Global Economic Research
Global Real Estate Trends
June 9, 2011
U.S. Residential Markets
New and Existing Home Inventories Apartment Vacancy Rates
Mortgage Rates and Applications Housing Costs
Total Avg Price
($000s)
Months’
Supply
West South Midwest North
East
Total Avg Price
($000s)
Months’
Supply
(sa) (nsa) (nsa) (million units, saar, unless otherwise noted)
2006 6.478 269.5 6.4 1.346 2.563 1.483 1.086 1.049 303.5 6.4
2007 5.652 263.8 8.7 1.084 2.235 1.327 1.006 0.769 308.8 8.4
2008 4.913 240.4 10.0 1.070 1.865 1.129 0.849 0.482 288.9 10.7
2009 5.156 217.1 8.3 1.211 1.914 1.163 0.868 0.374 268.2 9.0
2010 4.907 220.2 9.1 1.154 1.860 1.076 0.817 0.322 271.5 8.0
2011ytd 5.115 208.2 8.3 1.283 1.953 1.095 0.785 0.303 264.3 7.2
Source: National Association of Realtors (NAR), U.S. Census Bureau, Scotia Economics calculations.
Year-to-date data are expressed at seasonally-adjusted annual rates.
Existing Home Sales New Home Sales
2
4
6
8
10
12
14
16
90 92 94 96 98 00 02 04 06 08 10
%
West
South
Midwest
Northeast
Source: U.S. Census Bureau
2
4
6
8
10
12
14
90 92 94 96 98 00 02 04 06 08 10
months' supply, 3MMA
Existing
New
Source: U.S. Census Bureau, National Association of Realtors (NAR)
-2
0
2
4
6
8
90 92 94 96 98 00 02 04 06 08 10
Consumer Price Index, y/y % change
Owners'
Equivalent Rent
Rent of Primary
Residence
Source: U.S. Bureau of Labor Statistics
4
5
6
7
8
9
99 00 01 02 03 04 05 06 07 08 09 10 11
1
2
3
4
5
6
%
30-Year Mortgage Rate
MBA Mortgage Application
Index – Purchases Only
index
Source: Mortgage Bankers Association (MBA), FHLMC
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