Stable real estate fundamentals combined with attractive valuations are expected to lead to positive returns for Canadian REITs this year, finds a report by Timbercreek Asset Management.

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“The conditions for success that propelled REIT prices higher last year are shaping up similarly for this year,” says Corrado Russo, managing director, Investments and Global Head of Securities, at Timbercreek Asset Management. “The wall of money looking to invest in real estate remains steadfast and should support private market pricing.”

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Additional findings include:

  • the Canadian REIT sector is mispriced and poised to deliver better performance;
  • lower oil prices may lead to lower property level operating expenses, resulting in higher net operating income and earnings growth;
  • in the U.S., economic recovery is expected to accelerate in 2015, driven by better job growth and lower energy costs;
  • overall demand for commercial space in the U.S. is expected to improve due to stronger economic and business conditions; and
  • real estate fundamentals are expected to strengthen, resulting in lower vacancy rates, higher market rent increases, good net absorption rates and leasing conditions that favour landlords.

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Russo adds, “A growing global economy means better real estate fundamentals. The capital markets remain open for business, providing public companies with access to cheap capital and low borrowing costs, which should allow REITs to accretively finance new growth initiatives such as acquisitions, development and redevelopment.”