COMMON CENTS

Uncovering Opportunities
Canada is increasingly attractive to inbound real estate investment

By Bo Mocherniak

Given the scope and expense of major real estate investments, global investors are hungry for research, analysis and insights to support project location decisions. In the second quarter of 2015, Grant Thornton surveyed a number of experienced real estate professionals across our global network, as well as representatives of several global real estate firms.
The resulting report-Uncovering opportunities for overseas investment and growth: Real estate and construction 2015-uncovered four key trends driving and shaping global real estate investment and offers a range of valuable data and opinion on where, and how, global investors should be looking to commit their resources. Moreover, the data made it apparent that these investors are finding Canada an increasingly attractive place to spend their money. Here is a brief recap:

Four Key Trends Are Guiding Global Investment
The more complex the global picture becomes, the more potential risks arise-and the more opportunity there is for savvy, judicious investors to optimize their decisions by uncovering opportunities others have missed. Understanding how key trends such as "soft power," political stability, demographic trends, and urbanization play into strategic investment success will be critical going forward.

"Soft Power"
Investment decisions are often influenced by factors other than hard data. The concept of "soft power," for example, is illustrated when a nation's cultural attractiveness begets a positive view of the nation itself-a phenomenon that can impact investment decisions, as when someone is predisposed to invest in the country where they were educated. Investors need to consider carefully whether their target environments are supported by data and research or are the product of flawed investment logic.

Stable Thinking
Political stability is another key investment influencer, as the ongoing attractiveness of investment in countries such as the US and UK indicates. Other factors, however, should be considered to successfully realize a foreign opportunity. Investors should be certain that:
Stability is real and not just perceived.
It is supported by an investment-friendly, tax-incentivized, low-regulation environment.
Opportunities are not lost because a false assumption of instability exists.
The country, though stable, is not already over-invested.

Ask for a "Demo"
Understanding who your tenants are and what they want is critical to sustained investment success. Two global population trends-an increasingly aging population and the growing impact of millennials and their work and lifestyle needs-are influencing investment strategies. For instance, older people are living longer and staying healthier, making traditional retirement homes less appealing than independence-focused retirement communities and villages. Millennials, on the other hand, tend to look for mix-use real estate in downtown centres, where residential, retail and work spaces merge.

Urbanization Breeds Opportunity
The world's urban population grew from 746 million in 1950 to 3.9 billion in 2014 and is projected to grow by 2.5 billion more by 2050. With urban growth spiralling up and mobile workforces increasing, the need for infrastructure should create opportunities that are appealing to both foreign governments and investors. Keeping an eye on urbanization trends and their implications-such as where people are going and what they will need-is a good way to extract opportunity from complexity.

Foreign Investment is Proving Successful
Global trends have contributed to Canada becoming a popular target for foreign investors. Significant opportunities exist for Canadian construction firms that can attract foreign investment money. Survey research supports this:
Of the 10 countries receiving major inward real estate investment in 2014, only 25 per cent of that investment went to the five highest-ranked countries in the World Bank's political stability index, of which Canada is one. As the trend toward investing in stable regions continues, this number should rise.
In Toronto, Allied Properties REIT has attracted millennials by investing in properties that integrate office and living workspaces in the city core.
In Edmonton, the growing population (an 8 per cent increase from 2011 to 2014), spurred by high levels of oil and gas-related manufacturing, is driving demand for residential property.

Success Starts Where Instinct Meets Analysis
While entrepreneurial intuition will always be important, fact-based market and trend analysis is becoming indispensable to investment success, especially at the international level. The good news is that the facts point increasingly to Canada as a strong environment for a range of real estate initiatives, positioning Canadian construction companies to benefit through contracts and partnerships with foreign investors.

With over 30 years experience with audit, acquisitions, divestitures and valuations, Bo Mocherniak, CA, CBV, provides services to both public and private companies in Canada and the United States. Bo is National Sector Leader for the Real Estate and Construction Group of Grant Thornton Canada, a member of the Grant Thornton International Real Estate Sector Group and past Chair of Grant Thornton LLP.  He can be reached at bo.mocherniak@ca.gt.com.

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