Fitch: Canadian CMBS Market Stable, Losses Rare

Summary:  Canadian CMBS returns, specifically office and retail, are expected to be positive, though tempered by comparison to recent years.  Conservative lending, recourse loans, and low volume issuance have contributed to low default rates for Canadian CMBS (1.9% default rate in Canada compared to 13.7% in US).  Stable employment, low vacancy rates, rent growth in Montreal and Vancouver, oversupply of condos in Toronto and Montreal, and economic growth stemming from the oil and gas industry in Alberta, Manitoba, and Saskatchewan are expected.


New York --(Business Wire)--
Canadian CMBS will likely perform positively in the near term, Fitch Ratings says. We expect retail and office properties to be positive but slightly lower than they have in recent years. Also, Canadian transactions have had extremely low default rates over the past 15 years. In 2Q13, we calculate a cumulative default rate of 1.9% of issuance by balance. The U.S. rate for the same period was 13.7%. In our view, more conservative lending, the commonality of recourse loans, and the relatively small amount of Canadian CMBS issuance and lending explain much of the difference.

Our view of the office market is rooted in our expectation that Canadian unemployment will remain stable through 2015 at approximately 7%. Nationwide the average vacancy rate in the second quarter was 8.7%. Rents have been growing in Montreal (4.2%) and Vancouver (3.0%) over the prior year.

Over the longer term, we observe some trends in multifamily housing that could slow its growth. The vacancy rate at the end of the second quarter was under 3%. But an oversupply of condominiums in Vancouver and Toronto may be forming. Those markets also have higher youth unemployment rates than the rest of Canada.

We expect the Canadian economy to grow 2% annually from 2013 to 2015. Much of the strongest growth has been in Alberta, Manitoba, and Saskatchewan and is partially attributable to the expansion of the oil and gas industry in those provinces.
http://www.businesswire.com/news/home/20131014006126/en/Fitch-Canadian-CMBS-Market-Stable-Losses-Rare