By Canada Life Investment Management | June 26, 2023

GWL Realty Advisors’ (GWLRA) Steve Marino, Senior Vice-President, and Craig England, Vice-President of Portfolio Management, outlined the strength behind the Canada Life Real Estate Fund.

What’s in this article:

1. Why the Canada Life Real Estate Fund?
2. What’s next for real estate?
3. Sustainability at GWLRA
4. An investment built for today’s challenges
5. GWRA’s full-service platform
   

Real estate is predictable in an unpredictable world

There’s a lot of uncertainty in the markets today. But one thing is for sure – people need places to live, work and play. History shows that real estate investing can be a solid strategy and key component of a well-diversified portfolio. Rent, mortgages and commercial lease payments are generally constant even when discretionary spending decreases.

This segregated fund is one of Canada’s largest open-ended real estate funds, with $6.7 billion in real estate assets.¹ It aims to provide clients stable income with the opportunity for long-term growth. GWLRA’s research-based investment approach is shaped by key economic drivers, high-demand locations and a diversified asset class mix.

Location, location, location

GWLRA focuses its strategy on Canada’s seven largest markets: Vancouver, Calgary, Edmonton, Toronto, Ottawa, Montreal and Halifax. By centring on Canada’s most enduring and diversified economies and infrastructure, the fund provides strong liquidity relative to the asset class.²

It’s also well diversified across real estate sectors, with above-benchmark weightings to the industrial and multi-family sectors. A significant underweighting to the retail sector provides some defense against the challenges in that space.

Leasing market fundamentals

Industrial

• Historically strong market fundamentals with Montreal, Toronto and Vancouver being some of the strongest markets in North America.
• Deglobalization and reshoring: changes in supply chains are opening up opportunities in industrial real estate. The adoption of e-commerce and re-shoring of goods locally – moving manufacturing from offshore locations back to Canada – has fueled demand (31% year-over-year rent growth).
• Developments in this sector are completed quickly, which helps manage the risk of overdevelopment. This is key today, since an economic downturn could impact consumer confidence, and in turn, reduce the demand for leasing.  

Retail

• COVID-19 magnified and accelerated trends in the retail space.
• GWLRA believes ‘needs of life’ centres, anchored by grocery tenants, are proving resilient as convenience and accessibility are embraced.
• While online shopping continues to grow, this is slowing as consumers appreciate the physical shopping experience.
• GWLRA sees significant mixed-use redevelopment, leveraging high-quality locations and transit.

Office

• Office attendance is at its highest levels since COVID-19, but GWLRA notes that Canada is behind many other developed nations. Office vacancy was 17.6% in the first quarter of this year, compared to 10.0% in the fourth quarter of 2019.
• GWLRA see a flight to quality as tenants look to reimagine how they can use their office to drive productivity and enhance corporate culture.
• GWLRA’s team believes that this will translate to a greater gap between best-in-class buildings as defined by location and amenities. The rest of the market will be forced to compete on price. The team also holds a meaningful allocation to office space, believing in the collaborative value of the office.

Multi-residential

• Two critical themes support long-term demand for rental apartments in Canada – scarcity and affordability.
• Canada’s housing market has been chronically undersupplied, and this issue is most prevalent in our largest and densest communities. This supply challenge will only intensify as Canada’s robust immigration and non-permanent resident programs apply additional pressure. GWLRA points to research that Canada needs 1.8 million units of housing to close the gap between it and other G7 nations.³
• Population growth: In 2022, Canada’s population grew by a record 1.05 million or 2.7%, largely due to international migration. 91% of new Canadians settled in large urban centres.⁴
• Home ownership cost has materially outpaced rental rate growth. This gap creates rental pricing power. Indexed home pricing has outperformed average purpose-built rental rates in Toronto by a scale of more than three-to-one.
  

GWLRA considers environmental, social and governance (ESG) factors in its investment, asset management and development processes. As a leading real estate advisor, the team is focused on evolving their sustainability platform to meet the demand for climate-resilient buildings.

They also actively engage suppliers to encourage the use of sustainable products and services in the operation and development of properties. A strong environmental management system increases the value of their clients’ assets while mitigating risks, reducing operating costs, increasing tenant loyalty and preserving the environment. 

Fighting inflation with income

Real estate can act as a natural protection against inflation, since rents and lease rates tend to increase with inflation. And with persistent market volatility, income is key for investors – as is long-term growth. GWLRA’s research team has found that real estate is one of a handful of sectors to keep pace with inflation.

Direct investing versus publicly traded real estate investment trusts

The fund’s focus on direct investment provides investors with the economic benefits that come from real estate ownership: cashflow generation and valuation changes. Its valuation is based on the underlying value of the real estate portfolio. GWLRA assess market conditions and emerging trends to pivot the portfolio to participate in these dynamics.

In contrast, publicly traded real estate investment trusts (REITs) are often valued in part based on investor sentiment and recent trading activity, which may be disconnected from what is being experienced at the property level.

GWLRA’s active investment approach sets them apart in the market. The team adapts the fund’s investment program between acquisition and development opportunities. They do this by assessing market conditions and making investment decisions with a focus on generating risk-adjusted returns.

Their multi-faceted approach gives them the flexibility to invest over cycles. Patience and foresight are critical when considering projects that may take five to seven years from initial vision to completion.

Talk to your Canada Life wealth wholesaler today to find out how you can put GWL Realty Advisors’ expertise to work for your clients with the Canada Life Real Estate Fund.

The views expressed in this commentary are those of GWL Realty Advisors as at June 8, 2023 and are subject to change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell specific investments, nor is it intended to provide tax or legal advice.

This fund is available through a segregated funds policy issued by The Canada Life Assurance Company. Make your investment decisions wisely. A description of the key features of the segregated fund policy is contained in the information folder. Any amount allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

Canada Life and design, Canada Life Investment Management and design, and other marks followed by the TM symbol at first time of use are trademarks of The Canada Life Assurance Company (“Canada Life”). Other marks displayed in this piece are trademarks of a third party, and used with permission or under licence. Canada Life Investment Management Ltd. is a subsidiary of Canada Life.