After the Bank of Canada and U.S. Federal Reserve cut interest rates Wednesday, an analyst said real estate investments are becoming more attractive as the cost of borrowing is lowered.
Canada’s central bank cut its key interest rate to 2.5 per cent from 2.75 per cent, while the Fed followed suit, also cutting its overnight rate by 25 basis points. The cut from the Bank of Canada will lower the cost for homeowners, specifically with variable mortgages, but it will also help investors with funds in Canadian Real Estate Investment Trusts (REITs), according to Uma Moriarity, investment strategy analyst and ESG Lead at CenterSquare Investment Management.
“A lot of times investors are looking at real estate assets,” Moriarity said in a Thursday interview with BNN Bloomberg. “You’re always cognizant of what’s happening in terms of debt, whether it’s trying to figure out how interest rates and risk-free rates compare, or yield compare within the real estate space versus fixed income.”
CenterSquare is an investment management firm with a diversified portfolio of real estate securities.
A REIT is a publicly traded company that owns, operates or finances real estate. REITs pool funds from individual investors and use those funds to build a portfolio of real estate investments. When an investor places money in a REIT, they’re buying a share of that portfolio.
REITs let people invest in real estate without having to buy, manage or finance real estate on their own, while providing a steady income stream. Many REITs specialize in specific sectors such as residential properties or commercial real estate and share their profits with investors through dividends.
Seniors’ housing an area of focus
Moriarity said her firm focuses on investing in areas that drive demand rather than businesses cyclical in nature. One area is seniors housing as people continue to age.
“We are seeing this aging population around the world, especially in the U.S. and elsewhere as well and that means that you’re going to be seeing a very large part of the population growing into aging, into the needs-based nature of seniors housing,” said Moriarity. “That’s an area that we’re really bullish because of that really strong secular demand tail when that’s coming in for that sector.”
Over 861,000 people aged 85 and older were counted in the 2021 census, more than twice the number observed in the 2001 census, according to Statistics Canada. Residents 85 and older are one of the fastest-growing age groups with a 12 per cent increase from 2016.
‘Strong demand for data centres’
Advancements in artificial intelligence have drawn investments from CenterSquare as the company sees how it changes the global economy and how to conduct business.
“We’ve been thinking about data centres and the digitalization of the global economy more broadly for years now, and you’ve just seen a really big accelerator in the form of AI (artificial intelligence) coming in here and supporting data centre demand,” said Moriarity. “We are seeing continued strong demand for data centres as a lot of these various different cloud providers are looking to get deployed.”
An AI data centre is a facility that houses the specific IT infrastructure needed to train, deploy and deliver AI applications and services, according to IBM. It has advanced compute, network and storage architectures and energy and cooling capabilities to handle AI workloads.
AI data centres have drawn big investments. Meta, PIMCO and Blue Owl Capital plan to spearhead a US$29 billion financing round for data centre expansion. CoreWeave and Nvidia plan to partner as well on a US$6.3 billion investment.
“You’re just seeing a lot of enterprises that are leveraging data and newer, better ways to make their businesses more efficient, and that digitalization of the global economy continues with that additional AI kicker, in terms of demand,” said Moriarity.