What follows are some random thoughts on the Income Property marketplace as I see it, and from what I've heard on the street. By no means am I an economist. And I don't think that anyone can accurately predict the future.
The Commercial Property Market is very dynamic and constantly changing. But it is interesting to hypothesize and to see how close we can come to predicting the future. Use these thoughts as an add-on to what you've already experienced and are currently experiencing. The more views you can get, the better you will be at understanding this dynamic marketplace and be able to make up your own mind as to how the future will unfold. I've been told by several economists and market pundits that the current economic climate can be characterized as an "Atypical" Recession with an "Atypical" Recovery. Okay, but what does this really mean? Obviously, in simple terms, it basically means that we are not in your typical recession and recovery scenario.
Although we've been seeing an improving economic recovery since the market meltdown of 2007-2008 there are signs out there that this recovery is slowing down, possibly even on the verge of faltering, and the recovery is definitely becoming an uneven one. Globally, all is not well. Distinct markets have their own problems such as in Japan where they are possibly looking at a deflationary environment, and everyone is aware of the U.S. However, we can generalize by saying that we are in a low growth environment with significant debt loads both for the government as well as for individuals. Overall, according to these experts, we can expect to see low consumer demand out there, which will eventually translate to excess capacity. The economies of developed countries will continue to go nowhere. The market pundits say that because the recovery is atypical it is not going to work itself out in just a year or two. Disinflation has been mentioned as a possibility. Not exactly a rosy picture. The US has just recently announced the implementation of Quantitative Easing whereby the Federal Reserve will go out and buy Treasuries.
This means the US will be printing a lot of money in order to do this. I guess Ben Bernacke figures that he can print his way out of a recession. Japan is also set to start printing Yen. You're going to start seeing currency destruction all over the place as countries begin playing fast and loose with their currencies. This portends massive inflation down the road. The stock market is actually predicting high inflation down the road as is evident in the recent runup in the price of gold (investors are putting their money in gold so it doesn't erode when inflation starts up). As I write this article the headlines are rife with the new highs that gold is hitting. Investment advisors have told me that with all of this uncertainty, investors out there are searching for certainty. Therefore there is a huge demand for safety, i.e. safety of capital along with the requirement for income and yield (because of what the investor/consumer has gone through in the last 2-and-a-half years). There is a huge allocation shift going on here.
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Job destruction in the US has been the greatest since the depression. This impacts Canada because the US is our biggest trading partner. Therefore the consumer/investor wants and needs to reduce risk in their portfolios. Therefore the Demand & Need for Income! Savings have been impacted significantly (due to the recent setbacks in the housing and stock markets). People are living longer yet retiring earlier. Those people retiring have been shocked to learn that their retirement income has been impacted to the point where they need to return to the workforce. People are looking for SOLID RISK-ADJUSED RETURNS. People are going to save, not spend! Investors are now looking for Stable Cash Flows, Solid Balance sheets, & growing dividends. So what does the future hold? My best guess and personal viewpoint is that we are halfway through a 3-4 year deflationary period that will be followed by high levels of inflation. Therefore one needs to find BOND substitutes that will do well in an inflationary environment (you will need to grow your top line while your cost of capital increases).
