A February report from the Economist Intelligence Unit named Vancouver, B.C., the world's most livable city for the fifth year in a row. Toronto and Calgary ranked fourth and fifth, and several other Canadian cities made the top 30 of the 140 cities surveyed. While urban livability is not an infallible indicator of corporate investment desirability, it certainly suggests Canada is doing something right. Perhaps most importantly, the ability of the nation's metropolitan centers to retain their attractiveness in the midst of the world's worst economic crisis in 75 years demonstrates an underlying stability and adaptability at every level - from the individual family to the federal government. The assessment is particularly true of the business community. "Canadian business has been enjoying a very positive image," says James Becker, country lead for Canada at Jones Lang LaSalle. "The banking industry has been highlighted as one of the strongest in the world. The overall tenor is that Canada is a positive place to be."
A Vigorous Rebound
Canada, along with the majority of developed nations, suffered a major economic downturn over the past few years. But the strength of the country's banking system - combined with effective government policies - tempered the worst impacts, not just preventing the country from "going over the cliff" economically, but also helping it to maintain amazing equilibrium in the face of widespread financial chaos. Numerous studies confirm both Canada's continuing economic strength and its competitive business environment relative to other nations, not to mention its remarkable ability to bounce back quickly from a serious jolt.
According to Consensus Economics, an international economic survey company headquartered in the UK, Canada has been a top performer among the G7 countries in GDP growth since 2007, and is expected to remain so through 2012. From 2007 to 2010, the country led the G7 with 0.8 percent growth in GDP. The United States was second with 0.6 percent growth. The economic forecasting company projects Canada's rate of growth will climb to 2.6 percent for this year and next.
In the most recent World Competitiveness Yearbook, published in May 2010 by Switzerland-based business school IMD, Canada ranked seventh out of 58 countries studied with regard to its economic future. The publication, which measures countries against four competitiveness factors - economic performance, government efficiency, business efficiency, and infrastructure - singled out Canada for its sound banking regulations and extensive commodity resources.
Even the United States concedes that Canada has generally performed better than other countries, both leading up to and during the Great Recession. November 2010 figures from the U.S. Bureau of Labor reveal that Canada enjoyed overall employment growth of 1.6 percent from 1999 to 2009, compared to only 1 percent for the United States and even lower rates for all other G7 members. According to the Bank of Canada, the nation is expected to return to full capacity and inflation to return to its 2 percent target by the third quarter of this year.
Strong Banks/Fiscally Responsible Government
As noted, Canada's strong banking system and efficient government are the two primary factors responsible for the country's current strong economic position. In fact, the Global Competitiveness Report 2010-11 from the World Economic Forum in Geneva ranks Canada first among 139 countries surveyed for the soundness of its banking system. The organization listed six of the nation's banks among the 50 safest banks in the world. In a related finding, the Milken Institute ranked Canada first in terms of access to capital in an April 2010 index. Canada has also enjoyed 11 consecutive annual federal budget surpluses from the mid-1990s through 2008. Though it ran deficits in 2009 and 2010, the amounts were relatively small, especially in comparison to U.S. deficits. A new report prepared by the government's Invest in Canada bureau attributes the deficits to the creation of one of the largest stimulus packages among developed economies during the recent global economic downturn. The report projects that the country's net debt-to-GDP ratio will not only remain the lowest in the G7 by a wide margin over the next few years, but will also return to a surplus following the 2014-15 fiscal year.
Real Estate Investment Increases
Given the strength of its banking system and its government's sense of fiscal responsibility, it's not surprising that Canada's real estate investment market underwent a dramatic turnaround last year. A report from CB Richard Ellis shows that every market except one saw volume increases in 2010, with the Toronto market experiencing a staggering 93 percent jump. According to the report, a stronger economy and surging investor confidence triggered a 48 percent increase in total Canadian commercial real estate investment volume to $18.9 billion. But while the 2010 results are impressive, the current year appears likely to be even better.
In 2011, "we expect the real recovery in underlying fundamentals to begin," says Mark Rose, CEO of Toronto-based Avison Young, Canada's largest independent real estate services company. "What we see for 2011 is multinational corporations and other major occupiers of space strengthening their core businesses and beginning to execute on long-term growth plans. As corporate decision-making gathers steam, activity will follow, and.vacancies will start to drop and rental rates will begin to rise."
Historically, Rose notes, Canadian markets tended to lag U.S. recovery by a year. But this time around Canada has taken the lead, with Canadian trophy assets back to 2006-07 levels by fall 2009, a year ahead of its neighbor to the south. In Young's estimation, Canada will continue to see the orderly flow of capital to real estate throughout 2011.
"Interest rates are low, values are compelling, distressed selling is almost nonexistent, and trophy assets are being aggressively fought over as they become available," he states. "There is no panic - there is patience. There is capital and it flows to what 'can be bought' rather than pushing the markets out of equilibrium and forcing cap rates lower and values higher."
Sam Chandan, global chief economist and executive vice president for New York-based Real Capital Analytics, adds that Canadian commercial property and development sites in Canada currently trade at lower price points relative to their long-term cash flow, especially compared to the U.S. and other advanced economies.
Canada's value as an investment market goes far beyond its ability to rebound from recession. While the country has a comparatively high personal income tax rate, as a result of corporate income tax reductions introduced since 2006, Canada had the lowest overall tax rate on new business investment in the G7 in 2010 and will have the lowest statutory corporate tax rate by 2012. In addition, the country offers one of the most favorable tax treatments for R&D among the G7, ranking second only to France.
Jones Lang LaSalle's Becker lists several additional factors that make Canada extremely attractive for business investment, including continued growth and immigration into the major cities; a broad-based, flexible, and highly skilled labor pool; and a superior education system that enables virtually all qualified candidates to obtain affordable high-level academic or technical training.
Still, Canada's most attractive asset, maintains Phil Dowd, a senior vice president in the Toronto office of Jones Lang LaSalle, is its stability. "We have a very solid financial structure and top-notch physical infrastructure," he says. "It's highly predictable in terms of business planning. We don't drop unexpected surprises. In addition, we offer a very high quality of life. Combined with a dependable labor force and quality education, it makes for a very strong business package."