The real estate market may have caught a break: a potential trade deal with America’s Tariff Don appears to be taking shape.

The less welcome news is that the real estate market still faces a long list of unknowns.

First, the positives

To a large degree, sentiment drives real estate values.

More confidence means more buyers competing for properties.

Bank of Canada staff research estimates that in the median Canadian city, a one per cent rise in housing demand pushes prices up roughly 0.45 per cent.

But economic uncertainty has been a persistent problem. Among Canadians looking to purchase a home last year, Royal LePage found that 49 per cent said the ongoing trade dispute with the U.S. had caused them to postpone their home-buying plans.

Whatever the exact figure, tens of thousands of buyers went on strike, doubtful about spending six or seven figures on a home amid so much market uncertainty.

With the tariff clouds beginning to clear (assuming the deal is signed) and employment already improving, the labour market could receive a further boost, which usually generates additional real estate demand.

That is, unless the next factors kick in.

Why and how rates climb matters

Good economic news can eventually put upward pressure on borrowing costs.

If a workable trade deal is finalized by Saturday’s deadline, Canada should see more investment and employment, all other things equal.

That tends to be inflationary, something that keeps interest rates higher than they’d otherwise be.

Mind you, it’s possible that as job growth improves housing demand, rising rates pull it the other way.

But it depends on why rates are rising.

If rates climb gradually as the economy rebounds, with incomes and jobs keeping pace, history says prices generally rise — or at least drift sideways.

That relationship generally holds right up until the economy overheats and the Bank of Canada intervenes with rate hikes to control inflation.

But if one examines rates, unemployment, population and home prices going back to at least 1980 (the extent of my available data), it reveals an interesting pattern.

Average national home prices rose 3.7 per cent over the following year during stretches when the five-year bond yield was rising (as it is now) and unemployment falling (as it is now), versus 7.2 per cent when yields were dropping.

The thing is, if rates jump more than expected because inflation has overheated, that’s a shock, and it becomes a whole different conversation.

In that scenario, incomes and demand fail to keep up, and housing gets none of the usual benefit.

The takeaway

If you’re rooting for higher prices, this week’s overdue trade deal could be positive for real estate stability — unless rates shoot up out of a cannon and hurt credit accessibility.

For those praying for cheaper homes, hope might rest on two rather grim possibilities:

• An ongoing oil shock that forces the Bank of Canada’s hand with rate hikes; and
• Canadian bond market contagion driven by fears of unsustainable U.S. debt (which just hit a frightful US$40 trillion and is growing by US$91,000 per second).

Of course, wishing for economic disaster and the potential loss of hundreds of thousands of jobs merely to purchase a home more cheaply is questionable karma. But people do it.

For now, let’s hope for a modest trade win — or, failing that, a modest loss with a side of stability. That recipe would give labour and real estate a decent shot at firming over the next 12 months.

• The best mortgage rates in Canada right now
• The best reverse mortgage rates in Canada right now

Robert McLister is a mortgage strategist, interest rate analyst and editor of MortgageLogic.news. You can follow him on X at @RobMcLister.

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A landmark Brisbane office tower housing the global headquarters of Flight Centre and Virgin Australia is set to change hands for a whopping $255 million.

LDR Capital, the real estate investment arm of the Lederer Group, has exchanged contracts to acquire Southpoint at 275 Grey St, South Brisbane, in one of the city’s major commercial property transactions.

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The prime-grade office and retail tower occupies a prized position in the heart of South Bank and is the only prime-grade Brisbane office building with direct, integrated access to a train station.

It is also fully occupied, with a weighted average lease expiry of eight years.

ASX-listed Flight Centre Travel Group and Virgin Australia have their global headquarters in the tower, while Flight Centre has committed to a new 10-year lease from October.

Below the offices, a retail centre is anchored by Woolworths Metro, McDonald’s and TerryWhite Chemmart on long-term leases.

The deal comes as available office space in the precinct becomes increasingly scarce.

Southpoint, at the corner of Grey and Vulture Streets in Southbank has sold for $255m. Picture: Annette Dew.

LDR Capital managing director Myles Brooks-Garrett said vacancy in the South Bank office market was sitting at just 0.9 per cent and had averaged 2.8 per cent over the past three years.

“Product like this is rarely traded and is typically reserved for the major REITs, superannuation funds and offshore institutions,” he said.

Southpoint will be held through the new LDR Grey Street Fund, with Lederer Group committing at least 25 per cent of its equity and becoming its largest investor.

The building is one of the most prominent in Brisbane. Picture: Supplied

Lederer Group founder and chairman Paul Lederer described Southpoint as an “irreplaceable building” in a precinct where the group says no comparable new supply can be built.

The group is acquiring the property at an 8 per cent capitalisation rate and says the purchase price represents at least a 35 per cent discount to replacement cost.

The fund is targeting an average annual distribution yield of 8.2 per cent over an initial five-year term and a 16 per cent internal rate of return, post-fees and pre-tax.

It is LDR Capital’s second wholesale fund, with the group now managing about $1.6 billion in real estate.

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Property funds manager Charter Hall is again expanding its retail property holdings, picking up Melbourne’s well-known Tooronga Village shopping centre for $79m.

The company has identified convenience retail as a primary growth area, and the sector’s resilience is boosting its performance even as larger malls are under pressure.

The trend, which emerged ahead of the pandemic, is solidifying as consumers focus on everyday needs and shift away from discretionary spending. At the same time, large supermarket chains Woolworths and Coles are rolling out fewer centres because of rising construction costs, even though population growth is increasing.

The company is buying for its unlisted Charter Hall Convenience Retail Fund, which has attracted about $3bn of institutional backing and is targeting a $4.5bn-plus portfolio.

Charter Hall is buying the Melbourne asset from Newmark Capital, which acquired the centre from Stockland in 2019 for about $63.2m. Newmark sold five strata podium lots for $7m in 2021-22 and returned capital to investors at that time.

Newmark boosted the centre’s income and the sale is a strong result for investors.

The Tooronga Village deal will show a capitalisation rate of about 5.75 per cent. The move to expand the vehicle came as Charter Hall chief executive David Harrison nominated the sector as a key area for his business’s expansion.

Charter Hall is stepping up its property purchasing at a time when few others are in the market and many rival players are making bids contingent on raising capital to complete deals.

Tooronga Village is a 7724sq m neighbourhood centre anchored by Coles, alongside two mini-majors, 20 specialty stores, five kiosks, an ATM, car wash and extensive basement parking. It serves the blue-chip areas of Toorak, Malvern, Hawthorn, Kooyong and Glen Iris.

The off-market deal was negotiated by Tim McIntosh and Will Heffernan from Colliers, and Stonebridge Property Group’s Justin Dowers and Kevin Tong.

Mr McIntosh said the centre’s strong trading fundamentals and strategic positioning in Melbourne’s inner east attracted Charter Hall’s interest.

“Tooronga Village is anchored by a highly productive Coles supermarket, with the centre sales productivity above $17,000 per square metre, ranking the centre as one of the highest performing neighbourhoods in inner metropolitan Melbourne,” he said. “Assets of this calibre are tightly held and rarely traded, particularly within Melbourne’s inner eastern suburbs, making it a highly valuable investment proposition.”

Mr Dowers said the sale reflected the continued institutional demand for dominant convenience retail assets within affluent metropolitan catchments.

“High-quality neighbourhood shopping centres continue to attract significant investor interest, driven by strong population growth, resilient supermarket performance and limited incoming new supply,” he said.

Mr Dowers said the strong rental growth experienced across the neighbourhood shopping centre sector was driving substantial capital reweighting into convenience retail. This transaction alongside the recent sales of Burwood Brickworks and Coles and Aldi Kilmore amounted to more than $220m of Melbourne neighbourhood centre transactions in the past two months.

Charter Hall is separately buying Yeppoon Central shopping centre on the state’s Capricorn Coast from developer Laurence Lancini. The Woolworths-anchored subregional shopping centre is selling for more than $70m and will show a yield of about 6.5 per cent.

Charter Hall has been the top buyer of convenience retail assets this year and its purchases include $250m worth of centres in Queensland and NSW bought from Vicinity Centres.

Last year, it bought the Burwood One Shopping Centre in Melbourne for $210m and bought Southport Park from billionaire John Van Lieshout for $152.5m.

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