With a few notable exceptions, cap rates remained stable or declined for most property types and classes in Canada’s major real estate markets during the first half of 2015. That largely parallels trends in the 46 U.S. markets also analyzed in CBRE’s recently released North American cap rate survey, although Canadian cap rates are generally lower and offer narrower spreads over 10-year bond rates.

Across the 10 surveyed Canadian metros, average rates dropped most steeply in Class AA downtown office, urban multi-residential and neighbourhood/community retail properties compared to the first half of 2014. Class B downtown office and suburban hotels were the only property types with an upward trajectory.

In Toronto, which is the lone Canadian market CBRE categorizes as Tier 1, cap rates almost universally decreased from 2014 levels, but remained flat for Class B downtown office, Class A suburban office, Class B industrial and retail power centres. In contrast, Calgary saw rising cap rates for most property types and classes, except downtown Class AA office, neighbourhood/community retail and retail power centres, which remained flat.

Canada-wide, the average cap rate for downtown Class AA office space was 5.1 per cent — ranging from a low of 4.5 per cent in Toronto to a high of 6 per cent in Edmonton — down from 5.27 per cent as of June 30, 2014. U.S. Class AA downtown office properties registered an average cap rate of 5.36 per cent during the first half of 2015, ranging from 3.75 per cent in New York to 9 per cent in Memphis.

Suburban office stock exhibited the most divergent national trends, as cap rates increased 7 basis points on average for all property classes across U.S. markets. In Canada, cap rates rose for Class A suburban office in Calgary, Montreal and Halifax, fell for Class B in Toronto, Montreal, Ottawa and Halifax, and remained stable elsewhere.

Meanwhile, industrial trends were more in sync on both sides of the border, although rates tended to drop more dramatically in the U.S., at an average of 19 basis points for U.S. Class A buildings versus an average drop of 5 basis points in Canada. Industrial cap rates declined in most Canadian markets, while remaining flat in Edmonton, Vancouver, London/Windsor and Toronto’s Class B stock.

Urban multi-residential properties continue to offer the lowest cap rates of any Canadian real estate sector, averaging 4.41 per cent across the 10 surveyed markets. That falls as low as 3.25 to 4 per cent in Toronto, climbing to the 5 to 5.5 per cent range in Halifax and London/Windsor. Again, Calgary is the lone market where cap rates have risen since 2014, now pegged at 4.25 to 4.75 per cent.