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TORONTO (Reuters) - Best bets for Canada's commercial real estate investors lie in apartments and opportunistic assets in a U.S. market recovery, while Toronto bumps Vancouver from the top-ranking city to invest and develop in next year, an influential survey said on Tuesday.
In 2011, Canadian real estate investors should expect "slowing, steady growth and decent prospects" as long as the U.S. economy does not weigh, according to the Emerging Trends in Real Estate 2011 report, released by PricewaterhouseCoopers and the Urban Land Institute.
The survey reflects responses from more than 875 of the real estate sector's players, including investors, brokers, lenders and developers, in Canada and the United States.
With very few signs of distressed sales in Canada compared with the United States, property owners, armed with solid access to financings, have turned south of the border to look for acquisitions.
In Canada, a "hold-on mentality" has emerged for institutions such as pension funds and insurers, which dominate ownership in major cities, because of the steady income these assets offer.
"Not only has the Canadian real estate industry been able to weather the downturn in the economy better than other markets, the environment in the U.S. has allowed Canadian investors to be opportunistic," says Lori-Ann Beausoleil, national leader of the Real Estate practice for PwC Canada.
"Canadian investors looking to expand into the U.S. market or who are already in the U.S. have been able to take advantage of some great growth opportunities and purchase assets at a distressed price."
Low-yielding assets should be removed from portfolios, which could be traded up for opportunities in the United States, respondents to the survey said.
Among property types, apartments are probably the best bet as immigration fuels demand, and they offer the best security -- if investors can find any that are for sale. Office space has improved from a year ago, while retail and industrial properties are steady. Hotels are showing signs of life, but that sector still suffers from lower U.S. tourism.
The report predicts Toronto is likely to knock Vancouver from its top position as the city to invest in, as it is seen as the country's "most important economic engine."
"This vibrant metropolitan area radiates 'lots of positives' -- the rock-solid Bay Street financial sector and diverse manufacturing industries and service businesses, as well as immigration flows to support growth," the report said.
Struggling industrial properties in the Greater Toronto Area were also cited as a good bet next year, and land that is inside the Toronto "greenbelt" should be reserved for future residential development.
Investors have grown somewhat "uneasy" about Vancouver because the office and condo markets almost defy logic and have remained hot for some time. Development prospects are also shrinking because the city is hemmed in by the natural barriers of mountains and the Pacific waterfront.
In Calgary, there is little appetite for new office space as the city went through a building boom years ago and vacancies are still high, but the report indicated that growth is expected to resume in coming years.
Reporting by Ka Yan Ng; editing by Rob Wilson