But a turnaround may finally be in sight if the eight per cent year-to-date increase in values is any indicator.

“It’s been challenging,” said Alex Avery, chief executive of

Primaris REIT , who is chairing the annual conference put on by Canadian Real Estate Forums with Pammi Bir, head of global real estate at RBC.

Avery’s Primaris has been full steam ahead, regardless, purchasing billions of dollars in major regional malls since it was spun off from H&R REIT into its own public company at the end of 2021.

“Over the last three to four years, there were two challenges for the REIT sector. The first was the

rise in interest rates . As they go up, your cost of capital goes up, asset pricing goes down,” said Avery, who spent more than 12 years as a sell-side equity analyst at CIBC Capital Markets covering the sector.

Investors have had better risk-free alternatives to put their money in, he said. “When your bank was offering five per cent, why would you buy a REIT with a five per cent yield?”

Avery said the other factor was that real estate owners entered the pandemic with capital structures designed for declining interest rates, but this dynamic reversed post-pandemic.

“Higher leverage helped because interest rates were declining. People took on more debt because it was cheap,” said Avery, adding it wasn’t altogether different from

housing . Today, there are fewer buyers for commercial real estate and a lot more sellers.

“Today, there is more opportunity in the real estate market than there has been in 15 years,” said Avery. “The challenge is you need to have the capital. The opportunity is the greatest, but there is a shortage of people to buy. Just like the housing, there were tons of buyers and now there are few buyers, in the commercial market, it is the same thing.”

Like housing, REITs now have negotiating buying power and can put in conditions before closing — the opposite of pre-pandemic.

“If you had a grocery-anchored strip mall eight years ago, you had 200 people who wanted to buy it,” said Avery. “Grocery-anchored is very defensive (against economic downturn), so there are still buyers, but if you are trying to sell an office building, it is tough.”

Primaris, whose latest purchase was the Lime Ridge Mall in Hamilton from Cadillac Fairview, is focused on larger regional malls that require a significant capital investment, so the buyers have been limited.

Buyers also need economies of scale to make deals work from a mall management point of view, as well as expertise.

“They really stopped building malls 20 years ago,” said Avery, pointing to Vaughan Mills north of Toronto as the only major regional mall constructed during the period.

That mall was completed in 2004, and since then, malls have been shrinking, with some being converted to housing.

“There is this narrative out there that retail is dead and e-commerce has killed the mall. It’s not true. Our malls are at an all-time high for sales, and our occupancy has risen 700 to 800 basis points over the last three years,” he said. “They are packed and thriving. It is a fact that 20 years ago, they were overbuilding. When you needed one mall, they would build two or even three, and that last mall was never a good thing. Those malls have become more vulnerable.”

Primaris was created as a REIT to restore liquidity to the mall market and now has $5 billion in mall assets and is looking for more.

A strong credit rating has enabled the trust to access the unsecured debenture market, a rating driven by the REIT’s ability to maintain low debt leverage and only paying out 50 per cent of earnings to unitholders.

“It gives us a lot of financial flexibility to fund our growth,” said Avery, adding that will drive the distribution up.

The REIT has also been able to navigate the purchase landscape by using its units to buy malls from pension funds.

Primaris’ original deal with Healthcare of Ontario Pension Plan when it launched gave it eight malls, and the pension fund still maintains about a 20 per cent stake in the REIT.

Since that deal that kicked off the REIT, Primaris has done transactions with CDPQ’s Ivanhoé Cambridge, the Investment Management Corporation of Ontario, the Canada Pension Plan Investment Board and Cadillac Fairview — with all those pension entities taking back some units.

Primaris usually sells one per cent to five per cent of the REIT’s units to fund pension fund deals, but it’s unclear whether those stakes are today because they are below legal disclosure requirements under securities law.

“Late last year, we realized there was a lot of potential transaction activity,” said Avery, adding $1 billion in deals in 2025 has already hit targets, but there could be more to come. “Any province is fair game, but what we are looking for is the leading shopping centre in the market.”

As for the future of REITs, he says, “there was a very long party” that took place where low-interest-rate debt drove growth, but he thinks the sector will evolve into a more yield-driven vehicle like the old days.

“Like any party, you have to clean up, and we are in the clean-up phase,” said Avery. “There will be yield with some growth, but less reliance on declining interest rates and more focus on lower leverage and lower payout ratios.”

By sector, there will be different rewards, and Avery notes seniors housing is obviously in greater demand today compared to the pandemic, when people were pulling family members out.

“Real estate is cyclical, and the cycle for different property types happens at different times,” he said, adding that industrial property, driven by e-commerce, and office had their heydays.

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But even for the office sector, which boasted vacancy rates at two per cent in some markets pre-2020, the cycle may be ending. “We are now at a down cycle, close to a bottom,” he said.