Pointing to strong REIT index returns, Standard & Poor’s Ratings Services says that the Canadian real estate market continues to enjoy healthy price appreciation.

It notes that the S&P/TSX capped REIT index returned 9.9% for the six months ended June 30, compared with the S&P/TSX composite index returns of 8.1%.

“Low interest rates and a large investor pool are keeping borrowing costs and cap rates low,” says Standard & Poor’s credit analyst Christian Green in a report Tuesday.

“Decreased yield in the purchase segment of the market has resulted in increased development by a number of Canadian REITs in an attempt to increase returns.”

Fundamentals in the Canadian market are generally healthy, the S&P report adds. “The Canadian multifamily sector continues to see above average vacancy levels, albeit overall levels remain low on a nominal basis. The Canadian lodging sector remains on pace for recovery; occupancy levels and daily rates showed improvement again in the first half of 2005,” it says. “Industrial and retail demand remains strong and both segments are the most active in terms of new development.”

“The office sector continues along a slow recovery path; occupancies are stable as are rents. The downtown office market in Canada posted positive absorption in the first quarter, and there is little new supply due to be completed in the short term. Rents are flat although some upward pressure is beginning to build in some markets,” S&P says. “The ski resort sector received welcome news in the first quarter, as weather conditions allowed most operators in the western markets to remain open longer. Pent up demand resulted in good skier visits for the spring season, partially offsetting a poor winter season.”

Standard & Poor’s Ratings Services provides analytical coverage for six Canadian public REITs, real estate operating companies, lodging REITs, and leisure companies. All six issuers have a stable outlook. There have been no changes in long-term ratings; although the outlook on Intrawest Corp. was lowered to stable from positive in the second quarter.