TORONTO and KELOWNA,
BC, June 1, 2023 /CNW/ -- While caution
characterized investment activity in the first three months of
2023, sentiment is shifting in Canada's commercial real estate sector.
Positive indicators have emerged, led by rising demand and the
re-entry of major players to the marketplace, suggesting a
significant upswing in demand may be in the cards for the back half
of the year, according to a report released today by RE/MAX
Canada.
VIEW THE INTERACTIVE DIGITAL REPORT:
https://blog.remax.ca/commercial-real-estate-report/
The RE/MAX 2023 Commercial Property Report examined
12 commercial real estate markets from Greater Vancouver to Newfoundland-Labrador in the first quarter of 2023 and
found considerable resilience despite a commercial real estate
landscape that continues to evolve post-pandemic. A number of key
trends were identified, including:
- Industrial real estate continued to outperform almost every
other asset class, with all markets reporting strong sales and
lease activity. With both property and lease values climbing,
investors and end users in British
Columbia and Ontario have
extended their search perimeter for distribution and warehousing
facilities to neighbouring provinces with more affordable pricing.
A spillover of demand from these provinces and key markets have
bolstered sales of industrial product in Edmonton, Calgary, Regina, Saskatoon, London-St.
Thomas, Halifax and
St. John's. While demand has
softened from peak levels reported in 2022 in most Canadian
markets, inventory levels remain extraordinarily low, given the
headwinds the industry has encountered.
- Land sales remain solid, despite higher interest rates and
construction costs, with acreage zoned industrial, multi-family and
retail most sought-after in major Canadian centres. Approvals
in place have been a critical component in bringing deals to
fruition, given the lengthy approval process that exists in most
markets. Red tape and development fees have been a barrier in all
types of new construction. Vendor take-back mortgages have also
re-emerged in several markets as sellers work with buyers to close
the deal.
- Retail continues to be surprisingly robust, given the growth
of online sales in recent years, with almost 92 per cent of markets
(11/12) reporting solid activity in retail nodes and shopping
centres. From storefront on major arteries to strip plazas and
shopping malls, the bricks and mortar experience is resonating with
today's consumers. Investment dollars have been pouring into major
shopping malls across the country as landlords seek to enhance the
shopping experience. Landlords are also cashing in the
live-work-shop phenomenon, with the number of residential
applications on commercially zoned property growing across the
country.
- The office sector continues to struggle in markets across
the country as employers wrestle with hybrid work models,
particularly in the downtown core. While reducing the physical
footprint to reduce costs is top of mind with some companies,
others are looking to incentivize employees return by creating a
more social component within the workplace.
- Repurposing of commercial office space to residential
planned or underway in major Canadian centres hold key to healthy,
vibrant downtown cores, with 50 per cent of markets (6/12)
surveyed reporting conversion activity in this growing
segment.
"Although activity has come off peak levels reported in the
first quarter of 2022, demand for commercial real estate remains
relatively healthy in most major centres," says Christopher Alexander, President of RE/MAX
Canada. "Owner-users and tenants
have stepped up to fill in some of the gaps created by the pullback
from Real Estate Investment Trusts (REITs) in the second half of
2022 and early 2023. Several markets, including Edmonton, Calgary, Regina and Saskatoon, experienced strong activity in the
first quarter of the year, despite challenging market conditions. A
shortage of available inventory across various asset classes
continues to place upward pressure on commercial values and lease
rates, especially within the industrial sector. Prices remain
buoyant as a result with further escalation anticipated as momentum
improves heading into the latter half of the year."
In key centres, RE/MAX brokers have noted that buyers and
sellers rose to the challenge in the first quarter of the year,
pulling out all stops to make deals happen. In an analysis of
closed transactions in the Greater
Toronto Area in Q1 2023, for example, the number of vendor
take-back mortgages (VTBs) as a percentage of total sales over
$2 million rose substantially over
year-ago levels, climbing to 9.55 per cent, up from 5.82 per cent
in Q1 2022, with VTBs now representing almost one in 10
transactions*. In Western Canada,
investors took advantage of attractive financing for construction
of purpose-built rentals through Canada Mortgage and Housing Corp.
(CMHC), while those interested in existing buildings cut deals that
allowed for the assumption of CMHC mortgage financing at lower
interest rates.
Real estate investment trusts (REITs) are now slowly venturing
back into the market, driving demand for industrial, multi-family,
retail and, to a lesser degree, office product. Conditions are ripe
for investment, particularly for multi-family properties, given
growing demand for housing in markets across the country. According
to Statistics Canada, the nation's population climbed to just short
of 40 million in January of 2023, the highest annual population
growth on record. The increase has served to further exacerbate the
country's already critical housing shortage, which showed vacancy
rates for purpose-built rentals fell to 1.9 per cent nationally and
condominium rentals dropped to 1.6 per cent, according to CMHC.
Rental rates have risen in response to tight inventories in markets
across the country, with double-digit increases noted
year-over-year in most markets. The trend has bolstered already
strong demand for existing multi-family, but product is scarce.
"On the office front, with the work-from-home model taking root,
many corporations within the downtown core of major Canadian
centres are envisioning smaller footprints in their future," says
Alexander. "As sublet space expands and lease renewals involve
reduced space requirements, management is reconsidering their
options."
RE/MAX found that for some Class B and C buildings, the answer
may lie in repurposing their buildings, as demand for residential
housing reaches critical levels. Although not all buildings will be
ideally suited for retrofit, some major centres are providing
incentives to encourage conversion to residential. Calgary introduced the Downtown Calgary
Development Incentive Plan in 2021 which provides a $75-per-square-foot subsidy to developers for
converting offices to residential, with 10 buildings approved to
date. By way of conversion, more than 1,200 new homes will be
created and approximately one million square feet of commercial
office space will be eliminated, breathing new life into
Calgary's downtown core. There are
a growing number of buildings targeted for conversion in various
stages of planning and development in Halifax, Ottawa, London, Toronto and Winnipeg.
"Commercial office markets are experiencing a transformational
shift in the aftermath of the pandemic," says Alexander. "Downtown
cores were virtually decimated by Covid restrictions and have yet
to come back to life in many Canadian centres. The conversion
programs now underway ensure that our city centres remain vibrant
in the future, restoring vital foot traffic that is the lifeblood
of the country's core urban areas. The retrofit and renovation
activity not only brings desperately needed residential product
online, but it also supports the surrounding retail shops and
restaurants, transit systems, and the overall health of our
downtown neighbourhoods."
The most significant holdback is the red tape that currently
exists in regard to zoning amendments, applications and approvals
at local and provincial government levels. With housing supply at
critical levels and an immigration commitment of at least 800,000
new Canadians over the next two years, governments must be prepared
to act quickly.
"Population and GDP growth will continue to be a strong driver
bolstering urban expansion in cities across the country," says
Elton Ash, Executive Vice President
of RE/MAX Canada. "Naturally, a
growing population base attracts new business and services, and we
are seeing that translate into solid demand for most types of
commercial real estate across the board. We need partners in our
city planning offices to streamline the applications and approvals
process in a timely manner – months, not years – to bring these
properties to market."
RE/MAX also found that lower inventory levels, across the board
and in almost every asset class, have hampered activity to some
extent. In the first three months of the year, the shortages
sparked competition, particularly in the industrial segment. Once
again, supply plays a critical role and availability remains tight
for quality product. Without an influx of available listings, this
trend is expected to continue through to year-end, assuming
supporting positive fundamentals remain in place.
"Overall, a number of encouraging indicators characterize
Canada's commercial real estate
market," says Alexander. "Renewed demand for housing has sparked
builders and developers' interest, with projects placed on hold in
the latter half of 2022 once again on the table. Employment growth
may support the recovery of the country's most lacklustre segment,
although a changed culture favouring work-life balance suggests a
return to pre-pandemic occupancy in the office sector is unlikely.
On the retail side, consumer gravitation back to bricks and mortar
stores after some post-pandemic online fatigue will bode well for
business, while industrial will remain the sweetheart investment,
drawing suitors from both a local and global audience. The momentum
is building, with some pent-up demand evident. The fundamentals
underpinning the market squarely supporting ongoing commercial
activity in the year ahead."
*Compiled from data available from RealTrack.
Market-by-Market Overview:
Greater Vancouver
- Industrial remains the top performing sector in Greater Vancouver with vacancy rates under one
per cent. Consistent demand exists for warehousing and distribution
space throughout the GVA, with conditionals tightest in suburban
areas outside Vancouver Proper in Richmond, Delta, Burnaby and Langley.
- Area malls are rethinking the value proposition of their
expansive parking lots and replacing them with multi-family
buildings and commercial office space. Multiple malls and shopping
centres are in various stages of development, with many offering a
mix of multi-family, office, retail and restaurants.
- Housing continues to be Vancouver's greatest challenge and residential
builders and developers can't get their shovels in the ground fast
enough, but red tape and delays from application to approvals and
development fees are dragging out the development process.
While the rising cost of borrowing against an inflationary
backdrop has somewhat stifled demand for commercial real estate in
the Greater Vancouver Area (GVA),
several asset classes continue to outperform the overall
market.
Industrial remains the top performing sector in Greater Vancouver with vacancy rates under one
per cent. Consistent demand exists for warehousing and distribution
space throughout the GVA, with conditions tightest in suburban
areas outside Vancouver Proper in Richmond, Delta, Burnaby and Langley. Real Estate Investment Trusts (REITs)
are slowly coming back to the market, as evidenced by the purchase
of two industrial properties earlier this year by Crestpoint Real
Estate Investments. The purchase included six buildings
representing over 190,000 square feet in Burnaby as well as the 428,000-square-foot
Coaster Heights Distribution Centre in Surrey's Campbell Heights Industrial Park.
Strata industrial product has also experienced an uptick in demand
this year, with some upward pressure on values.
Availability rates for industrial space have edged higher, at
2.1 per cent in the first quarter of 2023, compared to the same
period in 2022, but are still amongst the lowest in the country at
present, according to data from the Altus Group. The greater influx
of space in the market has yet to impact lease rates, which have
risen by double-digits (almost 20%) year-over-year to $22
net per square foot on average. Prospective tenants are exercising
patience in their decision-making as a result, while existing
tenants are looking to achieve greater efficiencies by reducing
their footprints.
Vancouver's office sector has
seen upward pressure on availability rates, climbing just over one
per cent above the year-ago level to 10.9 per cent, according to
Altus Group. As companies continue to hammer out work schedules
with employees, it's clear that some sort of hybrid model will
emerge, and the likelihood of a return to a five-day work week
fades. Many corporate offices in downtown Vancouver, where lease rates currently hover
at $40 net per square foot, are
looking to reduce costs by eliminating unnecessary space, but some
are leaving the core for more affordable office space in the
suburbs, where lease rates average $25 net per square foot. There has been some
retrofitting of existing commercial space to residential, primarily
in terms of student housing near the university, but that may
change down the road if some of the red tape is eliminated from the
conversion process.
Land sales continued but at a more tempered pace in the first
quarter of the year. Property zoned residential, industrial, and
some retail throughout the Greater
Vancouver Area were sold but the selling process has been
extended, with due diligence periods increased to 90 days, up from
30 to 45 days in Q1 2022, and much longer closing periods as high
as one year and more taking hold. Industrial builds are moving
forward, especially when they are pre-leased to quality tenants who
sign on for at least five years. New restrictions on residential
rentals, however, have put a damper on condominium development.
While purpose-built rentals are still occurring throughout the
city, investor margins are low, which is discouraging investment in
this asset class to some extent. Existing multi-family portfolios
are the exception to the rule for this exceptionally coveted asset
class but are seldom available.
A resurgence in foot traffic has contributed to a brighter
outlook for the retail sector. Retail nodes in the downtown core
continue to evolve, with storefront on arteries including Fourth
Avenue, Alberni Street, West Georgia Street, Robson Avenue, and
residential neighbourhoods such as Yaletown, Gastown and False
Creek in high demand but low supply. Big box stores are welcoming
new retailers, bringing in a more diverse mix that resonates with
the local community, including restaurants and grocery stores. Area
malls are rethinking the value proposition of their expansive
parking lots and replacing them with multi-family buildings and
commercial office space. The Oakridge Shopping Centre, which has
closed until 2024, is a prime example. The 574,000-square-foot
shopping centre, which sits on 28 acres, will add between 15 to 20
new high-end restaurants and will eventually house 6,000 people in
a mix of low and high-rise buildings as the live-work-shop
phenomenon gains traction. Multiple malls and shopping centres are
in various stages of development, with many offering a mix of
multi-family, office, retail and restaurants, including
Park Royal, in West Vancouver; the CF Richmond Centre;
Burnaby's Metrotown Mall; the
Amazing Brentwood; and the Lougheed Shopping Centre, to name but a
few.
Vancouver's footprint and
sizeable population continue to face challenges regarding growth.
The Vancouver CMA grew by an estimated 2.8 per cent between July of
2021 and July of 2022 to close to 2.85 million, bringing an
additional 77,798 new residents to the city, according to
Statistics Canada. Vacancy rates, on the other hand, dropped below
one per cent at year-end 2022 for purpose-built rentals, while
condominiums hovered at 2.2 per cent, according to CMHC's Rental
Report. Housing continues to be Vancouver's greatest challenge and residential
builders and developers can't get their shovels in the ground fast
enough, but red tape and delays from application to approvals and
development fees are dragging out the development process.
Streamlining the process will go a long way in getting much-needed
inventory to market.
Edmonton
- Edmonton's ideally positioned
for strong investment activity in 2023 as the city posts one of its
strongest first quarters in recent history.
- Out-of-province investors are increasingly drawn to the city's
affordable price point for land, young and educated labour force,
and favourable provincial tax structure and incentive
programs.
- While the Industrial sector leads the way, other asset classes
are experiencing an uptick in activity this year.
Commercial investment in the Edmonton region posted one of its strongest
first quarters in recent history, with overall sales volume rising
close to $800 million and sales
nearing 200, according to data available from The Network.
Industrial and land were the top performing asset classes in terms
of dollar volume, up 76 per cent and 45 per cent respectively in
the first three months of the year, compared to the same period in
2022, followed by multi-family, retail and office.
Momentum continues to ramp up in the industrial sector as
logistics, warehousing and distribution tenancies spillover from
the Lower Mainland and Toronto.
Large organizations such as Amazon and Home Depot have been drawn
to the region's affordable price point for land, its young,
educated labour force, and favourable provincial tax structure and
incentive programs. Last September, the city was named the centre
of Western Canada's new hydrogen
economy, with construction well underway on Air Products' new
$1.6 billion hydrogen facility. New
business has also been pulled to the region, with Delta, BC's English Bay Blending and Fine
Chocolates recently announcing their decision to relocate and
expand in Stoney Plain, Alberta. The company will invest approximately
$30 million in the construction of a
120,000-square-foot food and manufacturing facility later this
year, creating 70 permanent positions.
Owner-users and single tenants continue to seek industrial
product, but inventory remains tight, especially for multi-bay
properties, despite on-going construction in Edmonton's peripheral areas. As such, there
has been upward pressure on average lease rates, which have climbed
3.5 per cent year-over-year, especially in sought-after areas such
as Parkland County and Acheson.
Demand has also accelerated in the Greater Edmonton Area, where activity is now
as strong or stronger than Edmonton Proper. Availability rates for
industrial continue to fall in Edmonton, now sitting at 6.2 per cent, down
from 7.5 per cent in the first quarter of 2022, according to the
Altus Group.
Development land has seen significant growth over the past year,
with 54 sales in Edmonton in the
first quarter of the year up 26 per cent to over year-ago levels
for the same period and dollar volumes rising to $132 million. Industrial product is becoming
increasingly difficult to find in Edmonton Proper and construction
is more expensive due to inflation and higher interest rates. The
surrounding counties have experienced an uptick in activity in
recent years as a result, given the greater supply of land at a
lower price point and tax base. Twenty-one tracts of land zoned
industrial traded in the first three months of the year in
Edmonton, followed by up
urban/agricultural.
Multi-family land sales fell just short of last year's levels,
with eight sales valued at over $21
million moving in the first three months of the year.
Existing sales of apartments in Edmonton were down marginally from Q1 2022,
with 19 high-rise, walk-up, and townhomes changing hands, as fewer
private portfolios make it to market. Financing land can be a
challenge for some in today's higher interest rate environment,
which has prompted an uptick in vendor-take-back mortgages at a
lower rate than currently available at conventional lenders.
Approvals in place have also helped to accelerate land sales on
readily available land with servicing and zoning in place.
Activity in the office sector softened in the first quarter of
the year despite greater inducements, with availability rates
edging slightly higher to 20.4 per cent, according to data
available from Altus Group. Vacancy rates remain high, even with
the traffic the Ice District, a mixed-use sports and entertainment
district surrounding Rogers Place and Ford Hall, that includes
office, condominium, hotels, restaurants and retail brings to the
core. Construction is underway on a 500,000-square-foot office
tower in the city core, slated for completion in 2025, with
Canadian Western Bank as its lead tenant. There has been a flight
to quality, prompting landlords in B and C class buildings to
enhance their lobbies, hallways, and retail space. Companies
expecting employees to return to the office in some sort of hybrid
model are also upping their game, including new kitchens with
coffee bars, tenant mixers, accessible parking and increased safety
measures. Few conversions from commercial to office have occurred
to date, given that many buildings in the core are not well-suited
for repurposing. Demand for suburban office space, on the other
hand, has held relatively steady.
Retail continues to be exceptionally strong, particularly in the
city suburbs, given population growth and higher disposable incomes
within the province. Twenty-six sales were reported in the first
quarter of 2023 in Edmonton, an
increase of 28 per cent over year-ago levels. Sales volumes more
than doubled year-over-year, approaching $107 million, up from almost $50 million in Q1 2022. Strip plazas and shopping
centres continue to be a favourite with investors, with good
product moving quickly. No vacuum has been reported in the wake of
the Nordstrom's exit, with at least half a dozen tenants expressing
interest in the space. Loblaw recently announced its intention to
invest $2 billion to open 38 new
and/or renovated stores. Demand for smaller retail footprints is
increasing as retailers become more efficient. Space optimization
is happening across the city, from retail storefront on main
arteries to large power and retail centres. Average price per
square foot now ranges between $28 to
$38 per square foot.
Edmonton's commercial market is
expected to build on its strong first quarter throughout the
remainder of the year as inflation slowly subsides and the cost of
construction stabilizes. Industrial will remain the city's
commercial frontrunner, characterized by strong demand and low
supply, but the remaining asset classes should perform well except
for office space in the core. Greater clarity regarding work from
home policies should help employees return to offices in the core,
likely in some sort of hybrid work model. Incentives provided by
the province through Alberta's
Investment and Growth Fund (IGF) are expected to continue to
attract investment and business to Alberta from other parts of the country who
are seeking competitive land pricing, lower development costs, and
a younger, educated, workforce. Companies committed to a minimum
capital investment of $10 million
have the added benefit of a 12 per cent provincial tax credit in
the province. Population growth will continue to contribute to the
overall economy in the years ahead, with over 36,000 new residents
added between July 2021 and
July 2022, bringing the total
population in Edmonton to more
than 1.5 million, according to estimates from Statistics
Canada.
Calgary
- Investors from British
Columbia and Ontario are
exceptionally active in Calgary's
commercial market, driving demand for industrial and multi-unit
residential product.
- Calgary has bucked the
national trend, with availability rates in both industrial and
office leasing trending downward in the first quarter of 2023.
- With a growing tech presence and 10 commercial buildings slated
to undergo conversion to residential, excitement is building in
Calgary's downtown core, with
demand for retail and restaurant space on the upswing.
Alberta's strong economic
performance continues to fuel Calgary's commercial real estate market, with
most asset classes experiencing solid activity from both a lease
and sales perspective.
Spillover from out of province remains a major source of
business in the industrial sector, with warehousing and
distribution properties topping the list of investor demands. Given
limited availability of industrial space in the lower mainland,
most containers that are shipped to BC are now loaded onto trucks
for a 13-hour journey to Calgary's
'inland port.' The supply of serviced land zoned industrial has
fallen as a result, placing upward pressure on prices and raising
lease rates, especially for newer product. Older properties
available for sale may provide better returns, or more affordable
rental opportunities. Availability continues to trend downward
despite on-going new construction, with rates falling to 3.9 per
cent in the first quarter of 2023, down from 5.5 per cent during
the same period one year ago, according to Altus Group. De
Havilland Canada is one of the recent companies to set up shop in
Calgary, through its acquisition
of 1500 acres in Wheatland County just 30 minutes east of
Calgary. The company intends to
build a state-of-the-art facility that includes aircraft assembly,
runway, parts manufacturing, distribution centres and maintenance
repair and overhaul centre. De Havilland Field is expected to be up
and running in 2025 and employ more than 1,500 people.
Calgary's office market has
made some headway in the first quarter of the year, with
availability rates edging downward. Two factors have contributed to
the decline: the uptick in tech businesses and the repurposing of
existing commercial to residential. Attracted to the value
proposition of the Calgary
commercial real estate market, a young workforce, and incentives
offered by the Alberta's
Investment and Growth Fund, tech companies, including global tech
firm Applexus Technologies, have started moving into the downtown
core. Commercial repurposing has also met with success, thanks in
large part to a government program providing incentives to convert
office space to residential. Ten buildings have been earmarked for
repurposing, representing more than 1,200 new homes in the core.
The move also eliminates one million square feet of empty office
space. Together, these factors have had an enormous impact on the
downtown core, increasing vibrancy and sparking renewal in the city
that includes a strong retail/restaurant component to service the
growing residential presence. These two incentive programs have
been so effective to date that lease rates are starting to climb in
the core once again.
Suburban office space, particularly in Calgary's Quarry Park, has been an attractive
alternative to the core in recent years, with Imperial Oil leading
the charge to the suburbs about eight years ago. The low-key
presence within residential communities continues to resonate with
many tenants. Lease rates for office space in the suburbs range
from $10 per square foot to
$15 per square foot.
Low vacancy rates characterize demand for retail space and
buildings in Calgary at present.
The area's shopping malls remain vibrant, with Canadian Tire taking
over many of the Bed, Bath and Beyond locations in Calgary.
Land sales overall remain brisk, with out-of-province investors
seeking industrial, multi-family, and retail properties for
development. Existing multi-family is experiencing solid demand
from Ontario buyers, especially
for new buildings with assumable CMHC financing in place. Recent
data available from the Canadian Home Builders Association's (CHBA)
2022 Municipal Benchmarking Report, prepared by Altus Group, shows
that estimated approval timelines for residential development are
amongst the fastest in the country at five months in 2022, down
from 12 months in 2020. Cap rates in this segment of the market
have waned over the past year. REITs are active in the market,
typically seeking land zoned residential with approvals for
purpose-built rentals in place. Given the higher interest rate
environment, some vendor take back mortgages are available but they
are generally found on overpriced listings.
Strong population growth, government incentives, and lower tax
structures continue to draw companies both east and west of the
province to Calgary and its
surrounding communities. After an extended period of financial
hardship between 2010 and 2020 in the province, the rebound in oil
and gas prices, combined with a growing tech centre, and new
residential development in the downtown core, are changing the
landscape for the better.
Saskatoon
- Industrial sales are the driving force in the commercial
sector, with REITs and institutional investors vying against end
users. Lack of supply continues to hamper activity, prompting some
end users to purchase older, existing buildings and rehabilitate or
tear down, according to their requirements.
- Retail in suburban neighbourhoods has also soared, with limited
inventory contributing to skyrocketing rates. Retail leases are
hovering between $25 to $30 per square foot, with common costs amounting
to another $12 to 15 per square foot.
Demand is so strong that landlords feel no pressure to negotiate,
especially for newer, up and coming areas, where product is few and
far between.
- Office leasing on the other hand has faced some challenges in
the downtown core with key players such as banks and corporate
offices leaving former A class space for new A class office
buildings on the riverfront. The new construction has drawn so many
tenants from neighbouring offices that an estimated 50 per cent of
B class buildings are vacant.
Saskatoon's commercial real
estate market is thriving in most sectors, with a shortage of space
for lease in multiple asset classes placing upward pressure on
price per square foot, while limited availability is hampering
sales activity.
Industrial is extremely tight, with any space coming to market
immediately scooped up. In 2018, lease rates hovered between
$5 to $7 per square foot on the northside of town –
that's now doubled, with rates closer to $12 to $15 per
square foot and rising. Retail in suburban neighbourhoods has also
soared, with limited inventory contributing to skyrocketing rates.
Retail leases are hovering between $25 to $30 per
square foot, with common costs amounting to another $12 to 15 per square foot. Demand is so strong
that landlords feel no pressure to negotiate, especially for newer,
up and coming areas, where product is few and far between.
Office leasing on the other hand has faced some challenges in
the downtown core with key players such as banks and corporate
offices leaving former A class space for new A class office
buildings on the riverfront. The new construction has drawn so many
tenants from neighbouring offices that an estimated 50 per cent of
B class buildings are vacant. Landlords are willing to work with
the right tenant, offering step leases and long-term improvement
allowance.
The multi-family residential segment remains strong, with door
values climbing about 17 per cent year-over-year, rising from
$115,0000 to $135,000. Demand for units is robust, with new
Canadians and young buyers representing the lion's share of
activity. Investors from Ontario
and BC are especially active in this segment of the market.
Land is available for sale but is primarily situated on the
city's borders. Priced from $1
million an acre for land serviced to the property line, the
combination of land cost and development levies are not for the
faint of heart. Smaller developers are struggling under the weight
of these expenses, made worse by the extended approval process at
city hall and its endless series of hurdles to be satisfied. In
today's high interest rate environment, when builders' margins are
already thin, returns can be disappointing. Infill is also
occurring, with the city's foremost developers snapping up land
within older, established areas for high-end condominiums.
Industrial sales are the driving force in the commercial sector,
with REITS and institutional investors vying against end users.
Lack of supply continues to hamper activity, prompting some end
users to purchaser older, existing buildings and rehabilitate or
tear down, according to their requirements. In one recent instance,
three large buildings at least 35,000 square feet in size were torn
down for a massive, three-storey building constructed on the same
footprint. While Toronto is
well-known for its crane count, Saskatoon is now home to the backhoe.
Retail in suburban neighbourhoods has also soared, with limited
inventory contributing to skyrocketing rates. Retail leases are
hovering between $25 to $30 per square foot, with common costs amounting
to another $12 to 15 per square foot.
Demand is so strong that landlords feel no pressure to negotiate,
especially for newer, up and coming areas, where product is few and
far between.
Strong demand and heated activity now characterize the market
for farmland, where no comparable sales currently exist. Every
quarter sale is now setting a new record. Rents are up
significantly, with current costs rising from $80 an acre one year ago to $165. Large farmers continue to expand their
operations, with road gear dictating their purchase price. Land
that is closer to existing operations fetches higher prices than
those farther away. According to Farmland Credit Canada's most
recent report, overall values rose 14.2 per cent in Saskatchewan in 2022, compared to one year
earlier, with a lack of availability threatening to push prices
higher. While large farming operations have dominated the landscape
for many years, there has been a notable increase of small farmers
returning to the province over the past year.
Regina
- Industrial sales and leasing are at the forefront for most,
with vacancy rates at less than one per cent. Developers are
scrambling to meet demand but with little or no serviced land left
in the city, industrial continues to be pushed to Regina's peripheral areas.
- Regina's housing shortage,
coupled with strong population growth, has accelerated the
development of purpose-built rentals, with some spillover into
neighbouring Weyburn and
Estevan.
- Farmland remains buoyant, with record sales occurring as large
farm operations continue to expand into adjacent properties.
Regina's commercial real estate
market is turning the corner, with both out-of-provinces and
international inquiries regarding existing opportunities growing in
almost every asset class.
Industrial sales and leasing are at the forefront for most, with
vacancy rates at less than one per cent. Developers are scrambling
to meet demand but with little or no serviced land left in the
city, industrial continues to be pushed to Regina's peripheral areas where the cost per
acre of serviced industrial land has now risen to between
$450,000 and $550,000 an acre. There is some redevelopment
land in westside adjacent, but offsite levies and service fees
would bring the cost to $750,000 an
acre, leaving little return on investment in today's high interest
rate environment.
Developments east of Regina,
including Emerald Park,
White City, and Pilot Butte, and the city's north end (Parker
Industrial) are thriving, with tenants now vying for space. The
global transportation hub west of the city has seen an uptick in
activity over the last year or so, with particular emphasis on
warehousing and distribution space with some manufacturing mixed
in. Supply issues have prompted some in the city to manufacture
small goods locally, which has also contributed to the upswing in
demand for manufacturing facilities. As availability rates decline,
lease rates have firmed up across the board, running between
$12 and $13 per square foot net, with newer buildings
leasing at closer to $13 to
$14 per square foot.
Regina's housing shortage,
coupled with strong population growth, has accelerated the
development of purpose-built rentals in Regina, with some spillover into neighbouring
Weyburn and Estevan. Small to mid-size REITs are the main
drivers in this market, while smaller developers from Manitoba and Ontario are investing in repairable
multi-family buildings in good locations, cashing in on rising
rental rates.
The retail market has been relatively steady over the past year,
with demand greatest for leased space in sought-after locations.
South Albert Street continues to be
Regina's premier shopping
destination with demand outpacing supply. Although enclosed malls
have fallen out of favour with consumers, several REITs have
revitalized some locations by adding superstores and increasing
foot traffic.
Office space in the core continues to drag on the Regina commercial market, with the pandemic
only serving to further exacerbate existing issues. Smaller offices
in the suburbs have fared slightly better, but the overall market
is still underperforming. Availability is high, particularly in
downtown Regina, where many
corporate offices are reconfiguring space requirements to
accommodate hybrid work models. Sublet space is a growing factor in
overall availability as a result.
Farmland remains buoyant, with record sales occurring as large
farm operations continue to expand into adjacent properties. Price
increases have followed in lock step, with percentage gains in
North Eastern and West Central Saskatchewan experiencing the
greatest upswing in 2022, climbing 24.2 per cent and 17.2 per cent
respectively, according to the 2022 FCC Farmland Values Report.
Irrigated farmland in the province's West Central and South Western
areas have jumped 26 per cent, rising from $5,700 to $8,000
per acre. Interest in the market has grown exponentially, with both
out-of-province and foreign investors looking to participate in the
upward momentum.
Financing, however, is becoming increasingly challenging in
today's high interest environment, particularly with the big six
chartered banks who are tightening lending criteria. Arranging
financing on farmland or the sale of businesses remains most
frustrating for investors, with lenders now demanding down payments
upwards of 45 per cent. While there are alternative lenders
available to farmland investors, those selling businesses in
Regina continue to see deals fall
apart.
With Saskatchewan once again
poised for solid economic growth in 2023, investment in
Regina is likely to continue.
Economic fundamentals remain strong, buoyed by population growth in
Regina which climbed a further 1.7
per cent between 2021 and 2022 cent
to almost 270,000 residents, according to Statistics Canada,
building on a 5.3 per cent increase between 2016 and 2021. Net
migration to the city topped 6,000. Prospects for newcomers to
Regina remain positive, as
unemployment has fallen to 4.6 per cent. Net migration to the city
topped 6,000. Commodity prices for wheat and canola are climbing,
with demand for potash on the upswing. The price for Western
Canadian Select (WCS) oil currently hovers at $53 USD per barrel at present but is expected to
climb. Investment in the city continues unabated, including
Cargill's $350 million canola crushing plant currently
under construction and scheduled to open in 2024. The economic
outlook for Saskatchewan overall
remains robust, as forecasts suggest the province will lead the
country yet again in GDP growth. With solid fundamentals on tap, a
significant positive net impact is expected for commercial real
estate in Regina in the year
ahead.
Winnipeg
- Industrial remains at the forefront in 2023, leading
development citywide, while the multi-family sector has reignited
buyer attention this year in large part due to attractive CMHC
financing.
- Fewer investors have been active in the industrial market this
year, with end users picking up the slack. Newer warehousing and
distribution space remains most sought-after, generating
competition, with lease rates rising year-over-year and prompting
some to consider older product in secondary markets.
- The office sector remains soft in the downtown core, prompting
some conversions, but the suburban market has been robust.
- The retail sector experiences solid demand, demonstrated by
tighter vacancy rates. Strip malls and shopping plazas remain a
coveted asset.
Stability continues to be the hallmark of Winnipeg's affordable commercial real estate
market, with healthy demand for a variety of asset classes.
Industrial remains at the forefront in 2023, leading development
citywide, while the multi-family sector has garnered increased
attention this year in large part due to attractive CMHC
financing.
As the perennial favourite, industrial sales and leasing enjoy
strong demand in Winnipeg.
Warehousing and distribution facilities are the primary drivers
behind the push for industrial, given the city's geographical
location and billing as the country's national transportation hub.
Newer, large scale industrial product is coveted, with rare,
well-built, well-priced space generating competitive offering
situations. Upward pressure on lease rates for newer product has
prompted some industrial tenants to consider older inventory in
secondary markets, where some good quality product exists at a
lower price point. Most new construction continues to be located in
the rural municipalities surrounding Winnipeg, particularly in the R.M. of
Rosser, Springfield, and MacDonald.
A lack of supply of serviced land within the city limits has
created tighter market conditions for industrial and multi-family.
Most new industrial developments currently under construction are
fully or partially pre-leased, with just a handful of projects
built on speculation. Fewer investors have been active in the
industrial market this year, with end users picking up the
slack.
Multi-family residential continues to experience solid demand as
Winnipeg's population and rental
rates climb. CMHCs Rental Construction Financing Initiatives (RCFI)
have proven especially enticing in today's environment, with
favourable financing rates and generous terms including 10-year
terms at fixed rates and amortization periods of up to 50 years.
Vacancy rates in the city have declined year-over-year and
currently sit at 2.7 per cent for purpose-built rentals in
Winnipeg and closer to one per
cent in sought-after areas such as East
Kildonan, Transcona,
St. James and Assiniboine Park,
according to the CMHC's 2023 rental market report. Well-executed
multi-family rentals are changing the city landscape, creating hip
new urban enclaves such as the East Exchange District.
Purpose-built rentals are popping up in locations surrounding
concentrated retail nodes, with the latest billion-dollar
announcement the proposed Shindico/Cadillac
Fairview multi-unit development utilizing vacant land
adjoining CF's Polo Park Mall. The new Refinery District, with just
over 100 acres of mixed-use infill development, is currently
underway in South Winnipeg and is
expected to eventually house almost 48,000 people in a
three-kilometre radius when completed. Twenty-three acres have been
designated retail, which should add to the city's retail presence.
Artis' REITs 300 Main St., a 42-storey luxury apartment complex in
the core, is banking on young professionals buying into
live-work-shop phenomenon to help breathe new life into the
downtown district.
Downtown office space has struggled in the aftermath of the
pandemic. While landlords in these properties are offering
attractive incentives to potential tenants, it will likely take
eight to ten years to absorb all the excess office space in the
core. The Wawanesa Insurance tower, part of the True North Square
development, is scheduled for completion in fall of this year.
While landlord's have been anticipating this vacancy for some time,
it will exacerbate rising vacancy rates as more than 1,000
employees move into the new space. An oversupply of dated office
buildings will inspire developers to embark on conversion
properties at the right price. To date, several have undergone or
are undergoing some level of conversion, including 433 Main St.
175-185 Carlton St., and 315 Bannatyne. Unfortunately, most
buildings do not lend themselves well to a conversion.
The crux of the retail shopping experience in Winnipeg remains the shopping malls, where
vacancy rates in areas outside the downtown core remain relatively
tight. Investor interest peaked last year for strip malls and
shopping plaza, and the value-add of land. As such, this remains a
coveted asset class that is highly desired but difficult to realize
in Winnipeg.
Given solid economic fundamentals, the stage is set for a
continuation of healthy commercial activity in 2023. GDP growth in
the province is forecast to climb just under one per cent in the
year ahead, with new trade agreements and higher commodity prices
for wheat and canola contributing to the provinces' prosperity.
Immigration continues to bolster population growth with an
estimated 1.5-per-cent increase in the number of residents recorded
between 2021 and 2022 to reach close to 872,000, according to
Statistics Canada. Affordability will continue to be a major factor
in the city's expansion, as the low cost of living and doing
business in the centre attracts both newcomers and business to the
Winnipeg market.
London-St. Thomas
- Industrial continues to lead the way, with lease rates and sale
prices rising substantially over year-ago levels. Vacancy rates
remain at historically low levels, with solid demand for
warehousing and distribution space prompting an abundance of new
construction in the region.
- Land sales remain solid in both the residential and industrial
segment, while the pace of activity has slowed somewhat from
year-ago levels. The challenge to date has been the development
process, which is cumbersome and slow moving.
- Office leasing and sales remain soft, with the effects of the
pandemic still lingering. The downtown core has been particularly
hard hit, with availability rates now hovering over 20 per cent.
Older B and C class buildings will have to undergo major upgrades
to attract tenants, with landlords offering inducements and step
leases to sweeten the deal.
Despite rising interest rates and the fallout from the pandemic,
London's commercial real estate
market has remained relatively buoyant.
Industrial continues to lead the way, with lease rates and sale
prices rising substantially over year-ago levels. Vacancy rates
remain at historically low levels, with solid demand for
warehousing and distribution space prompting an abundance of new
construction in the region. The city's geographic proximity to
major arteries and rail lines at an affordable price point continue
to attract global investment. Prominent examples include
large-scale operations such as the new high-tech Amazon facility
boasting 2.8 million sq. ft. on four levels on the old Ford
Talbotville site and the multi-billion-dollar Volkswagen electric
vehicle battery plant in St.
Thomas –the largest in the world—both slated to open in
coming years. Availability rates have edged lower in tandem with
growing demand in Southwestern
Ontario, according to Altus Group, with rates now sitting at
3.3 per cent. Cap rates continue to rise for both industrial and
retail, rising about one percentage point from one year ago to
between five and five and a half per cent.
Land sales remain solid in both the residential and industrial
segment, while the pace of activity has slowed somewhat from
year-ago levels. The challenge to date has been the development
process, which is cumbersome and slow moving. Fees charged by the
municipality and the province also continue to impede development
and need to be streamlined to increase new building activity.
There continues to be strong interest demonstrated in new
multi-unit residential construction. REITs remain active in this
segment of the market. Higher rental rates –up significantly
year-over-year in the London area–
are contributing to the enthusiasm in this sector.
The retail sector has performed quite well over the past year,
with strip malls in new and older housing developments in high
demand. Supply is tight, falling well short of demand, with the
number of properties listed for sale few and far between. The
area's major malls, however, are struggling to lease space and some
have converted their retail space to office and commercial in an
effort to attract new tenants.
Office leasing and sales remain soft, with the effects of the
pandemic still lingering. The downtown core has been particularly
hard hit, with availability rates now hovering over 20 per cent.
Older B and C class buildings will have to undergo major upgrades
to attract tenants, with landlords offering inducements and step
leases to sweeten the deal. There has been some talk about
converting some commercial buildings in the core to residential,
but not all floor plates are an easy transition.
Lower interest rates and greater clarity surrounding the remote
work issue should help to revive the ailing commercial office
sector. The only question is
when?
Hamilton
- Manufacturing facilities are most sought-after in Hamilton, representing approximately 50 to 60
per cent of all sales/leasing activity, followed by warehousing and
distribution sites. Inventory remains tight throughout the area,
with new industrial parks in and around the Hamilton Airport now
fully leased.
- Owners of malls and plazas continue to find exceptional value
in their parking lots, submitting proposals to convert
underutilized areas into high-density residential/commercial
developments that promote live-work-shop communities.
- While some improvement has been noted in demand for
urban/suburban office space, the work from home phenomenon has had
a significant impact on the city's commercial office space.
The industrial asset class continues to lead Hamilton's commercial real estate market, with
strong demand for both properties listed for sale or lease
demonstrated throughout much of the first quarter. Sales volume was
up more than 50 per cent to $45.1
million in Q1 2023, up from $29.5
million during the same period in 2022, according to
Co-Star.
Manufacturing facilities are most sought-after in Hamilton, representing approximately 50 to 60
per cent of all sales/leasing activity, followed by warehousing and
distribution sites. Inventory remains tight throughout the area,
with new industrial parks in and around the Hamilton Airport now
fully leased. Rental rates for industrial space remain on an upward
trajectory, now sitting at an average of $13.65 per square foot. Cap rates continue to
trend lower, at just under six per cent in 2023. Last year's sale
of the Stelco site, with more than 800-acres of zoned industrial,
is expected to bring approximately 725 acres of Class A industrial
product to the market once the site is remediated and re-developed
(75 acres have been leased back to Stelco). Apart from the Stelco
site, which is expected to take years to develop, industrial land
remains scarce and hard to come by throughout the region.
Retail product, especially strip plazas, has also experienced
strong demand in the first quarter of the year in Hamilton. Ownership of both malls and plazas
continue to find exceptional value in their parking lots,
submitting proposals to convert under-utilized areas into
high-density residential/commercial developments that promote
live-work-shop communities. Eastgate Square, for example, has a
proposal before council that includes of 5,162 residential units on
its 45-acre property, while Lime Ridge Mall is seeking approval on
320 units in two 12-storey buildings on their site. Given the
current housing shortage in Hamilton, characterized by tight inventory
levels and upward pressure on both housing values and rental rates
in recent years, these proposals may offer a feasible solution to
existing market challenges. Recent retail sales, while falling
short of last year's levels, saw a significant uptick in price per
square foot, rising from $267 to
$416 year-over-year, based on data
from Co-Star.
The availability rate for office space in Hamilton's downtown core was accelerated by
the pandemic and remains high to date, pushing close to 20 per
cent. While some improvement has been noted in demand for
urban/suburban office space, the work from home phenomenon has had
a significant impact on the city's commercial office space. There
have been some discussions regarding the conversion of existing
office space to much-needed residential in the downtown core, but
the ability to convert remains in question, given that very few of
the buildings have floor plates conducive to residential.
REITs continue to be an active participant in industrial real
estate but have stepped back from other commercial asset classes in
the Hamilton, given the rising
cost of construction in today's high interest rate environment. The
promise of lower rates down the road should once again spur
investment in multi-unit residential and other sectors, although
the impact may not materialize until early 2024.
Greater Toronto Area
- Industrial remains by far the strongest sector, with vacancy
rates still under one per cent. Lack of inventory continues to
hamper activity in the industrial sector, with both sales and
leasing opportunities few and far between.
- Land with approvals in place is most sought after. Industrial,
retail, and residential apartments in all sizes – multi-plex to
high-rise – all represent opportunity but finding land at a decent
price is challenging, especially after taking into consideration
the additional cost of construction, project management, and
development charges.
- Shopping centres and malls in and around the 416-area code
continue to innovate, with residential condominium developments
currently under construction or proposed. Construction is already
underway at the Promenade Mall where residential development will
provide a captive audience for the site's retail presence.
Greater Toronto Area's (GTA)
commercial real estate market continues to evolve, with the
lingering effects of the pandemic shaping a new commercial
landscape. Asset classes are changing up, with demand for office in
2023 lagging behind industrial, retail, multi-use residential, and
land sales.
Industrial remains by far the strongest sector, with vacancy
rates still under one per cent. The shift from manufacturing to
warehousing and distribution that was accelerated during the
pandemic will remain the top usage for industrial space. Large
transactions continue to occur in the GTA, as evidenced by the
recent sale of a $70 million tract of
land. Lack of availability continues to hamper activity in the
industrial sector, with both sales and leasing opportunities few
and far between. While availability rates from Altus Group show
improvement over the first quarter of 2022, at just two per cent in
Q1 2023, levels in the GTA are still the lowest in the country.
Shortages exist in large industrial units for both lease and sale
in the 5,000- to 20,000-square-foot range. Demand continues to
outpace supply, even for smaller-sized units between 2,000 and
5,000 square feet with loading docks.
Land with approvals in place is most sought after, with the
weighted average of estimated approval timelines for residential
applications climbing from 21 months to 32 months between 2020 and
2022, according to the Municipal Benchmarking Report by the
Canadian Home Builder's Association (CHBA), prepared by Altus
Group. Industrial, retail, and residential apartments in all sizes
– multiplex to high-rise – all represent opportunity but finding
land at a decent price is challenging, especially after taking into
consideration the additional cost of construction, project
management, and development charges. There has been little product
priced at buyer expectation to date and a much wider gap in
returns. Higher risk factors make financing land exceptionally more
expensive than in the third quarter of 2022, with conventional
interest rates hovering at 8.5 per cent and more today. Vendor
take-back (VTB) mortgages are becoming increasingly popular as a
result, and some sellers are willing to provide financing if the
numbers make sense, which has returned some equilibrium to
proformas and respite for end users in the commercial, industrial
and retail sectors. In an analysis of closed transactions in the
Greater Toronto Area in Q1 2023,
the number of vendor-take-back mortgages as a percentage of total
sales over $2 million rose
substantially over year-ago levels, climbing to 9.55 per cent from
5.82 per cent in Q1 2022, with VTBs now representing close to one
in every 10 transactions, according to data available from
RealTrack.
As prices continue to climb in the industrial sector, some
companies that moved their offices into their industrial facilities
may be prompted to re-investigate opportunities available in the
office sector. According to Altus Group, availability in
Toronto has climbed to 17.8 per
cent, up just over two percentage points and higher if you factor
in sub-leased space, which will translate into some cost savings
for new tenants, especially in B and C class buildings. Leasing
rates will remain similar to those charged pre-pandemic in class A
space in the core, with landlords offering inducements to offset
net effective rents. The downtown core is still struggling with
levels of vacancy virtually unheard of in pre-pandemic times as
employers attempt to work out some sort of hybrid work schedule.
The ability to work remotely, made possible by the pandemic, is now
a perk that few employees will discard. In fact, in recent contract
negotiations, remote work was front and centre for federal public
servants.
In the suburbs, office space has fared slightly better with an
uptick in small-sized companies looking for commercial space,
particularly in stand-alone buildings. Medical space, and space for
schools and daycare facilities are especially coveted.
Retail has shown remarkable resilience, especially urban retail
storefront along the city's main arteries. As construction winds
down on streets like Eglinton Avenue, revitalization will take
hold, increasing both retail values and rental rates. Vacancies
will also decline as more players enter the market. Growth is
anticipated in the retail sector as prime new retail spaces come up
for lease offering ground floor access in mixed-use developments
along streets close to transit hubs such as Avenue Road, Weston
Road, Eglinton Avenue, Yonge Street
and Kingston Road.
Shopping centres and malls in and around the 416-area code
continue to innovate, with residential condominium developments
currently under construction or proposed. Construction is already
underway at the Promenade Mall where residential development will
provide a captive audience for the site's retail presence. There's
been similar movement at the Hillcrest Mall, the Markham Town
Centre, and the Pickering Town Centre. With Nordstrom's the latest
in US retailers to pull out of the Canadian marketplace, there have
been some concerns voiced regarding the vacuum they leave as they
vacate retail space. Department stores such as the Hudson's Bay
Company now factor real estate holdings in their portfolio into
their formula and have sold locations as recently as 2021/2022 in
Vancouver and Winnipeg to free up available cash flow.
Perhaps the strongest sign of well-being in the retail sector is
the recent closing of Bed, Bath and Beyond. Within days of
liquidation, Canadian Tire announced that they had acquired 10
leases (nearly 250,000 square feet) in Ontario, Alberta and British
Columbia, while Winners picked up two leases. Rooms + spaces
subsequently announced that they, too, had secured 21 BBB stores in
Ontario, British Columbia, Alberta, Saskatchewan and Newfoundland.
Multi-unit residential continues to be a top performer, with
demand soaring for existing portfolios and values accelerating at a
rapid pace. Population growth and a shortage of available rental
apartments have contributed to increased demand for purpose-built
rentals throughout the GTA, but recent policies regarding rent
control and zoning regulations have had an impact on new
construction. However, some condominium developers watching the
recent pull-back in buying activity over the past year have turned
to purpose-built rentals, taking advantage of inducements and
credits offered by government and CMHC financing. With vacancy
rates hovering at about one and half per cent for purpose-built
rentals and the average price of a two-bedroom unit up
approximately 20 per cent year-over-year in Toronto, the timing is ideal for the shift,
according to the most recent CMHC Rental Report.
Those in the industry remain cautiously optimistic with regards
to the commercial real estate market in the Greater Toronto Area moving forward. The
outcome of the upcoming mayoralty race may provide greater
direction from the mayor's office in terms of viable solutions to
the city's critical housing issues, with the potential to partner
with developers in a public-private relationship committed to
increasing the existing stock.
Ottawa
- Industrial sales and leasing remain tightest, with demand
greatest for manufacturing, warehousing and distribution
facilities. While availability rates edged up year-over-year in
Ottawa, according to a recent
report by Altus Group, vacancy rates remain stubbornly low,
hovering at just over one per cent.
- Land sales have soared in 2023 with industrial now fetching
$1 million an acre (and has moved for
as high as $1.2 million an acre in
recent months).
- Opportunities currently exist within Ottawa for commercial investors, many of whom
are attracted to the market because of its reasonable price point.
Small office buildings, industrial buildings, and residential land,
particularly product on the greenbelt, all represent a solid
investment strategy.
Scarcity best describes the state of the commercial real estate
market in the nation's capital, with all asset classes reporting
product shortages except for office space in the city's downtown
core.
Industrial sales and leasing remain tightest, with demand
greatest for manufacturing, warehousing and distribution
facilities. While availability rates edged up year-over-year in
Ottawa, according to a recent
report by Altus Group, vacancy rates remain stubbornly low,
hovering at just over one per cent. Competition is fierce in the
marketplace, with little product available, particularly within the
urban boundaries.
Land sales have exploded in 2023 with industrial land now
fetching $1 million an acre (and has
moved for as high as $1.2 million an
acre in recent months). With the expansion of the city's official
plan, there's also been an uptick in the sale of development land
for residential use, with purpose-built rentals and condominiums a
top priority. Projects with approvals in place tend to move
quickly, as evidenced by the recent quarter billion-dollar sale for
a mixed-use development on 55 acres. The revitalization of LeBreton
Flats, according to the LeBreton Flats Master Concept Plan,
continues unabated, with several new buildings underway and
applications for two more high-rise buildings under consideration.
The Aqueduct District, situated within LeBreton Flats fronting the
Ottawa River, will be ground zero for development in Ottawa over the next decade.
Retail has also experienced growth this year, especially in
sought-after areas such as Westboro, Glebe, Centertown, and
downtown. Demand for retail storefront in high traffic areas has
been especially brisk. Malls and shopping centres are also doing
well, with the Hudson's Bay Company recently relaunching the
Zeller's brand within their locations in Rideau Centre and St.
Laurent Shopping Centre. Chapters-Indigo recently closed its
bookstore on Rideau St. to relocate to a new, large-format store
within the Rideau Centre.
The office sector has had its challenges during the pandemic and
its aftermath, with civil servants recently identifying the ability
to work from home as a major bargaining chip in their contract
negotiations. There are some very real questions regarding the
future of commercial office space in downtown Ottawa, given that the city's largest employer
will likely not require as much space as it has had in the past.
That said, the price per square foot for leased space has
flatlined, but limited supply at this point is keeping current
prices elevated. Altus Group recently pegged the availability rate
for office space at 12.5 per cent in Ottawa during the first quarter of 2023, up
from year-ago levels, but still amongst the lowest levels in the
country. While the impact on downtown office leasing has yet to be
determined, one commercial office building is already transitioning
to residential. It's expected the buyer will keep the existing
structure but gut the interior down to the concrete base and
reconfigure for residential use. Small office buildings, on the
other hand, are in high demand throughout the city, with medical
services the typical end user.
Opportunities currently exist within Ottawa for commercial investors, many of whom
are attracted to the market because of its reasonable price point.
Small office building, industrial buildings, and residential land,
particularly product on the greenbelt, all represent a solid
investment strategy. For those looking longer term, commercial
office space is expected to bounce back, against a backdrop of
population growth both nationally and within Ottawa itself.
Halifax
- Commercial office vacancies hovering at 18 to 20 per cent in
the core, coupled with the shrinking footprints of existing
corporate offices, have prompted a seismic shift in the office
market. While not all office buildings are well-suited for
residential conversion, the city's abundance of heritage buildings
offer a unique opportunity to preserve history and provide
homeownership opportunities in prime real estate on Halifax's picturesque waterfront.
- Vacancy rates under one per cent are behind much of the push
for purpose-built rentals in Halifax and the surrounding areas, with not
enough product to accommodate the city's rapidly growing
population. With the population approaching 500,000, the need for
housing has never been greater, yet the estimated 24,000 units
planned in 10 to 15 buildings throughout the Halifax Regional
Municipality, are on hold, with developers waiting for more
favourable conditions to present.
- The city's malls continue to fare well, with few vacancies
despite higher lease rates. Retailers are reducing their footprints
in area malls, given robust on-line shopping sales while management
is looking to enhance the shopping experience by adding more
restaurants, gyms, and in some cases, higher-end grocery stores.
Some landlords have revamped large parking lots, adding office
towers and a residential element to complement existing
retail.
Commercial real estate activity continues to ramp up as investor
appetite for key asset classes escalates within Halifax and the surrounding areas. Despite the
higher interest rate environment, out-of-province and
out-of-country buyers continue to seek out affordable opportunities
in multi-family, industrial, and/or office conversion, contributing
to the city's rapidly changing landscape.
Commercial office vacancies hovering at 18 to 20 per cent in the
core, coupled with the shrinking footprints of existing corporate
offices, have prompted a seismic shift in the office market. While
not all office buildings are well-suited for residential
conversion, the city's abundance of heritage buildings offer a
unique opportunity to preserve history and provide homeownership
opportunities in prime real estate on Halifax's picturesque waterfront. The
Centennial building, a 156,000-square-foot building offering
spectacular views of the Halifax Harbour, is one of the first to
undergo a complete retrofit. Slate's Maritime Centre is currently
in discussions regarding the possible conversion of its
600,000-square-foot property to residential while Purdy's Wharf is considering the
retrofit of one of its two towers to multi-family residential. At
least four to five large scale projects involving the repurposing
of existing buildings are approved and will come to market within
the next 24-month period.
Vacancy rates under one per cent are behind much of the push for
purpose-built rentals in Halifax
and the surrounding areas, with not enough product to accommodate
the city's rapidly growing population. The Halifax Regional
Municipality (HRM) is one of the fastest growing urban regions in
Canada, adding more than 20,000
people to their population between July
2021 and July 2022, according
to Statistics Canada. With the population approaching 500,000, the
need for housing has never been greater, yet the estimated 24,000
units planned in 10 to 15 buildings throughout the Halifax Regional
Municipality, are on hold, with developers waiting for more
favourable conditions to present. The situation is expected to
resolve itself somewhat with improvements to the existing supply
chain and greater stability in construction costs in the year
ahead.
The city's malls continue to fare well, with few vacancies
despite higher lease rates. Retailers are reducing their footprints
in area malls, given robust on-line shopping sales while management
is looking to enhance the shopping experience by adding more
restaurants, gyms, and in some cases, higher-end grocery stores.
Some landlords have revamped large parking lots, adding office
towers and a residential element to complement existing retail. Big
box retail power centres are having difficulty leasing larger
stores ranging from 5,000 to 10,000 square feet or larger in
today's retail climate, as evidenced by the 30 to 40 per cent
vacancy rate at Dartmouth Crossing. Proposed residential
development in the area may help bolster activity at the centre in
the future. Bayers Lake is adapting to new market realities by
interspersing smaller stores, restaurants and a movie theatre into
the mix. Their location, conveniently situated within Clayton Park, has also contributed to their
success. In the downtown core, there have been a number of new
rental buildings constructed on Spring
Garden, with each housing a vibrant retail component on the
main floor.
Inventory in the city's industrial parks remains tight, with
availability levels falling to four per cent in the first quarter
of 2023, according to data from the Altus Group. Halifax was one of two markets in the country
that experienced further decline this year. Warehousing,
distribution and flex-space is most sought-after, although there is
some demand for manufacturing facilities. The shipyards have
experienced tremendous growth over the past decade, with more than
$350 million spent by the Irvings to
modernize their operations in anticipation of building 15 warships
for the federal government, a contract now valued at close to
$85 billion. Construction is
scheduled to begin in 2024.
With growth in Halifax and the
surrounding areas on an upward trajectory, the outlook for
commercial real estate is bright. Last year alone, interprovincial
migration accounted for 40 per cent of the surge in population
growth, while international migration accounted for the remainder
of growth. According to Statistics Canada, more than 10,000
business were in operation in Halifax in January of 2022 – a figure higher
than pre-pandemic – with the 15-per-cent increase over 2020 numbers
providing a clear indication as to what the future holds for the
HRM.
St. John's, Mount Pearl, Paradise
- Newfoundland-Labrador is forecast to lead Atlantic Canada in GDP growth in 2023 as
capital spending ramps up in the province.
- Industrial inventory shortage in Ontario may spill over into Newfoundland-Labrador as potential buyers and tenants'
express interest in the St. John's
industrial product.
- After moving en masse to the suburbs, is there a potential
return to downtown core for corporate offices?
With Newfoundland-Labrador forecast to lead Atlantic Canada in terms of GDP growth in
2023, demand for commercial properties is expected to rise in
tandem in St. John's and
surrounding communities. To date, commercial sales are up more than
20 per cent, while dollar volume has soared to $18.8 million, up from $6.4 million during the same period in 2022.
Industrial remains the strongest commercial asset class in
St. John's, characterized by solid
demand and limited supply. Just five industrial properties are
currently listed for sale on the St.
John's real estate board, with the highest MLS sale on
record –a 60,000 square foot warehouse— reported in St. John's earlier this year. The city's
affordable price-point for both sales and leased space has recently
drawn the attention of potential industrial buyers/tenants from
Ontario, the most recent of which
was interested in a facility to manufacture parts for electric
vehicles.
While vacancy rates for commercial office space in the core
topped 20 per cent in the first quarter of the year, the outlook is
improving. Recent inquiries suggest a potential shift back into the
downtown core. Several years ago, the province's largest
corporations moved their office space from the core to the suburbs,
where greater square footage and available parking at a lower cost
proved irresistible. With the shift to remote working, the
abundance of space is unnecessary for many employers, and the move
back to the vibrancy of the city centre is attractive to employees
from both a recreational and social point of view. The Bank of
Montreal, for example, just
located their corporate offices to the new Class A commercial space
at 331 Water St., a new development which also offered ground-level
retail space for their branch.
Retail sales and leasing continue to thrive in St. John's, Mount
Pearl, and Paradise. Avalon
Mall, one of the top enclosed malls in Atlantic Canada, remains the city's premier
shopping destination with almost 100 per cent of its premises
leased. The Shoppes at Galway is the city's latest big-box
development, housing big-name retailers such as Costco, Home Sense,
Marshalls, Orangetheory, Starbucks and Tim
Hortons within it's 700,000 square feet of existing retail
space with another 300,000 square feet planned for the future.
Demand for retail properties and lease opportunities is expected to
remain healthy, with average lease rates holding relatively stable
year-over year, ranging $21 per
square foot net in the waterfront district to $30 plus per square foot in high-demand shopping
centres.
Investment in the province has ramped up significantly, with the
natural resource sector behind much of the push this year. Of the
$18.3 billion in major capital
spending on projects valued over $25
million that are planned and underway in 2023, mining and
oil top the list at $8.9 billion,
according to the government of Newfoundland and Labrador. The spill over into the St. John's commercial market is inevitable, as
evidenced by the more than $37
million in commercial building permits issued in the city in
the first three months of the year, up 57 per cent from one year
ago.
About the RE/MAX Network
As one of the leading global real estate franchisors, RE/MAX, LLC
is a subsidiary of RE/MAX Holdings (NYSE: RMAX) with more than
140,000 agents in almost 9,000 offices with a presence in more than
110 countries and territories. RE/MAX Canada refers to RE/MAX of Western Canada (1998), LLC, RE/MAX
Ontario-Atlantic Canada, Inc., and RE/MAX Promotions,
Inc., each of which are affiliates of RE/MAX, LLC. Nobody in the
world sells more real estate than RE/MAX, as measured by
residential transaction sides.
RE/MAX was founded in 1973 by Dave and
Gail Liniger, with an innovative, entrepreneurial culture
affording its agents and franchisees the flexibility to operate
their businesses with great independence. RE/MAX agents have lived,
worked and served in their local communities for decades, raising
millions of dollars every year for Children's Miracle Network
Hospitals® and other charities. To learn more about RE/MAX, to
search home listings or find an agent in your community, please
visit remax.ca. For the latest news from RE/MAX Canada, please visit blog.remax.ca.
Forward looking statements
This report includes "forward-looking statements" within the
meaning of the "safe harbour" provisions of the United States
Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of words such as "believe,"
"intend," "expect," "estimate," "plan," "outlook," "project," and
other similar words and expressions that predict or indicate future
events or trends that are not statements of historical matters.
These forward-looking statements include statements regarding
housing market conditions and the Company's results of operations,
performance and growth. Forward-looking statements should not be
read as guarantees of future performance or results.
Forward-looking statements are based on information available at
the time those statements are made and/or management's good faith
belief as of that time with respect to future events and are
subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. These risks and
uncertainties include (1) the global COVID-19 pandemic, which has
impacted the Company and continues to pose significant and
widespread risks to the Company's business, the Company's ability
to successfully close the anticipated reacquisition and to
integrate the reacquired regions into its business, (3) changes in
the real estate market or interest rates and availability of
financing, (4) changes in business and economic activity in
general, (5) the Company's ability to attract and retain quality
franchisees, (6) the Company's franchisees' ability to recruit and
retain real estate agents and mortgage loan originators, (7)
changes in laws and regulations, (8) the Company's ability to
enhance, market, and protect the RE/MAX and Motto Mortgage brands,
(9) the Company's ability to implement its technology initiatives,
and (10) fluctuations in foreign currency exchange rates, and those
risks and uncertainties described in the sections entitled "Risk
Factors" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the most recent Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q filed with
the Securities and Exchange Commission ("SEC") and similar
disclosures in subsequent periodic and current reports filed with
the SEC, which are available on the investor relations page of the
Company's website at www.remax.com and on the SEC website
at www.sec.gov. Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the
date on which they are made. Except as required by law, the Company
does not intend, and undertakes no duty, to update this information
to reflect future events or circumstances.
SOURCE RE/MAX Canada