Commercial real estate sales across Canada are expected to top $25 billion in 2015, according to Morguard Corporation’s 2015 Economic Outlook and Market Fundamentals Research Report, which details trends for the year ahead.
Sector trends from coast to coast vary, but overall, 2015 is expected to be a positive year, with owners and investors achieving solid returns, resulting mainly from stable and growing rental incomes.
Keith Reading, director of research at Morguard, said some investors will begin focusing on new construction as a “core strategy,” and have already started obtaining “value-add opportunities.”
The report predicts strong demand in Eastern Canada, with success connected to U.S. recovery and domestic activity. Property values should hold at the peak and increase annual transaction volume above the long-term average of $13.3 billion. Newly constructed and more efficient buildings in Toronto, Montreal and Ottawa will create risk for development within the office sector. Industrial and multi-residential markets will thrive and retail sales growth should drive leasing activity in well-known shopping centres.
In Halifax, commercial property is expected to strengthen over the year, offering investors some choice outside major cities. Besides a struggling and disappointing office market, commercial property in Ottawa will perform well. Investment will benefit from a strong public sector and its resulting stability. Government buildings, particularly those with long-term leases, are expected to attract the most attention.
Meanwhile, solid performance is expected in Montreal’s office and industrial rental markets. New supply in the office sector will offset some gains, but other markets will progress.
Toronto, as a preferable destination for investors, will generate positive market trends. U.S. economic recovery will increase manufacturing there, in turn, driving firmer job growth and retail consumption. There will also be healthy multi-residential demand resulting from immigration and high home costs. Morguard reports a possible downward pressure on rents as tenants move from older, existing buildings to newer towers.
The western markets are expected to remain quite stable as well, although the economy will slow over previous years. The retail sector, particularly shopping centres, will experience the majority of new construction, re-development and expansion, and, with Target’s exit from Canada, retailers will find opportunities to use quality space that was once unavailable.
Commodity-driven regions, like Alberta, will experience an economic downturn, while cities with less focus on resources, like Winnipeg and Victoria, will see stronger economic growth rates.
With new office towers and weak oil prices, vacancy levels in major cities, such as Calgary and Edmonton and Vancouver, could dampen rental growth.
Overall, a boost in new construction will add inventory in downtown and suburban office markets within major cities, while the long-term regional outlook remains strong enough to attract capital and investors who will continue to source yield there.