Solid growth predicted for Canada’s commercial real estate market in 2020
January 2, 2020
Morguard Corporation has released its 2020 Canadian Economic Outlook and Market Fundamentals Report, providing a detailed 2019 market update and an overview of the 2020 investment trends to watch. The report, Morguard’s 22nd annual edition, states that investor-confidence remained strong in the multi-suite residential, industrial and office segments in 2019 as demand continued to outpace supply of properties in these asset classes. For 2020, Morguard forecasts a positive outlook for Canadian real estate assets and a retail segment that will continue to adapt to industry changes.
“Commercial real estate remained one of the most attractive and stable long-term investments in 2019 and will continue to attract interest from investors in 2020,” said Keith Reading, Director of Research at Morguard. “The real estate industry, along with the Canadian economy, continued to expand in 2019 despite the global trade dispute and challenges in the oil and gas sector impacting domestic business confidence.”
The multi-suite residential asset class performed at a healthy level for investors in 2019. Nationally, economic growth and ongoing demographic trends continued to support strong rental market conditions throughout the year. Increased demand from downsizing baby boomers and families looking to rent due to the high cost of home ownership in major cities drove the segment’s strong performance. In 2020, positive rental demand patterns and constrained supply will continue to place upward pressure on rents in major cities.
The industrial asset class experienced an extension of the bullish phase of its investment cycle as investors continued to bid on available properties with confidence, following record high annual transaction volume of $12.7 billion in 2018. Most Canadian markets experienced strong rent price appreciation in the segment in 2019 as demand continued to outpace supply. Sourcing available space to lease remained a significant challenge across the country, forcing several businesses to look at design-build opportunities to meet their accommodation needs. In 2020, sales activity is expected to remain brisk, continuing the trend of the past few years.
In the office market, investment sales activity continued at a record pace in 2019. Canada’s technology sector continued to drive demand for leased space, resulting in upward pressure on average rents, especially in the downtown areas of major cities. Canadian office leasing fundamentals continued to strengthen against a backdrop of regional disparity, with the national average vacancy down appreciably in the first half of 2019.
Ongoing changes in the retail industry and the resulting uncertainty drove investors to exercise increased caution in 2019. Investment transaction activity has remained relatively brisk, with sales above the long-term average.
“Continued changes in consumer spending habits, e-commerce and demographic shifts forecasted for 2020 has reinvigorated the retail environment. Retail owners are introducing a new consumer experience in the tenant mix and more service retail among other measures to engage shoppers and keep up with industry changes,” added Reading.
Canada’s economic growth is forecasted to stabilize over the near term, representing the continuation of a trend that unfolded in the latter half of 2018. Consumer spending growth is expected to increase moderately in the coming year, driven by continued wage growth and low interest rates. Canada’s labour market performed extremely well in 2019, seeing the lowest unemployment rates over the last 50 years.
The 2020 Economic Outlook and Market Fundamentals Report is a detailed analysis of the 2020 real estate investment trends to watch in Canada. The full report, including analysis for the real estate markets in Halifax, Montreal, Ottawa, Toronto, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver and Victoria is available at morguard.com/research.