Report highlights resilient commercial real estate markets
While the commercial real estate markets faced endless challenges in 2020, investors and end-users in Western Canada demonstrated incredible resilience in their ability to both adapt to changing conditions and position themselves for the future. This came from a report released today by RE / MAX of Western Canada.
The RE / MAX report on commercial real estate, which highlighted trends and developments in seven major hubs in Western Canada, found that institutional investors and private equity played a key role in nearly all markets in 2020, increasing the demand for apartment buildings and Industrial products. and office buildings, while end-users and smaller investors were strong in industrial and, to a lesser extent, retail.
From Vancouver to Winnipeg, Industrial was the front runner, driven by increased demand for warehouse and fulfillment space from multinational companies like Amazon and FedEx, while demand for multi-unit residential property remained constant, with higher CAP rates and lower values Investors attracted markets like Edmonton and Calgary. Arable land rounded out the three most important sectors. Robust demand in Saskatchewan sparked strong sales and upward pressure on values.
“Despite a strong start to 2020 in nearly every asset class in Western Canada, the pandemic has shaken the foundation of the commercial market and ultimately changed the playing field,” said Elton Ash, Regional Executive Vice President of RE / MAX in Western Canada. “The industry has taken the spotlight in the aftermath as e-commerce sales exploded across the country, creating even greater demand, while retail and office sectors struggled with lockdowns and security measures.”
Closing bricks and mortar during lockdown and accelerating e-commerce put retail tenants behind the proverbial eight in 2020. Smaller retailers took the opportunity to invest in their future by buying smaller stores, especially in high-traffic areas, with equity profits that cushion a decline in sales. Others tried to improve their online presence and physical presence, and if necessary, industrial spaces for storage and distribution.
“The largest landlords in the country were able to rate and swing 2020 with some success,” explains Ash. “Changing the tenant mix was an option that the landlords exercised last year, while the renovation is a different one. Some shopping center owners are planning a future housing estate with several residential units on their lots. “
Moving from retail vacancies to industrial space is likely in the future as large companies like Brookfield are already pushing the move from retail to distribution models in their US portfolio.
Lockdowns and uncertainties contributed to negative absorption and higher vacancy rates in commercial office space across western Canada in 2020, although dollar volumes in some markets point to year-over-year sales of larger properties. Institutional investors in Calgary accounted for 48 percent of the company’s revenue, while private equity made up 24 percent in the office space last year.
According to CoStar’s Office Capital Markets Report, which climbed 10.1 percent to its highest level in recent years, according to the CoStar’s Office Capital Markets Report, the growing presence of institutional investors and private equity in Calgary indicates that the market is on or close to the ground.
“The recovery in global primary energy demand should help boost economic performance and demand for commercial real estate in Alberta in the second half of 2021,” said Ash. “In the meantime, we’ve seen institutional investors outside the province walking away with some of the city’s most coveted assets.”
Historically low interest rates and a strong economic recovery are among the main drivers behind the surge in demand in the coming year. The Bank of Canada (BOC) has announced that it will keep overnight interest rates at 0.25 percent and is forecasting a strong recovery in the second quarter. Investments will be driven by rising foreign demand. “The BOC has forecast GDP growth of four percent in Canada in 2021.
Limited inventory, the lack of available land in zones, and strong overall demand have made industrial real estate the cash cow of 2020. Industrial product vacancy rates remain low, with Vancouver recording the lowest rate at under 1.5 percent and rental rates rising 10 percent year on year. Large multinational corporations had lagged behind as they prepared their efforts to support a rapidly growing e-commerce industry.
Institutional and private investors flocked to multi-unit apartment buildings in 2020, fueled by the promise of greater security and lower interest rates. Calgary and the greater Edmonton area saw steady demand in 2020, although much of the activity took place in the first quarter, while Vancouver began 2021 with the sale of 15 rental homes for $ 292 million to two Ontario-based real estate investment trusts (REITs) .
“While the introduction of the COVID-19 vaccine should be well underway by this point, supply issues continue to hamper progress. Only 10 percent of Canada’s population is expected to be vaccinated by the end of the first quarter,” said Ash. “Economic growth as such will remain in readiness in the short term. However, once this goal is met, there is general consensus that economies across Canada will be brought back to life, fueling a surge in commercial real estate activity as stability returns to the big centers. “