Canada’s real estate sector expected to rebound with economy in 2022
Canada’s residential, commercial, industrial and retail real estate sectors are expected to rebound in 2022 as the economy continues to recover from pandemic restrictions and lockdowns, according to a report released Dec. 21.
Canada’s economy and real estate market is expected to recover in 2022 from early pandemic inertia that has been shaken off by 2021, a real estate management company said in its annual forecast.
“It is believed that multi-suite residential and industrial properties will continue to perform better than office and retail properties,” said Keith Reading, research director at Morguard Corporation. “As the economic picture improves in 2022, investors will expand their investment horizons in 2022 by looking to buy more office and retail properties.”
Investment performance remained strong for industrial and apartment buildings in 2021, while office and retail properties showed signs of stabilization due to efforts to contain the spread of COVID-19 and the subsequent relaxation of some restrictions, according to Morguard’s Canadian Economic Outlook and Market for 2022 baseline report.
First and foremost, the real estate sector depends on how the economy recovers, a situation that further depends on what happens with the pandemic. And that is an unknown quantity given the current peak of infections, although vaccination rates continue to rise and 81 percent of the population received at least one vaccine dose as of December 11, according to the Canadian health authority.
Morguard said the economy is expected to continue to recover from the pandemic-induced correction in 2022, with production increasing by between 4 and 5 percent on an annual basis.
The report forecast the service sector as a key growth driver for the coming year after the commodity manufacturing sector expanded proportionally more rapidly in the early stages of the pandemic.
It also predicts that the Canadian labor market will strengthen in 2022. This is because by autumn 2021 the unprecedented job losses due to the pandemic had been made up, pushing the national unemployment rate closer to pre-pandemic levels.
Effects on real estate
The nationwide vacancy rate rose by 1 percent year-on-year in October 2021 to a four-year high of 3.2 percent, with the vacancy rate being more pronounced in large cities. With Canada’s borders reopening and employment growth sustained, rental demand is expected to gradually increase in 2022 and remain a preferred destination for investors.
The decline in immigration and post-secondary students due to border closings entering the country in 2021 contributed to lower demand for the multi-suite residential segment.
In the commercial real estate sector, investment in the office segment was relatively subdued in 2021 amid uncertainty about the lifting of pandemic restrictions.
A total of $ 1.9 billion in office property sales were reported in the first half of 2021, 37 percent less than last year, compared to $ 3.0 billion in the same period in 2020.
In 2022, most office tenants are expected to return employees, giving tenants the opportunity to make decisions about longer-term rental needs. If this happens, the report predicts, activity levels and market conditions could stabilize, which will lead to increased investor confidence.
Vancouver recorded the lowest office vacancy rate in any major city at 6.9 percent in the first half of 2021.
Industrial property
Industrial assets held record low inventories across Canada in 2021. The national availability rate for industry reported a low of 2.3 percent in mid-2021. Availability rates of 1.1, 1.2 and 1.4 percent were reported for Vancouver, Toronto and Montreal in mid-2021.
The situation was different in the areas of warehousing, logistics and e-commerce, in which companies expanded relatively quickly and continued the trend observed since mid-2020.
Rental demand in these areas continues to outpace supply, which means that tenants may struggle to find available commercial space in 2022, despite an expected pickup in construction activity.
Restrictions and retail
COVID restrictions affecting in-person shopping resulted in decreased retail activity in 2021.
The report said short-term lease renewals and state aid have supported Canadian retailers year-round, but extended lockdowns contributed to a decline in landlord and retailer income and, in some cases, forced independent businesses to close
However, the report predicts that retail performance patterns will improve in 2022 as pandemic restrictions relax and shoppers return to the malls.
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