Canadian Commercial Real Estate Market Remains Steady: Morguard

Major Canadian commercial property sectors remained stable in the third quarter according to Morguard’s 2023 Canadian Economic Outlook and Market Fundamentals Third Quarter Update.

Morguard’s 2023 Canadian Economic Outlook and Market Fundamentals Third Quarter Update revealed that major Canadian commercial property sectors remained stable in the third quarter.

The report also revealed that the multi-suite residential rental sector saw rental demand outpace supply resulting in accelerated rent growth across the country during the third quarter of 2023.

According to the report, the Canadian economy is forecasted to strengthen from the second half of 2024 onwards, despite Canada’s economic growth is expected to soften in the near future.

“The industry has the potential to rebound in early 2024 depending on the central bank’s rate decisions and the effects of the monetary policy,” said Keith Reading, senior director, research at Morguard. “The alleviation of inflationary pressures and adjustments in interest rates will remain pivotal in shaping the trajectory of Canada’s economy going forward.”

According to the report, the multi-suite residential rental sector experienced accelerated rent growth with the average asking rent for purpose-built units in Canada’s 35 top markets rising by 14.6 per cent year-over year as of September 2023.

This indicates a nine-month high, according to Urbanation Inc.’s Rentals.ca network. Additionally, job growth in early 2023 was stronger-than-expected along with a spike in immigration, which contributed to increased rental demand pressure.

According to the report, rent growth is expected to moderate in the near future following the acceleration in the third quarter. This is due to significant deceleration in job growth for the remainder of 2023 as well as into early 2024. International migration volume is also projected to moderate, notes the report.

In terms of commercial real estate, investment sales activity in the commercial property sector remained muted in the third quarter, according to the report, and consistent with a year-long trend.

Industrial property sales also slowed again in the third quarter, which followed an increase in sales during the second quarter.

While core-quality warehouse and logistics properties continued to sell at relatively good pricing levels, industrial property sales volume is expected to remain below the medium-term average for the foreseeable future.

According to the report, the third quarter also saw a sluggish office leasing market, which continues the trend of the past few years.

Leasing demand fell short of supply during the three-month period, noted the report, with the strongest demand observed for high-quality space in the country’s class A buildings.

Additionally, the retail investment sector reported very few significant transactions during the third quarter, which align with the year-to-date trend.

The report noted that Canada’s economy was relatively stable in the third quarter. Output varied due to different circumstances such as mining, quarrying and oil and gas production which increased after declining in the second quarter due to wildfire-related shutdowns. Strikes at ports also contributed to output reductions.

According to the report, economic growth is expected to begin firming up in the second half of 2024 and strengthen the following year in 2025.

The Bank of Canada continued to focus on the restoration of pricing stability during the third quarter and maintained the overnight rate at 5.0 per cent in October.

The report noted that the growth in employment and wage increases were seen as possible drivers of increased consumer price inflation. As a result, the bank may be compelled to implement another rate hike in the near term.

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