The commercial real estate market is buzzing across Canada, continuing the tremendous momentum experienced in 2017 into the 2nd quarter of 2018. Commercial real estate investment opportunities are reflected in a sea of construction cranes in Montreal, intense demand for commercial assets in Vancouver and Toronto, low office vacancy rates in London, Waterloo and Halifax, and the greatest level of commercial real estate investment in Ottawa in the past five years. Alberta is not left out in the cold either, despite our delayed spring. Bidding for commercial assets in Calgary and Edmonton has picked up steam as the economy in the west continues to recover… and now the icing on the cake is that oil prices are rising substantially for the first time since prices dropped out of site in 2014.
Strong Investment Predicated for Canadian Commercial Real Estate in 2018
2017 was a banner year for commercial real estate investment across Canada, which grew by more than 24 percent over 2016. Many analysts and industry insiders are predicting that 2018 will follow suit as another robust year for commercial real estate investment activity across Canada:
Canada's commercial real estate market sets another record in 2017 — and it's on track to go even higher in 2018… CBRE says there were more than $43.1 billion in investments last year, surpassing $34.7 billion in 2016 - Financial Post
With low interest rates, and lots of capital around, investors have a strong appetite for commercial real estate, which has been a proven performer, especially in and around our economic hubs:
"Investors remain enthusiastic about the Canadian commercial real estate market after a record volume of transactions in 2017," said Keith Reading, Director of Research at Morguard. "There is a high supply of capital ready to be invested and Canadian commercial real estate is a proven performer. We are predicting another very busy and competitive market environment across the country in the coming year.” - Morguard
Commercial Real Estate Hot Spots Across Canada
Toronto Office Vacancy Rates are Extremely Low
While Toronto has always been known for having a strong professional white-collar economy, it is now becoming a common destination for tech companies that are looking to expand or open new offices. Several major American and Canadian tech companies have opened up space in the expensive downtown Toronto market, helping to fuel demand.
Today, the overall office vacancy rate in Toronto is under 4 percent, while development has not produced an abundance of new projects in the past few years, which has led to increased rates for existing property owners. Year over year, rental rates in the city have increased by nearly 10% up to over $31 per square foot.
Vancouver Welcomes Amazon HQ Expansion
Vancouver’s office vacancy rate is only slightly up from Toronto at 5 percent. In fact, Vancouver and Toronto had the two lowest office vacancy rates in North America for 2017, due to intense bidding for a limited pool of prime downtown commercial assets in these Canadian economic hubs, which is also spurring new construction.
Amazon has just announced a major expansion of it’s Vancouver headquarters to include 3,000 skilled tech workers, operating out of a brand new office tower the e-commerce giant plans to build on prime commercial real estate:
Amazon’s general manager of web services Jesse Dougherty said the new corporate positions will be focused on e-commerce technology, cloud computing and machine learning. The employees will be working in a new 38,000 square metre office tower the company plans to build on the site of the city’s old post office. - Financial Post
A Sea of Construction Cranes Dot the Montreal Skyline
For someone visiting Montreal, they might be taken aback by the sight of 150 cranes, representing investments of more than $25 billion, cropping up along the Montreal skyline. But for locals, these cranes are an indication of a stable political and economic environment and billions of dollars of foreign investment, prompting a heightened level of economic enthusiasm across the island of Montreal:
Cranes crowd the Montreal skyline these days as a strong economy and political stability are fuelling a construction frenzy throughout the downtown core and beyond. Although tame by Toronto and Vancouver standards, developers in Canada's second-largest city are investing billions of dollars in new condominium and office complexes, along with retrofitting older buildings… "Since 1976, this is one of the greatest times," Mayor Denis Coderre said, referring to the year when the election of the separatist Parti Quebecois prompted an exodus of residents and businesses. - Globe and Mail
Montreal’s retail sector is not being left out of the optimism spreading across the city:
Montreal’s strong economic growth will keep pushing record retail sales, with investors taking advantage of the strong demand. - Canadian Real Estate Magazine
Ottawa Commercial Real Estate Activity at 5 Year High
In 2017, the city of Ottawa experienced its largest commercial real estate investment year in the past five years. The city had an estimated $1.6 billion in transactions completed during the year, which is the second largest year on record. This included a third quarter with $967 million in transactions. This trend is projected to continue through 2018.
The 2017 calendar year was well known for several major transactions. During the year, the investment company Greystone purchased Constitution Square for more than $480 million. This was the biggest purchase of an investment property in the city's history:
With a total value of nearly half a billion dollars, the deal easily eclipses previous blockbuster sales such as the federal government’s $208-million purchase of the former Nortel campus on Carling Avenue in 2010 and Investors Group’s $188-million agreement earlier this year for a 50 percent stake in Minto Capital Management’s office towers at Minto Place. - Ottawa Business Journal
There are many different factors that are influencing the Ottawa commercial real estate market. One of the main drivers is the continued improvement in the local professional economy. As more national and international firms move to Ottawa and expand in the area, the demand for office space is increasing and rental rates are rising.
As the new LRT comes online, in November 2018, and Lebretton and Zibi developments continue forward, it is expected that in the next year the city will continue to see upward pressure on office and commercial leasing rates, which will lead to more value and potential for more new construction; non-residential construction was very high in Ottawa in 2017 and is expected to keep pace in 2018.
Southern Ontario a Magnet for Multi-Residential Investment
Ottawa, along with large areas of Southern Ontario particularly in and around the GTA, have become a magnet for multi-residential investment. As in other classes of commercial real estate, Primecorp has boots on the ground in this highly competitive market that is seeing residential rental rates rise, while the supply of assets to meet the growing demand is limited. Last year, Primecorp was involved in the sale of two large residential portfolios, in Hamilton and London, with a total transaction value of $320.7 million CAD.
Primecorp CEO and Founding Partner, Aik Aliferis weighed in on the market conditions surrounding these large multi-res deals, at the Canadian Apartment Investment Conference, held last September at the Metro Toronto Convention Centre. Aik made it clear that this market is very strong, with intense bidding for prized properties and debt and equity readily available to facilitate the high level of investment interest.
Investors are on the hunt for high-quality commercial assets as the province of Alberta is finally starting to recover from the oil-price-shock of 2014, which saw the price of Brent crude cut by more than half in a matter of a few months. Alberta was producing a huge volume of crude at that time, powering an economic boom, but Canada could not compete with the abundance of cheap Saudi oil that was flooding the market and driving down prices. Oil prices have been creeping up over the past year, at a time when office vacancy rates have finally started to halt their downward slide:
After surging for the past two years, CBRE predicts vacancy rates will finally stabilize in Calgary as the recovery in Alberta starts to take hold. - Financial Post
Looking to Invest in Canadian Commercial Real Estate?
If you’re looking to get in on the action as an investor or to place an asset on the market, Primecorp can help you navigate these highly lucrative, but competitive waters. Our commercial real estate brokerage has been in operation for 20 years, with transactions totaling over $6 billion CAD across 60 Canadian markets. Our experienced brokers and dedicated support staff know the market and will help you find the right fit for your particular investment needs. Simply contact us to get started... we’d love to hear from you!