Canadian commercial real estate is again expected to punch above its weight class when the global economy sputters into the new year.
The robust commercial real estate market was largely immune to sluggish economic growth and volatility in 2012 and the new year should see more of the same, according to CBRE Limited’s annual report, Canadian Market Outlook 2013.
“U.S. policy makers are going to set the tone for 2013 very early on,” said John O’Bryan, chairman of CBRE Limited. “Clarity on either the fiscal cliff or European debt issues would go a long way to alleviate the fears of business leaders, jump-start economic growth, and bolster demand for commercial real estate.”
Trading volumes in commercial real estate should remain above normal thanks to increasing occupancy and higher rental income in an investment world plagued by instability.
Investment markets are expected to remain hot in 2013 as owners look to cull existing portfolios and buyers seek investments with steady cash flows. The total investment volume in Canada will reach $25.8 in 2013, down from $28.6 billion this year, but still high by historic standards.
“If 2012 was the year of the REIT, 2013 will be the year of more REITs, but you can expect vigorous competition from pension funds,” O’Bryan said. “We have witnessed the formation of a number of new REITs in recent weeks, which along with an expected increase in merger and acquisition activity, will add fuel to an already liquid investment market.”
However, another year of macroeconomic volatility and little positive growth is expected to stifle the Canadian economy as a whole, resulting in low vacancy and subpar demand in many office and industrial markets.
As well, office construction will remain concentrated in the downtown markets of Toronto, Calgary, Vancouver, and Montreal, but soft leasing demand may slow construction of new office space.
“Lacklustre office leasing will have important implications for the development cycle that is already underway, especially in a number of Canada’s downtown office markets,” said Ross Moore, national director of research for CBRE Limited in Canada. “Overbuilding is merely an emerging concern at this point, but this possibility should never be underestimated. Developers could be frustrated in their attempts to prelease new office buildings in 2013 and may have to wait until 2014 for a material improvement in the economy; however, the reality is that office tenants are using less space than in the past.”
Other forecasts for 2013 by the CBRE Group, Inc., the world’s largest commercial real estate services firm based on 2011 revenue include:
– National office vacancy and industrial availability are expected to remain unchanged at 8.3 per cent and 6.3 per cent, respectively.
– Downtown office markets will continue to outperform suburban office markets. Only Waterloo, Ottawa and Halifax will have total suburban vacancy below 10.0 per cent in 2013.
– Vancouver and Montreal are the only cities forecast to have lower industrial availability rates in 2013.
– The arrival of Target in Canada is expected to significantly alter the Canadian retail landscape in 2013 and mixed-use development and new retail node construction will likely reshape cities right across Canada..
– Multi-housing vacancy are expected to fall below 2.0 per cent in Canada. However, investor-owned condominiums may offer more direct competition for the multi-housing market.
– The gulf between Central/Eastern Canadian markets and those in Western Canada will continue to widen, with higher demand and rent growth in natural resource based markets in Western Canada.
– Canadian investors will continue to be an active force abroad, but 2013 could be the year that foreign investors are finally able to make major acquisitions in the Canadian market.