As we head into the final months of 2019, it’s a good opportunity to reflect on what has been going on in the commercial real estate market and what we can expect in the year to come.
The office market
In Vancouver and Toronto, the office market continues to see an unprecedented need for office space. That’s especially true of both cities’ downtown core.
In Toronto, we are seeing a huge demand from finance companies. In Vancouver, the demand is largely for high tech. Some accounting businesses and co-working space have also taken root on the West Coast.
Vancouver developers are expected to add around four million square feet of new high-end office space to the downtown core over the coming years. Developers are planning to add 11 million square feet in Toronto.
On the flip side, both markets will feel the pinch of tight office leasing markets while they anxiously wait for the promised office space.
Montreal and Ottawa continue to perform well, while Alberta’s big cities are struggling. In Calgary, high vacancy rates are elevated compared to five years ago. Vacancy rates may continue to climb until the Alberta economy starts to stabilize.
Yet, we also need to consider how Canada’s medium-sized cities impact the office market.
Halifax, Regina, Saskatoon, Victoria, Waterloo, and Winnipeg total 61.5 million square feet of office space. That’s similar to the amount of office space in Metro Vancouver.
The great thing about these smaller markets is that they can get away with slightly higher vacancy rates. Craig Hennigar, Colliers’ director of market intelligence in Vancouver says, “These are the kind of markets where six to eight per cent vacancy would be considered balanced.”
That means there is room for lots more demand in these markets.
In Canada’s big cities, retailers continue to perform well. Many new retailers have entered the arena in the past few years.
Major urban markets are seeing retail vacancy of only about 3%. Yet, most of that growth is happening in Vancouver, Toronto and Montreal.
Calgary is plagued by an alarmingly empty downtown core. Those vacant office buildings mean there is less foot traffic and so that leads to empty stores. Unfortunately, retailers are forced to contend with higher rents and higher property taxes.
The industrial market
The recent explosive growth of both e-commerce and tech businesses are driving growth in the industrial market across Canada.
Industrial rents in Vancouver reached a record $11.86 per square foot last year, the highest in Canada.
Both Vancouver and Toronto have very low vacancy rates. Toronto sits below 1% and Vancouver at less than 2.4%. Yet, the surging demand for space continues.
Construction rose to over 20 million square feet in 2018, up from about 14 million square feet the year before. But necessary expansion just isn’t possible. The geography of these two cities (water and natural land on two sides) means that new development is severely limited.
Montreal’s industrial sector saw a growth of over 22% of transactional volume making this the fastest growing area of investment.
What’s next in commercial real estate?
We can expect Montreal’s investment opportunities to continue into 2020 and beyond.
On the other hand, Vancouver may run out of industrial space in the next couple of years. As a result, many small and medium-sized cities could see a swell in commercial real estate demand.
Graduated from the University of Toronto with an Honors BA English Specialization and has completed several publishing courses at Ryerson University. She is a proofreader, editor, and content writer based in London, Ontario.