Director sees all real estate asset classes holding strength or improving
Morguard has weathered the pandemic relatively well and is optimistic about the future, the author of its 2021 Canadian Economic Outlook and Market Fundamentals Q2 Update told WP.
“There’s certainly been a measure of turbulence, but we will see things change going forward. That includes commercial real estate. I think companies will always need a place to carry out their business and people need a place to live, so that bodes well for our residential business,” said Keith Reading, Morguard’s Director, Research. “We’ve had some challenges of late, but I think we’ll pull through it quite well.”
Reading noted Morguard’s in-house expertise, ability to buy properties in good locations and manage them well, and history of adapting well to change has helped it weather the pandemic, but also continue to position well for the future.
“I’m more than cautiously optimistic. I’m quite optimistic about the future,” he said. “We’re starting to see activity levels pick up in general. We have good real estate, and we hold it for the long-term, so Morguard is positioned to lead the way into the future.”
Reading commented on all Morguard asset classes, as noted in its Q2 Update.
- Retail: The report predicted that investment in retail assets would be cautious until more customers return.
Reading noted that the pandemic accentuated trends that were already underway, such as growth in online shopping and slip in mall foot traffic. Shopping centres were hollowing out mid-market with clothing and electronics shrinking as a percentage of the retail industry, so Morguard was seeing more closures and shopping centre vacancies than it was used to. It was already investigating things like increasing entertainment, pop-up stores, and restaurant and food choices to draw shoppers and enhance property value before the pandemic.
Once the pandemic hit and retail store sales sharply declined, Morguard offered rent abatements and deferrals to support tenants, and it’s now seeing some recovery in foot traffic and sales. While it’s optimistic that will increase, it’s also continuing to look at adding multi-family condos and rental housing to some mall properties as shopping centres become more mini-communities with banks and grocery and drug stores.
- Industrial: The report said industrial investment activity is expected to remain robust through the rest of 2021 and into 2022.
“Industrial has been on fire. It’s thrived through the pandemic,” said Reading, noting it was in good shape pre-pandemic, and has just gotten stronger. “A big driver of that is the increase in online shopping.”
That heat is because Canada’s running out of industrial space in several markets and the vacancy rates in places like Vancouver, Toronto, and Montreal are in the low single digits, so it’s difficult for industrial users to find space and, when they do, it’s at record-high rents.
“If you own industrial properties, you’ve really done well through the pandemic,” he said. “We have quite an industrial portfolio and it’s performed really well.”
- Rental apartments: The report said demand for multi-suite residential rental assets will remain strong as they have strong, sustained performance.
Even though Morguard’s rental demand decreased slightly during the pandemic – particularly in university cities as students stayed home and immigrants weren’t entering the country – Reading said its rentals have generally performed well because of government programs for rent support. With the job market improving, he anticipated the rental apartment sector would also grow stronger.
- Office buildings: The report said office assets are expected to improve for the rest of 2021 as workplaces reopen.
While Morguard hasn’t seen its pre-pandemic level of demand or portfolio growth, Reading said this asset class has held up fairly well. As more employees return to work, he anticipates it will continue to perform relatively well for the next couple of years, despite work-from-home.
Morguard’s rent collections have been above average for the industry and, while companies may be taking a wait-and-see attitude about future plans, Reading expects they will put a premium on buildings with high-quality air and environmental systems, so Morguard’s will continue to be attractive. “So, after a little bit of a rough patch with the pandemic,” he predicted, “the office industry will get back on its feet fairly quickly.”
