Morguard reflects on the last quarter of 2023 for year-ahead outlook
Investors who are focused on bricks and mortar in 2024 should benefit from improved economic conditions as inflation and interest rates ease, but is the commercial real estate sector looking stronger?
Morguard has published its latest Canadian Commercial Real Estate Market Outlook which shows that the last three months of 2023 managed to retain the interest of investors with multi-suite residential rentals, industrial, and retail properties all showing strength and resilience.
Performance momentum remains positive into 2024 despite signs of a softer Canadian economy, at least in the short term, but with the second half of 2024 anticipated to bring interest rate cuts, lower inflation, and a rebound in consumer spending, the outlook remains optimistic.
"Industry gains are anticipated once again in 2024, as inflation and interest rate pressures moderate and investment confidence levels build," said Keith Reading, Senior Director, Research at Morguard. "Canada's economic performance and the central bank's projected rate cuts are crucial factors to keep an eye on as the industry forges ahead."
Multi-suite pressures
Looking at individual property types, multi-suite residential rentals saw moderation of rents in most major centres, and this is likely to continue in the months ahead. However, Alberta proved an outlier in the fourth quarter of 2023 as strong immigration fuelled demand, resulting in above-average rent growth.
There was continued investor interest in this CRE segment due to long-term fundamentals and multi-suite residential rental property transaction volume rose by more than 30% quarter-over-quarter but remained below the long-term average.
Industrial property gains
The industrial segment bucked the overall slower pace of sales activity in the last quarter of 2023, with an increase in sales quarter-over-quarter. New supply and an easing of demand meant that the supply constraints seen for some time in this area of CRE lessened, allowing for transactions.
Offices remain challenged with mixed fortunes in the segment. Class A buildings remained in demand at the end of last year, while Class B and C were less sought after. Morguard is expecting this trend to continue this year.
Retail properties showed some big wins with two shopping centres in the GTA among the sales in the fourth quarter. Low-risk, high quality retail properties with good performance rates are in favour as shopping behaviour evolves, but investors were cautious about higher risk properties due to the increased cost of capital and economic uncertainty.
