But rental units are not the only area showing strong fundamentals
A multi-year period of high inflation and interest rates is tough for the commercial real estate sector, especially following the challenges of the pandemic. But there are signs of good things ahead.
A new report from RE/MAX Canada reveals some positives from several segments of Canada’s CRE landscape, led by an ‘all hands on deck’ approach to tackling the country’s housing shortage amid strong immigration.
The firm’s Commercial Real Estate Report looked at 12 major markets across the country and found that builders and developers focused attention on purpose-built rental units in the first quarter of 2024. Multi-family and industrial units were the top-performing asset class in all 12 markets, followed by retail which was strong in eight markets.
"The overwhelming need for shelter, combined with the CMHC Apartment Loan Program that has incentivized builders and developers with low interest rates, favourable terms, and 50-year amortization periods, have created the perfect storm in today's high interest rate environment," says RE/MAX Canada president Christopher Alexander. "Unfortunately, with Canada's population surpassing 40 million people this year, even the current upswing in residential construction continues to fall short of the thousands of units required in most major markets."
While the multi-family market is surging, there are other segments of Canada’s CRE that are also showing positive signs for industry players and their investors.
Mixed-use is seeing rising interest with malls and shopping centres looking at opportunities to increase density that include residential components. And the demand for industrial units remains strong across the country especially warehousing, manufacturing and flex space. But affordability in major urban centres is driving demand on the outskirts.
Retail is also bouncing back with increasing demand from health and wellness and other service-related businesses rather than traditional goods retailers. However, the luxury brands sector is also showing its love for Canada’s major centres.
Hospitality is also rebounding in some parts of the country, while offices in downtown cores remain under pressure amid changing working practices with availability rates rising in most markets, especially for B and C class buildings.
Investors
The report shows that Real Estate Investment Trusts are re-examining existing portfolios with an eye to changing the mix.
There has been an increase in divestment of certain assets – usually older office or residential buildings, while purchases of other assets are occurring, typically newer construction in office and retail.
Smaller investors are particularly hard hit by the increase in the capital gains tax inclusion rate, from 50% to just over 66%, as outlined in the 2024 Budget announcement. Some investors were scrambling to get their properties sold prior to the June 25 deadline, but most pulled back on listing their properties for sale.
