Tech spaces, hotels, data centres and life-science labs are expected to be asset gems for investors in the coming year.Oliver Crook/Getty Images
Commercial real estate will endure continued inflation and interest-rate challenges into the second and third quarters of 2024, experts and economists predict. But there are some asset gems that investors should consider in the coming year that could outpace the market or prove to be good long-term bets.
Consider a data centre in Quebec. With cheap hydro power, the biggest expense involved in data centres, Quebec is a prime location, says Adam Jacobs, senior national director, research at Colliers Canada.
Alternative investments, such as data centres, retirement homes, student apartments and laboratory space, can work well for big institutional investors looking to diversify, he says.
“The advantage to those is they tend to not be tied to the overall economy and job market,” he says. “They’re tied to some other thing or trend in society.” Data centres tap into the bigger trend of everyone being online, for instance.
Nathaniel Baum-Snow, economic analysis and policy professor at Rotman School of Management, adds that data centres, which can be located in rural areas, are a different animal than the usual urban-bound asset.
The health of tech-friendly assets is underscored by the high performance of unit prices for real estate investment trusts (REITS) that focus on that sector, Prof. Baum-Snow says.
“One of the ways people who work in real estate use to forecast the future of different market segments is to look at the valuations of real estate investment trusts that invest in different classes. Any class that involved tech has been doing pretty well … and office has not been doing very well,” Prof. Baum-Snow says.
Offices purpose-configured for lab space and medical offices will be more resilient because they aren’t greatly affected by the work-from-home trend, says experts.Onfokus/Getty Images
Despite the slump for office property in the past three years, now could be the time to jump back into that asset class, says Mark Fieder, president of commercial real estate firm Avison Young Canada.
“If somebody wants to take advantage of the market and buy for the longer term, office is starting to look more attractive,” Mr. Fieder says. “The pricing expectation of sellers is starting to come in line and a rate cut will help that bid-ask gap.”
He says early buyers are going to be the winners. “We have 24 months in front of us on that front.”
It’s going to be interesting to watch the buyer-seller behaviour in a market where you’re waiting to see if interest rates are going to come down.
— Mark Fieder, president of Avison Young Canada
Mr. Jacobs agrees that bargain hunters could be eyeing the low cost of office assets, with some targeting smaller business tenants, in particular.
“We’re starting to see a few more deals on the smaller end of the office market, not so much the downtown mega deals,” he says.
Prof. Baum-Snow says the office market is still challenged. As leases come up for renewal, releasing is happening at half or two-thirds the amount of space as before, resulting in high vacancy rates, he says.
“That’s going to come with a reckoning of decreasing lease rates. That’s happening a little bit but not to the extent it would need to fill all the space,” he adds.
New high-end buildings won’t be abandoned, Prof. Baum-Snow says, but lease rates likely won’t grow.
Offices purpose-configured for lab space and medical offices will be more resilient because they aren’t subject to the work-from-home trend, Prof. Baum-Snow adds.
Mr. Jacobs’s pick for smaller investors looking for a solid 2024 investment is apartments and multifamily assets, which are a little less labour-intensive to operate than some other classes.
“We’ve got a growing population at a level no other wealthy country does,” he says.
Apartments are the growth opportunity as house ownership continues to be out of reach for many Canadians. Even large investors are beginning to look at this asset class, he says.
There are some risks, Mr. Jacobs adds. For example, rents are subject to regulatory change and immigration policy could change.
Prof. Baum-Snow says interest rates have started to have a negative impact on residential development and for the next year or so it will be harder to start new big multifamily developments. But if interest rates come down and immigration continues, the multifamily market could pick up, he says.
Industrial strength
Even through the troubled pandemic years, industrial has been the favoured asset class, with its escalating lease rates and low vacancies.
Warehouses that are well-situated with easy access to major transportation corridors will continue to be in demand, Prof. Baum-Snow says, and according to Mr. Fieder, interest in small bay industrial space is growing.
“Not everybody needs 400,000 square feet. Small bay, or what I call industrial multiple, is getting a lot of attention right now,” Mr. Fieder says. “While we’ve been building lots of big industrial, not a lot of small industrial and small bay has been built in recent years. It’s going to get a lot of attention from developers.”
Mr. Fieder and Mr. Jacobs also have confidence in hotels, a smaller asset class that hasn’t attracted much attention recently.
“If there’s a movement from the municipalities to eliminate Airbnbs and create more housing, there’s going to be less hotel space,” Mr. Fieder says. “It could put a lot of pressure on [existing] hotel rooms.”
On location
While experts still recommend Toronto and Vancouver as particularly attractive locales for most commercial real estate, there are other locations which should find favour with investors in the coming year.
For industrial real estate, Mr. Fieder advises investors to look east of Toronto to the Durham region. Companies, including H&M, Toyota and Amazon, are making commitments in the area, which has a stable labour supply, he says. And Kitchener-Waterloo has the strategic advantage of its proximity to the Greater Toronto Area.
Calgary is a good multifamily market with an influx of immigrants and people coming from other parts of Canada, Mr. Fieder says. Mr. Jacobs notes the population growth in some smaller markets, such as Barrie, Ont., and Dartmouth.
Whatever assets are involved, Mr. Fieder expects momentum and movement back to business in 2024.
“It’s going to be interesting to watch the buyer-seller behaviour in a market where you’re waiting to see if interest rates are going to come down,” he says.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
