The pandemic-triggered housing boom has shredded a number of long-standing assumptions Canadians have about real estate.
Canada’s commercial real estate market should continue to benefit from the country’s “solid economic fundamentals and a stable economy,” according to Avison Young’s Global 2020 Real Estate Forecast reports released this week.
“Though uncertainty remains on the minds of occupiers and investors in the extended financial and real estate cycles, fundamentals will continue to outweigh fear, at least in the near term,” says the global real estate services firm in its Canadian executive summary.
The Canadian reports include a national overview of trends and sector outlooks, as well as separate forecasts for nine of the country’s largest urban markets. Combined, they contain 54 pages of analysis and insights by sector, trend and city.
Calling Canada “the envy of G7 countries during the prolonged financial and commercial real estate cycles,” the national report cites a series of factors for its relatively buoyant 2020 outlook.
* will continue to grow its knowledge-based economy;
* is experiencing significant population growth which drives activity in several CRE and real estate sectors;
* remains a magnet for industrial and commerce growth;
* and continue to draw strong interest from investors, primarily in the gateway cities such as Toronto, Vancouver and Montreal.
Among the potential concerns cited in the report are geopolitical uncertainties and trade issues, housing affordability in major cities, and high household debt levels.
It also notes the labour market, which has been a “catalyst for the property markets” might be losing steam as a driver for continued growth.
On a nationwide basis, Canada’s office sector saw significant tightening in 2019, with vacancy down 140 bps to 9.9 per cent, a trend expected to continue on a “modest” basis in 2020.
Leasing rates remained highest in Vancouver ($52.75 average asking rates per square foot) and Toronto ($43.02). The nationwide average was $32.36.
The industrial sector continues to boom, with a national vacancy rate of just 2.3 per cent which is forecast to dip to 2.1 per cent this year. This dip could come despite a pipeline of 22.2 million square feet under construction, which would add about one per cent to the national inventory.
Retail remains “anything but stable” and an area of caution, the Avison Young report says. The combination of “bricks and clicks” retailing is causing a continuing transformation, and in major cities skyrocketing taxes (due to reassessments) are severely impacting some retailers.
“However, not all is doom and gloom as retailers and landlords continue to invest heavily in their assets and in analytics to enrich the customer experience,” the report says.
A continuing influx of international retailers is also buoying the sector.
Avison Young also provided 2020 forecasts for nine major Canadian cities. Here are highlights for each, working roughly west to east:
Office and industrial vacancy rates will remain at record lows. In the office sector, rents will achieve “record highs” with no significant new space coming on stream until about 2022.
The trend toward industrial strata is expected to accelerate due to low interest rates, high land costs and rising lease rates. Most space coming on stream is pre-leased or pre-sold, so vacancy rates will not ease
Overall CRE investment is forecast to accelerate.
The city’s GDP growth is forecast to reach two per cent in 2020, but depends on “tangible progress” in new oil pipeline construction.
The office sector could top 24 per cent vacancy, after a two per cent rise to almost 23 per cent in 2019.
Industrial remains strong with six million square feet added in 2018-’19. If absorption continues, driven by ecommerce and distribution centres, new construction could be in the offing.
Retail big-box openings declined due to the uncertainty, but as Calgary’s population grows, local service-based retail has not kept pace.
A diverse economy will continue to shrink downtown office vacancy, even if the new UCP government executes plans to reduce spending by 2.8 per cent. If class-B and C office conversions continue, and oil pipeline construction accelerates, it will aid that trend.
Interestingly, Alberta has the most retail cannabis stores open since legalization, a benefit to retail leasing.
On the investment side, “smaller strip centres” are in demand, while core grocery-anchored product is scarce. There is also “unquenchable” demand for modern industrial buildings and high-rise multires.
The city is being hit by a double whammy: “Declines in prices for crude oil, natural gas, potash and uranium and China’s temporary ban on imports of canola and soybeans are impacting the provincial economy.”
After a 110 bps decline in 2019, government and business cuts could push office vacancies above 13 per cent in 2020. Industrial construction will slow due to reduced demand and leasing rates, but retail has remained stable with strong activity in the cannabis and liquor sectors.
A reputation as one of Canada’s most stable markets is expected to continue in 2020. Significant office and retail construction continues, but interestingly vacancy and rents are forecast to increase in both sectors in 2020.
Retail is being driven by the arrival of numerous new U.S. chains.
Industrial construction remains strong, but absorption is also strong leading to a forecast 2.5 per cent reduction in vacancy rates.
“Demand from occupiers and investors still exceeds supply, especially for industrial, multifamily and office space.”
Office vacancy is at 2.2 per cent downtown, and the 10 million square feet under construction is largely committed, so leasing rates are expected to continue to rise.
There is 20 million square feet of industrial under construction, but that is insufficient to meet current rising demand levels and with vacancy already at a historic low of 0.7 per cent, rates are forecast to continue rising.
Tax hikes are hitting some segments of Toronto’s robust retail sector, though a strong mixed-use development trend means a continuation of both (moderately) increased vacancy and rising leasing rates.
The city-wide office market is seeing positive net absorption, driven largely by its thriving tech sector.
Industrial leasing rates remain among the highest in Canada, with little new product on the horizon.
A series of mixed-use developments on existing shopping centre sites is creating new live-work-play environments, while several purpose-built rental developments will boost lagging apartment supply.
Ottawa continues “attracting more than its fair share of investor interest for all classes of investment-grade assets.”
After years of decline in office vacancy to about 10.5 per cent, the sector is expected to stabilize somewhat in 2020.
So is office investment activity, which hit $1.6 billion in 2019. Employers continue to face challenges finding skilled employees, with the city’s unemployment rate down to 5.7 per cent.
A lack of modern industrial facilities with ceiling heights above 30 feet will continue to impact that sector, as land for new development also remains on the Island of Montreal.
Retail leasing rates are forecast to continue their climb, though vacancy might also rise as construction activity levels off.
Manfacturing and construction continue to fuel a mini-boom, driven by population and job growth.
The downtown office market continues to struggle with 20 per cent vacancy, but industrial remains strong (down 100 bps in 2019 to 8.3 per cent vacancy).
Office absorption could improve due to growth in financial, insurance, real estate and tech (life sciences, energy, clean tech and IT).
Numerous multires projects, combined with a new convention centre and the Queen’s Marque mixed-use project, see the downtown dotted with cranes.
The pandemic-triggered housing boom has shredded a number of long-standing assumptions Canadians have about real estate.
Distance from, not nearness to, downtown cores is now a key buyer desire. Communities that were unpopular with buyers two years ago because of a lack of jobs or amenities are some of today’s most active markets. Even taking out a gargantuan mortgage in the midst of a crushing global recession went from “undeniably risky” to “par for the course” seemingly overnight.
And this Great Real Estate Rethink continues: A new survey by real estate brokerage Royal LePage finds that 79 per cent of real estate professionals think sellers should list their homes this winter rather than waiting until spring 2022.
Winter is traditionally the slowest season for home sales in Canada. But buyers have already tossed aside so many real estate traditions. What’s one more?
The pro-winter listing sentiment is strong across all regions.
Realtors in British Columbia led the way, with 93 per cent of respondents in the province saying they would advise their clients to sell this winter; 87 per cent of agents in Quebec and 85 per cent of those in Atlantic Canada shared the same view.
The proportion of agents in favour of winter listings were lower in Ontario (72 per cent), Alberta (73 per cent) and the remaining prairie provinces, Manitoba and Saskatchewan (75 per cent).
While those numbers are all high, many of the real estate agents surveyed — at least half in every area of the country — were advising their clients to list in the winter even before the pandemic. The reason then is the same as it is today: A painfully low number of homes for sale has created a seller’s market so rabid that weather is the last thing desperate buyers are worried about.
“Typically we see a seasonal adjustment in real estate activity,” says Adil Dinani of Royal LePage West Real Estate Services in Vancouver. “However, last year, we saw one of the busiest winter markets in our history. Even if there are fewer buyers in the winter, it is unlikely there will be enough inventory on the market to satisfy demand.”
That could be especially true in Toronto, where there were only 7,750 homes left on the market at the end of October.
“That’s versus 17,000 last year,” says Cameron Forbes, general manager and broker at RE/MAX Realtron Realty in Toronto.
But Forbes still believes that a spring listing is better for sellers, pointing out that since 1999 there have, on average, been more homes on the market in the winter in the GTA than in the spring. If selling in a low-supply market is the goal, why not wait until the spring, when the market will be even more depleted?
“All things being equal, that’s a better time to sell your home,” he says. “That’s why agents will generally recommend that you wait to list in the spring market, when your home shows well and, frankly, when buyers are out looking to buy.”
You may have noticed that the areas where the preference for winter listings were lowest are in parts of the country where winter can be especially brutal. (Ontario’s placement in this category may have more to do with fears around what an extra three or four months might do to the province’s already sky-high prices.)
And this one could be particularly messy. Both The Weather Network and the Farmer’s Almanac are preparing Canadians for a potentially long, storm-filled winter.
Can sellers in hard-hit markets really plan on buyers being hungry enough to brave the elements and view properties when winter’s at its most miserable?
Regina-based Royal LePage agent Shayla Ackerman, no stranger to extreme winter weather, says listing in the winter is not something she would recommend unless a seller has no other choice.
“Our winter market slows right down,” she says.
But in Montreal, which also receives its fair share of colossal snow-dumps, Century 21 Immo-Plus agent Angela Langtry expects buyers to be out in droves.
“We are still in a low-inventory market, especially for houses,” Langtry says. “I always say that the serious buyers come out in the snow storms.”
Capitalizing on raging buyer demand is not the only reason to list your home this winter.
The Bank of Canada announced in late October that it is ending a key pandemic emergency measure: buying billions of dollars in bonds to keep interest rates low, including those attached to mortgages.
If mortgage rates begin rising, and mortgage amounts begin shrinking, buyers may have less buying power in the spring. Listing now may give sellers one last shot at enticing buyers while they have more money to play with.
But Paul Taylor, president and CEO of trade association Mortgage Professionals Canada, isn’t sure a rise in interest rates will impact buyers’ budgets in the next few months.
“Almost everyone is qualifying at a 5.25 per cent stress test rate today,” Taylor says, referring to the benchmark interest rate lenders use to evaluate mortgage applicants’ ability to repay their loans.
Even if the Bank of Canada were to raise interest rates by 100 basis points, or one per cent, over the next 12 months, Taylor says buyers who qualified at 5.25 per cent would still have at least 200 basis points worth of breathing room, meaning their mortgage budget “will be effectively unchanged.”
Taylor expects a 0.25 per cent increase in the BoC’s overnight rate, which should trigger a rise in variable mortgage rates, in the spring. He says two additional increases could occur before the end of 2022.
“I expect the media coverage of the tiny rate increases will scare many and slow the market, which is likely very good for everyone, but I don’t think we’ll see enough of a slowdown to erode prices,” Taylor says.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
Housing prices in Canada are expected to increase steadily in 2022, with inter-provincial migration continuing in many regions and a short supply of homes in those areas pushing up costs, according to Re/Max’s housing market outlook report published Wednesday.
Sale prices are projected to go up by 9.2 per cent on average across the country next year, the real-estate company estimates. It would follow an already “sensational” year in terms of sales and price appreciation, Re/Max’s president says.
“In the history of our nation, I don’t know of, certainly not in my tenure, of more than 95% of markets being in seller’s market territory,” he told CTVNews.ca in a phone interview. “So it can’t be overstated enough how strong the market was in Canada in 2021.”
That momentum will likely carry forward into next year, Alexander says, with 36 of 38 markets across the country poised to maintain their seller’s status.
Another trend he suspects will continue is inter-provincial migration as investors look for more affordable places to set up shop. The ability to work from home during the COVID-19 pandemic has given some homebuyers the flexibility to shop in different places.
“Remote work has really allowed people to set up in ways that weren’t possible before the pandemic,” Alexander said. “We”e hearing of some people that have moved to a different province but still hold their job in the province they left.”
The report indicates short supply in areas with high demand due to migration is a key factor in driving up the cost of real estate.
Despite prices seemingly set to continue going up, making home ownership more expensive for Canadians, the report says about half of residents across the country still view buying a house as a good investment option for next year.
“I don’t think people are nervous at all,” Alexander said of the real-estate market. “We surveyed a lot of consumers and more than half are confident that the market is going to remain strong for next year.”
Apart from outlining industry trends, the report breaks things down region by region in Canada, offering predictions and projections for different areas in the coming year.
In Western Canada, Calgary and Edmonton became seller’s markets this year, a trend that’s expected to continue into 2022. The report attributes this to heightened demand coming from homebuyers migrating from Ontario and British Columbia while supply remained low.
Cities such as Victoria, Nanaimo and Kelowna in B.C., along with Regina in Saskatchewan, also apparently saw a boost due to incoming buyers searching for more affordability.
Winnipeg is said to be an outlier and it seems will remain a buyer’s market next year, the report says, apparently due to more remote working options in the area.
Brokers in Ontario anticipate steady market activity and price growth in 2022, at least on average. Several regions experienced wild price appreciations across all property types this year, including Brampton (25 per cent), Durham (29 per cent) and London (30 per cent), while Toronto only saw a seven-per-cent increase.
All regions in Atlantic Canada are currently seller’s markets, according to the report, and could see sale prices rise between five and 20 per cent next year.
The spike in demand seems to be driven by out-of-province buyers from Ontario moving to cities like Moncton, Fredericton, Halifax, Charlottetown and St. John’s in search of more affordability.
Although places like Charlottetown may cool off, sales prices in Halifax and Moncton are projected to increase by 16 and 20 per cent, respectively.
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