Land, New Development and Continued Foreign Demand all set to Shape the Canadian Commercial Real Estate Market in 2017

Toronto – March 6, 2017 – 2017 is set to be another year of strong demand for Canadian real estate assets. In addition, rising prices, and the pursuit of yield, will encourage the start of a new development cycle with Toronto expected to see the lion’s share of new projects. According to CBRE Canada’s 2017 Real Estate Market Outlook report, $31.9 billion of transactions is forecast for 2017 with foreign demand playing a significant role in the market, making it potentially the third most active year in Canadian history.

“In 2017, Canadian commercial real estate is at the intersection of two powerful investment trends; the search for hard-assets in order to generate yield in a yield-starved world and Canada’s increasing status as a safe-haven in a world of growing geo-political uncertainty. As result, 2017 will be another very strong year for commercial real estate investment in Canada, coming off the back of a record 2016. Foreign investors accounted for 27% of all investments over $10 million in 2016, and we see this trend continuing in 2017,” commented Paul Morassutti, Executive Managing Director for CBRE Limited.

Chinese investors, which accounted for 71% of all foreign transactions in 2016, will potentially have to navigate new regulations by the Chinese government to stem the flow of outbound capital from China. However, Morassutti added, “we expect to see investment activity from European investors grow as they seek safety from a changing political climate that is still grappling with Brexit, a Greek debt crisis that hasn’t gone away, and the rise of political candidates in France and Italy who also wish to exit the EU.”

Alongside a historically-strong investment climate and heightened foreign interest for Canadian assets, the 2017 Market Outlook report also identified three further key trends for 2017; ‘Toronto Envy’, a new development cycle and surging land prices.

“Toronto starts 2017 on the A-list of commercial real estate markets. Real estate players from cities across the globe are casting envious glances at its performance. The numbers are truly compelling. It has the lowest downtown office vacancy rate of any major North American city with good rental growth projected for 2017, it has the second lowest industrial availability rate, the second lowest multifamily vacancy rate and its hotels recorded record occupancy levels in 2016. This success will see Toronto begin to accelerate away from other Canadian markets as both an investment destination and for new development projects in 2017.”

With a vacancy rate of 4.4%, the lowest in ten years, and a limited amount of new supply under construction, a new wave of office tower developments are expected to be launched in 2017. Office construction is most likely to be initiated in peripheral markets like King West, the Waterfront and Downtown North, however, one significant office tower is anticipated in the Financial or South Core.

“Rising prices, tight vacancy and the pursuit of yield will encourage investors to develop new product. With the previous development cycle trailing off, developers will be looking to refill the pipeline across multiple asset classes. Toronto will see the lion’s share of development, with a potential 10 million square feet of new office, but we’re also anticipating new development in other markets barring Alberta, which is still grappling with new supply. We could even see a new office tower built on a speculative basis in the downtown core of Vancouver given the strong market fundamentals.”

Soaring land prices were also identified in the 2017 Market Outlook as a key trend for 2017. Commercial land transactions are predicted to set a new record of $5.2 billion in 2017 with rising prices being driven by a robust residential housing market and the ramping up of new commercial development. A lack of developable land will increase competitions for prime urban development sites in major markets, especially along transit nodes.

“One of the biggest stories over the last 18 months has been the sharp increase in land prices, especially in urban centres. Barring a substantial change in how municipalities and government address intensification and green-belts, this trend is only going to accelerate in 2017, so expect to see heated competition to secure best development sites,” concluded Morassutti.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

In Canada, CBRE Limited employs over 2,000 people in 21 locations from coast to coast. Please visit our website at www.cbre.ca.