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At the start of a new decade, the future of Canadian commercial real estate is looking bright.
Coming off an unprecedented performance in 2019, Canada is now a top destination for domestic and global capital.
As detailed in CBRE’s new Canadian Real Estate Market Outlook, Canadian cities have become sought-after destinations for businesses, residents and investors, while real estate has built a reputation as a stable yet high-yielding investable asset class.
Records were set across the industry in the past year, as prime office rents rose from 10.0%-20.0% nationally, while industrial rents rose by 12.3%, the largest annual increase on record. Overall national apartment rents were up by 4.2% year-over-year.
These trends are expected to continue in the new year amid record-low vacancy and strong demand.
The bull market is entering its 11th year, with unmet demand carrying over from one year to the next. Almost 70.0% of downtown office space currently under construction has been pre-leased, while 50.0% of under-construction industrial space has been spoken for.
Meanwhile, as Toronto and Vancouver continue to see strong demand, smaller cities will begin to attract greater interest in the coming year.
As the “big two” continue to face supply issues, interest will spill over into neighbouring markets such as Hamilton and Waterloo. Mid-sized domestic players and private capital firms are already looking to areas like Ottawa and the province of Quebec for high-yielding assets.
Logistics companies priced out of Toronto are considering areas like Etobicoke, Pickering, Ajax, and Guelph, while office tenants in Vancouver are getting used to looking at spaces in Burnaby and beyond.
These trends are all a part of a new normal for the industry, full of record highs and bullish forecasts. While course corrections and adjustments will inevitably happen, avoiding knee-jerk reactions will be essential for maintaining this current trajectory.
Those corrections could relate to the significant structural issues impacting cities across the globe, namely affordability, infrastructure and climate change.
As housing prices continue to outpace wages, and climate change threatens the stability of our cities and industries, commercial real estate will have to be forward-looking to weather these challenges with grace.
These issues will extend beyond the ups and downs of the business cycle, which has long been the central focus of the industry. Canadian cities must look to global best practices and be leaders in addressing these problems.
What’s more, government, landlords and tenants must work together to create the preconditions for continued success: embracing agility, resourcefulness and innovation.
Canadian commercial real estate has a lot to celebrate – its current momentum and success was hard won. Now the industry must rise to the new challenges and opportunities that lie ahead.