5 Commercial Real Estate Trends That Will Shape 2022

March 7, 2022 3 Minute Read

5 Commercial Real Estate Trends That Will Shape 2022

Despite anticipated challenges – namely high inflation, interest rate hikes, and looming labour shortages – CBRE’s Canada Real Estate Market Outlook paints a positive picture for the sector in 2022.

From the lure of elusive industrial space to the adoption of ESG, here are five trends that will shape Canada’s real estate market in the coming year.

Interest Rates on the Rise

The Bank of Canada just raised interest rates to 0.5% in an effort to rein in stubbornly high inflation. Economists are calling for up to four additional increases in 2022 as central banks around the world attempt to keep prices under control.

Thanks to the underlying strength of commercial real estate fundamentals, investment volumes and capitalization rates are not expected to be adversely impacted by interest rate hikes.

And, if there’s a silver lining to inflation, it can be found in real estate. A stronger economy, more jobs, higher demand for space and rising rents can make real estate a natural hedge for investors against inflation.

Adoption of ESG

Environmental, Social and Governance (ESG) considerations will become increasingly important for real estate investors in 2022. The adoption of ESG practices in the real estate sector has lagged, but that is already changing.

In the office market, ESG-focused occupiers will turn their attention to timber developments. The material offers carbon emissions savings of 60% to 70% compared to steel and concrete buildings. The adoption of ESG in the retail sector will be driven by socially conscious consumers seeking to support brands that align with their values. Government policies and financing programs will spur multifamily landlords to incorporate ESG strategies into new developments.

Return to the Office

Office market conditions will strengthen in 2022 as the positive momentum seen in the fourth quarter of 2021 accelerates. Office workers will return to their desks in-person, allowing employers to test new strategies that enable hybrid work. The net amount of office space that is leased in 2022 is forecast to total 6.2 million sq. ft. nationwide before rising to a 15-year high in 2023.

Industrial Demand Remains High

Demand for industrial space will remain high well into 2022, driven mainly by Canadians’ swift adoption of ecommerce and the growing need for safety stock in the midst of supply chain challenges.

With little available industrial space remaining, the industrial development pipeline will see heightened – and competitive – preleasing activity. Until there is balance between supply and demand, industrial rental rates, sale prices, and land costs will remain excessively high across Canada.

Recovery in Retail

As consumers move increasingly online, retailers and shopping centres have begun to put a greater emphasis on their physical spaces in attempt to recapture the market. In the year ahead, thematic stores, promotional events, and expanded display areas will become prevalent.

New food and beverage concepts will also help to draw customers back to the shops, as will service-oriented retailers. Landlords have paid increasing attention to the latter as they look to diversify their tenant mix, especially as existing retailers – particularly within the fashion industry – consolidate their locations.

Find out more about these market drivers and the other trends shaping life and work in 2022. Explore CBRE’s Canadian Real Estate Outlook.

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