Real estate well positioned for the recovery

5 Minute Read



  • Employment fell by 68,000 jobs in May 2021 and the unemployment rate increased slightly to 8.2%.
  • Inflation in Canada rose to 3.6% in May 2021, the highest level since 2011.
  • Retail sales fell by 5.7% in April 2021 and coincided with the 3rd wave of the pandemic.



As economies around the world start to reopen, the resultant flurry of activity has seen price pressures rise and inflation become a prevailing risk to the recovery. With inflation surging in some economies to their highest levels in years, the uncertainty lies with whether this is temporary or something more structural that would prompt central bank action. For the past few months central banks have been adamant that this inflation will be transitory and that expectations for interest rate hikes were still years away. However, during the Federal Reserve’s scheduled meeting this month, the central bank took a surprisingly hawkish tone that reignited rate hike worries. The central bank raised its inflation forecasts, brought forward its timeframe for interest rate hikes and began discussions on tapering its quantitative easing program. The jarring contrast to the Federal Reserve’s past narrative saw financial markets briefly overreact. Once again, the central bank had to calm the markets and reiterate that they were in no rush to raise rates. Coupled with the recent progress in the infrastructure plan in the U.S., investors appeared soothed and piled back into reflation trades in anticipation of the recovery.

One of the sectors that has seen an uptick in activity has been real estate with the sector’s ETFs recording billions of dollars of inflows this month. According to Bloomberg, real estate ETFs are on pace for the best month of inflows since at least 2014 with almost US$3.9 billion added. With the economic recovery gaining momentum and the reassurance that interest rates will stay low for the time being, real estate has become a very attractive investment. The return of workers to office towers and the reopening of stores is seeing increased demand across a wide range of properties, resulting in broad-based gains.

In Canada, renewed economic momentum is becoming evident with improving commercial real estate fundamentals. According to CBRE, the pace of office vacancy increases eased in every major Canadian market in Q2 2021 while industrial demand also hit unprecedented levels. Office sublets that flooded the market during the pandemic are either being cancelled as some companies look to reoccupy the space or are being leased by new or expanding businesses altogether. Unprecedented levels of industrial demand are leaving little available space and the current development pipeline remains very low, accounting for only 1.4% of Canada’s existing industrial real estate inventory.



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