CBRE Outlook: Beds, Sheds and Grocery/Meds Lead Atlantic Canada Real Estate Forecast

Sector by sector forecast offers insights and analysis on the trends shaping commercial real estate heading into 2024.

Despite mounting global economic challenges, the outlook for Atlantic Canada commercial real estate is “fairly optimistic,” CBRE Atlantic Region Managing Director Andrew Bergen told his Market Outlook event audience.

“But from a macroeconomic view Atlantic Canada is at a crossroads,” Bergen said. “As a region we were vastly underprepared for the population growth we’ve experienced. And because of the large influx of new residents our communities are under immense pressure in terms of infrastructure, public transportation, student housing and housing in general.”

While the economic landscape will likely get worse before it gets better, Bergen said, “there are signs of green shoots in the marketplace,” and many of them are cropping up in commercial real estate. Here are some of the trends CBRE’s Market Outlook experts say will shape Atlantic Region commercial real estate heading into 2024.

Investment

• After record investment volumes in the past two years, Atlantic Canada will end the year down 20% year over year from the $1.9 billion in commercial real estate traded in 2022.
• Multifamily continues to be the most traded asset, with new construction and older Class C buildings selling most. Industrial is in demand but few investors are willing to sell.
• The investment safe havens of “beds, sheds and grocery/meds” will be the most in-demand asset classes in 2024. But contrarians will emerge to invest in the office sector.

Office

• The Halifax office market remains resilient despite the impacts of work from home.
• Tenants are rightsizing to accommodate lower occupancy. Cognizant leased 25,000 sq. ft. in the Bay West Centre, a smaller footprint than it had before. IBM downsized to 30,000 sq. ft. at Westway Campus.
• The tech sector, the biggest driver of office growth, is now focusing on profitability, therefore rightsizing and giving back space.
• Amid recession fears and inflated construction costs, sublet vacancy is the highest in five years, rising from 1% in 2019 to 9.2%. Industries with increased vacancy include call centres, insurance and tech.
• There’s been a flight to quality as tenants seek to attract and retain employees with newer buildings and better amenities. The only asset class seeing positive absorption in downtown Halifax is Class A office.
• Suburban office is winning the battle with downtown in attracting tenants. The suburbs have seen positive absorption in all office types in 2023, mainly due to shorter commutes and free parking.

Retail

• Retailers are lining up to take advantage of Atlantic Canada’s economic and population growth.
• New entrants typically start in Halifax. Simons is opening its first store at the Halifax
• Shopping Centre and LL Bean has just opened in Dartmouth Crossing.
• Retail vacancy has significantly decreased in the traditional grocery-anchored strip centres with surface parking. This is creating a competitive market among retailers in larger markets.
• Lack of available space has led retailers to look for opportunities in secondary/tertiary markets. Since the pandemic people have been shopping closer to home, and centres in smaller cities are performing well.
• Increasing costs are impacting retail deals, putting immense pressure on rents and making new-build, small single tenant pad sites tough to develop.

Multifamily

• Tenant ability to afford purpose-built apartment rents is a concern, in particular elevated rents for new buildings.
• Construction cost increases and supply delays have caused developers to re-evaluate future projects.
• Vendors want to sell apartment buildings on potential income generation, but buyers and lenders want to pay for based on current rental rates.
• Their argument is that with rent caps and no turnover it will take years for them to achieve market rents.

Industrial

• After unprecedented rent growth in 2023, the Atlantic Canada industrial market has slowed down.
• With a lack of development-land options, users are paying more to acquire or rent warehouse spaces.