CBRE Outlook: Resilient B.C. Economy Will Drive Unexpected Real Estate Growth in 2024

Sector by sector forecast provides insights into how all of the major commercial real estate asset classes will perform in the year to come.

The BC economy has been more resilient than anticipated in the face of rising interest rates, and 2024 should see modest growth in the economy and most real estate asset classes, CBRE’s B.C. Managing Director Jason Kiselbach noted at CBRE’s Vancouver Market Outlook event.

That growth is thanks in large part to the West Coast’s growing population. “This year we will welcome another 160,000 people to the region, a 40-year-high growth rate of 3.1%,” Kiselbach noted. “An increasing population base creates more aggregate demand for goods and services and people available to fill job vacancies.”

However, “it also creates more pressure on the already critical shortage of housing, which has become the most talked about local issue.”

And a downshift in construction could help owners of real estate weather an economic slowdown by not oversupplying the market with new product. “But it also means that we will see less spending on labour and materials,” Kiselbach said, “and it means a decrease in employment for this important industry.”

How will the other commercial real estate asset classes be impacted in the year to come? Here’s a sector-by-sector forecast for 2024.

Office

• Office vacancy in Metro Vancouver has increased significantly over the past three years as 1.5 million square feet of space was added to the market.
• The city still has the lowest downtown vacancy rate of any major market in North America, and there has been positive leasing activity for new build product and spaces where landlords are willing to build improvements. 
• “We believe that office vacancy in Metro Vancouver is nearing its peak,” Kiselbach said. “88% of the record amount of new supply recently delivered has been leased, and vacancy in the second-generation space being returned to the market is forecast to decline.”

Industrial

• Metro Vancouver industrial real estate continues to outperform thanks to strong consumer spending and e-commerce adoption. After a sustained frenzy of demand, competition for industrial space is beginning to moderate.
• “2022 and 2023 will be the first back-to-back years that we deliver more supply than demand since 2009 and 2010,” said Kiselbach.
• But there are tailwinds fueling demand in the local industrial market, including population growth and the vital port that is critical to the movement of goods across Canada and around the world.

Retail

• Retail leasing has been stable in Metro Vancouver and redevelopment projects like The Post, Oakridge and Brentwood are seeing strong preleasing demand. 
• The combination of population growth, a boom year for tourism and continued consumer spending has meant more money spent in the local economy, and new brands like Balenciaga, Esprit, ArcTeryx, Monos and Peak Performance are setting up shop.
• Most future development will be concentrated on existing retail properties that will be demolished and then replaced by a smaller footprint in a mixed-use format. This will help to keep retail vacancy low.

Rental housing

• Rental housing is in short supply, with Metro Vancouver having the lowest purpose-built apartment vacancy rate in Canada.
• Apartment rents have continued to climb and are up over 30% the past two years. The average one-bedroom unit in Metro Vancouver now fetches over $2,500 per month and is expected to continue to rise. 
• “There does not appear to be relief for renters in the forecast due to our increasing population and inability to get new supply to market fast enough,” Kiselbach said. “The cumulative shortfall now totals 250,000 apartment units over the past 10 years.”