- Multi-suite residential rental properties continue to generate
strong bids from investors given the asset class's largely positive
medium-to-long term performance forecast
- Industrial investment demand remains robust resulting in high
transaction volume and upward property value pressure
- Grocery-anchored retail properties remain attractive to
investors despite in-person shopping restrictions in the first
quarter
- Questions surrounding returning to the office continue to
moderate activity in the office segment as investors wait for the
eventual economic reopening
MISSISSAUGA, ON, May 26, 2021 /CNW/ - Canadian commercial property
investment market conditions stabilized during the first quarter,
according to Morguard's 2021 Canadian Economic Outlook and Market
Fundamentals First Quarter Update ("Morguard") (TSX: MRC). An
increased volume of COVID-19 vaccinations reported across the
nation boosted investor confidence as part of a more optimistic
economic outlook despite further uncertainty triggered by a third
wave of the pandemic. Low-risk industrial and multi-suite
residential rental properties recorded stable-to-high transaction
activity, reflecting increased confidence from the investment
community. A more cautious approach was taken by investors with
regard to potential office and non-essential retail property asset
acquisitions.
"Defensive assets, such as multi-suite residential rental and
industrial, garnered strong bidding due to their relatively stable
and positive fundamental outlooks," said Keith Reading, Director, Research at Morguard.
"The positive impacts of the vaccine rollout and government
transfers to Canadian businesses and households are expected to
boost both economic and investment market performance in the second
half of 2021 as the outlook for the commercial real estate sector
becomes clearer."
Multi-Suite Residential Rental Real Estate
The
multi-suite residential rental segment experienced strong interest
from investors in the first quarter of 2021 as vacancy rates held
close to the pandemic highs in most regions. The reopening of
Canada's international borders
either later this year or in 2022 and subsequent increase in
international migration is expected to support stronger rental
demand and upward pressure on occupancy and rents. Investors
are expected to continue to target multi-suite residential rental
properties in 2021 given the strength of the segment's fundamental
outlook and positive medium-to-long term performance forecast.
Commercial Real Estate
The office sector's investment
market conditions are expected to remain relatively stable despite
reduced occupancy. Work-from-home measures from late last year
continued to impact the sector in the early months of 2021. The
national vacancy rate increased 1.2 per cent over the first quarter
of 2021 to 14.6 per cent, marking the highest rate recorded since
2002. The average first-quarter vacancy rate for downtown areas in
major cities, such as Edmonton,
Toronto, and Vancouver, stood at 13.3 per cent, a 20-year
high. Office tenants continued to plan for the eventual economic
reopening, but largely delayed longer-term occupancy decisions.
Looking ahead, the extent to which employees return to the office
will dictate leasing performance over the near term while investors
acquire office properties selectively over the balance of 2021.
The industrial segment experienced another notable quarter with
investors continuing to target these properties. In the early
months of 2021, the sector reported a solid outlook, healthy
near-term performance characteristics and a consistent supply of
properties available for acquisition, resulting in a near record
transaction pace and property values that continued to hold at the
peak for the cycle. Over the balance of 2021, industrial investment
activity is expected to remain robust.
Reduced investment activity in the retail segment was evident
during the first quarter, as landlords and retailers continued to
navigate the challenges brought on by the pandemic-related
limitations for in-person shopping. Investors focused on the
longer-term economic outlook during the first quarter when making
investment decisions by generally choosing to pursue lower risk
properties within each of the major asset classes. Grocery-anchored
and other essential retail tenanted properties will continue to
attract investment capital from a variety of sources in 2021 while
other sub-categories of properties will see reduced demand during
an anticipated period of extended lockdowns.
Economic Factors
Canada's economy exhibited a measure of
resilience during the first quarter despite a third wave of the
COVID-19 pandemic and lockdowns in most regions. The labour market
experienced some turbulence in the first three months of the year,
with national employment falling 1.2 per cent, or roughly 213,000
positions in January. February and March saw a reversal though as
national employment increased by roughly 259,000 positions, and
303,000, respectively. Progress over the rest of the year will be
highly dependent on the rate vaccines are distributed to the
Canadian population and the potential for further lockdowns.
Economic slack and ongoing uncertainty due to the pandemic
continued to have a significant impact on the Bank of Canada's policy decisions in the first
quarter. The Bank of Canada
announced it would hold rates until the economic slack was
absorbed, and inflation ranged close to the 2.0 per cent mark on a
sustained basis. Over the near term, monetary policy is expected to
remain accommodative given a significant degree of economic
uncertainty.
Inflation concerns rose during the first quarter due to an
accelerated economic growth trend, pent-up household spending and
increased optimism with the rise in COVID-19 vaccinations. Despite
these concerns, several factors are expected to moderate inflation
levels over the near-to-medium term thanks to ongoing international
supply chain challenges dampening price growth, and an increase in
retail competition causing downward pricing pressure and moderate
oil price gains.
The first quarter update released today by Morguard, of the 2021
Economic Outlook and Market Fundamentals Research Report, provides
a detailed analysis of the 2021 real estate investment trends to
watch in Canada. The full report is available
at morguard.com/research.
About Morguard Corporation
Morguard Corporation is a
major North American real estate and property management company.
It has extensive retail, office, industrial, hotel and multi-suite
residential rental holdings owned directly and through its
investment in Morguard Real Estate Investment Trust and Morguard
North American Residential REIT. Morguard also provides real
estate management services to institutional and other
investors. Morguard's owned and managed portfolio of real
estate assets are valued at $14.6
billion. Please visit http://www.morguard.com or follow us
on LinkedIn.
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SOURCE Morguard Corporation