- Rent growth accelerated in the multi-suite residential rental
sector during the third quarter.
- Industrial warehouse and logistics properties continued to
attract market interest with relatively attractive selling
prices.
- Class A segment of Toronto's
downtown submarket recorded the strongest performance this quarter
in the office leasing market.
- Commercial property investment sales activity remained muted,
in line with a year-long trend.
MISSISSAUGA, ON, Nov. 14,
2023 /CNW/ - The multi-suite residential rental
sector saw rental demand outpace supply resulting in accelerated
rent growth across the country during the third quarter of 2023,
according to Morguard's 2023 Canadian Economic Outlook and Market
Fundamentals Third Quarter Update ("Morguard") (TSX: MRC). By and
large, the major Canadian commercial property sectors remained
stable in the third quarter. Although Canada's economic growth is expected to soften
in the near term, the Canadian economy is forecasted to strengthen
from the second half of 2024 onwards.
"The industry has the potential to rebound in early 2024
depending on the central bank's rate decisions and the effects of
the monetary policy," said Keith
Reading, Senior Director, Research at Morguard. "The
alleviation of inflationary pressures and adjustments in interest
rates will remain pivotal in shaping the trajectory of Canada's economy going forward."
Multi-Suite Residential Real Estate
The multi-suite
residential rental sector experienced accelerated rent growth with
the average asking rent for purpose-built units in the country's 35
top markets rising by 14.6% year-over year as of September 2023, a nine-month high, according to
Urbanation Inc.'s Rentals.ca network. Stronger-than-expected job
growth in early 2023, along with a spike in immigration,
contributed to increased rental demand pressure.
Rent growth is expected to moderate in the near term following
the acceleration in the third quarter. This can be attributed to
significant deceleration in job growth for the remainder of this
year and into early 2024. Additionally, international migration
volume is projected to moderate, and young workers will hesitate to
secure rental accommodation amid economic and labour market
uncertainty.
Commercial Real Estate
Investment sales activity in
the commercial property sector remained muted in the third quarter,
consistent with a year-long trend. Industrial property sales slowed
once again in the third quarter, following a surge in sales during
the second quarter. Core-quality warehouse and logistics properties
continued to sell at relatively attractive pricing levels.
Nonetheless, industrial property sales volume is expected to remain
below the medium-term average for the foreseeable future, as buyers
stay on the sidelines while interest rates remain high, and the
national economy slows.
The third quarter also witnessed a sluggish office leasing
market, continuing the trend of the past few years. Leasing demand
fell short of supply during the three-month period with the
strongest demand observed for high-quality space in the country's
class A buildings. Some businesses were able to upgrade their space
at a reasonable cost, continuing the market's flight-to-quality
trend.
The retail investment sector reported very few significant
transactions during the third quarter, aligning with the
year-to-date trend. Owners of retail assets have prioritized
operations, leasing, and value enhancement through density
additions in recent years. Properties with grocery store anchors
and tenants selling necessities continued to attract interest, but
the availability of properties fitting this profile was
limited.
Economic Factors
Canada's economy was relatively stable in the
third quarter, a period during which significant increases in
employment levels and wages were recorded. Output varied due to
special circumstances; mining, quarrying and oil and gas production
increased after declining in the second quarter due to
wildfire-related shutdowns while strikes at ports contributed to
output reductions. Looking ahead, economic growth is expected to
begin firming up in the second half of 2024 and strengthen in 2025
after a period of relatively slow growth that continued throughout
the third quarter.
The Bank of Canada continued to
focus on the restoration of pricing stability during the third
quarter. Considering the easing of excess demand in the domestic
economy and more time needed for the monetary policy tightening to
take effect, the bank maintained the overnight rate at 5.0% in
October. However, the healthy growth in employment and wage
increases were seen as potential drivers of increased consumer
price inflation, and the bank may be compelled to implement another
rate hike in the near term.
The third quarter update released today by Morguard of the 2023
Economic Outlook and Market Fundamentals Research Report provided a
comprehensive assessment of the 2023 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 residential
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 assets is valued at $18.6
billion. Please visit www.morguard.com or follow us on
LinkedIn.
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SOURCE Morguard Corporation