Canada’s Q2 Commercial Real Estate Shows Positive Trends

A new report highlights positive momentum in Canada’s commercial real estate market, with reduced borrowing costs boosting investor confidence.

Canada’s commercial real estate market has demonstrated a commendable resurgence in the second quarter of the year, as elucidated in a recent report by Morguard, which forecasts that further reductions in borrowing costs are poised to bolster investor confidence. The "2024 Economic Outlook and Market Fundamentals Second Quarter Update" reveals a significant uptick in industrial property sales, juxtaposed with a notable stability in multi-suite residential rental property investments.

Despite a somewhat lackluster near-term economic growth forecast, real estate investors appear undeterred, continuing to display a robust confidence in Canada's commercial real estate landscape. This is evidenced by a marked increase in transaction volumes during the second quarter, which saw a staggering 48.1 percent rise in industrial investment properties across five major markets for assets valued at $10 million or more.

However, the report does not shy away from highlighting the complexities of the current market dynamics. Leasing demand has experienced a decline, attributed to an upsurge in industrial construction activity, which has consequently led to an increase in the national availability rate. Conversely, the office leasing market has shown signs of rejuvenation, primarily driven by the pre-leasing of spaces in newly constructed buildings. Notably, cities such as Toronto and Montreal have reported positive absorption rates in the second quarter, underscoring a burgeoning preference among Canadian enterprises for efficient, high-quality office spaces replete with an array of appealing amenities.

Retail leasing activity has also seen a resurgence, propelled by retailers' insatiable demand for superior-quality spaces. The report indicates that investors have exhibited a palpable confidence in the multi-suite residential rental property market during this quarter, largely due to favorable long-term fundamentals and an optimistic short-term rent growth outlook. Interestingly, despite the prevailing higher interest rates, investor sentiment experienced a notable uplift following the Bank of Canada’s 25-basis-point rate cut in June.

Looking ahead, Morguard anticipates that the multi-suite residential rental property markets will continue to exhibit positive performance. Both the commercial real estate and multi-suite residential rental sectors have demonstrated a commendable resilience in the second quarter, laying a solid foundation for future growth. With inflationary pressures easing and encouraging signs of potential rate cuts on the horizon, this positive momentum suggests that the Canada real estate market is poised for a gradual rebound, much to the relief of investors and stakeholders alike.