Strong population growth and housing supply issues are driving significant shifts in the Canadian commercial real estate market. Builders and developers are focusing on multi-family purpose-built rentals to address the housing shortage, a trend supported by incentives like the Canada Mortgage and Housing Corporation’s (CMHC) Apartment Loan Program, Re/Max Canada’s 2024 Commercial Real Estate Report notes.
“The overwhelming need for shelter, combined with the CMHC’s Apartment Loan Program that has incentivized builders and developers with low interest rates, favourable terms and 50-year amortization periods, have created the perfect storm in today’s high interest rate environment,” says Re/Max Canada president, Christopher Alexander.
“Unfortunately, with Canada’s population surpassing 40 million people this year, even the current upswing in residential construction continues to fall short of the thousands of units required in most major markets.”
The report highlights this shift, noting that multi-family and industrial real estate are now the top-performing asset classes. It also points out that farmland in Saskatchewan is experiencing high demand, making it one of the strongest-performing asset classes.
Trends of note
There’s a focus on high-density and mixed-use developments due to limited land availability, with many shopping centres incorporating residential components. An increase in the capital gains tax has impacted smaller investors, causing some to delay property sales. Industrial real estate remains in high demand, particularly for warehousing and manufacturing spaces, though affordability is becoming an issue in larger urban centres.
Retail stores, especially those in the health and wellness industries, continue to perform well despite the rise of e-commerce. Luxury retail brands are expanding in major markets like Toronto and Vancouver. The hospitality industry is rebounding, with new hotels opening and existing ones expanding. Real Estate Investment Trusts (REITs) are adjusting their portfolios, leading to the sale of older assets and the purchase of newer properties.
The office sector is struggling with high availability rates, and while conversions to residential use are increasing, they aren’t a complete solution. Adaptive reuse of buildings, including hotels and schools, is becoming more common as municipalities seek creative solutions to the housing crisis.
Western Canada’s commercial real estate market is expected to remain strong, supported by a positive economic outlook. Industrial activity is growing in more affordable markets outside major urban centres. There’s cautious optimism for the latter half of the year, with expected improvements in market conditions as residential housing needs and population growth continue to drive demand across commercial segments.
Looking ahead
“Density, population growth and the housing crisis remain significant factors influencing market activity, but a variety of drivers will have an ongoing impact on the Canadian commercial real estate market moving forward,” says Alexander.
These things include economic performance, interest rates, incentives and development policies, processes and fees, tax policies, construction costs, land costs and servicing, labour shortages, housing affordability and availability, revitalization efforts and hybrid/remote work policies, social issues and more.
Alexander notes that confidence levels are expected to rise, sparking renewed activity in the market, while supply issues are expected to persist for the most sought-after segments as purchasers look to strengthen their investment portfolios with a mix of assets.
“In the longer term, the underpinning of the Canadian commercial real estate market appears positive. Residential housing needs and a swelling population are anticipated to be the root and catalysts of growth in most commercial segments. Inevitably, as communities expand, so too does the need for all types of services, prompting greater business development and increasing requirements of operations and infrastructure. Simply put, growth begets growth, and the ripple effect is already evident.”
While Alexander notes that diverse market dynamics exist, overall improvement is expected to characterize conditions and demand as 2024 progresses.
Review the full report, including market overviews, here.
