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Shift in Economy

Four Reasons for Commercial Real Estate Optimism

"one property type in one city doesn’t represent the state of affairs across the country"

Toronto - Demand for Canadian office and industrial space points to areas of strength at a time when low oil prices are creating significant headwinds for the national economy. CBRE Limited’s National Office and Industrial Second Quarter 2015 Statistical Summary reveals four reasons why you should be optimistic about commercial real estate in Canada.

“We didn’t have to look hard for a silver lining this quarter. While the Canadian economy may not be firing on all cylinders, there are sectors that are actively leasing office and industrial space across the country. And for investors in commercial real estate, property values remain strong, which is usually a catalyst for interesting developments,” said Ross Moore, Director of Research for CBRE in Canada.

“While the Calgary office market continues to recalibrate, one property type in one city doesn’t represent the state of affairs across the country. Downtown Vancouver and Toronto continue to have active office leasing markets, while demand for industrial space has actually rebounded in Alberta. We are also encouraged by the fact that businesses are adjusting to new economic realities and leasing activity is increasing in Eastern Canada.”

Four Reasons for Commercial Real Estate Optimism:

New downtown office towers spur office leasing

New buildings remain a major draw for tenants. Three of the four office towers that were completed in Vancouver this quarter (MNP Tower, Telus Garden, Pacific Centre/725 Granville) were more than 90% preleased. The completion of new office buildings in downtown Vancouver and Montreal led the national downtown office market to post positive absorption following a substantial contraction last quarter.

“Landlords delivered 2.7 million square feet of new office space across Canada into an uneven economy, but tenants are still pursuing new space and demand for new product more than offset the 605,834 sq. ft. of office space that was put back on the market in Calgary this quarter,” said Moore.

Industrial leasing rebounds in Alberta

After a total 2.3 million sq. ft. of industrial space was returned to the Alberta market last quarter, including the Target Distribution Centre north of Calgary, there was 1.4 million sq. ft. of net industrial leasing in the province in the second quarter of 2015. The fact that the Target facility was quickly purchased is indicative of confidence in the long-term viability of the region as a logistics and distribution hub.

“The Edmonton industrial market is a bellwether for the regional economy, so it was encouraging to see an uptick in demand for industrial space in Edmonton this quarter,” said Moore.

Suburban office leasing outpaces downtown demand

While most industry watchers are preoccupied with the wave of new construction in downtown office markets across the country, demand for suburban office space continues to surprise. There was 276,028 sq. ft. of net absorption in suburban office markets across the country in the second quarter, compared to 258,391sq. ft. in downtown office markets nationally.

“Many Canadians enjoy living in suburban areas so it makes sense for businesses to locate nearby. For investors looking for stability in times of economic uncertainty, the suburbs might be worth a second look,” said Moore.

Economic activity and leasing shifts to Central Canada

Lower energy prices and a weak Canadian dollar are adding momentum to commercial real estate in Central and Eastern Canada. This is especially true in the industrial market where manufacturers are expected to benefit from competitive advantages on these fronts, in addition to a resurgent U.S. economy. Over 5.7 million sq. ft. of net industrial space was leased in Central and Eastern Canada compared to 2.8 million sq. ft. in Western Canada in the second quarter.

“One only has to look at the Greater Toronto Area, which accounts for 43% of industrial space in Canada, to get a sense of the building momentum. The industrial availability rate fell 60 basis points to 4.2% - the lowest availability rate in North America along with the San Francisco Peninsula,” said Moore.

“While there are challenges and not every segment of the office or industrial market is surging, commercial real estate remains solid overall. There are signs of strength and there are certainly reasons to be optimistic,” said Moore.

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