Commercial real estate growth has kept the realty market in Canada on a high as per several studies and reports. This can be attributed to several factors, namely the widespread increase in employment and jobs due to the flourishing commercial sector and the natural increase in demand for quality housing and rentals to accommodate the professionals migrating to the country in search of work opportunities. Additionally, cities like Toronto and much of the GTA are becoming hubs for the technology and new-age industries which is leading to several big corporations and conglomerates setting up shop in Canada or expanding their presence. Amazon, Microsoft and Google are all eyeing expansion in Canada and particularly in Toronto. This will lead to huge job creation over the next few years while infrastructural developments like the Hurontario LRT will also drive more progress.
These happenings will naturally spark more demand for homes throughout the country and also in the GTA (Greater Toronto Area) as opined by experts. As a result, growth in the commercial realty sector always has a positive impact on residential real estate and it seems to be the same story in Canada at the moment, going by several reports. The commercial real estate market in Canada is well on the cusp of growth and this is keeping demand steady for residential realty in various micro-markets as well.
Performance of the commercial real estate sector
The commercial realty sector in Canada has continued to do very well and has put up a solid performance overall, as per experts, both with regard to comparisons against global markets and also for the overall returns. Studies have confirmed that Canada continues to be a big force globally in terms of its commercial real estate market and has drawn sizable investments in this space in recent years. Studies were conducted that covered 45 realty portfolios in the commercial segment along with 2,424 assets overall and a whopping 522.4 million sq. ft. of prime space worth close to $161 billion.
The property index being taken into account through studies goes back almost two decades and pits the unlevered overall returns from directly held and standing property investments from one valuation to another. This is the process employed by experts to actually assess the performance of the commercial real estate market in Canada. Experts have stated that 7.9% was the handsome return (total) on all assets for 2018 in Canada. This includes selling, buying, redevelopment and development in this space as per reports. Experts have also opined that returns are being enhanced through management based activities which are highly active. This return rate is better than the United States (USA) where return rates have been estimated at 7.2%. In the UK (United Kingdom), the rates of return have been estimated at 6%. The current wave of growth in commercial returns is supposedly the biggest phase of appreciation in capital that has been witnessed by experts ever since the year 1985 as per reports. The commercial realty market in Canada is doing very well and is regarded to be a healthy condition at the moment.
Sector wise performance figures
Industrial property was the biggest performer in Canada with returns of 13.8% delivered to customers in tandem with the residential segment which had 11.5%. The office segment had 7.8% of returns while retail had 4.4%. The interesting thing to note here is that residential actually did well from an investment perspective and this has a lot to do with the growth in the commercial space. Retail growth was slightly subdued although the residential, industrial and office sectors grew simultaneously.
Net investments overall stood at a whopping $6.98 billion with approximately $1.57 billion being allocated for retail and $1.53 billion marked for the office category. $1.49 billion and $1.3 billion were marked for the industrial and residential space while $875.8 million was invested in other property types. Toronto, as expected, surged forward to draw the highest net investments which exceeded $2.8 billion. This is a pointer to Toronto’s recent growth and development, specifically in its commercial and office space sectors with the influx of several big companies and also the residential condo segment which has been a red-hot segment for a long time now.
After Toronto, investments were drawn by cities like Montreal, Calgary, Edmonton, Vancouver, Halifax, Winnipeg and Gatineau/Ottawa. Toronto had the best performance of 11.1% and Vancouver also performed well at 10.6%. Ottawa had annualized returns of 7.7% while Montreal had 6.3% and Edmonton had 2.6%. Calgary had 1.4% of returns while Winnipeg had returns of 1%. Halifax had returns of negative 1%. These return rates go by a pattern which is quite similar to the year 2017 and improvements were seen in Edmonton and Calgary. These are expected results as per several experts and several investors have already profited from their property holdings in the industrial, office and residential sectors in Toronto. The industrial and multi-residential sectors are also witnessing recovery in Alberta and that has also contributed towards these impressive figures according to experts. The GTA (Greater Toronto Area) has been a major growth hub and this looks set to continue. Investors have garnered great returns from this stretch. REIT indexes reportedly had a slight drop in the fourth quarter of last year although returns were still 6.3% which was superior to the Toronto Stock Exchange. REITs have cash flows which are largely predictable and not as volatile. However, they are subject to liquidity needs of their investors and also pressures of the market.
All in all, the commercial realty space is doing very well in Canada and this is having a positive impact on the residential sector as well. More investments are expected throughout Canada and particularly in high-growth regions like the GTA going forward, as per experts.