Investment in Canadian commercial property could hit a record $50-billion this year, as private capital races to snatch a piece of the booming office, residential and industrial market, according to a forecast from commercial realtor CBRE.
That compares to $45-billion last year and surpasses the $49-billion reached in 2018, when a couple of particularly big deals sent the number higher.
CBRE said Canadian commercial property has traditionally been viewed as a safe haven for investors due to the country’s stable government, a banking system that is regulated and protected, as well as the weak Canadian currency.
But now, Canada is seen as a leading market for investors as rental rates explode due to the shortage of housing, office space, land and industrial properties in Toronto, Vancouver and other major cities.
“It is now a top destination for domestic and global capital,” said the CBRE report.
The 10 North American cities with the lowest industrial vacancy rates are all in Canada, including six in Ontario.
It’s a similar story for office space. Five of the 10 North American cities with the lowest office vacancy rates are in Canada. Since early 2016, Toronto has had the lowest office vacancy rate in Canada and the U.S. Now, Vancouver, Victoria, Ottawa and Quebec City are among the tightest office markets.
Investors are not just interested in Toronto and Vancouver, they are seeking commercial property and land in less-populated areas such as the B.C. Interior and Kitchener-Waterloo and Hamilton in Ontario.
Office rent in top buildings rose between 10 per cent and 20 per cent across the country from 2018 to 2019, according to CBRE. In Vancouver, rent jumped 21 per cent, in Montreal 14 per cent and in Toronto 10 per cent.
Apartment rents rose 4 per cent year over year, which CBRE said was remarkable given that the rise included markets with rent controls in place. Meanwhile, rent at industrial properties jumped 12 per cent and is expected to continue rising, as more retailers move to e-commerce and require additional warehouse space to store goods.
“In that world, you need larger facilities and more facilities,” said Paul Morassutti, vice-chair of CBRE Canada.
That has motivated private-equity companies such as Starlight Investments, KingSett Capital and Blackstone Group to spend billions of dollars for a piece of the action. Brookfield Property Partners LP has recalled one of its executives to Canada from the U.S. and hired more staff to scrutinize potential deals.
In addition, the real estate arms of domestic pension funds – Caisse de dépôt et placement du Québec, British Columbia Investment Management Corp., Ontario Teachers’ Pension Plan and Ontario Municipal Employees Retirement System – as well as pension funds Alberta Investment Management Corp. and the federal Public Sector Pension Investment Board are either developing skyscrapers and or are undertaking large-scale development projects in the Toronto region.
With Canadian commercial property in the 11th year of a bull market, CBRE said the typical business cycle “no longer seems to apply." It said rent would continue to increase this year due to low vacancy and strong demand.
However, Mr. Morassutti said the lack of affordable housing in Toronto, Vancouver and other major cities had the potential to worsen the income gap between the wealthy and middle- and low-wage earners and inflame societal tensions – a concern that is rarely raised publicly by the commercial real estate industry.
“We don’t want to live in a city like Manhattan where nurses and cops can’t afford to live in the city,” he said.