Despite the coronavirus pandemic, there is an increasing demand for commercial real estate that could not be overlooked in Canada and elsewhere in the world. Due to the increased demand from food delivery services, eCommerce, home improvement retailers, and even medical supply companies, the warehousing, fulfillment, and logistics sections of the industrial real estate sector have endured even as uncertainty and changes continue in other segments of the real estate industry. The fact that more buildings and infrastructure are also needed for the manufacture and supply of vaccines should not be discounted.
Many retail properties are still suffering, with several big-name brands having had to resort to shutdowns or even sought protection from creditors. Meanwhile, the outlook for office space remains dependent on the percentage of the workforce willing to give up their present work-from-home arrangements. Based on a recent PwC Canada survey on the Canadian force, 34% of employees prefer to work remotely, while 37% want to go back to the office. The rest would like to have an even split between working from home and in the office.
Based on these findings, it can be said that the pandemic has created an environment where everyone is cautious about where they stand and where they want to go in the future. However, it is highly noticeable that companies that have learned to adapt their development and investment strategies have gained the favor of the people.
The Industrial Sector Comes Out on Top
According to the 2021 RE/MAX Commercial Real Estate Report, which underscored developments and trends in Western Canada’s seven major centers, private equity, and institutional investors played a major role in almost all markets in 2020. This powered the demand for industrial products, multi-unit residential properties, and office buildings, while smaller investors and end-users showed their strength in the industrial and retail sectors. From the areas of Vancouver down to Winnipeg, it was noted that the industrial sector came out on top with regards to performance due to the heightened demand for fulfillment and warehouse space from multinational companies like FedEx and Amazon. Meanwhile, the constant need for multi-unit residential properties continues with the lower values and higher CAP rates drawing in investors from the Calgary and Edmonton markets. Farmland came in as the third top performer, with strong demand from Saskatchewan, which ignited robust sales and an upward movement on values.
The acceleration of eCommerce and closure of brick-and-mortar establishments have prompted smaller retailers to invest in smaller storefronts located in high-traffic areas, using equity gains to buffer possible sales downturns. Others turned towards upgrading their online presence and lessening their physical footprint through going for warehousing and distribution.
Although restaurants were greatly affected by the pandemic, those that offered drive-through options turned out strong not just in 2020 but in the recent year. This tap-and-go business model, which requires no touch and no contact, has caught on and surged in places such as Calgary, Kelowna, and Saskatoon. It is expected to continue strong throughout the year.
Strong Economic Recovery Predicted for 2021
Based on the same report, it is predicted that the “rebounding global demand for primary energy” should aid in strengthening the country’s economic performance and demand for commercial real estate, especially in Alberta, during the second half of this year. The foreseen hike in demand includes a robust economic recovery and low-interest rates, which can be expected due to the policy statement issued by the Bank of Canada, which indicated that they’d maintain their interest rate at 0.25% until 2023. The bank anticipates a strong rebound in the second quarter of 2021 and has projected a 4% GDP growth in the country during the year.
As it is, the industrial real estate sector has indeed been the cash cow of 2020, and this was driven by strong demand, shortage of available zoned land, and limited inventory. As a result, vacancies among industrial products are low, with Vancouver showing the toughest rate at under 1.5%, and rental rates continue to hike up by 10% year-over-year. This push was large because of huge multinational companies ramping up their efforts to meet the demands of the eCommerce industry, which has expanded rapidly since the pandemic started.
Even the smaller investors have kept up with the pace, as the need for income properties in industrial areas serving essential services companies and strong supply chains increase. In addition, smaller portfolios have become diversified as investors begin to supplement their holdings in multi-unit residential properties with industrial products and office or retail, although to a lesser degree.
Meanwhile, the 20,000-acre farm sale in Norquay in August 2020 highlighted the continued demand for farmland in the country, especially in Saskatchewan. This, as the Hutterite Colonies in Alberta, pursue their intentions to expand their farming operations. The country’s average price for farmland has hiked up by 3.7% during the first months of 2020, with Saskatchewan posting the highest increase in values. This is expected to attract more investors and end-users in the coming months, especially with the anticipated return of foreign investments to the overall market in the recent year.
It should also be noted that the promise of lower interest rates and greater security have resulted in private and institutional investors turning to multi-unit residential properties even during the height of the pandemic in 2020. For example, Vancouver started 2021 with a sale of 15 rental apartments that amounted to a whopping $292 million. This strengthens the consensus that Canada’s economy will come back up soon enough and will fire up an upsurge in commercial real estate activities.
So, if you look at the overall condition of the real estate industry in Canada, you can see that it is faring well despite the pandemic. The continued and increasing demand for commercial real estate indicates that the industry is adapting and thriving by implementing positive changes and strategies. This makes it a winner on all fronts, despite the odds.
For More Information, Contact:
John (Adam) Watson, CEO, CanCap Mortgage Group Inc.
Email: adam@cancap.one Tel: 416-452-5281