CRE markets remain strong despite headwinds says AY

by Steve Randall15 Jan 2019

The headwinds of trade disputes, protectionism, rising interest rates, and currency fluctuations has not dampened demand for quality real estate.

In fact, demand remains high, buoyed by a rising population, growing GDP and employment, and relatively strong economies, according to a new report from Avison Young.

The Toronto-based real estate firm has looked at markets across North America, Europe, and Asia, and concludes that things are generally positive for the real estate market.

“While the last few weeks have certainly been a rollercoaster ride for the world’s equity markets, the headline is: we continue to feel very positive about opportunities in the real estate environment for the year ahead,” comments Mark E. Rose, Chair and CEO of Avison Young. “At Avison Young, we believe that more capital is available to move into real estate debt and equity than at any other time. The next wave of investment is not a matter of if or when – it’s just a matter of price.”

Rose says that, although there are changes in the use of space – a growth in co-working for example – it is a change in tenancy rather than a slowdown in occupancy.

“Leasing is stable – and longer-term in nature – and most businesses retain their office footprint throughout economic cycles,” he says.

Canadian CRE shows strength
For the Canadian CRE market, 2017 and 2018 showed strength despite the maturing market.

“Activity is expected to remain stable in 2019 with a general supply constraint being the primary brake on property market growth. Meanwhile, occupiers and owners will have to adjust to rapid technological advances during a period of moderating economic growth,” explains Bill Argeropoulos, Principal, Practice Leader, Research (Canada) for Avison Young.

The office market was softer in Alberta but competition for space elsewhere saw overall vacancy rates fall nationwide. 

“Toronto and Vancouver reaffirmed their presence among North America’s top-performing office markets as Canadian markets captured five of the continent’s 10 lowest vacancy rates,” adds Argeropoulos.

Overall industrial vacancy continued to decline, falling to a new record-low of 2.9% near the end of 2018 – and is expected to edge lower in 2019. Toronto (1.3%) and Vancouver (1.5%) posted North America’s lowest vacancy rates in 2018 and are projected to rank among the tightest three markets in 2019.

But for retail, the market remained uncertain in 2018 following the failure of some chains and underperformance of others.

“The focus on creating memorable consumer experiences will endure across the Canadian retail landscape in 2019. Significant investment in technology to track millennial behaviour is being made by retailers developing and enhancing their physical locations and online market shares while seeking the correct balance in the symbiotic relationship between bricks and clicks,” says Argeropoulos.

Overall, with the final tally yet to come, 2018 was another record year of CRE real estate investment, exceeding the previous high of $36 billion set in 2017.

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