Eastern Canada's commercial investment and rental property markets will continue to provide owners and investors with solid returns in 2015. Strong demand will ensure property values hold at the peak. Bidding on available product will be aggressive, given investor access to low cost debt and equity capital. Performance, measured by returns, will be attractive. Owners will focus on driving income higher to improve overall performance, as values continue to stabilize. Healthy demand will help push annual transaction volume in Eastern Canada above the long-term average of $13.3 billion .
"Advancement in Eastern Canada's commercial property rental markets will be tied to a buoyant U.S. recovery and healthy domestic demand in the coming year," said Keith Reading , Director of Research at Morguard. "The recent downward adjustment in interest rates will encourage economic activity."
The major property market classifications are expected to register advances in 2015 – with some caution in the office sector.
Development risk will remain a fixture in the office sector, with newly constructed, more efficient towers attracting tenants from existing buildings in Toronto , Montreal and Ottawa .
The industrial, retail, and multi-unit residential rental markets will continue to prosper, given a slightly stronger economic growth trend.
A low Canadian dollar will drive demand for goods produced in Canada's industrial heartland, supporting strength in Toronto and Montreal's industrial property markets.
Retail sales growth will support leasing activity in Eastern Canada's established shopping centres and high streets, as the sector adjusts to Target's unexpected exit.
In the 2015 Economic Outlook and Market Fundamentals Research Report released today, Morguard Corporation (MRC.TO) ("Morguard"), provides a detailed analysis of 2015 real estate trends to watch in Canada . The full report is available at www.morguard.com.
2015 Real Estate Investment Trends to Watch in Eastern Canada
Core assets in Eastern Canada's commercial property market will continue to reward owners with attractive investment performance in 2015.
Recovery in Eastern Canada's manufacturing sector in 2015, will not only support strong industrial rental market fundamentals, but also boost investment demand.
Past performance, largely stable rental market fundamentals, and a solid retail sales forecast will continue to draw investment to established retail nodes and centres.
The office sector will generate interest, despite development and a mixed demand forecast.
Multi-unit residential properties will remain a preferred asset class, given a long history of stable and secure income generation.
The industrial, retail and multi-unit residential sectors will post healthy income performance in 2015, in support of attractive investment returns.
By the close of 2015, the fallout from Target's exit from Canada will have dissipated, with rental market fundamentals holding firm and healthy.
Halifax's commercial property market will receive a boost from Federal shipbuilding contracts, which will drive economic activity and demand for space.
Halifax's commercial property market is forecast to gradually strengthen over 2015, after a period of stabilization in the preceding two-year period. The Royal Navy shipbuilding contract awarded to the Halifax shipyard will, at least in part, be a key to more robust results. In 2015, the region's economic growth rate is forecast to increase, to roughly 2.8% in 2015, and 3.1% in 2016, according to the Conference Board of Canada . Most segments of the economy will advance, in support of stable and healthy rental market trends, in the major property markets. The healthier fundamental outlook will support investment performance. Halifax will remain a market that provides investors with diversification outside of the country's major cities and stable performance overall. In short, Halifax's economy and commercial property markets are expected to post solid overall performance in the coming year.
The Greater Montreal commercial property market should generate modest gains in 2015, given steady improvement anticipated in economic results. The region's economic output is forecast to expand by 2.5% in 2015, following less than 2.0% on average annually over the previous four-year period. The firmer growth trend is expected to translate into solid performances in the industrial and office rental markets. New supply in the office sector will offset some of the gains. However, the industrial, retail, and multi-unit residential rental markets will continue to show progress. The rental market outlook will continue to support investment market performance. Montreal will continue to attract investment capital in 2015, as one of the nation's largest centres of business activity. Performance will be largely income-driven, mirroring much of 2014. In short, Montreal's property sector will reap the benefits of a firmer economic growth trend forecast for 2015, building on recent performance.
Ottawa's 2015 commercial property market performance will be mostly positive, although the office market will continue to struggle to gain solid footing. Strong public sector presence and the resulting stability will justify investment in this market. Buildings with long-term government leases will attract the most attention from investors. Returns will remain attractive, with income growth making up the largest portion of 2015 results. Demand will continue to outdistance the supply of properties for sale. Property values, in keeping with the broader cycle, will continue to stabilize at the peak. Healthy investment performance will be supported by solid rental market trends.
For the most part, Ottawa's commercial property rental markets will generate positive results in 2015, despite ongoing stress in the office sector. The city's relatively small industrial market will be stable and tight, given a lack of new development and positive demand patterns. Retail and multi-unit residential rental fundamentals will include healthy occupancy levels, peak rents, and stable demand. Leasing risk will continue to be a factor in the office market; a weak demand trend in the office sector will continue to hamper progress. The market's largest tenant, the federal government, will continue rationalization of its space usage, resulting in little or no expansion requirements. As a result, office space demand will continue to disappoint. On balance however, rental market performance will be largely healthy, in support of solid overall sector performance.
The nation's largest commercial property market is poised for continued advancement in 2015, fueled by a healthy regional economic outlook. Rental markets are expected to register gains in the coming year, given positive business and consumer outlooks. The U.S. economic recovery will drive increases in manufacturing and the wider goods production sector, which will support continued industrial market outperformance. Real GDP growth of 2.8% forecast for 2015 will translate a firmer job growth trend and retail consumption. In turn, the retail sector will prosper. Immigration and the high cost of owning a home will drive positive multi-unit residential rental demand, against a backdrop of tight conditions. Rents are expected to continue to rise in the industrial and multi-unit residential sectors. In the office sector, downward pressure on rents could materialize, as tenants relocate to newly constructed buildings from older existing towers. Development risk should factor into office sector performance over the near-to-medium term. On aggregate however, rental market trends will drive investment performance in the coming year.
The country's largest urban centre is expected to generate positive investment market trends in 2015. In keeping with the post financial crisis phase of the cycle, returns will remain attractive having reverted to the mean. Income will be the key to upside in performance as values continue to stabilize. Investors will continue to look to Toronto as a preferred destination for investment, given the overall depth and breadth of the market. Available capital will outdistance the supply of available core assets. Despite this imbalance, activity will remain above the long-term average. In short, the Greater Toronto commercial property market will generate continued stability and health in the coming year, in keeping with the national trend.
Morguard is a major North American real estate and property management company. It has extensive retail, office, industrial, and residential holdings owned directly and through its investment in Morguard REIT (TSX: MRT.UN) and Morguard North American Residential REIT (MRG-UN.TO). Morguard also provides real estate management services to institutional and other investors. Morguard's combined real estate portfolio is valued at $15 billion .
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