Canadian real estate shows resilience in Q1 2024

Canada's commercial real estate remains strong in Q1 2024 despite slowing investment sales activity

Canadian real estate shows resilience in Q1 2024

According to Morguard's 2024 Economic Outlook and Market Fundamentals First Quarter Update, Canada's commercial real estate sector has exhibited resilience during the first quarter of 2024, as investment sales activity slowed. 

Industrial properties topped the list of acquisitions by investors and owner/users, while multi-suite residential rental properties followed in transaction volume. 

“The Canadian commercial real estate sector in the first quarter has shown positive signs of market resilience,” said Angela Sahi, president, and chief operating officer of Morguard.  

“The continued popularity of multi-suite residential real estate and the steady demand from industrial property buyers as investment targets will bolster the market's positive growth trajectory."   

Future economic conditions, including the Bank of Canada's potential rate cuts and evolving inflation pressures, will influence the Canadian economy throughout the year and beyond.   

“The ongoing high interest rates continue to impact the real estate market, leading to increased costs of debt and widening of the gap between seller and buyer price expectations,” said Keith Reading, senior director, Research at Morguard.  

“With inflation remaining stable, the Bank of Canada vigilantly monitors economic progress for rate cuts. This provides a solid foundation for real estate poised for growth, supported by investor confidence across various real estate sectors.”   

Multi-Suite Residential Real Estate 

In the first quarter, multi-suite residential rental properties remained a key target for investors, continuing a multi-year trend. Smaller properties sold to private groups constituted a significant portion of investment sales, while institutions and pension funds sought acquisitions outside Canada.   

There were few sales of large properties due to an availability shortfall over the past year. Just over $568m in multi-suite residential rental investment transactions were reported for properties sold for at least $10m in the Greater Vancouver, Calgary, Toronto, Ottawa, and Montreal markets combined. 

Despite the modest transaction volume, investor confidence in Canada's multi-suite residential rental property sector remains strong.   

Commercial Real Estate 

Industrial properties led investment sales, although capital flow into this asset class slowed quarter over quarter. Owner/users significantly contributed to industrial property sales in the first quarter, seeking financial advantages and control through ownership.  

Private capital groups also benefited from reduced competition levels. Industrial leasing fundamentals remained stable and healthy, with new supply and sublease offerings increasing availability rates.   

The office leasing market improved with the pre-leasing of new supply, despite a slight rise in the national vacancy rate and downward pressure on rents. Vancouver and Winnipeg saw positive absorption of office space for the first time since the third quarter of 2022. 

Retail leasing fundamentals stayed stable in the first quarter, with generally flat vacancy levels. While prime location vacancies were limited, some downtown cores experienced higher vacancy rates.  

The overall supply and demand balance remained, with new retail concepts entering the market and stores selling necessities and discount goods seeking expansion.   

Economic Factors 

The Canadian economy experienced stronger-than-expected growth in early 2024, driven by population growth, increased household, and government spending, and rising residential housing demand. 

Consumer price growth slowed as grocery sector pressures eased in January and February, but inflation remained high due to persistently high rental costs and mortgage interest rates.   

The Bank of Canada maintained its policy interest rate in the first quarter, highlighting the economy's resilience and ongoing inflation concerns. The Bank committed to closely monitoring economic performance and inflation to determine future interest rate adjustments.