Canadian CRE Market Report: Q4 2022
According to the recent report released by Altus Group, a Toronto-based software company for the global commercial real estate industry, the Overall Capitalization Rates (OCR)* rose in Q4 2022. (*The overall capitalization rate (OCR) is defined as an income rate for the total property that reflects the relationship between a stabilized single year’s net operating income expectancy and total price or value. It is a variable derived from dividing a property's net operating income (NOI) by the property's value.)
The Canadian labour market remained pretty much unchanged for the most part in November whereas we saw 108,000 new jobs added in October. Unemployment is sitting at 5.1% as of November 2022. The industries that were reported to gain in employment include finance, insurance, real estate, rental and leasing, manufacturing, as well as the information, culture, and recreation industries.
The Bank of Canada bond rate as of December 2022 is at 3.29%. The central bank continues to focus on inflationary control measures, and the average OCR rates increased the most in the single-tenant industrial asset class when comparing quarter-over-quarter.
The top three preferred product types combined were all food-anchored retail strips. Vancouver took the top seat followed by Montreal and Toronto.
The top 15 products/markets that showed the most positive momentum were:
Toronto – Food-anchored retail strip
Ottawa – Food-anchored retail strip, Suburban multiple unit residential, industrial land
Vancouver – Food-anchored retail strip, industrial land, multi-tenant industrial
Calgary – Suburban multiple-unit residential
Montreal – Food-anchored retail strip, single tenant industrial, suburban multiple unit residential, industrial land
Quebec City – Food-anchored retail strip
Halifax – Food-anchored retail strip, suburban multiple-unit residential
Canadian Industrial Market Update
Throughout the year 2022, the industrial asset class has continuously observed elevated demand. This trend stayed the same in the fourth quarter. As of Q4 2022, the national industrial availability rate sat at 2%, recording a slight contraction from the 2.2% from the previous year.
The labour market added 104,000 jobs in December 2022. Sales increased in six out of eleven subsectors, accounting for 84.4% of retail trade.
There were 32 building completions in the fourth quarter of 2022. Toronto saw the highest number of industrial building completions this quarter, with 15 buildings completed, adding up to slightly more than 3.9 million square feet and an impressive leased rate of 99.4%. Ottawa had no completions in Q4. Vancouver had five completions, with an availability rate of 9.6%. Montreal recorded two completions with an availability rate of 20.9%. Edmonton had one completion with an availability rate of 100%. and Calgary had three building completions, nearly 50% leased.
Canadian Office Market Update
In Q4 2002, twelve office buildings were completed nationwide. This equates to slightly more than 2 million square feet with approximately 28% of space available for lease. These building completions were located in Vancouver, Toronto, and Montreal with the most buildings completed (9) in Vancouver.
There were 72 office projects underway in Q4 2002 with more than 83% in the Toronto, Montreal, and Vancouver markets. Toronto and Vancouver were neck and neck for the most projects under construction with each market registering 28 developments.
As we see a strong continuation of the hybrid work model which includes going into an office for at least a portion of the work week, the corresponding increase in the utilization of office space will reflect positively on the asset class. However, it should also be considered that a potential recession along with the higher costs of capital may discourage enthusiastic investors.