Canada's Commercial Real Estate Exhibited Resilience in Q1 2024: Morguard

• Investors maintained confidence in Canada's multi-suite residential rental property as the sector continued to be a popular acquisition target.
• Owner/users were drivers of industrial property sales in keeping with the recent trend.
• Canadian office leasing market performance was bolstered by the pre-leasing of new supply.
• Retail leasing market conditions stabilized with new retailers identifying opportunities and existing retailers eyeing expansion.

MISSISSAUGA, ON, May 22, 2024 /CNW/ - Canada's commercial real estate sector exhibited a measure of resilience during the first quarter, as investment sales activity slowed according to Morguard's 2024 Economic Outlook and Market Fundamentals First Quarter Update ("Morguard") (TSX: MRC). Industrial properties were the most popular acquisition target of investors and owner/users. Multi-suite residential rental property finished second only to industrial in recorded transaction volume in the first quarter.

"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."

Looking ahead, the Bank of Canada's stance on potential rate cuts and the evolution of inflation pressures will continue to shape the Canadian economy for this 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."

In the first quarter, Canadian multi-suite residential rental emerged as the second most popular acquisition target of investors, continuing the trend seen over recent years. Notably, smaller-scale properties sold to private groups have accounted for a large share of investment sales activity while institutions and pensions funds have increasingly sought acquisitions outside of Canada.

Due to an availability shortfall, there have been few sales of large over the past year. Just over $568.0 million of multi-suite residential rental investment property transaction volume was reported for the first quarter for properties sold for at least $10.0 million in the Greater Vancouver, Calgary, Toronto, Ottawa, and Montreal markets combined. Despite the modest transaction volume total recorded in the quarter, investors remain confident in Canada's multi-suite residential rental property sector.

Industrial property led in investment property sales, while overall capital flow into the asset class slowed quarter over quarter. Owner/users accounted for a significant share of industrial property sales in the first quarter, in seeking to capitalize on the financial advantages and control attainable through ownership. At the same time, private capital groups capitalized on reduced competition levels. Industrial leasing fundamentals were relatively stable and healthy, as new supply and sublease offerings drove availability rates higher.

The office leasing market performance was bolstered by the pre-leasing of new supply in the face of a slight increase in the national vacancy rate and downward pressure on rents. Both Vancouver and Winnipeg recorded positive absorption of office space, marking the first time since the third quarter of 2022.

Retail leasing fundamentals remained stable during the first quarter, with vacancy levels generally flat. While space in prime locations was limited, vacancy levels stayed elevated in certain downtown cores. Overall, supply and demand were balanced as new retail concepts sought opportunities to enter the market while stores selling necessities and discounters aimed to expand.

The Canadian economy displayed stronger-than-expected growth in early 2024 driven in part by population growth, an uptick in household and government spending, and rising residential housing demand. While consumer price growth slowed during the first quarter of 2024 as pressure eased in the grocery sector in both January and February. Inflation remained elevated due in part to persistently high rental costs mortgage interest rates.

The Bank of Canada maintained its policy interest rate in the first quarter, reflecting the economy's resilience and still elevated inflation. The Bank emphasized its intention to closely monitor economic performance and inflation in the coming months to determine the pace and extent of interest rate adjustments.

Released today by Morguard, the 2024 Canadian Economic Outlook and Market Fundamentals First Quarter Update provides a comprehensive assessment of the 2024 real estate investment trends to watch in Canada. The full report is available at morguard.com/research.

Morguard Corporation 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 Real Estate Investment Trust and Morguard North American Residential REIT. Morguard also provides real estate management services to institutional and other investors. Morguard's owned and managed portfolio of assets is valued at $17.8 billion.

Please visit www.morguard.com or follow us on LinkedIn.

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