Investors showed "confidence" in Canada's commercial real estate sector in Q2: Morguard

Canada’s commercial real estate sector saw positive momentum in the second quarter of the year, according to a new report, which notes further reductions in borrowing costs are expected to drive investor confidence.

On Wednesday, Morguard released its 2024 Economic Outlook and Market Fundamentals Second Quarter Update. Findings from the report included a large increase in industrial property sales coupled with stability in multi-suite residential rental property investment.

“Despite a weaker near-term economic growth outlook, real estate investors will continue to exhibit a measure of confidence in Canada’s commercial real estate sector as evidenced by the uptick in transaction volume in the second quarter,” Keith Reading, senior director of research at Morguard, said in a press release.

“This confidence is expected to persist as the real estate sector gradually recovers from the effects of the most recent economic slowdown.”

According to the report, transaction volumes for industrial investment properties rose in the second quarter, increasing by 48.1 per cent quarter-over-quarter across five major markets for properties valued at $10 million or more.

However, leasing demand weakened amid rising industrial construction activity which spurred an increase in the national availability rate, the report said.

Canada’s office leasing market showed signs of improvement, the report said, due mainly to pre-leased spaces in new buildings.

“Notably, Toronto and Montreal registered positive absorption in the second quarter through the pre-leasing of newly built spaces. This trend highlighted the preference exhibited by Canadian businesses for efficient and high-quality office space with access to an abundance of attractive amenities,” the report said.

Activity in retail leasing was also found to have risen during the quarter driven by demand among retailers for higher-quality spaces.

The report said that investors “exhibited confidence” in the multi-suite residential rental property market during the second quarter, due mainly to fundamentals over the longer term and a positive outlook for rent growth over the short term.

Despite higher interest rates during the second quarter, the report notes that investor sentiment rose following the Bank of Canada’s 25-basis-point rate cut in June. Going forward, Morguard said it expects multi-suite residential rental property markets to continue to show positive performance.

“Both the commercial real estate and multi-suite residential rental sector exhibited a measure of resilience in the second quarter, which built on a solid foundation for growth,” Angela Sahi, the president and chief operating officer of Morguard, said in the release.

“With easing inflation pressures and encouraging signs of rate cuts, this positive momentum indicates that the Canadian real estate market is set to gradually rebound.”

Source: BNN Bloomberg