- Office leasing activity showed signs of increased business
confidence due to a more optimistic economic and public health
outlook
- Multi-suite residential rental and industrial properties
remained popular with investors
- Demand for retail properties with defensive attributes remained
relatively stable and positive
MISSISSAUGA, ON, Aug. 11, 2021 /CNW/ - The Canadian office leasing
market displayed early signs of recovery in the second quarter of
2021, according to Morguard's 2021 Canadian Economic Outlook and
Market Fundamentals Second Quarter Update ("Morguard") (TSX: MRC).
Investors continued to target multi-suite residential rental and
industrial property acquisitions given the rising economic
optimism. The brisk roll out of the nation's vaccine program and
resulting uptick in domestic demand is expected to continue to
increase investor confidence across the major commercial real
estate segments in the second half of 2021.
"Prime office sector investment properties and necessities-based
retail were popular with investors, and multi-suite residential
rental and industrial remained attractive investment options," said
Keith Reading, Director, Research at
Morguard. "Positive shifts in the market moving forward, are
attributable mostly to a return to post-pandemic normalcy and
continued economic recovery."
Multi-Suite Residential Rental Real Estate
The
multi-suite residential rental segment experienced strong interest
from investors in the second quarter of 2021. The brisk roll out of
the nation's vaccine program and relaxing of pandemic restrictions
will support the return of foreign students and international
immigrants in the late summer and early fall. As a result,
multi-suite residential rental demand will increase substantially.
With two quarters of consistent, strong performance, demand for
multi-suite residential rental assets will remain robust among
investors looking at assets with strong and sustained
performance.
Commercial Real Estate
In the office segment,
investors were generally cautious in the second quarter despite
economic optimism as they focused largely on stabilized assets with
strong tenant profiles in prime locations. Early signs of recovery
were observed in Canada's office
leasing market as activity levels picked up between the beginning
of April and the end of June. Renewal discussions increased in
several markets, particularly in Canada's downtown business districts. Demand
for sublease space increased for the first time in the past year,
and a growing number of tenants removed sublease space from the
market for their own needs. Office market fundamentals are expected
to gradually improve over the balance of 2021 as workplaces reopen
and workers return to in-person configurations.
The industrial segment continued its impressive run during the
second quarter of 2021 as transaction closing activity remained
high with strong interest from institutional, private, and public
capital groups. A limited supply of functional warehouse,
distribution and logistics assets across the country resulted in
aggressive bidding. Leasing conditions remained tight in the second
quarter, with the national availability rate dropping to an
all-time low of 2.3 per cent, leading to rent increases and
increased investment demand. Industrial investment activity is
expected to remain robust into the second half of 2021 and into
2022.
Demand for retail properties with defensive attributes,
especially those with grocery, drug store, financial services, and
liquor store tenants, remained relatively stable and positive.
Despite increasing optimism for a return to in-store shopping,
properties with non-essential services did not receive as much
investor attention. Investors will continue to invest with caution
until a more significant number of consumers return to retail
destinations as provincial restrictions loosen and stores fully
reopen.
Economic Factors
Restrictions on businesses and
consumers designed to combat the third wave of the pandemic reduced
economic output in the second quarter, with Canada's economy contracting in April – the
first time in a year. Labour market conditions softened, largely
due to the public health measures which limited economic activity
and reduced business confidence. The nation's employment level
stood 3.0 per cent below the pre-pandemic level of February 2020. Job growth is expected to steadily
improve, recouping the second quarter losses. However, it may take
time to fill some positions, particularly in the high-touch
industries that lost the largest share of workers during the
pandemic.
The Bank of Canada maintained
its accommodative monetary policy during the second quarter. The
Bank announced it would hold its overnight target rate and Bank
Rate at 0.25 per cent and 0.5 per cent, respectively. The strength
of the nation's economic recovery is expected to be a key
consideration in the bank's monetary policy normalization schedule
moving forward following a prolonged period of support.
Canada's Consumer Price Index
rose 3.6 per cent year-over-year in May
2021, representing the largest annual increase in a decade.
A marked increase in consumer prices was reported in most tracked
spending categories tracked. More moderate price growth is forecast
for the second half of the year.
The second quarter update released today by Morguard, of the
2021 Economic Outlook and Market Fundamentals Research Report,
provides a detailed analysis of the 2021 real estate investment
trends to watch in Canada. The full report is available
at morguard.com/research.
About Morguard Corporation
Morguard Corporation is a
major North American real estate and property management company.
It has extensive retail, office, industrial, hotel and multi-suite
residential rental 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 real
estate assets are valued at $14.6
billion. Please visit http://www.morguard.com or follow us
onLinkedIn.
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SOURCE Morguard Corporation