Like other major centres across the country, there’s plenty of uncertainty and an inability to predict what’s to come. The Conference Board of Canada’s (CBoC) Major City Insights report predicts a 3% drop in gross domestic product (GDP) in 2020, with a rebound of 6.5% anticipated in 2021. And while there may be higher failure rates once government subsidies introduced during the COVID-19 pandemic end, many investors are looking to add Vancouver real estate to their portfolios as it’s still considered a safe harbour.
Prices aren’t dropping significantly in Vancouver’s housing market, but certain categories will likely suffer more than others. Interviewees don’t expect a permanent flight to the suburbs but are cautious about building expensive downtown product until the impacts of COVID-19 become clearer. But demand for new construction may be challenged in the near term by reduced migration domestically and abroad and by loss of household income due to increased unemployment.
With single-family residential housing, prices are still down from their 2017 highs, but the city will continue to have a supply issue and plenty of demand. The high-rise condo market has seen more activity than was expected during this time, although developers aren’t rushing to build new supply; they’re working on projects already in the pipeline.
Like other parts of the country, retail is expected to see accelerated disruption, while the industrial real estate market has strong underlying metrics, with interviewees bullish on distribution. Vancouver’s industrial fundamentals remained strong in second quarter of 2020, according to Colliers, with vacancy below 2% for the 13th consecutive quarter and availability at 5.1%, which is still below the 10-year average of 5.5%. Office, on the other hand, has a total vacancy rate of 5.5%, according to JLL Research, and a lot is up for sublet.
The pandemic has put Toronto’s economy on a weaker footing this year. The CBoC predicts real GDP will retreat significantly in 2020 but recover by 6.2% in 2021. While total housing starts are likely to drop this year before rebounding in 2021, interviewees predict strong pre-construction sales across Toronto should help ensure the city’s recovery.
The region has seen rising interest in properties outside of Toronto—not just in the suburbs, but further afield in areas like Niagara, Peterborough and Kitchener-Waterloo. But interviewees felt it’s too early to tell if a trend away from the city will take a stronger foothold.
Immigration also has a direct impact on Toronto’s housing market. With borders closed and immigration curtailed, the rental housing market has been adversely affected. When immigration activity resumes, it’s expected there will be pent-up demand, particularly for rental units.
As tenants and landlords turn their focus to returning to office spaces, the market remains on uncertain ground. And while there may be a slight increase in vacancy, there’s still a need for office space in Toronto, even if it looks different post-COVID-19. The market remains in triage mode, according to JLL Research. Although there’s pent-up demand in the market, everyone is waiting for stability to return before transacting.
When it comes to industrial real estate, demand remains very strong in the Greater Toronto Area. According to Colliers, leasing and sales transaction volumes were down in the second quarter of 2020, with the availability rate in the GTA reaching 1.7%, after two consecutive quarters at 1.1%. It’s expected the market will continue to grow, given the need for e-commerce distribution centres.
The COVID-19 pandemic has put a stop to Montreal’s four-year run of economic growth. The CBoC forecasts a 3.6% decline in GDP in 2020, with a 6% rebound, helped by significant infrastructure and transit spending, in the cards the next year.
While housing starts in Montreal have rebounded from the sharp drop in activity at the height of the pandemic, they’re still expected to fall by 1.3% in 2020, according to the CBoC. This downward trend is expected to continue next year, with housing starts set to fall a further 7%.
The industrial category is extremely bullish, with cap rates declining and rents going up. Warehousing is the clear winner, and there’s a need for more of it. Low vacancy rates, coupled with limited availability, are pushing net rental rates to all-time highs. Colliers noted the market slowed down slightly in Q2 2020, reflected in an increased availability rate of 2.6%, but many are hopeful that the demand for industrial real estate will continue into 2021.
Interviewees expect organizations to carefully review their office footprints to accommodate physical distancing and work-from-home strategies. JLL Research reported a total vacancy rate of 9.3% in the second quarter of 2020. Many interviewees said they were being cautious around this asset class.
Overall, Ottawa’s real estate market is faring well. A significant number of buyers are tied to the public sector, making them somewhat insulated from the economic realities of COVID-19. The government’s contribution to Ottawa’s economy is expected to limit COVID-19’s impact on GDP, which the CBoC predicts will decline by 2.4% in 2020 and jump 4.9% the next year.
Prior to the pandemic, Ottawa had a red-hot housing market. While housing starts are expected to soften somewhat, interviewees say both condominium and single-family residential activity haven’t slowed at all. Product is selling, there’s growth in townhomes and the resale market is still hot.
Stage 2 of the city’s light-rail transit project has been announced, and there’s still interest in procuring land around LRT sites. Despite some short-term uncertainty in the rental housing market caused by factors like the switch to online learning at universities, the Canada Mortgage and Housing Corporation expects demand to remain strong as conditions return to normal.
Office is still strong in Ottawa, fuelled by the federal government. While the government has rented a large portion of Class B and C space for the past 50 years, it’s looking to occupy Class A properties (or retrofitted Class B space) in the future. One interviewee said there’s no demand for much of that older Class B and C office space—and not much interest in converting it either.
Industrial real estate is a hot market, but land availability is a problem. Colliers reports the availability rate increased marginally to 2.1% in Q2 2020, due to space becoming available in the city’s east end. Demand is outstripping local zoning regulations, and the question remains if and how the city will adjust.
While the new home market in Halifax has fared well in recent years, the COVID-19 pandemic brought the local economy to a standstill, with the CBoC calling for a 3.4% decline in real GDP for 2020 before jumping by 5.9% in 2021.
The CBoC also expects the construction sector to contract, declining by 2.8% following 8.2% growth in 2019. Despite this, interviewees said the housing market is “extremely hot,” with single-family residential homes selling above listing price.
Population growth due to migration is also boosting the market for purpose-built rental housing, which is seeing significant construction activity both downtown and in the surrounding areas. In office, interviewees were more pessimistic. On the leasing side, a lot of commercial tenants are looking to renew their terms, knowing the market is in their favour.
Self storage and industrial real estate are the winners this year. With supply chain issues that came to light at the start of the pandemic, there’s more interest in sourcing products from different regions or closer to home, which translates into the need for more warehouse space. With the growth of online shopping, there’s also a need for more local fulfillment centres. Interviewees felt Atlantic Canada has an edge here, thanks to its affordability and access to major ports.
Like other cities, Winnipeg’s economy has been particularly hard hit by the pandemic, with real GDP forecast to decline by 3.5% in 2020 before expanding by 5.9% in 2021. The housing market had disappointed over the past two years, due to a combination of rising interest rates and an impact fee that dampened demand, according to the CBoC.
In the industrial category, it’s a different story. A number of new projects are in the works, consisting of both new builds and redevelopments of existing properties. According to Colliers, demand for quality industrial real estate in Q2 2020 continued to hold firm, with the vacancy rate stable at 3.9% (versus 3.6% last year) and sales remaining strong due to market fundamentals. Tenant demand is healthy, particularly in warehousing and transportation.
Quebec City’s economy is somewhat insulated by the public sector, so it’s expected to weather the pandemic better than many other cities. The CBoC reports the region’s GDP will drop 3.3% in 2020, with growth of 5.6% projected for 2021.
Prior to the pandemic, the local housing market was heating up. Inventories of unsold new apartments hit an 11-year low in March 2020, according to the CBoC, which predicts the pandemic will cut total housing starts by 12% this year and pause the resale market. Low interest rates and supportive federal programs should help the housing market in 2021.
Calgary’s market is already feeling the impact of depressed oil and gas markets, along with reduced economic activity during COVID-19. The city’s GDP is expected to contract by 5.5% in 2020 before expanding by 6% in 2021 as the pandemic eases and oil prices strengthen, according to the CBoC.
The industrial real estate market showed signs of resiliency and has diversified into warehousing and distribution over the past decade. According to Colliers, overall industrial vacancy rose slightly to 6.2% in Q2 2020. One interviewee from Vancouver noted they’re looking for distribution locations in Calgary due to its large coverage area and the fact that “the rates are a third or less of what Vancouver costs in warehouse spaces.”
With oil prices at all-time lows, downtown rental rates were among the lowest in Canada as office vacancy sat at 24.8% in Q2 2020, according to JLL Research. Construction output is expected to fall this year, down nearly 20%, and it was already on a decline due to uncertainty in the energy sector, according to the CBoC.
But Calgary’s housing market could benefit in the coming months from low interest rates, although interviewees indicate there are “a ton of condos” on the market. There’s also some concern that recent strength in the residential market could reflect a temporary burst of activity that will take away from demand and sales of new homes in the months and years to come.
After falling slightly in 2019, Saskatoon’s GDP is expected to retreat a further 4.9% in 2020 due to the pandemic and weak commodity prices, according to the CBoC. Growth of 5.2% is projected for 2021.
While the housing market was hurting prior to the pandemic (starts fell to a 14-year low in 2019), falling inventories of unsold new homes and low interest rates could boost residential activity, says the Conference Board, and produce a modest increase in starts next year.
In the first half of 2020, office vacancy in the city’s downtown central business district had been trending upward while the suburban vacancy rate was heading in the opposite direction. As a result, the city-wide impact has been minimal, experiencing a very small increase in vacancy over six months to 13.1%.
With the unemployment rate rising to 15.7% in June 2020 and real GDP projected to fall 5.6% in 2020, Edmonton’s economy has felt the combined impact of low oil and gas prices and the COVID-19 pandemic. The CBoC expects an easing of pandemic measures and recovering oil prices to help spur growth of 6.2% for Edmonton next year.
But the city is fairly stable from a housing perspective. Homebuilders are still selling houses, although much of the activity stems from low borrowing costs and a trend of reverse urbanization. More rental units (both purpose-built and condominium) are expected to enter the market over the next two years, which will likely lead to increased vacancy rates. A lot of condo product is currently available; interviewees indicated that developers are “kicking projects down the road.”
Office had an 18.8% vacancy rate in the second quarter of 2020, according to JLL Research. It expects landlords will reduce capital expenditures, pushing concessions lower. In the industrial category, interviewees indicated there could be an increase in business failures by small- and mid-sized companies as government incentives wind down, although warehousing remains strong.