Industrial and multi-unit residential asset
classes to lead the way
KELOWNA, BC, Feb. 25, 2021 /CNW/ - While endless challenges
faced commercial real estate markets in 2020, investors and end
users in Western Canada showed
incredible resilience in their ability to both adapt to changing
conditions and position themselves for the future, according to a
report released today by RE/MAX of Western Canada.
The RE/MAX Commercial Real Estate Report, highlighting trends
and developments in seven major centres in Western Canada, found that institutional
investors and private equity played a substantial role in almost
every market in 2020, fuelling demand for multi-unit residential,
industrial product, and office buildings while end users and
smaller investors were strong in the industrial and, to a lesser
extent, retail sectors. Industrial was the top performer from
Vancouver to Winnipeg, driven by increased demand for
warehouse and fulfillment space from multi-national companies such
as Amazon and FedEx, while demand for multi-unit residential
remained consistent, with higher CAP rates and lower values
attracting investors in markets like Edmonton and Calgary. Farmland rounded out the top three
sectors, with robust demand in Saskatchewan sparking strong sales and upward
pressure on values.
"Despite a strong start to 2020 in virtually all asset classes
across Western Canada, the
pandemic shook the very foundation of the commercial market, and
ultimately altered the playing field," says Elton Ash, Regional Executive Vice President,
RE/MAX of Western Canada.
"Industrial captured the spotlight in the aftermath as e-commerce
sales exploded across the country – prompting even greater demand
-- while the retail and office sectors struggled with lockdowns and
safety measures."
Closure of bricks and mortar during lockdown and the
acceleration of e-commerce placed retail tenants behind the
proverbial eight ball in 2020. Smaller retailers used the
opportunity to invest in their future by purchasing smaller
storefront locations, especially in high-traffic areas – with
equity gains buffering any downturn in sales. Others looked to
upgrade their online presence and augment with a reduced physical
footprint, and if need be, industrial space for warehousing and
distribution.
"The country's largest landlords were able to evaluate and pivot
with some success in 2020," explains Ash. "Changing up the tenant
mix has been one option exercised by landlords over the past year,
while redevelopment is another, with some malls owners planning
future multi-unit residential development on their properties.
Others, such as the Orchard Park Mall in Kelowna, are using vacated space to expand
their parking capacity. Conversion of retail vacancies to
industrial space is also likely in the future, with large companies
such as Brookfield already pushing
forward with retail conversion to distribution models within their
US portfolio. Given the movement underway in the US, it's only a
matter of time before we see this approach mirrored in Canada."
While restaurants were hard hit by the pandemic, drive through
locations emerged as 2020's perfect business model -- no touch, no
contact, just tap and go. Demand for this product has surged in
Saskatoon, Kelowna, and Calgary, and is expected to continue to
experience strong demand in the year ahead.
Lockdowns and uncertainty contributed to negative absorption and
higher vacancies in the commercial office sector throughout
Western Canada in 2020, although
year-over-year dollar volumes in some markets indicate the sale of
larger properties. Institutional investors in Calgary accounted for 48 per cent of sales
volumes while private equity represented 24 per cent in the office
sector last year. With CAP rates rising to their highest levels in
recent years at 10.1 per cent, according to CoStar's Office Capital
Markets Report, the growing presence of institutional investors and
private equity in Calgary suggests
the market is at or near bottom.
"Rebounding global demand for primary energy should help bolster
economic performance, as well as demand for commercial real estate,
in Alberta in the second half of
2021," explains Ash. "In the interim, we could see out-of-province
institutional investors walk-away with some of the city's most
coveted assets."
Major drivers identified for the upswing in demand in the year
ahead include historically low interest rates and strong economic
recovery. The Bank of Canada (BOC)
has indicated that it intends to keep overnight interest rates at
0.25 per cent and has predicted a strong second quarter rebound
with "consumption forecast to gain strength as parts of the economy
reopen and confidences improves, and exports and business
investment is buoyed by rising foreign demand." The BOC has
projected GDP growth at four per cent in Canada in 2021.
Limited inventory, shortage of available zoned land, and strong
demand overall have made industrial real estate the cash cow of
2020. Vacancies remain low for industrial product, with
Vancouver posting the tightest
rate at under 1.5 per cent, and rental rates climbing 10 per cent
year-over-year. Large multinational companies have been behind the
push as they gear up efforts to support a rapidly expanding
e-commerce industry. Smaller investors have also been active, as
the appetite for income properties in industrial areas that serve
strong supply chains and essential services increases in
strength. Diversification of smaller portfolios is underway
as investors choose to supplement their residential multi-unit
residential holdings with industrial product, and to a lesser
extent, office/retail.
Demand for farmland in Saskatchewan continued unabated in 2020 as
Alberta's Hutterite Colonies
sought to expand farming operations. The trend was highlighted by
the sale of a 20,000-acre farm in Norquay in August of 2020, considered one of
the largest in Western Canada.
Overall average price for farmland in Canada increased 3.7 per cent in the first six
months of 2020, with Saskatchewan
reporting the greatest increase in values, according to the Farm
Credit Canada's (FCC) 2020 Mid-Year Farmland Value Report.
"Saskatchewan's attractive
price point is expected to continue to attract investors and end
users, especially those from province's that have higher farmland
values, in the coming months," says Ash. "This segment is also
expected to heat-up as foreign investment returns to the overall
market in 2021."
Institutional and private investors flocked to multi-unit
residential in 2020, spurred on by the promise of greater security
and lower interest rates. Calgary
and the Greater Edmonton Area saw
consistent demand in 2020, although much of the activity occurred
in the first quarter, while Vancouver kicked off 2021 with a $292 million sale of 15 rental apartments to two
Ontario-based Real Estate
Investment Trusts (REIT).
"While the COVID-19 vaccine roll out should have been
well-underway at this point, supply issues continue to hamper
progress, with just 10 per cent of Canada's population expected to be vaccinated
the end of the first quarter," says Ash. "Economic growth, as such,
will remain on standby in short-term. However, once that objective
is achieved, the general consensus is that economy's across
Canada will roar back to life,
fuelling an upswing in commercial real estate activity as greater
stability returns to major centres."
About the 2021 RE/MAX Commercial Real Estate Report
The 2021 RE/MAX Commercial Real Estate Report includes insights
from RE/MAX brokerages. Brokers and agents are surveyed on trends
and developments in their local markets. The report also includes
select data from the Real Estate Board of Greater Vancouver (REBGV), CoStar, Farm Credit
Canada, Colliers International, Building Permits Summary for
Winnipeg, Canada Mortgage and
Housing Corporation (CMHC) and RBC Economics.
About RE/MAX Commercial
RE/MAX Commercial, part of the world's most productive real
estate network, provides experienced professionals and leadership
in the commercial and investment arena with over 4,000 commercial
practitioners in 73 countries and territories. In Western Canada, RE/MAX Commercial is
represented by 300 commercial practitioners in more
than 40 independently owned and operated commercial
franchises and divisions.
About RE/MAX of Western
Canada and the RE/MAX Network
RE/MAX was founded in 1973 by Dave and
Gail Liniger, with an innovative, entrepreneurial culture
affording its agents and franchisees the flexibility to operate
their businesses with great independence.
RE/MAX of Western Canada is a
subsidiary of RE/MAX, LLC, and oversees RE/MAX franchising in
British Columbia, Alberta, Saskatchewan, Manitoba, Northwest
Territories and Yukon.
RE/MAX of Western Canada is
Western Canada's leading real
estate organization with more than 6000 Sales Associates and over
270 independently-owned and operated offices.
RE/MAX, LLC, one of the world's leading franchisors of real
estate brokerage services, is a subsidiary of RE/MAX Holdings, INC.
(NYSE: RMAX). With a passion for the communities in which its
agents live and work, RE/MAX is proud to have raised millions of
dollars for Children's Miracle Network Hospitals® and other
charities. For more information about RE/MAX, to search home
listings or find an agent in your community, please visit
www.remax.ca.
Forward looking statements
This press release includes "forward-looking statements" within
the meaning of the "safe harbor" provisions of the United States
Private Securities Litigation Reform Act of 1995. Forward-looking
statements are often identified by the use of words such as
"believe," "intend," "expect," "estimate," "plan," "outlook,"
"project," "anticipate," "may," "will," "would" and other similar
words and expressions that predict or indicate future events or
trends that are not statements of historical matters.
Forward-looking statements include statements related to: real
estate activity and market conditions; economic conditions
(including interest rates); and foreign investment. Forward-looking
statements should not be read as a guarantee of future performance
or results and will not necessarily accurately indicate the times
at which such performance or results may be achieved.
Forward-looking statements are based on information available at
the time those statements are made and/or management's good faith
belief as of that time with respect to future events and are
subject to risks and uncertainties that could cause actual
performance or results to differ materially from those expressed in
or suggested by the forward-looking statements. These risks and
uncertainties include the global COVID-19 pandemic, which continues
to pose significant and widespread risks to the Company's business.
The duration and magnitude of the impact from the COVID-19 pandemic
depends on future developments that cannot be predicted at this
time. Other important risks and uncertainties include, without
limitation, (1) changes in the real estate market or interest rates
and availability of financing, (2) changes in business and economic
activity in general, (3) the Company's ability to attract and
retain quality franchisees, (4) the Company's franchisees' ability
to recruit and retain real estate agents and mortgage loan
originators, (5) changes in laws and regulations, (6) the Company's
ability to enhance, market, and protect the RE/MAX and Motto
Mortgage brands, (7) the Company's ability to implement its
technology initiatives, and (8) fluctuations in foreign currency
exchange rates, and those risks and uncertainties described in the
sections entitled "Risk Factors" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the
most recent Annual Report on Form 10-K and Quarterly Reports on
Form 10-Q filed with the Securities and Exchange Commission ("SEC")
and similar disclosures in subsequent periodic and current reports
filed with the SEC, which are available on the investor relations
page of the Company's website at www.remax.com and on the SEC
website at www.sec.gov. Readers are cautioned not to place undue
reliance on forward-looking statements, which speak only as of the
date on which they are made. Except as required by law, the Company
does not intend, and undertakes no obligation, to update this
information to reflect future events or circumstances.
SOURCE RE/MAX Western Canada