TORONTO — Avison Young predicts strong growth in construction of office spaces in Canada for 2020, flat levels for construction of retail and a slight drop in industrial construction in its 2020 forecast for the nation released Jan. 14.
In a discussion of Canadian fundamentals, the Toronto based commercial real estate services firm noted from an economic standpoint, “Canada has been the envy of G7 countries during the prolonged financial and commercial real estate cycles.”
A growing knowledge-based economy, along with urban intensification boosted by immigration, are driving the Canadian office sector, the survey said. “Sound fundamentals underpin the supply-starved industrial market as Canada’s major urban regions remain magnets for e-commerce-related warehouse and logistics operations,” said the firm.
However, Avison Young said, the retail sector is unstable and is being approached with caution as the long-term implications of e-commerce remain uncertain. But investor interest in commercial real estate assets in Canada has been resilient, as capital continues to flow into key property types, primarily in Toronto, Vancouver and Montreal.
The Toronto region may have lost out on the Amazon HQ2 sweepstakes, Avison Young noted, but the firm continues to increase its footprint in the Toronto, Montreal and Vancouver office markets.
“In late 2019, Amazon became the largest corporate tenant in Vancouver, tripling in size with the lease of 1.1 million square feet in The Post, a two-tower development by QuadReal Properties to be completed in 2022 and 2023. Amazon is also taking 147,000 square feet in Oxford Properties’ 402 Dunsmuir St. development, to be completed in 2020,” stated the forecast.
The office vacancy outlook calls for modest changes in vacancy levels across the 11 Canadian markets surveyed, Avison Young reported, keeping the national average rate at 9.9 per cent by year-end 2020. Among the country’s major office markets, vacancy will remain the lowest in Vancouver (3.4 per cent) and Toronto (5.3 per cent) and the highest in Calgary (24.2 per cent).
“Developers are doing their best to keep pace with strong demand (mostly from technology and co-working firms) not only in supply-constrained Vancouver and Toronto, but also in Montreal, which is registering a surge in office construction,” Avison Young reported. Toronto and Montreal accounted for three-quarters of the country’s 3.6-million square feet completed in 2019. In 2020, the total is expected to nearly double, as 6.3-million square will be completed, led by Toronto (3.2-million square feet), Vancouver (1.2-million square feet) and Montreal (1.1-million square feet).
“Toronto and Vancouver are the busiest construction markets, combining for more than 17-million square feet of the 21-million square feet under construction nationwide at year-end 2019,” the firm stated.
Avison Young identified 10 global trends impacting real estate strategies and business, including:
- Lower for longer: How investors are dealing with a low inflation, low interest rate world.
- Power to the people: Landlords, developers and occupiers need to pay increasing attention to local political activism, as today’s street protests increasingly signal tomorrow’s policy initiatives.
- (De)globalization: The pace of globalization is slowing, and in some areas is starting to reverse as nearshoring and the localization of supply chains gathers momentum.
- Building resilience: Cities across the world are leading the charge in responding to climate change, to ensure economic, social and environmental sustainability.
- (Place)making an impact: Placemaking is becoming the focus of socially responsible investors looking for impact investment opportunities.