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Commercial Rent Trends in Canada: What to Expect for the Balance of 2023

Staying updated with real estate market happenings isn’t an easy task, especially at a time when things are changing day to day. Similar to the residential market, the commercial market is currently going through major shifts that will impact the rest of the year.

For your convenience, we’ve rounded up some of the most important commercial and retail rent trends in 2023.

Changing prices

In the wild world of commercial real estate, a major trend has emerged that has left both buyers and sellers scratching their heads: pricing discrepancies. Owners are demanding top dollar for their properties, while buyers and tenants are hesitant to pay the steep prices. This trend is particularly pronounced in sales, but it’s also affecting leasing.

The trend is due to many factors, including interest rate increases, high inflation, and global geopolitical uncertainty. This uncertainty is causing everyone to be cautious, prolonging the process of determining the true value of a property.

Not all segments of commercial real estate are experiencing the same pricing problem, however. Industrial properties remain hot commodities, with near-zero vacancy rates driving up competition and prices in Toronto and Vancouver. Meanwhile, office properties are still in flux as companies struggle to determine their post-pandemic office needs. As a result, there has been an uptick in office subleases hitting the market.

Earlier (in December), Shopify caused a stir when it announced that it wouldn’t be using its new 348,000-square-foot office space in downtown Toronto and would instead be subleasing it. This could be a trend we expect to see more of in the future, although its prevalence will vary across industries. Despite this, some large companies like Deloitte and Google have recently expanded their Canadian office space.

On the retail front, the segment has made significant strides since pandemic measures have eased and in-store shopping has resumed. However, investors are still trying to find ways to compete with the rise of e-commerce and entice shoppers back to physical stores.

Which areas are affected the most?

According to CBRE’s Canada Retail Rent Survey, rent prices in the Western provinces saw the most extensive increase, as all cities located west of Winnipeg reported at least two rent hikes. The cities of Saskatoon and Vancouver were the most affected, with six of their key urban areas experiencing a rise in rental rates.

Demand for high-tech properties

Another trend we can currently see in the commercial property market is a shift towards high-tech features, such as property technology, that prioritize environmental sustainability, social responsibility, and cybersecurity. In the realm of office spaces, companies are looking for setups that can cater to remote workers and accommodate desk hoteling.

Staying competitive in this fast-changing landscape requires adapting to evolving market conditions and client needs, but rather than being intimidated by the idea of constant change, you should approach it as an opportunity for growth. In fact, times of uncertainty often provide the best lessons and potential opportunities.

Differences between investors

In the market, we now see a clear divide between those who have ample capital and those who don’t. While some investors are strategically waiting for the right opportunity, others are struggling to move their projects forward due to rising interest rates and tighter borrowing requirements.

However, financial hurdles, such as mounting construction and labour costs, are posing a challenge for all developers. This is something that should be taken into account for the rest of the year.

But don’t let this discourage you. To overcome these obstacles, it’s important to think outside the box and get creative with your financing and project costs. This could mean offering more free rent, providing more tenant inducements, or even lowering rent escalations to entice tenants. In short, those who can adapt and be inventive will be the ones who succeed in the real estate industry, as history has shown.

Although Canada is still facing economic challenges, the retail industry and its members are optimistic as they head into the new year – this is another key finding of the Canada Retail Rent Survey.

2023 – a promising year for the multi-suite residential rental sector

At the beginning of the year, Morguard released its Canadian Economic Outlook and Market Fundamentals report for 2023. According to it, things are looking optimistic for the multi-suite residential rental sector. That doesn’t come as a surprise since the market remained steadfastly confident throughout 2021 and 2022, despite the heightened risks.

Richard Crenian

Founder & President, ReDev Properties

Richard Crenian is the Founder and President of ReDev Properties. Ltd, a private real estate asset management company with its head office in Toronto. ReDev Properties is engaged in the development, acquisition, ownership and management of retail and mixed-use income properties predominantly located in Western Canada and Ontario. To learn more about Richard please visit www.richardcrenian.ca

by admin
Media

Commercial Rent Trends in Canada (2023 Updated)

Staying updated with real estate market happenings isn’t an easy task, especially at a time when things are changing day to day. Similar to the residential market, the commercial market is currently going through major shifts that will impact the rest of the year. For your convenience, we’ve rounded up some of the most important commercial and retail rent trends in 2023.

Changing prices

In the wild world of commercial real estate, a major trend has emerged that has left both buyers and sellers scratching their heads: pricing discrepancies. Owners are demanding top dollar for their properties, while buyers and tenants are hesitant to pay the steep prices. This trend is particularly pronounced in sales, but it’s also affecting leasing.

The trend is due to many factors, including interest rate increases, high inflation, and global geopolitical uncertainty. This uncertainty is causing everyone to be cautious, prolonging the process of determining the true value of a property.

Not all segments of commercial real estate are experiencing the same pricing problem, however. Industrial properties remain hot commodities, with near-zero vacancy rates driving up competition and prices in Toronto and Vancouver. Meanwhile, office properties are still in flux as companies struggle to determine their post-pandemic office needs. As a result, there has been an uptick in office subleases hitting the market.

Earlier (in December), Shopify caused a stir when it announced that it wouldn’t be using its new 348,000-square-foot office space in downtown Toronto and would instead be subleasing it. This could be a trend we expect to see more of in the future, although its prevalence will vary across industries. Despite this, some large companies like Deloitte and Google have recently expanded their Canadian office space.

On the retail front, the segment has made significant strides since pandemic measures have eased and in-store shopping has resumed. However, investors are still trying to find ways to compete with the rise of e-commerce and entice shoppers back to physical stores.

Which areas are affected the most?

According to CBRE’s Canada Retail Rent Survey, rent prices in the Western provinces saw the most extensive increase, as all cities located west of Winnipeg reported at least two rent hikes. The cities of Saskatoon and Vancouver were the most affected, with six of their key urban areas experiencing a rise in rental rates.

Demand for high-tech properties

Another trend we can currently see in the commercial property market is a shift towards high-tech features, such as property technology, that prioritize environmental sustainability, social responsibility, and cybersecurity. In the realm of office spaces, companies are looking for setups that can cater to remote workers and accommodate desk hoteling.

Staying competitive in this fast-changing landscape requires adapting to evolving market conditions and client needs, but rather than being intimidated by the idea of constant change, you should approach it as an opportunity for growth. In fact, times of uncertainty often provide the best lessons and potential opportunities.

Differences between investors

In the market, we now see a clear divide between those who have ample capital and those who don’t. While some investors are strategically waiting for the right opportunity, others are struggling to move their projects forward due to rising interest rates and tighter borrowing requirements.

However, financial hurdles, such as mounting construction and labour costs, are posing a challenge for all developers. This is something that should be taken into account for the rest of the year.

But don’t let this discourage you. To overcome these obstacles, it’s important to think outside the box and get creative with your financing and project costs. This could mean offering more free rent, providing more tenant inducements, or even lowering rent escalations to entice tenants. In short, those who can adapt and be inventive will be the ones who succeed in the real estate industry, as history has shown.

Although Canada is still facing economic challenges, the retail industry and its members are optimistic as they head into the new year – this is another key finding of the Canada Retail Rent Survey.

2023 – a promising year for the multi-suite residential rental sector

At the beginning of the year, Morguard released its Canadian Economic Outlook and Market Fundamentals report for 2023. According to it, things are looking optimistic for the multi-suite residential rental sector. That doesn’t come as a surprise since the market remained steadfastly confident throughout 2021 and 2022, despite the heightened risks. With many changes in the commercial real estate market, 2023 is bound to be an interesting year. The surprise may come shortly. Will the Bank of Canada raise interest rates in Q2 to slow inflation? Bond prices have seemingly already priced this in. Follow Richard Crenian’s blog to stay updated with all the latest news. 

by admin
Media, News

Should I Buy Urban or Suburban Land when I am investing Today?

When it comes to cities like Toronto, is it wise to buy land? It can be a very effective formula if you can buy it with cash flow. Basically, you are using the land to generate sufficient residual income, such as parking, and using that income to offset your mortgage interest and payments.

Make sure there will be local development within 5-10 years, such as high rises, so be patient, think long term, and make sure you can cover your payments with the cash flow from that land. Think long and thing opportunities!

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Media, News

Smart buildings are changing the way tenants are thinking about moving into condos!

Many global properties have shifted to become fully sustainable as a result of the concept of preserving our Earth’s natural resources, implementing green construction practices, and using advanced technology.

It’s a revolutionary and exciting time for tenants, investors, and property managers as modern technology creates superior commercial and residential buildings! Smart Technology and enhanced connectivity are improving tenant experiences on all fronts thanks to the Internet of Things (IoT). Corporate tenants who are seeking new space, as well as residents looking to live in a building that is forward-thinking in terms of environmental sustainability, will find smart buildings a great option.

Thanks to the Internet of Things, smart buildings can be remotely controlled. High-quality green buildings (more energy-efficient, lower carbon footprint properties) can take the stage in the future thanks to the interconnectivity of the system, especially for tenants seeking sustainable lifestyles. Green buildings have improved our planet in the following ways:

  • Upcycled architecture that reuses resources to build new properties. By reducing waste, preserving natural resources and limiting energy uses, green buildings can be extremely efficient structures that can withstand the test of time.

  • Smart buildings are extremely durable. Going green is just the best way to ensure that your property will need less maintenance and improve air quality in the process.

  • Healthier air. Seriously. Green buildings avoid using building materials that may contain harmful Volatile Organic Compounds (VOCs) or plastic by-products that have been linked to the release of toxic fumes and carcinogens into the atmosphere.

As the global commercial real estate market rapidly shifts to create a culture of innovation and sustainability across a wide range of property types, greener properties are becoming an emerging business strategy. As the need for sustainable apartments is amplified, so does the appeal of moving into environmentally-conscious apartments that have a reduced carbon footprint. Finding a home that has a positive impact on our planet is about more than finding a property with low rent in a great neighborhood.

by admin
Media, News

The Metaverse and CRE: The money-making future

The Commercial Real Estate (CRE) market has adapted to thousands of changes over the last decade, and it has prevailed. So what’s next on the horizon? The Metaverse that allows simulated plots of land to be purchased as a way to entice potential investors!

The Metaverse is a network of 3D virtual worlds focused on social connection – it’s the Internet as a single, universal virtual world that is facilitated by the use of virtual and augmented reality devices. The metaverse is how individuals will experience the next generation of the Internet, so it’s a wise decision to continue to expand further into the CRE mainstream. It’s all about creating a digital-first experience for all users, and HSBC is doing the right thing by dipping into the virtual property market earlier than later.

With a large portion of the world dipping into the Metaverse pool, also formerly known as Facebook, it’s safe to say that the platform will quickly become prevalent in numerous CRE closing deals. Leading the charge is the banking giant HSBC – Hong-Kong based bank HSBC has announced that it would join the metaverse through the Sandbox platform. The bank will be an innovator in the field of purchasing a plot of land in the digital universe, with the main focus being on sports, e-sports and gaming.

After HSBC announced it would be joining the Sandbox, the platform’s native cryptocurrency, SAND, jumped more than 11% on Wednesday to $3.01. The token was priced at about $2.96 as of Wednesday afternoon, still up 9%.

HSBC is following in the footsteps of JP Morgan who has set up a large virtual presence in the Metaverse with a blockchain-based Decentraland. The American bank giant has already opened a lounge space in a virtual mall, hoping to increase their profits through attracting a newer audience.

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Media, News

The Smart Building Market is Worth Billions – A Bright, Sustainable Future is Ahead of Us!

It’s estimated that the North American smart building market is projected to grow to 121.6 billion by 2026; it’s worth taking notice!

Smart buildings are a large part of creating a sustainable future, as about 28% of global energy-related CO2 emissions are directly correlated to the operation of buildings. As we continue to move forward towards a highly sustainable future, you as a CRE investor can greatly benefit from smart buildings. Think of investing in smart buildings as financing the next frontier of making people’s lives more efficient and sustainable, while reaping the financial rewards of investing early in the market.

Between work and home, North Americans spend about 75% of their time indoors, so comfort is extremely important. Smart buildings can include hospitals, data centers, and offices so the possibilities for investing in these infrastructures are endless. The term ‘smart buildings’ refers to the protocol that enables properties with lower power but longer-range connectivity. A smart building is based on the structure of IoT (Internet of Things) that uses hardware, software, and connectivity to manage security, HVAC, and lighting to reduce a company’s carbon footprint.

In simple terminology, smart buildings are connected to wireless sensors to be deployed throughout a building to reduce electricity in areas that are not occupied. Utilizing the automated control of a building’s electrical systems, a comfortable environment can be created for all occupants while consistently lowering their environmental impact. The best part? Modern smart solutions can be embedded into older buildings so most properties have the potential to become ‘smart buildings’.

Green buildings are, and continue to be, at the forefront of a large CRE revolution. As the demand for sustainability is getting more urgent, the people and the planet can greatly benefit long-term!

Read more at https://www.redevgroup.com/news-article/the-smart-building-market-is-worth-billions—strike-while-the-iron%E2%80%99s-hot

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Media, News

The appeal of single-tenant retail properties

While some types of retail property have done better than others during the pandemic era, there is one retail type that has proven to be a clear winner.

Stand-alone retail properties, also known as Triple Net Lease (NNN) properties are usually occupied by a corporate client such as a major bank, grocery store or big pharmacy. They have long been a preferred asset for investors, but now we’re seeing a significant increase in buyers searching for this type of commercial property.

The appeal for many savvy investors is the security and stability offered by the strong covenants and long, triple-net terms that usually govern the leases of these types of properties.

Read more at https://www.redevgroup.com/news-article/the-appeal-of-single-tenant-retail-properties

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Media, News

Rising Prices And Rising Real Estate Today. Why? A Quick Explanation

By Richard Crenian

There is a lot of capital out there that has been building up waiting to be spent and that money has now gone into real estate. Is that a good thing or a bad thing? You’re now scratching your head and saying, “Why are home prices going up?”.

Well, because you’ve been sitting at home for 18 months not spending anything. There was also a lack of housing built in the past five years, especially in the US, so now they’re trying to catch up. All of a sudden, prices are shooting up. Why? Well, lower interest rates, not enough supply and lots of demand. So is housing a good investment? Well, today it is. If you own your own house and somebody was knocking on your door trying to buy it, it’s probably worth substantially more now than what you bought it for.

What happens from here? If you have inflation, which we believe is here now, then your house should be worth more money in five years. So there’s a lot of money chasing homes. It is the same with apartment blocks. There is so much money chasing apartment blocks right now. So what does that mean? Well, a cap rate is generally what investors are looking at. A cap rate is how you measure whether or not you should be buying an apartment block. Most apartment blocks were being traded at a 5% cap rate, and in bigger communities, it was 3%.

If I bought something for 5%, and cap rates have now compressed to 3%, I made money. It’s real money that I made on a product. So if you have lots of money chasing real estate deals, you’re going to make money if you have the product. It’s very hard right now to find good product. If I can find some good product, I’m grabbing it, whatever the cost may be. On the other hand, if you’re a value investor like I also am, I’ve been sitting very, very quiet on the sidelines. Somebody described me as a lonely investor because there’s no such thing as a value investment today. If you go into a store today and you want something you have to buy it at full price or someone else will.

For example, Rolex watches have gone crazy. Why? Because everybody wants a Rolex watch When you look at a Rolex Daytona, the prices of have increased from approximately $17,000 to $50,000 CDN from a reseller. There is not enough supply and the demand is huge.
Another example is the vehicle market. I don’t know if you’ve been in and tried to buy a car, but you have to wait up to 12 months in Canada. If you were paying $110,000 for a Cadillac Escalade, now it will cost $160,000 CDN. And you still have to wait. You’ve got chip shortages and labour shortages. The car dealers can’t produce enough cars to meet demand.

Along the same lines, if you were in fashion and you wanted to buy a Yves Saint Laurent bag, Balenciaga bag or any kind of bag, not only are they limited in supply, but because of the demand, companies like The RealReal have been buying the used products and are now selling them for high markups. There’s so much money out there driving up the prices. Again, inflation? Yes. I was introduced to RealReal by my daughter. I walked around the store and I’m looking at all these old sneakers. I’m thinking I would never put my feet in a pair of old sneakers that somebody else had worn.

She goes, “Dad, how much do you think this is worth?” I go, “I don’t know, I probably wouldn’t pay 5 cents for it.” She says, “Yeah, this pair is worth $10,000.” And I go, “What? A pair of sneakers?” The demand for old style nostalgia is crazy right now. I’ll relate this all back to real estate but the point is that there’s a lot of money out there chasing very few products today. If you want a car and your salesperson tells you it’s worth $50,000 and you have to wait 10 months, you write the check for $50,000 and you’re done. There’s no argument. You buy it. If you go into any store and you want something, there are no deals to be had. You don’t go into a Rolex dealer and say, “I want a deal on my Rolex Daytona,” he’ll kick you out of that store so fast.

What is happening? Why is real estate the same way? Well, it’s the same with trying to be a value investor today. There’s no such thing as a value investor anymore. If you want an apartment building, a retail building or even land, and there’s no availability and the vendor says to you he wants $1, he’ll likely get $1.10. Is there inflation? Yes. So, if you’re a value investor you’re sitting on the sidelines. Good luck to you because you are probably sitting in a chair somewhere, lonely all by yourself. If you want to be an active investor it’s time for you to write the check, as awful as it sounds, that’s the truth.

by admin
Media

Edmonton Vacancy Rates at Historical Lows for Industrial CRE

As we know, COVID-19 pandemic impacted all verticals. However, one of the most substantial impacts it made is perhaps that in the industrial warehouse sector. Supply has been leased and bought up but there is still a strong demand for more space. Fear and worry seems to be driving that demand as business owners are worried that future events involving the pandemic might disrupt their supply lines. When fear of lack of supply is a factor, the demand for more industrial warehouse space increases.

While the pandemic may have caused disruptions at the start in Edmonton, Alberta, huge warehouse demand continues to boost commercial real estate. The vacant offices in downtown, along with the 3.9 million square feet of warehousing space under construction, Edmonton offers attractive investment opportunities. Learn more about investment opportunities in the Edmonton area and see why so many are considering it.

Read more at https://www.redevgroup.com/news-article/edmonton-vacancy-rates-at-historical-lows-for-industrial-cre

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Media

Canadian CRE Investor Portfolios Strengthen with Multifamily Real Estate

The Canadian Commercial Real Estate (CRE) market seems stronger than ever, despite all the ongoing pandemic challenges.

New opportunities to strengthen investment portfolios continues to be available for Canadian CRE investors. Multifamily real estate properties are some of them.

Canada’s Housing Market Is Hot!

When COVID hit, many experts predicted a decline in home prices across Canada, some saying they would decrease by up to 18%. But it seems, Canada’s housing market is going as strong as ever.

Canada’s housing prices have already been high, but no one expected them to reach new record highs during the pandemic; Increasing by 13.5% in the past year and reaching a $676,600 benchmark in January. Interest rates have jumped lower though, which is excellent news for people looking to borrow funds to buy a home or invest in commercial real estate.

 

Supply and Demand for High-Rise Multifamily Properties Stays High

Multifamily properties have always been considered a smart and profitable investment. These days, a growing number of Canadians are looking for well-located, high-rise multifamily properties to live in, especially those with energy-efficient programs.

That’s why many CRE investors are currently focusing on those properties to meet the high demand with an even higher supply.

 

Read more:

https://www.redevgroup.com/news-article/multifamily-real-estate-strengthens-cre-investor-portfolios-in-canada