Investment in Canada’s commercial real estate sector has been
strong all year and—especially in the cases of Toronto and
Vancouver—should continue well through 2019.
According to a report by Morguard, titled The 2019 Canadian
Economic Outlook and Market Fundamental Report, 2018 is shaping up
to be a record year for investment in the sector.
“It’s a real struggle both in Vancouver and Toronto to find
office space,” said Keith Reading, Morguard’s director of research
and the author of the report.“Choices are very limited for
10,000-plus square feet and rents are at peak for this
cycle.There’s no shortage of capital, which is just a function of
supply, and 2018 being a record year for investment will continue
Toronto and Vancouver have buoyant economies and the technology
sector in both cities is firmly rooted.According to CBRE, Toronto
ranks fourth in North America for growth and employment in the tech
While Vancouver is experiencing growth in that sector too, the
exorbitant cost of living coupled with parsimonious salaries could
pose a problem.
“Vancouver has always had a unique situation in that the cost of
living of living here is extremely high, higher than anywhere else
in Canada,” said Rene Palsenbarg, Marcus &Millichap’s regional
manager and managing broker.“When you look at salaries in
Steady price growth along with the possibility of further rate
hikes will affect hopeful home buyers in Montreal much more
acutely, according to market observers.
In a recent analysis, Desjardins senior economist Hélène Bégin
reported that the Bank of Canada might hike its benchmark rates two
more times next year, leading to higher mortgage rates that would
definitely represent a considerable chunk of buyers’ funds.
While healthy in terms of magnetizing better investment, the
trend will put first-time buyers at a severe disadvantage,
according to Quebec Federation of Real Estate Boards manager of
market analysis Paul Cardinal.
“It’s going to limit the amount they can borrow, so it’s going
to limit the increase in prices, they will have to make a
compromise, sometimes it means a smaller dwelling, sometimes it
means going further from downtown but I think they will still be on
the market,” Cardinal told the Montreal Gazette.
housing market continues hot streak to 2020
“All the areas of the Montreal metropolitan area will be hot and
remain hot in 2019, including the island of Montreal, but there is
a little more supply in the suburbs and we will see a lot of
first-time buyers want to get into the market now because
In its announcement earlier this week, the CMHC introduced the
latest project to benefit from its Rental Construction Financing
initiative:Conrad by Cressey Development in Vancouver.
The $40.2-million investment will ensure a prolonged haven of
affordability for the city’s struggling middle-class families.
“Over 60% of the units will have rents at or lower than 30% of
median household income in the area and, under an agreement with
the City of Vancouver, this affordability will be maintained for 60
years,” the Crown corporation stated.
The rental housing project will consist of several buildings
offering a total of 115 units.
Read more:Vancouver’s tenants and their single-family
Earlier this month, Andy Yan of the City Program at Simon Fraser
University said that while price declines in B.C.have become
evident recently, a more tangible intervention from the provincial
leadership’s part is still needed to ensure better
This is especially important since the government has yet to
truly act on earlier promises like a $7-billion, 10-year housing
“They are not actual shovels in the ground yet,” Yan told The
Canadian Press “It will take a combination of supply and demand
policies to really get us out of the housing crisis mess.”
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Vancouver’s multifamily housing sector is experiencing a glut of
inventory, but with low yields and high buy-ins, investors have
taken a step back.
A report from Marcus &Millichap showed the average cap rate
compressed 40 basis points over the last year to 2-4%, but
investors chasing yield turned to Coquitlam and Chilliwack where
they enjoyed as much as 5%.
While Vancouver yields could be described as in the doldrums,
vacancy rates are persistently low.
“In terms of multifamily income-producing properties, the
Vancouver market has been one of the strongest in North America
with vacancy rates hovering around, or below, 1%,” said Rene
Palsenbarg, Marcus &Millichap’s regional manager and managing
broker.“Because of that, the average rent per square foot is pretty
Multifamily sales have hit a three-year low, but Palsbarg
attributes that to an inventory surplus.
“It’s more of a by-product of inventory because there’s a glut
of product coming onto the market, so it’s just stabilizing
itself,” he said.
But the overall market in Vancouver has born witness to a
significant downturn that began around July, which marked an
18-year low in sales.By last month, the year-over-year decline
stood at about 35%.
“That equates to a 27% decline on the 10-year average because we
had a very robust 2016
While B.C.’s home prices have shown signs of going down in
recent months, a market observer has argued that firmer action from
the government is still needed to fully address the city’s
Andy Yan, the director of the City Program at Simon Fraser
University, said that the leadership has yet to fulfill crucial
announcements like its much-touted $7-billion housing affordability
strategy, a project expected to take 10 years.
“They are not actual shovels in the ground yet,” Yan told The
Canadian Press “It will take a combination of supply and demand
policies to really get us out of the housing crisis mess.”
Such intervention is especially important now, as the
aforementioned price declines – attributed by many to taxes aimed
at foreign buyers and empty residences – are not apparent in the
middle and lower price ranges.
According to a recent analysis by Knight Frank LLP, Vancouver
saw the largest drop in average sale prices in the luxury segment
(11%) worldwide during Q3 2018.
Read more:New tax
may stifle investment in B.C., fears industry
Data from the Real Estate Board of Greater Vancouver showed that
the benchmark price of a non-luxury home in the region was at
$1.062 million in October, just a tiny bit
The logistics sector’s specific needs will considerably impact
the valuation of commercial and industrial land in Toronto,
according to Bill Argeropoulos of Avison Young.
“In the past, industrial space was predominantly used for
manufacturing activities, and many buildings were serviced by
direct rail-spur connections,” Argeropoulos noted.“Today,
logistics, distribution and warehousing are the main
industrial-space uses;as a result, many of these rail spurs have
been removed, giving way to greater use of container shipments via
Data released by Morguard Corporation in late October indicated
that this versatility, along with strong leasing volume and
economic stability, has granted the Canadian industrial real estate
segment a “very positive near-term outlook.”
Industrial investment across the country reached a record-high
$6.1 billion as of Q2 2018, Morguard reported.
“With quality space at a premium across much of the country and
a solid fundamental outlook for the sector, we expect to continue
seeing strong activity to finish the year,” Morguard’s Keith
industry hungers for Toronto’s commercial spaces
Proximity to transport nodes will have an especially notable
impact on the investment potential of a property, Argeropoulos
“As a result of the need for increased last-mile efficiencies,
demand for industrial real estate more connected to the masses is
outpacing supply, reducing
The government of Ontario is exempting new builds from rent
In doing so, the Doug Ford-led Progressive Conservatives are
partially rescinding one of the more controversial components of
the Fair Housing Plan, introduced in 2017 by the governing Ontario
Liberal Party.Existing tenancies are still subject to rent
“Many people in Ontario face challenges in finding suitable,
affordable rental accommodations, in part due to an extended period
of under-building of rental units,” read an official release from
the government.“Since 1992, rental unit construction has not
matched household formation.Approximately 20 per cent of Ontario
households live in purpose-built rental housing.In 2017, the level
of new rental construction would accommodate only 10 per cent of
new Ontario households.If construction of rental units had kept
pace with underlying demand, construction would have started on an
additional 6,100 units in 2017.”
Additionally, as part of its Housing Supply Action Plan, the PC
government is putting an end to the Development Charges Rebate
Program, which subsidized units earmarked for affordable
While Ontario grapples with a 1.6% vacancy rate, the situation
is even direr in Toronto where only 1% of total units aren’t
occupied and the average rent on a one-bedroom condo is more than
$2,000.Kathleen Wynne’s Liberal government imposed rent control on
all units, capping annual increases at 2.5%.
The affordability crunch in Vancouver has pushed rental
apartments and condo units to the fore as the budget choice for
young families – but if it were up to the renters, they’d rather
settle down on a single-family home elsewhere.
Indeed, almost 30% of the respondents of a new study published
by Altus Group last week admitted that if price was not an issue,
they would choose to live in a single-family home in the suburbs
instead of staying in a rental unit in the downtown area.
The only thing still preventing 32% of Vancouver’s young tenants
from moving is the fact that they are still saving for their down
payments, the survey noted.
Another 11% stated that they don’t feel that they will qualify
for the tighter mortgage stress tests, while a similar proportion
of young renters said that they are waiting for their opportunity
until home prices go down.
A similar analysis by Sotheby’s International Realty Canada
found that 83% of young households nationwide would prefer to raise
their families in detached homes over any other housing type,
everything else (including prices) being equal.
Vancouver has highest average price per square foot
“The popular perception is that people in modern families have
A month after the federal Cannabis Act came into effect, a
significant number of Canadians still harbor negative views about
the provision that allows home owners to cultivate up to 4 plants
indoors, according to a recent analysis by real estate information
In the study, 57% of respondents believed that growing marijuana
in a home would considerably devalue that property.Another 52% said
that they would have definite second thoughts about buying a
residence if the former owner grew the plant privately.
“A lot of the negative sentiment in our findings is stemming
from this uncertainty among homeowners,” Zoocasa managing editor
Penelope Graham stated, as quoted by the Financial Post.
Only 15% of those surveyed said that the factor does not affect
their purchase decisions one way or the other, and that they are
open to growing the plant themselves.
industry investors should take heed of this fact
Smoking cannabis is seen to have a more serious effect, with 64%
of respondents saying that the consumption of pot inside a
residence will severely impact a home’s market value.
Another major factor would be the presence of a dispensary in
the vicinity of a prospective home purchase.Around 48% of the
Zoocasa survey’s participants admitted that
Grappling with affordability in the low-rise market and paucity
of space in condo apartments, Greater Toronto Area homebuyers are
flocking to townhouses in droves.
In 2008, townhouses comprised only a quarter of sales in the
low-rise sector, but as of this October, row houses accounted for
42% of low-rise sales.
“Townhouse product fits between apartments and the detached
housing market, and we expect to see more demand for that asset,”
said Matthew Boukall, VP of product management, data solutions at
Altus Group.“When we look across different markets they’re
generally flat.In Toronto, the market had a rough start to the
year, where we saw sales plummet, but within that detached housing
market of single-family homes and row townhouses, the latter
accounted for 42%.They grew the low-rise market segment.”
According to Christine Cowern, a sales representative and team
lead at Keller Williams Reffered Urban Realty, townhouses are ideal
for homebuyers who struggle with affordability but who also resist
too much compromise.
“We’ve been telling our clients for years that townhouses are a
fantastic compromise between a house and a condo apartment,” she
said.“Freehold towns are on the higher end but still cheaper than
owning a house, while condo towns are quite a bit cheaper.For
someone who is new to the market or owns a condo
Toronto’s apartment segment is experiencing a healthy infusion
of new supply, but a new analysis by Marcus &Millichap
indicated that the rate of addition is not proving enough to
address the inflamed levels of demand for the city’s residential
The Toronto Multifamily Spotlight report for November
2018 stated that the first 3 quarters of 2018 saw the addition of
2,500 new apartments, putting the delivery rate on track to reach
the highest level since 1994.
However, elevated prices in the single-family segment and
increased population growth fuelled by immigration have pushed the
benchmark price for the property type at $863,500 in September,
well out of reach of most entry-level buyers.
“With a limited number of starter homes on the market,
apartments have been virtually filled to capacity with a vacancy
rate under 1%, keeping rent growth in the mid-single-digit range
and motivating the development of new units,” Marcus &Millichap
Read more:Construction costs, land crunch threatening GTA
In addition, the influx of skilled professionals that will be
employed by Toronto’s burgeoning tech sector is predicted to add
43,500 new households over the next 18 months.
“Intel, Microsoft and Uber are just some of the companies to
recently announce plans to grow their footprint and
The latest Altus Group analysis found that demand for
Vancouver’s office spaces significantly pushed down vacancy from a
near-record level of almost 11% in mid-2016 to around the 7% range
in the middle of this year.
This was even more pronounced in the downtown area, which saw
vacancy shrink from 7% a year ago to below 5% in mid-2018.
However, the Vancouver Flash Report 2018 noted that
Vancouver’s office space supply received approximately 1.3 million
square feet of new additions over the past 8 quarters, which was
only less than half the amount injected in the market from mid-2014
Moreover, this paled in comparison to the 5 million sq.ft.of new
industrial space that Vancouver had from mid-2016 to mid-2018.
Fortunately, the nearly 2.8 million sq.ft.of office space under
construction as of mid-2018 is expected to keep up with demand.The
new additions would comprise 2 years of supply, taking into account
the annual absorption trends from 2015 onwards.
Read more:Vancouver commercial project to significantly
pump up supply
A late October report by RE/MAX Western Canada indicated that
sustained investment by major technology firms will propel the
Vancouver office market for the foreseeable future.
With leading tech companies like Amazon and WeWork steadily
These days, Montreal is riding high—the city`s economy is
surging and so is its real estate market—but that’s inevitably
attracted interest from foreign buyers whom the mayor fears is
Valerie Plante, elected mayor last year, wants to follow
Vancouver and Toronto’s lead in implementing a foreign buyer
tax.However, according to Carrie Law, CEO and director of
Juwai.com, the largest website in China for international real
estate, the proposed tax would actually harm Montreal’s renters who
comprise two-thirds of the city’s households.
“A foreign buyer tax would favour the one-third of Montreal
households who are owners over the two-thirds who are renters,” she
said.“That means two out of three care more about rents than
prices.I do agree that buyers from China play an important,
minority role in certain parts of the condo market.Most new condos
bought as investments by foreign buyers will end up as rentals.The
current condo boom could lead to foreign buyers financing lower
rents for locals.It’s hard to understand why the government opposes
the possibility of lower rents.Rents have a bigger impact on many
more people than do prices.”
As mortgage broker George Macris of Dominion Lending Centres
Centre-Ouest in Montreal notes, the municipal government doesn’t
have the power to instate a housing tax.Plante’s party, Projet
Montreal, first called for a tax
Mounting development costs along with geographic limits are
placing the Toronto condominium segment’s relative affordability at
risk, according to a new market report by RE/MAX of
Ontario-Atlantic Canada Region.
Robust immigration and population growth have galvanized demand
to the point where resale condos (along with townhouses) now
represent almost 37% of total residential activity in the GTA, but
this boon for the industry might also prove to be a double-edged
“The necessity to ‘build up’ has never been more prevalent in a
city that has seen its population climb from one census to the
next,” RE/MAX of Ontario-Atlantic Canada Region executive VP and
regional director Christopher Alexander said.
The onus is upon the regulatory side to remedy this ticking time
bomb, he argued.
“To prevent the run-up we’ve seen in housing values in the past,
all levels of government must work together with developers to
streamline the building process.We need to create more affordable
GTA housing options that can accommodate buyers and renters at
every price point,” Alexander explained.
demand to boost further apartment construction – CMHC
The market pressure is evident when one considers that the
city’s condo apartments keep getting snapped up by hopeful home
owners and investors alike, despite the average price
While the Waterloo Region is still a relatively affordable haven
especially when compared to red-hot Toronto, the near future of the
market will primarily cater to the preferences of two major
demographics:middle-aged buyers of second homes, and baby boomers
“These two age cohorts represent great opportunity,” Canada
Mortgage and Housing Corp.regional economist Ted Tsiakopoulos noted
last week, as quoted by the Waterloo Region Record.
The average home price in the region grew by 7.7% year-over-year
in October to reach $489,725.This trend has made access to equity –
something that a large proportion of younger would-be buyers simply
won’t have at the time – a particularly powerful tool.
offers slowing down in non-Toronto ON markets
What’s worse, a bevy of other factors including tighter mortgage
rules and interest rate hikes would only make life even harder for
the younger generation hoping to establish roots in the region.
“First-time homebuyers aren't going to be in the driver’s seat,”
Tsiakopoulos said.“This is a different market that we are heading
Updated numbers from the Kitchener-Waterloo Association of
Realtors showed that affordability pressures pulled down
year-to-date sales volume by 13% compared to the same time last
Non-Toronto markets in Ontario