There’s a very optimistic outlook regarding the Canadian real estate market for the rest of 2021, experts told a CBRE webinar Thursday afternoon.
CBRE is a commercial real estate services and investment firm. The webinar Canadian Real Estate Update 2021 was hosted by organization president and CEO Werner Dietl, and featured CBRE Ltd. vice-chairman Paul Morassutti and Benjamin Tal, Deputy Chief Economist of CIBC World Markets Inc.
An introduction to the webinar points out that “inflation could be a key factor for investors, businesses and individuals for the first time in decades. Hard assets continue to act as a hedge against financial market fluctuations while businesses building out and renting space face rising costs.”
Regarding the real estate market for the rest of the year, “in virtually every sector that we see, the mood is just undeniably optimistic, that’s right across the board,” said Morassutti. “If you use REIT (real estate investment trusts) as a proxy, the TSX REIT index was down, I believe, 13 percent in 2020 and this year it’s up 25 percent. The Dow Jones REIT index is up 25 percent this year, so net asset values have not moved at that pace, they’ve only moved moderately, but the momentum is absolutely going in the right direction. If you look at the property level, fundamentals in virtually every sector in Canada are improving, everyone is looking forward to the second half of the year.
“On the capital market side, for investment activity, we had one of the strongest first [half of the year] we’ve had in the last five years, and it looks at this point that we are tracking towards a year that might be one of the best that we’ve had. That’s pretty remarkable. When you look at the totality of the market, notwithstanding the fact there are still some issues out there, in general, the mood is just incredibly strong. The entire market believes the third and fourth quarters of 2021 will be even better.”
Tal says he also envisions good news.
“The second half of the year is going to be on fire,” he added. “We know that because there is so much pent up demand and we are opening up. We are sitting on a mountain of cash…. We wake up and realize that Canadian households are sitting on no less than $100 billion of excess cash…. This will generate a significant acceleration of economic activity in Canada.”
Regarding inflation in the coming months, Tal said: “Inflation is there, but the Bank of Canada is telling us that whatever we see is short lived, but nobody knows.”
He added that on a monthly basis, prices are rising higher than expected.
“That could be short lived, but there is a risk it could be more than that, and that’s the key risk facing commercial real estate. You see, the issue is not inflation… The risk we are facing is that the Fed or the Bank of Canada will wait until the inflation goes down, and it doesn’t, and when it doesn’t, we will realize we’re behind the curve… and what do you do when you chase a lagging indicator? You raise interest rates very quickly to catch it. The history of real estate crashes is the history of central bankers overshooting. The earlier the Fed and the Bank of Canada move, the better.”
CBRE also provided The Suburban with a summary of Montreal industrial second quarter activity.
“Industrial continues to be the most coveted asset class,” the summary says. “The average net asking lease rates climbed to an average of $8.24 per square foot. Over three years, they have surged 44 percent. In addition, a record of 4.5 million square feet is now under construction in the metropolitan area, almost two-thirds of which is already leased.
As well, “availability rates have dropped to 1.4 percent in Q2 from 1.9 percent just three months earlier with industries such as e-commerce, food and beverage driving the highest demand.
“Midtown (the St. Laurent-Côte des Neiges-NDG Decarie Blvd. area) currently holds the highest availability rate of 2.5 percent, up from 2.1 percent in Q1, while the North Shore and Laval have fallen below one per cent (0.2 percent and 0.3 percent respectively, down from 1.6 percent and 1.3 percent in Q1).”
The summary concludes that “experts suggest that such low rates may soon push companies to consider building industrial facilities farther and farther from the city centre. CBRE forecasts that industrial will continue its strong performance and that off-island sub markets will continue to grow as availability rates shrink.”