The commercial real estate market in Canada remains red hot even as residential markets in many of Canada’s largest cities cool off.
Commercial property deals in Canada reached a record for a second consecutive year in 2017 and show no signs of slowing down as investors seek high-yield assets in a haven from global turmoil, according to CBRE Group Inc.
Commercial real estate transactions across Canada in 2017 totalled $43 billion, up from 2016’s record of $34.7 billion, the real estate services firm said in a press release. Historically strong fundamentals, such as high rents and low vacancies, are likely to improve even further, pointing to potentially even higher investment in 2018, according to the CBRE statement.
Buyers are seeking to cash in on frenzied demand in Canada for properties from offices to warehouses, while the country’s growing economy and political stability give it a reputation as a safe place to invest. Building values are also rising as tenants fight for room to expand, resulting in higher rents. CBRE sees the technology industry soaking up an even greater share of space in the future.
“Despite the relatively late stage in the cycle, investors are not shying away from Canadian commercial real estate,” Paul Morassutti, Executive Managing Director for CBRE Canada, said in the statement. “We have record-low vacancy rates, record-low unemployment, increasing institutional allocation to real estate and supportive immigration that fuels population growth.”
Canada was one of just four countries to set back-to-back records for commercial real estate investment last year, the others being China, Spain and the Netherlands, according to the firm. Foreign investors last year accounted for 13% of all deals above $10 million. That was second to the peak of 27% set in 2016, a year with such blockbuster deals as the sale of Bentall Centre in Vancouver to China’s Anbang Insurance Group Co.
Potential risks for investors in the coming year include rising interest rates and negotiations over the North American Free Trade Agreement. A slowdown in Canadian imports and exports may hurt several sectors, especially the industrial market, according to CBRE.
Housing instability in Toronto and Vancouver could also cause problems this year. Toronto’s once-hot housing market is cooling amid stricter lending regulations, and Vancouver just announced a new levy that makes it tougher for foreigners and speculators to buy real estate in that city.