Real estate isn’t limited to residential where the commodity is homes for people to live in. Commercial real estate is an equal part of the picture and there are some real estate agents who also work in this sphere as well, and most commonly working with clients who are not leasing commercial space for their business but rather investors who are buying commercial real estate with an eye to making it available through Collier’s or another well-known commercial real estate company.
And at a time when Canadian residential real estate sales are in a lull when looked at nationwide, the same cannot be said for commercial real estate in Canada. The demand for it has certainly never been higher, and the one the characteristic it does share with residential is that the supply of it is is nowhere near matching the demand. New building starts for commercial real estate are actually outpacing residential in some areas of the country, but that’s not a bad thing when you consider is that industry is essential to strong local economies.
It may be at a time like this that some realtors may want to expand their horizons and look to branch into commercial real estate, but for those who feel their expertise is best provided for homebuyers and home sellers there are options if you need to see better results from your efforts to drum up new clients. To that end our online real estate lead generation system here at Real Estate Leads is an excellent resource and comes highly recommended from other profit and growth-minded realtors.
Back to topic, we’ll use this week’s entry to look at why the sales projections for commercial real estate in Canada are so rosy for the remainder of the year.
Nice Soft Landing
The consensus has been that the outlook for commercial real estate looks bumpy in the near term, but it goes along with a similar one that predicts it might still play out with a nice soft landing. The Canada Real Estate Market Outlook report came out a little less than 2 weeks ago, and it predicts challenges with tougher financing conditions and a potential economic slowdown that will detract from investment.
One to two quarters of slowed investment before activity rebounds in Q3 is being predicted, and over the longer term it is foreseen that large investors will be targeting commercial real estate with gusto and that more certainty for interest rates should also be a big plus or the industry.
All of this cumulates with commercial real estate investment in Canada possibly reaching an all-time high of $59.3 billion this year, and this will be primarily fuelled by greater merger and acquisitions activity. Commercial real estate investment totalled $58.5 billion in 2022, and this number was just slightly below the record volume set in 2021. One that should be bested this year if these predictions are accurate.
The BoC’s decision to pause interest rates at 4.5% while it weighs their effect on the economy should allow pricing expectations to recalibrate as we progress through the remainder of 2023. Q3 and Q4 should see much more robust investment activity.
Role of Office Vacancies
Office vacancy continues to increase, and demand for older space is now being replaced by interest in more modern locations and facilities. It has been extensively reported on with how influencing workers back to the office will be a priority in 2023. Tenants will use the coming year to relocate to properties with the best amenities, commute times and sustainability profiles and then there’s also the way some property owners have considered converting their real estate to residential.
The report touched on the relation to residential real estate briefly too, and noted a growing demand for multi-family rental real estate, with Canada’s overall vacancy rate falling to a 20-year low of 2% in 2022. High demand continuing this year is predicted and this should drive vacancy even lower in 2023.
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