The Canadian commercial real estate market set another record for investments in 2017 and was one of only four countries in the world to do so, according to a new report from CBRE Ltd
The report said there were more than $43.1 billion in investments last year, surpassing $34.7 billion in 2016, and CBRE predicts another record will be established in 2018.
CBRE said strong tenant demand, coupled with declining vacancy rates which are at, or near, all-time lows in many Canadian markets, will lead to strong increases in rental rates.
“Investors are not shying away from Canadian commercial real estate,” CBRE Canada executive managing director Paul Morassutti said, as quoted by The Canadian Press. “We have record low vacancy rates, record low unemployment, increasing institutional allocation to real estate and supportive immigration that fuels population growth.”
CBRE said, however, that the commercial real estate market does face some risk in 2018, including rising interest rates and the fate of the North American Free Trade Agreement, but it expressed confidence that the underlying strength in the market will outweigh these concerns.
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The company said Toronto and Vancouver began 2018 with the lowest downtown office vacancies in North America at 3.7% and 5.0% respectively, and predicted that those rates will fall even lower this year due to growing tenant demand and a lack of new office supply.
CBRE noted that growth in tenant demand is spreading to other cities, with downtown office vacancy rates also slated to fall in London, Ont., the Waterloo Region, Ottawa, Montreal, and Halifax.
After surging for the past two years, CBRE projected vacancy rates will finally stabilize in Calgary as the recovery in Alberta begins to take hold.
“In 2018, Canada will once again find itself at the centre of two very powerful investment trends,” Morassutti said.
“Firstly, our status as a safe haven with stable rule of law gets more pronounced as geopolitical instability continues to accelerate. Secondly, real estate has arrived as a true ‘fourth asset class’ that provides yield in a yield-starved world. As a result, institutional allocations are set to increase by over 20% in the next five years.”