Backed by strong fundamentals, transaction volumes reached a 15-year high of $49.3 billion in 2018, as cap rates compressed to 10-year lows.
While most property types have performed well, industrial has exceeded all expectations, as e-commerce demand continues to grow.
Office construction continues at a record pace, while a rapidly growing population has boosted demand for rental space and multifamily investment returns.
Want to know more? We’ve rounded up the top 5 commercial real estate trends of 2019 to put things in perspective.
1. THE POWER OF LAST-MILE DELIVERY
Canadians can’t get enough of e-commerce, which has seen double-digit growth in recent years. The result? A drastic shift in supply chains and the industrial real estate market.
Companies looking to deliver “last-mile” goods to major metros require distribution facilities in close proximity to downtown cores.
That poses a problem in cities like Toronto and Vancouver, where there is a lack of available industrial space, and what property is available is commanding historically high rents.
Some developers have turned to the concept of multi-storey buildings, first pioneered by cities like Tokyo, to meet demand.
How limited is the supply of industrial space? The national availability rate dropped below 3.0% for the first time on record in the third quarter, with historic market fundamentals in Toronto, Vancouver and Montreal.
And while development activity is ramping up, with an astonishing 28.0 million sq. ft. in the national pipeline, it’s still not enough. Projects under construction account for just 1.5% of existing inventory.
As tenants struggle to find the space they need, investors have recorded strong returns. The sector saw investment volumes total $3.1 billion in the third quarter of 2019 alone, which would be even higher if more owners were selling.
2. APARTMENT RENTAL DEMAND HITS NEW HIGH
Millennials represent 27.0% of the Canadian population and are forming new households at a record rate. But with home ownership costs outpacing income levels, many are opting to rent not own.
That’s good news for multifamily investors. With apartment buildings at or near capacity across the country, rent growth continues to accelerate.
Average rents for purpose-built rental units have grown by 4.4% for the last two years at the national level. That number jumps to 5.0% and 7.1% in Toronto and Vancouver, respectively.
Strong fundamentals – including a growing population, rising home ownership costs and a lack of rental supply – mean this trend is here to stay for 2020 and beyond.
