Canadian multi-suite residential and industrial properties continue to attract investors in the first quarter of 2021: Morguard
- Multi-suite residential rental properties continue to generate strong bids from investors given the asset class's largely positive medium-to-long term performance forecast
- Industrial investment demand remains robust resulting in high transaction volume and upward property value pressure
- Grocery-anchored retail properties remain attractive to investors despite in-person shopping restrictions in the first quarter
- Questions surrounding returning to the office continue to moderate activity in the office segment as investors wait for the eventual economic reopening
MISSISSAUGA, ON, May 26, 2021 /CNW/ - Canadian commercial property investment market conditions stabilized during the first quarter, according to Morguard's 2021 Canadian Economic Outlook and Market Fundamentals First Quarter Update ("Morguard") (TSX: MRC). An increased volume of COVID-19 vaccinations reported across the nation boosted investor confidence as part of a more optimistic economic outlook despite further uncertainty triggered by a third wave of the pandemic. Low-risk industrial and multi-suite residential rental properties recorded stable-to-high transaction activity, reflecting increased confidence from the investment community. A more cautious approach was taken by investors with regard to potential office and non-essential retail property asset acquisitions.
"Defensive assets, such as multi-suite residential rental and industrial, garnered strong bidding due to their relatively stable and positive fundamental outlooks," said Keith Reading, Director, Research at Morguard. "The positive impacts of the vaccine rollout and government transfers to Canadian businesses and households are expected to boost both economic and investment market performance in the second half of 2021 as the outlook for the commercial real estate sector becomes clearer."
Multi-Suite Residential Rental Real Estate
The multi-suite residential rental segment experienced strong interest from investors in the first quarter of 2021 as vacancy rates held close to the pandemic highs in most regions. The reopening of Canada's international borders either later this year or in 2022 and subsequent increase in international migration is expected to support stronger rental demand and upward pressure on occupancy and rents. Investors are expected to continue to target multi-suite residential rental properties in 2021 given the strength of the segment's fundamental outlook and positive medium-to-long term performance forecast.
Commercial Real Estate
The office sector's investment market conditions are expected to remain relatively stable despite reduced occupancy. Work-from-home measures from late last year continued to impact the sector in the early months of 2021. The national vacancy rate increased 1.2 per cent over the first quarter of 2021 to 14.6 per cent, marking the highest rate recorded since 2002. The average first-quarter vacancy rate for downtown areas in major cities, such as Edmonton, Toronto, and Vancouver, stood at 13.3 per cent, a 20-year high. Office tenants continued to plan for the eventual economic reopening, but largely delayed longer-term occupancy decisions. Looking ahead, the extent to which employees return to the office will dictate leasing performance over the near term while investors acquire office properties selectively over the balance of 2021.
The industrial segment experienced another notable quarter with investors continuing to target these properties. In the early months of 2021, the sector reported a solid outlook, healthy near-term performance characteristics and a consistent supply of properties available for acquisition, resulting in a near record transaction pace and property values that continued to hold at the peak for the cycle. Over the balance of 2021, industrial investment activity is expected to remain robust.
Reduced investment activity in the retail segment was evident during the first quarter, as landlords and retailers continued to navigate the challenges brought on by the pandemic-related limitations for in-person shopping. Investors focused on the longer-term economic outlook during the first quarter when making investment decisions by generally choosing to pursue lower risk properties within each of the major asset classes. Grocery-anchored and other essential retail tenanted properties will continue to attract investment capital from a variety of sources in 2021 while other sub-categories of properties will see reduced demand during an anticipated period of extended lockdowns.
Economic Factors
Canada's economy exhibited a measure of resilience during the first quarter despite a third wave of the COVID-19 pandemic and lockdowns in most regions. The labour market experienced some turbulence in the first three months of the year, with national employment falling 1.2 per cent, or roughly 213,000 positions in January. February and March saw a reversal though as national employment increased by roughly 259,000 positions, and 303,000, respectively. Progress over the rest of the year will be highly dependent on the rate vaccines are distributed to the Canadian population and the potential for further lockdowns.
Economic slack and ongoing uncertainty due to the pandemic continued to have a significant impact on the Bank of Canada's policy decisions in the first quarter. The Bank of Canada announced it would hold rates until the economic slack was absorbed, and inflation ranged close to the 2.0 per cent mark on a sustained basis. Over the near term, monetary policy is expected to remain accommodative given a significant degree of economic uncertainty.
Inflation concerns rose during the first quarter due to an accelerated economic growth trend, pent-up household spending and increased optimism with the rise in COVID-19 vaccinations. Despite these concerns, several factors are expected to moderate inflation levels over the near-to-medium term thanks to ongoing international supply chain challenges dampening price growth, and an increase in retail competition causing downward pricing pressure and moderate oil price gains.
The first quarter update released today by Morguard, of the 2021 Economic Outlook and Market Fundamentals Research Report, provides a detailed analysis of the 2021 real estate investment trends to watch in Canada. The full report is available at morguard.com/research.
About Morguard Corporation
Morguard Corporation is a major North American real estate and property management company. It has extensive retail, office, industrial, hotel and multi-suite residential rental holdings owned directly and through its investment in Morguard Real Estate Investment Trust and Morguard North American Residential REIT. Morguard also provides real estate management services to institutional and other investors. Morguard's owned and managed portfolio of real estate assets are valued at $14.6 billion. Please visit http://www.morguard.com or follow us on LinkedIn.
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Statements contained herein that are not based on historical or current fact, including without limitation statements containing the words "anticipates," "believes," "may," "continue," "estimate," "expects" and "will" and words of similar expression, constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and regionally; changes in business strategy; financing risk; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; liability and other claims asserted; and other factors. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Publisher does not assume the obligation to update or revise any forward-looking statements.
SOURCE Morguard Corporation
K. Rai Sahi, Chairman and Chief Executive Officer, T 905-281-3800; Keith Reading, Director of Research, T 905-281-3800; or email [email protected]
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