Avison Young releases 2016 Canada, U.S., U.K. commercial real estate forecast

 Uncertainty, diligence, resilience and opportunity to define sector in 2016

TORONTO, Jan. 14, 2016 /CNW/ - As the books close on another strong year for commercial real estate, 2016 opens differently – with some uncertainty and unresolved questions that could impact the way owners and occupiers invest and operate. The variables, however, are both positive and negative. To successfully navigate the real estate markets in 2016, stakeholders will need to keep a global perspective, stay abreast of changes in the broader environment and, increasingly, devise innovative solutions to complex problems.

These are some of the key trends noted in Avison Young's 2016 Canada, U.S. and U.K. Forecast, released today.

The annual report covers the office, retail, industrial and investment markets in 55 Canadian, U.S. and U.K. metropolitan regions: Calgary, Edmonton, Halifax, Lethbridge, Montreal, Ottawa, Quebec City, Regina, Toronto, Toronto West, Vancouver, Waterloo Region, Winnipeg, Atlanta, Austin, Boston, Charleston, Charlotte, Chicago, Cleveland, Columbus OH,  Dallas, Denver, Detroit, Fairfield County, Fort Lauderdale, Greenville, Hartford, Houston, Indianapolis, Knoxville, Las Vegas, Long Island, Los Angeles, Miami, Minneapolis, Nashville, New Jersey, New York, Oakland, Orange County, Orlando, Philadelphia, Pittsburgh, Raleigh-Durham, Reno, Sacramento, San Antonio, San Diego County, San Francisco, San Mateo, Tampa, Washington DC, West Palm Beach and London U.K.

"The global real estate industry has had a tremendous run. It has been more than six years since the Great Recession. During the steady climb back up, interest rates continued to decline, central banks unleashed quantitative easing, employment recovered and economies rebounded. The post-recession years have marked a period of rebuilding balance sheets and personal wealth, and relative peace in much of the Western world," comments Mark E. Rose, Chair and CEO of Avison Young. "The financial and real estate markets appear stable as we begin 2016, but variables now surfacing could undermine short-term prosperity. The year ahead seems to be the waning days of a prosperous cycle – perhaps even a cyclical top in liquidity, pricing and transaction velocity."

He continues: "As difficult as it is to acknowledge that we are entering a period of transition, we must remain clear-eyed as we undertake our 2016 strategic planning. Our industry has always been cyclical, and factors that negatively affect pricing or trading velocity are, in turn, countered with opportunistic buyers and lessees.

"At Avison Young, we believe that 2016 will be a very choppy, but ultimately stable, year, with interest rates still top of mind. In the U.S., interest rate increases mark a return to monetary normalization. The U.S. interest rate increase could actually have a positive impact on the markets. Canada has lowered its interest rates and employed a low-dollar approach to spur investment and buffer oil and other commodity weakness, while the U.K. continues with a low-interest-rate policy. Germany continues to be the stabilizing force in continental Europe, but shoulders the burdens of other countries in the EU. Meanwhile, our newest market, Mexico, is stable and opportunities to grow are available as the Mexican economy matures.

"Building resilience into our business plans and adapting real estate strategies to the evolving demographic, technological and political realities around the world will be critical."

Amy Erixon, Principal & Managing Director, Investment Management for Avison Young, adds: "The three trends that will most influence investment markets in 2016 are market divergence, debt levels and digital disruption, while three technological trends to watch will be cloud-based apps, equity and debt crowdfunding, and a resurgence in interest in renewable energy and energy management."

"The end of the commodities super cycle, uneven employment growth, disruptive technologies, e-commerce and workplace strategies – to name a few – are testing Canada's otherwise stable commercial real estate sector," comments Bill Argeropoulos, Principal, Practice Leader, Research (Canada) for Avison Young. "After entering and exiting a technical recession in 2015, Canada's economy will endure another volatile year in 2016, leading to disparities in regional performance."

Argeropoulos notes that a weaker-than-expected economy and an active development pipeline stymied the Canadian office market in 2015 – and will do so again in 2016 as the sector undergoes structural, rather than cyclical, changes. Commodity-based and development-laden markets will likely experience flights to quality, downward pressure on rental rates, rising vacancy and a shifting tenant-landlord balance. Depth of demand will stem from expanding requirements, a growing trend toward co-working spaces enabled by a mobile workforce, a race to attract talented millennials, intensifying urban-suburban competition, and American tenants looking to establish a foothold in Canada.  

Argeropoulos continues: "The retail sector is something of a chameleon, constantly adapting and transforming as a result of market forces. Omni-channel retail is growing exponentially, with retailers streamlining and providing better deals as pricing trumps brand loyalty and fickle customers comparison-shop instantly using apps. Meanwhile, brick-and-mortar stakeholders are leveraging their geographical reach to remain competitive.

"On the industrial front, an established and expanding distribution and logistics-driven industry and a sustained U.S. recovery will provide upside, and a low Canadian dollar will fuel exports and boost a smaller, but more productive manufacturing sector.

"Finally, on the investment front, Canada – in fact, the world – is awash in capital. Despite Canada's finite investable marketplace, it is very much on the investment radar screen, with domestic players increasingly facing off with foreign buyers who are raising their real estate investment allocations."

Notable Canadian report highlights include:


  • A burgeoning development pipeline, along with varying absorption levels, increased Canada's overall office vacancy rate 110 basis points (bps) from year-end 2014 to close 2015 at 10.6%. Vacancy rose in 12 of 13 markets surveyed, with six markets recording rates above the national average. Vacancy is forecast to rise to 12.2% by year-end 2016.
  • Weighed down by the collapse in oil prices, the West-East divide has narrowed. Canada's Western markets collectively witnessed a 210-bps jump in office vacancy, averaging 10.7% by year-end 2015, compared with a 70-bps increase in Eastern markets, which finished 2015 at 10.6%. By year-end 2016, vacancy levels are expected to rise further, climbing to 12.9% and 11.8% for the West and East, respectively.
  • Despite a modest decline from year-end 2014, almost 20 million square feet (msf) of office space (54% preleased and representing 3.6% of existing stock) was under construction across Canada at the close of 2015 – with 60% of the total in Toronto and Calgary. Calgary and Toronto are among the 10 most active office development markets in North America, ranked fifth and seventh, respectively.
  • Scarcity of urban land will shift developers' focus from single-purpose towards mixed-use, transit-oriented projects, spurring joint-ventures, while LEED is joined by the WELL Building Standard, and optimizing and future-proofing premises will remain paramount.


The retail sector saw new entrants operating alongside closures and downsizings. Traditional high-street retailers are bringing luxury to Canada's regional malls: Nordstrom, Saks Fifth Avenue and Simons are all new anchors. On the other hand, Canadian Tire, Walmart and Lowe's acquired strategic locations following Target's retreat. According to the report:

  • Positives in 2016 will include: A low dollar (which should discourage Canadian consumers from U.S. cross-border shopping, ultimately boosting domestic sales), relatively low vacancy, controlled new supply, solid population growth and strong mall performance.
  • Negatives in 2016 will include: Uneven retail sales and GDP growth, record-high consumer debt and Canadian-U.S. exchange rates that could lead to higher wholesale costs and squeeze profits.


  • Canada's industrial vacancy rate remains tight. Despite a healthy supply-demand balance, vacancy will rise to 4.6% by year-end 2016 from 4.1% in late 2015, based on current trends. With the exception of Halifax, single-digit vacancy rates persist, with five of the 12 Canadian markets surveyed displaying rates below the national average.
  • Canada's stable industrial markets claimed five of the 10 lowest vacancy rates in North American markets in 2015, with four of those markets expected to maintain their top-10 rankings by year-end 2016.
  • Eastern markets saw a modest 10-bps year-over-year rise in vacancy, averaging 4.1% at the end of 2015. Coincidentally, the Western markets combined for 4.1% vacancy in 2015, having increased 70 bps from year-end 2014. As a result of new supply, the West-East spread will widen to 50 bps in 2016, as vacancy is forecast to rise to 5% and 4.5%, respectively.
  • Construction is ongoing, with more than 19 msf (40% preleased) underway across the country at the close of 2015. This total is up from 16 msf at the end of 2014.
  • Toronto, Canada's largest and North America's third-largest industrial market, remains the biggest Canadian development market with 6.6 msf (34% of the national total) underway, followed by Vancouver (5.6 msf, 29%).


According to the report, investment capital continues to flow – constrained mainly by a lack of available quality product. Approximately $24 billion worth of property was sold through mid-December 2015, down from the 2014 total of $26 billion.

In 2016, prime assets will be contested, with greater emphasis on urban land and development potential. More partial-interest sales are anticipated as owners reduce risk and take profits, attracting reluctant buyers back into the market. Competition may encourage more off-market activity while emerging CRE crowdfunding platforms are set to revolutionize online investment offerings.

While 2014 marked a return to pre-recession employment levels in the U.S., further economic growth solidified the nation's overall recovery in 2015. Nearly every market registered employment growth, maintaining the U.S. unemployment rate's downward trajectory. This stronger economic performance was reflected in gains across all commercial property sectors.

"As we had forecast for 2015, we saw continued positive absorption across most U.S. markets with a stabilization of cap rates for all property types. Job creation continued during 2015, exerting downward pressure on vacancy and driving rental rates steadily higher," comments Earl Webb, President, U.S. Operations for Avison Young. "Rising property values predominantly reflected these strengthening fundamentals rather than compressed cap rates. Demand from foreign and domestic capital sources remained strong and, as predicted, began to migrate into secondary markets as investors sought higher yields.

"U.S. presidential election years tend to be years with less dramatic economic movement, a factor that we believe will hold true in 2016 – barring some unforeseen out-of-market event that could disrupt financial markets. We foresee solid investment activity, continued job growth, and, as such, fundamental rent growth in the office, industrial, retail and multi-residential sectors."

Notable U.S. report highlights include:


Common themes, such as a flight to quality and space design efficiency, mixed-use and transit-oriented development and occupiers' preference for live/work/play environments, persisted in 2015. As well, the emergence of creative office space in non-traditional locations is growing in response to tenants' desire  for collaborative work environments.

  • The U.S. office markets tracked by Avison Young totalled 4.4 billion square feet (bsf) at the close of 2015. Overall vacancy declined 60 bps year-over-year to 12.4%.
  • All but six markets recorded lower rates when compared with year-end 2014. Only Houston displayed a substantial vacancy increase (27%), climbing to 13.1% at the close of 2015 from 10.3% one year earlier.
  • At year-end 2015, the amount of office space under construction in the U.S. had increased to almost 86 msf (52% preleased), up from 68 msf one year earlier; however, there is no real threat of oversupply in the near term.
  • Once again, New York (13.2 msf), Houston (9.7 msf), Dallas (8.1 msf) and Washington, DC (8 msf) had the most development underway.
  • Modest improvement in the U.S. office vacancy rate is forecast for 2016. While new construction is preleased, absorption may again be tempered by tenants shifting to smaller and more efficient footprints.

"From an occupier perspective, we have seen a slight decrease in capital deployment, primarily related to economic uncertainty, and the occupier tendency toward risk aversion, shorter leases and optimization of space usage may continue in 2016," Webb adds.


  • Suburban office parks are adding amenities for occupiers and the uptick in multi-residential developments can account for necessary retail expansion.
  • Several markets, such as Miami, are reporting low single-digit retail vacancy.
  • There was an upswing in urban-centric and lifestyle retail following downtown residential development.
  • Big-box stores, such as Target and Walmart, continue to make inroads in these urban locations, creating additional competition for traditional department stores.
  • Continued progress in the sector is expected in 2016 as retailers respond to shifting residential trends and lifestyle habits.


  • The U.S. industrial markets tracked by Avison Young comprised 10.3 bsf with a low (6.3%) vacancy rate at year-end 2015, compared with 6.8% one year earlier, and tight market conditions have kept rental rates on the rise.
  • Speculative construction has returned and, altogether, 130 msf is underway, driven by operators' need to be closer to the consumer and demand for modern buildings to handle automated individual- and bulk-order processing.
  • Six U.S. markets each had construction volume equal to or exceeding 10 msf and together accounted for 64% of the nation's total: Dallas (17.4 msf), Los Angeles (17 msf), Atlanta (14.6 msf), Philadelphia (14.3 msf), Houston (10.7 msf) and Chicago (10 msf).
  • Supply-chain logistics are triggering a rise in warehouse development and the construction of intermodal facilities and inland ports that are designed to handle containerized shipment transfers.
  • Infill development is underway in mature markets such as Chicago; however, land constraints in the country's major metropolitan areas will likely keep such projects in check.
  • New deliveries should have little impact on overall vacancy in 2016 as nearly half of all projects are already preleased.


  • Though transaction volume flattened later in the year, 2015 recorded double-digit percentage growth for U.S. sales, which exceeded $425 billion.
  • A significant amount of capital poured into U.S. commercial real estate markets in 2015, and more of the same is expected in 2016.
  • Canada led foreign investment in the U.S. in both 2014 and 2015. Through November 2015, Canadian investors had purchased $24 billion worth of U.S. assets, leading all other countries by a wide margin.

"We foresee solid investment activity, continued job growth and, as such, fundamental rent growth in the office, industrial, retail and multi-residential sectors," says Webb. "Cap-rate compression has largely run its course, but fundamental growth has not – a situation that will create abundant investment opportunities, provided that investors have realistic expectations, are creative and manage their investments aggressively."

Webb concludes: "While 2015 sales volume was on pace to reach the half-trillion-dollar mark as year-end approached, there remains an abundance of capital available for real estate's higher yields and relative stability in 2016."


Please turn to the listed pages of the report for Forecast highlights in specified national and local markets. For additional local and national info/comment, please contact the Avison Young representatives listed below. Thank you.

p. 8 Property Management; Debt, Joint Venture and Structured Capital
Peter Leroux, Principal and Executive VP, Real Estate Management Services: 416.673.4027
Norman Arychuk
, Mortgage Broker, Debt Capital Markets Group: 416.673.4006

p. 9 Investment Management Trends
Amy Erixon, Principal and Managing Director, Investment Management, 416.673.4034

pp. 10, 12, Canada & U.S.: 
Bill Argeropoulos, Principal, Practice Leader, Research (Canada): 416.673.4029 or cell: 416.906.3072   
Margaret Donkerbrook
, Vice-President, U.S. Research, 202.644.8677

p. 15 Calgary                                                                                                             
Todd Throndson, Principal, 403.232.4343 todd.throndson@avisonyoung.com

p.16 Edmonton      
John Ross, Managing Director, 780.429.7564 john.ross@avisonyoung.com

p.17 Halifax                                                                                                                
Michael Brown, Managing Director, 902.454.4110 michael.brown@avisonyoung.com

p.18 Lethbridge                                                 
Doug Mereska, Managing Director, 403.330.3338 doug.mereska@avisonyoung.com

p.19 Montreal                          
Denis Perreault, Principal, 514.905.0604 denis.perreault@avisonyoung.com

p.20 Ottawa                        
Michael Church, Principal, 613.567.6634 michael.church@avisonyoung.com

p.21 Quebec City
Denis Perreault, Principal, 514.905.0604 denis.perreault@avisonyoung.com

p.22 Regina                             
Richard Jankowski, Managing Director, 306.359.9799 richard.jankowski@avisonyoung.com

p.23 Toronto       
Martin Dockrill, Principal, 905.283.2333 martin.dockrill@avisonyoung.com

p.24 Toronto West                                                                                           
Martin Dockrill, Principal, 905.283.2333 martin.dockrill@avisonyoung.com

p.25 Vancouver                                               
Michael Keenan, Principal, 604.647.5081 michael.keenan@avisonyoung.com

p.26 Waterloo Region                                                             
Ted Davis, Managing Director, 226.366.9040 ted.davis@avisonyoung.com

p.27 Winnipeg            
Wes Schollenberg, Managing Director, 204.947.2886 wschollenberg@ay-mb.com

United States
p.29 Atlanta                                                       
Steve Dils, Principal, 404.865.3663 steve.dils@avisonyoung.com

p.30 Austin
Mike Kennedy, Principal, 512-717-3099 mike.kennedy@avisonyoung.com

p.31 Boston                                                                    
Michael Smith, Principal, 617.575.2830 michael.smith@avisonyoung.com

p.32 Charleston                 
Chris Fraser, Managing Director, 843-725-7200 chris.fraser@avisonyoung.com

p.33 Charlotte                                                                  
John Linderman, Principal, 919.420.1559 john.linderman@avisonyoung.com

p.34 Chicago                                                                                                 
Danny Nikitas, Principal, 312.940.8794 danny.nikitas@avisonyoung.com

p.35 Cleveland
Chris Livingston, Principal, 216.406.1131 chris.livingston@avisonyoung.com

p.36 Columbus, OH                             
Scott Pickett, Principal, 614.264.4400 scott.pickett@avisonyoung.com

p.37 Dallas                              
Greg Langston, Principal, 214.269.3115 greg.langston@avisonyoung.com

p.38 Denver                                                  
Alec Wynne, Principal, 720.508.8112 alec.wynne@avisonyoung.com

p.39 Detroit                                                                                                                       
Jim Becker, Principal, 313.510.2825 jim.becker@avisonyoung.com

p.40 Fairfield County
Sean Cahill, Principal, 203.614.1264 sean.cahill@avisonyoung.com

p.41 Fort Lauderdale  
Pike Rowley, Principal, 954.938.1807 pike.rowley@avisonyoung.com

p.42 Greenville           
Chris Fraser, Managing Director, 843-725-7200 chris.fraser@avisonyoung.com

p.43 Hartford   
Andrew Filler, Principal, 860.327.8302 andrew.filler@avisonyoung.com

p.44 Houston                                                     
Rand Stephens, Principal, 713.993.7810 rand.stephens@avisonyoung.com

p.45 Indianapolis        
Bill Ehret, Principal, 317.210.8808 bill.ehret@avisonyoung.com

p.46 Knoxville             
Warren Smith, Managing Director, 615.727.7409 warren.smith@avisonyoung.com 

p.47 Las Vegas           
Joseph Kupiec, Principal, 702.472.7978 joseph.kupiec@avisonyoung.com

p.48 Long Island         
Ted Stratigos, Principal, 516.962.5399 ted.stratigos@avisonyoung.com

p.49 Los Angeles        
Christopher Cooper, Principal, 213.935.7435 chris.cooper@avisonyoung.com

p.50 Miami
Donna Abood, Principal, 305.447.7857 donna.abood@avisonyoung.com
Michael Fay, Principal, 305.447.7842 michael.fay@avisonyoung.com

p.51 Minneapolis        
Mark Evenson, Principal, 612.913.5641 mark.evenson@avisonyoung.com

p.52 Nashville             
Warren Smith, Managing Director, 615.727.7409 warren.smith@avisonyoung.com 

p.53 New Jersey                                              
Jeff Heller, Principal, 973.753.1100 jeff.heller@avisonyoung.com

p.54 New York
Arthur Mirante, Principal, 212-729-1896 arthur.mirante@avisonyoung.com
Mitti Liebersohn, Principal 212.729.7734 mitti.liebersohn@avisonyoung.com   

p.55 Oakland
Charlie Allen, Principal, 510.333.8477 charlie.allen@avisonyoung.com

p.56 Orange County    
Christopher Cooper, Principal, 213.935.7435 chris.cooper@avisonyoung.com

p.57 Orlando
Greg Morrison, Principal, 407.440.6640 greg.morrison@avisonyoung.com

p.58 Philadelphia       
David Fahey, Principal, 610.276.1081 david.fahey@avisonyoung.com                              

p.59 Pittsburgh                                                
George (Duke) Kingsley, Principal, 412.944.2131 duke.kingsley@avisonyoung.com

p.60 Raleigh-Durham                                     
John Linderman, Principal, 919.612.3000 john.linderman@avisonyoung.com

p.61 Reno                            
John Pinjuv, Managing Director, 775.332.7300 john.pinjuv@avisonyoung.com

p.62 Sacramento
Thomas Aguer, Principal, 916.563.7827 tom.aguer@avisonyoung.com

p.63 San Antonio        
Marshall Davidson, Principal, 210.714.8083 marshall.davidson@avisonyoung.com 

p.64 San Diego County           
Christopher Cooper, Principal, 213.935.7435 chris.cooper@avisonyoung.com

p.65 San Francisco 
Nick Slonek, Principal, 415.322.5051 nick.slonek@avisonyoung.com

p.66 San Mateo
Randy Keller, Principal, 650.425.6425 randy.keller@avisonyoung.com

p.67 Tampa                                                                                              
Ken Lane, Principal, 813.444.0623 ken.lane@avisonyoung.com
Clay Witherspoon, Principal, 813-444-0627 clay.witherspoon@avisonyoung.com

p.68 Washington, DC                                                            
Josh Peyton, Principal, 202.644.8688 josh.peyton@avisonyoung.com

p.69 West Palm Beach
Jonathan Satter, Principal, 561.721.7031 jonathan.satter@avisonyoung.com

United Kingdom
p.71 London
Nick Cook, Principal, +44 20 7041 9999 nick.cook@avisonyoung.com

Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 2,100 real estate professionals in 75 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

• Click here to view Avison Young's 2016 Canada, U.S. and U.K. Forecast, FULL REPORT:

Click here to view Avison Young CEO Mark Rose's 2016 Commercial Real Estate Forecast VIDEOCAST, covering market trends in North America and Europe:

For further information/comment/photos:

Sherry Quan, Principal, Global Director of Communications & Media Relations,
  Avison Young: 604.647.5098; cell: 604.726.0959 sherry.quan@avisonyoung.com

Bill Argeropoulos, Principal, Practice Leader, Research (Canada), Avison Young:  
  416.673.4029; cell 416.906.3072 bill.argeropoulos@avisonyoung.com

Margaret Donkerbrook, Vice-President, U.S. Research, Avison Young: 202.644.8677 

Mark Rose, Chair and CEO, Avison Young: 416.673.4028

Earl Webb, President, U.S. Operations, Avison Young: 312.957.7610

Avison Young was a winner of Canada's Best Managed Companies program in 2011, 2012 and 2013 and has demonstrated its commitment to the program and successfully reapplied for the designation as a Gold Standard winner in 2014.

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SOURCE Avison Young Commercial Real Estate (BC)

For further information: Media Relations: Sherry Quan, 604.647.5098 or 604.726.0959 cell, email: sherry.quan@avisonyoung.com


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