Canada's Multi-Suite Residential and Industrial Real Estate Poised for Continued Strength in 2024: Morguard
- Multi-suite residential rental demand will outpace the available supply of units in new and existing properties, resulting in significant imbalance.
- The industrial leasing market outlook is stable and healthy, with supply remaining constrained, following the record-setting performance of the past several years.
- Canada's retail property sector recovery continued, supported by stronger-than-expected spending growth and increased foot traffic.
- As the office leasing market softened, class A rents held up relatively well, due in part to an ongoing flight-to-quality in urban centres across the country.
- Investors have exercised increased caution with regard to Canada's property market while interest rates and inflation remained elevated, resulting in a surplus of available capital
MISSISSAUGA, ON, Nov. 28, 2023 /CNW/ - Morguard Corporation ("Morguard") (TSX: MRC) today released its 2024 Canadian Economic Outlook and Market Fundamentals Report, offering a detailed analysis of 2023 Canadian real estate market and trends to watch for in 2024. Morguard's 26th annual edition stated that Canada's economic growth trend will moderate over the near term, with stronger expansion projected for 2025. The positive momentum in the multi-suite residential rental market and the industrial leasing market will continue in the near term in line with the trend of the past few years. The full report with regional insights and video is available at morguard.com/research.
"As interest rates and inflation rates gradually decline, there is an anticipation of pent-up investment demand within the property sector," said Keith Reading, Senior Director, Research at Morguard. "Multi-suite residential rental properties are expected to be particularly attractive to investors given their healthy fundamentals and positive rent growth outlook."
Demand for multi-suite residential rental units has consistently exceeded supply, following the trend of the past few years. This recent demand pressure was fueled by a substantial increase in immigration and stronger-than-expected job growth. Meanwhile, elevated interest rates and inflation have made it more challenging for existing renter households to purchase homes, thereby bolstering demand for rental units. Investors continued to exhibit confidence in the multi-suite residential sector, against a backdrop of heightened economic uncertainty and rental market demand/supply imbalance.
In 2024, Canada's multi-suite residential market will continue to experience increasingly constrained supply nationwide. Rental demand is expected to outpace the nation's supply of existing and newly built units available for rent. The construction slowdown driven by high interest rates may further exacerbate the persistent demand-supply imbalance forecasted for the near term. Multi-suite residential rental properties will be popular targets for investors given a healthy fundamental and rent- growth outlook.
Canada's office leasing market downturn continued through to the midway mark of 2023. Leasing demand has fallen short of supply, due largely to reductions in space utilization by the nation's businesses and government. Class A demand and rents held up relatively well, as the popularity of hybrid workplace models remained high. The resilience of the nation's class A properties was driven by tenant demand for the market's highest-quality space. Investors exhibited confidence in class AA and A assets, in the country's largest downtown cores and prime suburban nodes.
Both the Canadian industrial property investment and leasing markets remained relatively stable and healthy overall. The industrial property sector delivered solid investment performance with an aggregate average total return of 7.3% for the year ending June 30, 2023. While the nation's supply constraints eased slightly as leasing demand moderated and construction activity spiked, the Canadian industrial market remained tight. This situation is expected to persist in the near term, leading to modest upward pressure on rents. Specifically, the warehouse and logistics sector are expected to continue leading the way in terms of expansion across the country.
With stronger-than-anticipated retail spending growth and increased foot traffic in major shopping areas, Canada's retail leasing market continued its recovery through to the midway mark of 2023. Vacancy rates decreased modestly in most regions, while rental rates increased modestly in some market segments. Upward pressure on rents was strongest in the country's landmark centres and for space in new developments. Looking ahead, the country's retail leasing market is expected to stabilize following a period of modest progression. Canada's retail sales growth trend will strengthen in the second half of 2024, driven by lower borrowing rates and inflation levels. However, trends in the retail investment property market are likely to remain bearish given ongoing economic and financial market uncertainties.
Canada's economy began to gear down during the first half of 2023, due largely to the negative effects of higher interest rates and inflation. Economic growth will remain underwhelming in the second half and in the first half of 2024. As a result, labour market conditions will soften. Canada's economic growth trend will strengthen in the second half of 2024 and stabilize in 2025, as interest rates decline. Subsequently, labour market performance will improve. International migrants will fill many of the jobs created as a result of the increase in economic activity forecast for the second half of 2024 and 2025.
Retail sales growth is expected to accelerate in the second half of 2024 with consumption projected to increase by a solid 2.9 percent for the year. Subsequently, growth is projected to average 3.1 percent annually through to 2027. The uptick in retail sales growth in 2024 can be attributed to the expected gradual decline in inflation and lower borrowing rates, both of which will have a positive influence on discretionary spending patterns. The forecast increase in housing market demand and activity levels will drive increased spending on housing-related items.
The 2024 Canadian Economic Outlook and Market Fundamentals Report is a thorough study of the 2024 real estate investment trends to watch in Canada. The full report, including analysis for the real estate markets of Halifax, Montreal, Ottawa, Toronto, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver and Victoria, is available at morguard.com/research.
Morguard Corporation is a major North American real estate and property management company. It has extensive retail, office, industrial, hotel and residential 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 assets is valued at $18.6 billion. Please visit www.morguard.com or follow us on LinkedIn.
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
Keith Reading, Senior Director of Research, T 905-281-3800; or email [email protected]
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