Morguard - 2015 Real Estate Investment Trends to Watch in Western Canada

MISSISSAUGA, ON, Feb. 13, 2015 /CNW/ - Western Canada's commercial property market will continue to generate attractive investment yields, and stable and healthy income characteristics in 2015. The regional economy will expand, albeit at a more modest pace than in previous years, a direct result of the oil crisis that unfolded over the second half of 2014, when prices fell to a five-year low.

Alberta's economic growth rate will track the national average, having outperformed in the past several years. Manitoba, Saskatchewan and British Columbia will post solid growth, which will support commercial property sector advancement. By the close of 2015, the oil sector correction should have run its course, which will drive stronger property performance over the medium term in the west.

"The oil crisis will see Western Canada's reign as economic growth leader come to an end in 2015," said Keith Reading, Director of Research at Morguard. "In the medium term, the global economy will gradually recover, which will drive demand for Canadian commodities exports, including oil."

The generally positive economic outlook for 2015 will drive improvements in rental market conditions. To some extent, the energy sector correction will register in Edmonton and Calgary's rental markets over the near term. However, much of the rest of Western Canada will see peak, or close to peak, performance continue.

  • In the industrial sector, occupancy rates will range close to the 95.0% mark, with slightly lower rates in markets with new speculative supply completions. Broadly tight conditions will push rents higher in most locales, although new supply will temper growth.
  • The multi-unit residential rental market will continue to thrive, given the varying degree of occupancy imbalance. In Vancouver, for example, occupancy sits at over 99.0%, helping to drive rents higher.
  • Retail rental conditions will continue to reflect the cycle peak, with established centres and high streets continuing to command the highest rents. Re-developments and expansions to profitable retail locations will make up much of the development activity in the coming year.
  • The office sector will continue to contend with the delivery of new supply in Western Canada's major centres, namely Calgary, Edmonton, and Vancouver. The resulting rise in vacancy levels will dampen rental rate growth. There is the possibility of more acute increases in vacancy levels if oil companies cut operations in Calgary and Edmonton and place excess space on the market.

In the 2015 Economic Outlook and Market Fundamentals Research Report released today, Morguard Corporation (TSX: MRC) ("Morguard"), provides a detailed analysis of 2015 real estate trends to watch in Canada. The full Report is available at

Highlights - 2015 Real Estate Investment Trends to Watch in Western Canada

  • Commodities-driven regions, like Alberta, will see a downshift in economic activity in 2015.
  • Cities with less of an economic focus on resources, like Winnipeg and Victoria, will post healthier economic growth rates in support of commercial property market performance.
  • The recent economic outperformance in the west will continue to drive re-development and expansion to existing retail shopping centres, and a measure of new construction in 2015.
  • Core property values will continue to stabilize at the peak, given strong demand.
  • Rental market performance will generally be positive in 2015, with the potential for softening in the Calgary, Edmonton, and Vancouver office markets.
  • The combination of new supply and a faltering oil sector will likely erode office market fundamentals in Calgary and Edmonton.
  • Construction activity will continue to increase in Western Canada over the near-to-medium term, with the largest additions to inventory in downtown and suburban office markets in the major western cities.   
  • Target's exit will open up opportunities for retailers that were previously unable to source premium space.
  • Investment returns will remain attractive for 2015, driven largely by income growth.
  • Largely positive investment and rental market fundamentals will attract capital to Western Canadian commercial real estate markets, with investors continuing to source yield in a region with solid long-term prospects.

Investment Outlook

Advancements in Western Canadian space markets will enhance investment performance in 2015. Western Canada will post a sixth consecutive year of commercial property investment market strength in 2015, in keeping with the national trend. Pension funds, private groups, institutions, and publicly traded groups will continue to scour the region for assets that deliver attractive yields. Values will continue to stabilize at the peak, driven by investor access to low-cost debt and equity funds, limited availability, and aggressive bidding. In addition, strong demand could push annual transaction volume beyond the long-term average of $7.5 billion, assuming enough assets are offered to the market for acquisition. 


The 2015 outlook for Winnipeg's commercial property sector is one of stability and modest growth, punctuated by a stronger rate of economic expansion. The catalyst for the healthier economic growth forecast will be a rise in manufacturing, construction, agricultural, and transportation and warehouse sector output. Overall, this strengthening will improve labour market conditions, business confidence and retail consumption. The result of the healthier economic outlook will be continued progression in the city's commercial property markets.

Winnipeg's commercial property market fundamentals are expected to strengthen in the coming year. Tight conditions will persist in the multi-unit residential, retail, and industrial sectors, with occupancy holding in the mid-to-high nineties. This imbalance will result in upward pressure on rents. The office sector will continue to register occupancy close to the 90.0% mark, limiting growth, with stabilization as the likely outcome. The stable rental market backdrop will drive investment market health. Income performance will make up the lion's share of investment performance in 2015. Demand will outpace the supply of core assets brought to market, in keeping with the sector trend. The city's characteristically stable economy and property market patterns will continue to attract investment in 2015.


Regina's commercial property market will continue to reward owners with strong fundamentals in the coming year. Rental market imbalance will continue to characterize the retail, industrial and multi-unit residential sectors, given some of the highest occupancy rates in the country. The office market will exhibit a relatively healthy balance, with the rise in vacancy to close to the 10.0% mark. Upward pressure on rents will be a fixture in 2015, in all sectors except office. To some degree rising construction costs will limit growth and relocations in rental markets in the coming year. Despite this obstacle however, rental market strength will support broadly healthy investment market fundamentals. A consistent investment theme for 2015 will be a shortage of product availability. Investors will be frustrated in their attempts to increase their exposure to a market that has typically provided attractive return and stable and positive income performance. Local and national investors will compete for a limited number of offerings, ensuring values hold at the peak. Regina's commercial property sector is expected to post another period of strength in 2015, despite the limited number of opportunities in both the rental and investment markets.


Stabilization will be the overriding theme for Saskatoon's commercial property market performance in 2015. The local economy will moderate in 2015, with forecast growth of just short of 3.0%, after more robust expansion rates over the past few years. To some extent, rental market performance will be tied to cyclical fluctuations in the mining sector. The office market will see limited growth in the coming year, after mining companies went through a period of expansion in 2012 and 2013. A similar trend will play out in the industrial sector, with new supply creating more balanced conditions than in the past. A stable and healthy economy will push retail sales slightly higher, supporting sales results and ongoing leasing market tightness. The multi-unit residential rental sector is expected to continue to exhibit peak conditions, as was the case in the past few years. Rental market stability and strength will factor into another year of solid investment market trends in 2015. On average, values will hold at the peak. Demand will outpace supply. On the whole, stability will characterize Saskatoon's property market performance in 2015, which will continue to position it as a solid market in which to invest. 


The resilience of Calgary's commercial property markets will be tested in 2015, in light of the plunge in oil prices. Economic forecasts have taken the oil malaise into consideration in downgrading growth projections. Output is expected to increase in 2015, at a rate closer to the national average than over the past few years. Expansion of between 2.0% and 2.5% is forecast, which will result in a more modest rate of progress for the city's property markets than in the past few years.

Calgary's commercial property sector will continue to gain ground during the coming year. Oil prices are expected to stabilize, which will reflect positively in property sector performance. After an initial slowdown in the office sector, punctuated by oil companies reducing occupancy, the market will show signs of stabilization. However, the continued delivery of new office towers could cause rental rate erosion. In the industrial sector, conditions will become more balanced, as oil and oil sector related companies react to the plunge in oil prices. Retail leasing conditions will be largely unchanged, while the city navigates what is thought to be a short-term slowdown for its economy. The multi-unit residential rental sector performance will see moderation, as conditions remain strong and stable. Stabilization in Calgary's rental markets will be a factor in the 2015 investment performance.  

Calgary's commercial property investment market should generate positive outcomes in 2015, despite an increase in performance risk. Investors will continue to look to Calgary for core property investment, taking a longer-term view. The strength of the demand environment will continue to hold prices at the cycle high, in keeping with a stabilizing trend that lasted through all of 2014. At the same time, income performance will be stable and healthy, resulting in attractive returns. Returns will continue to trend lower. Demand will outdistance the supply of core assets made available to the market, with some groups stretching on price in specific cases. Transaction volume will be tied to availability. In short, another period of positive fundamentals is forecast for Calgary's property sector in the coming year.      


Edmonton's economic and commercial property market linkages to the province's oil sands and broader energy sector will be a factor in overall performance in 2015. As a service provider to the energy sector, Edmonton's commercial property sector will be vulnerable to a prolonged crisis. However at press time, the impact was expected to be modest and fairly short term. Therefore, another period of moderately healthy property market fundamentals is forecast.    

The long-term view investors take toward Edmonton's commercial property will support investment market trends in 2015. There will continue to be an ample supply of capital funds allocated to all major asset classes. Therefore, the probability that values will hold close to the peak is fairly high. Competition for core properties brought to market will remain intense, even in light of any sector weakness as a result of the oil crisis. Assuming the recent crisis has a short lifespan, the region will return to a position of strength by the latter half of 2015.        


The outlook for Vancouver's commercial property market is relatively bright. Rebounds in the region's manufacturing and goods production sectors were expected to result in a moderately stronger GDP. As a result, the labour market improvements were expected and retail sales were also expected to support economic activity. The CMA's economy was forecast to expand by slightly less than 2.0% in 2015, which bodes well for commercial property sector performance.  

Vancouver's commercial property market is forecast to strengthen in the coming year, a performance that will be rooted in a more robust economic growth trend. Industrial, retail, and multi-unit residential rental market fundamentals will continue to range close to the cycle peak, which should result in modest increases in income generated. The nation's development cycle will impact office market characteristics, by creating increased balance. This will decrease the probability of material rental rate growth, on average, however the best and newest properties will be able to command higher rents. Generally, healthy rental market conditions will add to the justification for investing in this market.

Vancouver's 2015 investment property market fundamentals will be largely unchanged from those reported in the previous year. Cap rates will remain the lowest in the country for the major asset classes. Relatively speaking, acquisitions will be hard to come by. This market attracts a disproportionate share of foreign capital, in addition to the investors that are active in other Canadian cities. As a result, bidding on available assets will be aggressive. Investors will be hard pressed to achieve allocation targets for this market. Those who already have a position in the market will be rewarded with attractive returns in the coming year. Results will be closer to the western Canada mean, as results in Calgary and Edmonton trend lower. All in all, another period of investment market strength is anticipated for 2015.       


A firmer economic growth trend will drive commercial property market performance in 2015, following four years of modest expansion. In its fall forecast, the Conference Board of Canada was predicting a 2.1% lift in output, after economic growth of less than 1.0% in 2014. This should produce healthy commercial property performance in the next few quarters. Rental markets will remain relatively tight, although the recent delivery of new suburban office supply will put a damper on performance. The multi-unit residential rental market will remain in a position of imbalance, as tenants struggle to source vacant options resulting in upward pressure on rents. The retail sector will build on an already strong foundation, as will the industrial sector. Rental market performance overall will benefit owners and attract capital to this market. Therefore, broadly positive investment fundamentals in 2015 are anticipated, as the current phase of the cycle continues.

About Morguard
Morguard is a major North American real estate and property management company.  It has extensive retail, office, industrial, multi–unit residential and hotel holdings owned directly, or through its investment in Morguard REIT (TSX: MRT.UN) and Morguard North American Residential REIT (TSX: MRG.UN). Morguard also provides real estate management services to institutional and other investors. Morguard's combined real estate portfolio is valued at $15 billion.


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

For further information: K. (Rai) Sahi, Chief Executive Officer, 905-281-3800; Keith Reading, Director, Research, 905-281-3800


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