- What Multifamily and industrial were the top-performing sectors in Canada
- Why Strong population growth and limited land are driving demand
- What’s next Builders are leaning into high-density and mixed-use development
A shortage of housing across Canada is prompting builders and developers to focus more on purpose-built rentals, sometimes at the expense of new residential condominiums and commercial builds, RE/MAX Canada said in a report out today.
In its Commercial Real Estate Report for 2024, the firm found that multifamily and industrial were the top-performing asset classes in the 12 markets examined. Those were followed by retail properties in eight out of 12 markets.
The report highlighted several trends, notably that purpose-built rentals were the main focus in all 12 major urban centres analyzed.
Student housing and seniors’ residences were a secondary focus, thanks in part to the federal government’s decision to cancel the GST on new residential construction.
With limited land available and significant population growth in cities, builders are choosing to build up, leaning into high-density and mixed-use development. RE/MAX noted that owners of malls and shopping centres are considering adding residential and mixed-use components.
Tight inventory is driving strong demand for industrial space across Canada, in particular in Hamilton, Halton, Niagara, Newfoundland and Labrador, and Halifax.
Affordability within urban areas is pushing some businesses to consider industrial property on the outside of cities. For instance, large areas of industrial land are hard to come by in Vancouver, forcing some business owners to look as far away as Alberta and even parts of the U.S.
High commodity prices are boosting farmland values in Saskatchewan, as large agricultural corporations buy up land. The price per acre of farmland in the province grew 15.7% year over year, the highest in Canada, according to the FCC Farmland Values Report.
RE/MAX said the vast majority of these deals are cash purchases that do not require financing, and they’re more often than not sold through word of mouth.
The hospitality industry is on the upswing in many parts of the country, after the pandemic depressed the sector for years.
In Halifax, for instance, RE/MAX said that room rates have tripled and existing hotels are expanding, with some prominent hotel chains entering the market, including Moxy Halifax Downtown.
The conversion of commercial office buildings is another trend playing out across Canada.
In Calgary, 17 residential conversions are either completed, underway or planned, while Winnipeg, Halifax and Ottawa have approximately 15 conversions in the works total. Edmonton, Toronto and Vancouver, however, have been much slower, though several are in the works.
The office sector in downtown cores has shown little sign of improvement, with availability rates continuing to climb in most markets in Canada, in particular in class B and C buildings.
Toronto’s office segment continues to be a drag on the commercial market, with availability rates edging up to 18.3% in Q1, according to Altus Group. Flight-to-quality, work-from-home and construction along main transportation routes is having a negative impact on office space.
An outlier appears to be office condos, with end users driving demand. RE/MAX said the trend has gained momentum and is expected to become more mainstream.
“Density, population growth and the housing crisis remain significant factors influencing market activity, but a variety of drivers will have an ongoing impact on the Canadian commercial real estate market moving forward,” says RE/MAX Canada president Christopher Alexander.
“This includes economic performance; interest rates; incentives and development policies, processes and fees; tax policies; construction costs, land costs and servicing; labour shortages; housing affordability and availability; revitalization efforts and hybrid/remote work policies; social issues and more. Diverse market dynamics exist, but overall improvement is expected to characterize conditions and demand as 2024 progresses.”
