Real estate has never been a more fascinating and complex industry than it is today.
From turbulent markets to new technologies to ongoing pandemic impacts — there’s plenty of reasons that real estate has become a fast-moving industry requiring constant agility and attention to detail for those interested in maintaining their ability to conduct business.
Here are some of the biggest Canadian real estate stories of the last few months, compiled here for your convenience.
Climate Becomes Bigger Issue
Climate change has become an important issue for real estate investors in parts of Canada and the US, according to a new piece from The New York Times.
Across the US, especially in coastal regions like Boston and South Florida, development has boomed despite the lingering pandemic and increasingly dire reports from agencies like the National Oceanic and Atmospheric Administration and the United Nations Intergovernmental Panel on Climate Change.
But while extreme weather seemingly hasn’t slowed the speed of construction in fast growing areas, commercial property insurance rates have risen significantly over the last two years, the article said. While investors have often relied on insurance to absorb a property’s risk, many of them are realizing they can’t rely on insurance companies.
From the article:
“The bigger players get it; they’re concerned,” said Jim Clayton, a professor of real estate at York University in Toronto and co-author of a 2021 U.N. report on climate risk and commercial property values. Some of those larger investors, particularly in Europe or Canada, are reconsidering certain markets altogether.
Industrial Space Grows in Popularity
The first quarter of 2022 has already shown strong growth over the last quarter of 2021, and industrial space is becoming the “hottest thing” in commercial real estate, Colliers Canada CEO Brian Rosen said in a recent interview with The Financial Post.
For industrial spaces, the vacancy rate is under 1 percent across much of the country, Rosen said, especially in major industrial centres like Montreal, Toronto and Vancouver.
“It is really putting a lot of constraint on supply of industrial assets, and is having a net increase in the rent rates,” Rosen said.
In addition, there’s been variability in the strength of office and retail depending on the province and its reopening strategy. Vancouver has stabilized more quickly as people returned to normalcy faster with the rollback of social distancing and other restrictions, while Toronto has seen a slower return to normal, Rosen said.
“It’s still too early to say if there’s been a fundamental shift in the office class,” he said. “In industrial, the trends that were in place prior to the pandemic were just accelerated. There was a shortable of available land and supply in addition to a vacancy that was extremely low. That’s been exacerbated by the increase in need for industrial space.”
Bank of Canada Raises Interest Rates
In April 2022, The Bank of Canada decided to raise interest rates, which could have a major impact in the months ahead on the country’s real estate industry — currently Canada’s biggest economic engine.
According to The Motley Fool, The Bank of Canada has initiated its most aggressive rate-hike policy in decades. In the past, the key interest rate was held at about 0.25 per cent, but in early 2022, the central bank raised it to 0.50 per cent. That was doubled in April to 1 per cent — the biggest spike since May 2000.
More rate hikes could be on the way. In an additional announcement, the Bank of Canada said that it expects inflation to remain elevated for the rest of 2022 and perhaps into 2023.
“To tame this wave, interest rates need to rise higher. That means we could see another 0.50% move in the next meeting on June 1,” The Motley Fool wrote. “Meanwhile, commercial real estate has lived through a severe downturn and could have less downside risk than the housing market.”
In summary, commercial real estate remains strong across Canada and will likely remain a smart bet for investors for the foreseeable future.