Although the pandemic dealt a significant blow to the real estate industry as a whole, commercial real estate bounced back quickly in 2021, with slow improvement throughout the year.
While some areas of Canada and other real estate sectors continue to try and improve the rate of leasing, investors have seen a rosier picture emerge for their investments, especially in commercial real estate.
Those are among the findings of a new report from Morguard, which predicts that 2022 will see continued growth of commercial real estate in Canada. While the year has just started, there are already signs for optimism, according to the 2022 Canadian Economic Outlook & Market Fundamentals Report, which provides important insights about how and why the commercial real estate market will stay strong in 2022.
Following the economic reopening of Canada’s economy after the worst of the pandemic, Morguard’s report gives detailed analyses of what happened with the market in 2021 as well as trends to watch for 2022.
It found investment performance remained strong in 2021 for industrial and multi-suite residential rental properties, among other conclusions.
A Rebounding Economy
The report forecasts improvement in Canada’s economy overall, improving from the pandemic rebound that started in 2021. The economy’s output should rise between 4 and 5 per cent on an annualized basis, the report said.
It also found that:
- The services sector could be a significant driver of growth in the coming year, following stronger expansion in the goods production sector from the earlier phases of the pandemic.
- In 2022, the country’s labour market will strengthen, driven by the largely positive economic growth trend.
Retail Will Rebound
Retail should enjoy continued recovery and growth in 2022, the report found. Specific findings include:
- On-going restrictions for in-person shopping contributed to reduced activity for the retail sector in 2021.
- However, performance patterns will likely improve this year, as governments reduce pandemic restrictions and shoppers slowly return to retail centers.
- Retail consumption and housing market activity will support economic growth in 2022, following similar trends of upward performance for the commercial real estate sector.
Investment in Demand
The demand for investment has actually surpassed supply as the real estate sector’s sustained strength has maintained the interest of investors, the report said.
The report found that:
- Investment activity in the office segment in 2021 was relatively muted given the uncertainty of when pandemic restrictions would lift.
- A total of $1.9 billion in office property sales was reported in the first half of 2021, down 37 per cent year-over-year from the $3 billion reported in the same period in 2020.
In general, investors looking for income and an inflation hedge should consider commercial real estate.
“We think it’s a good time to invest in real estate,” Brookfield REIT CEO Zach Vaughan said in an article from Advisor.ca. “Remember, you actually own the underlying asset. You own the underlying land and improvements too, and good quality land also appreciates above inflationary rates over time.”