Investors continued to exhibit confidence in the multi-suite residential rental property sector in the second quarter.
Industrial property sales increased substantially, which drove overall Canadian investment property transaction volume significantly higher.
Canada's office leasing market witnessed a positive progression, due mostly to the pre-leasing of new supply.
Retail leasing activity increased as retailers sought high-quality physical spaces.
MISSISSAUGA, ON, Sept. 4, 2024 /CNW/ - The Canadian commercial real estate sector exhibited positive momentum in the second quarter, according to Morguard's 2024 Economic Outlook and Market Fundamentals Second Quarter Update ("Morguard") (TSX: MRC). The multi-suite residential rental property investment remained largely stable due to healthy fundamentals along with a surge in industrial investment property transactions in the second quarter.
"Both the commercial real estate and multi-suite residential rental sector exhibited a measure of resilience in the second quarter, which built on a solid foundation for growth," said Angela Sahi, President and Chief Operating Officer of Morguard. "With easing inflation pressures and encouraging signs of rate cuts, this positive momentum indicates that the Canadian real estate market is set to gradually rebound."
Looking ahead to the rest of 2024, further rate cuts by the Bank of Canada and a continued easing of inflationary pressure are anticipated. Investor confidence is expected to increase as monetary policy becomes less restrictive.
"Despite a weaker near-term economic growth outlook, real estate investors will continue to exhibit a measure of confidence in Canada's commercial real estate sector as evidenced by the uptick in transaction volume in the second quarter," said Keith Reading, Senior Director, Research at Morguard. "This confidence is expected to persist as the real estate sector gradually recovers from the effects of the most recent economic slowdown."
Multi-Suite Residential Real Estate Investors demonstrated continued confidence in the multi-suite residential rental property market during the second quarter of 2024, driven by the sector's strong long-term fundamental and positive near-term rent growth outlooks. Although borrowing rates remained high in the second quarter, investor optimism increased with the Bank of Canada's 25-bps overnight policy rate cut in June. Looking ahead, the multi-suite residential rental property market is expected to continue to exhibit stable and positive performance characteristics.
Commercial Real Estate Industrial investment property transaction volume rose in the second quarter of 2024, with sales of properties valued at $10 million or more increasing by 48.1% quarter-over-quarter across five major markets, driving overall Canadian investment volume higher. However, leasing demand patterns softened as industrial construction activity ramped up, leading to a rise in the national availability rate.
Canada's office leasing market showed positive progress this past quarter, primarily driven by pre-leased spaces in newly constructed buildings. Notably, Toronto and Montreal registered positive absorption in the second quarter through the pre-leasing of newly built spaces. This trend highlighted the preference exhibited by Canadian businesses for efficient and high-quality office space with access to an abundance of attractive amenities.
The retail leasing market continued its recovery, with an increase in new leasing activities as retailers seek high-quality physical retail space. However, the second quarter saw a slowdown in sales in the retail property investment sector, as institutional buyers remained selective and maintained a cautious approach in their acquisitions.
Economic Factors Canada's economy expanded at a modest pace during the second quarter, continuing the year-to-date trend. Economic activity tapered off due to the combined effect of high interest rates, elevated inflation levels, forest fires, and labour disruptions. Canada's economy will continue to expand at a modest pace in the second half of 2024.
A moderate level of inflation pressure was reported in the second quarter. Canada's Consumer Price Index rested below the 3.0% during the quarter, down significantly from the 40-year average annual high posted for 2022. Reduced near-term inflation pressure contributed to the Bank of Canada's rate cut decision of June 2024. Economic growth slowed during the second quarter and Canada's labour market continue to soften, both of which supported the Bank of Canada's decision to lower its key overnight rate. More rate cuts are anticipated in the second half of the year.
Released today by Morguard, the 2024 Canadian Economic Outlook and Market Fundamentals Second Quarter Update offers a detailed analysis on the 2024 real estate investment trends to watch in Canada. The full report is available at morguard.com/research.
About Morguard Corporation Morguard Corporation is a major North American real estate and property management company. It has extensive retail, office, industrial, 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 $17.6 billion.
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