Canada's Commercial Real Estate Sector Poised for Growth in 2022
The worst of the impact of the pandemic on commercial real estate appears to be behind us as Canada accelerates toward its pandemic recovery and economic growth.
Earlier this year, Morguard, a Real-Estate industry leader, released their 2022 Annual Canadian Economic Outlook & Market Fundamentals Report. The report details how the pandemic ravaged the industry and its returns and how the industry expects to stabilize and rebound throughout 2022.
I’ll be taking you through all of the report’s key points regarding the commercial real-estate sector, but the complete information can be found at the link above.
Let’s begin by painting the picture of where we’ve come from to appreciate and assess our progress:
As a whole, the real estate industry experienced year-on-year losses of just under 5% (on property returns) due to the pandemic. Those within the commercial sector experienced more of a severe beating, with losses reaching 15%.
These losses can be attributed to the fact that many retailers were forced to develop pick-up and delivery methods to maintain some form of revenue. This particularly affected retail properties within the restaurant industry, as restaurant owners switched their attention toward smaller and less-costly properties that were not concerned with in-person dining.
Retail businesses that we’re unable to survive the effects of the pandemic were forced to close, while those that hung on faced great uncertainty over how much longer they’d survive. Consequently, demand for and length of lease renewals significantly dropped.
As more and more businesses began to close, vacancy rates were driven higher.
Investment in the commercial sector similarly took a bashing. Relatively few significant transactions occurred throughout the pandemic as investors appeared hesitant to purchase assets during times of such uncertainty.
This was further compounded as the owners of retail properties were reluctant to sell their assets in a down market.
Bad news over, now time for the good stuff.
Morguard’s report explains how fundamental market indicators for the commercial sector are expected to stabilize and rebound. And to be honest, it’s easy to see why.
Government interventions such as the Canada Emergency Rent subsidy, the Canada Emergency Wage Subsidy, rent abatements, and deferrals all contributed to helping prop up the sector. At the same time, the pandemic tried its best to drag it down.
But most significantly, we’re experiencing a nationwide lifting of pandemic restrictions.
Non-essential stores, restaurants, and the retail industry are opening up and (dare I say it) returning to ‘normality.’
The return of in-person dining will cause restaurant owners to switch their attention to larger, more accommodating properties.
An increase in revenue is also forecast as society attempts to release its pent-up demand for in-person dining and shopping experiences.
This boost in revenue will provide commercial landlords with an increase in rent collection and income, helping to bolster confidence in the retail real-estate sector and pave the way for an increase in the length of lease extensions.
As market conditions gradually stabilize, investors will be enticed back, and the owners of retail properties are likely to become increasingly open to the prospect of a sale.
So, after an unprecedented period of mask-wearing and economic carnage, the adverse effects of the pandemic are set to be reversed by the re-opening of society. This places the commercial real estate sector in a poised position for a period of growth and prosperity.