The Latest from Canada Research

Written by Jenna Collignon, Staff Writer at Matrix Group Publishing

Canada has, thankfully, climbed out of the economic hole left by the COVID-19 pandemic, with real GDP surpassing pre-pandemic levels for the first time in November 2021.  The growth should remain robust as we continue throughout 2022; however, we are still far from the end of the COVID-19 pandemic.  So what does this mean for Canada’s commercial real estate landscape?

Economic Outlook 

Now that Omicron has taken the reins, the strong momentum that the Canadian economy is following currently is unlikely to continue.  Fortunately, though, there is believed to be a less negative impact of this variant than the more severe Delta variant – though the first quarter of 2022 is expected to have weaker GDP growth, it is also expected to return to grow in later quarters as the COVID-19 pandemic governmental restrictions are relaxed Canada-wide. 

Inflation remains alarmingly elevated – which is driven by transitory factors, including supply chain disruptions that increased the price of goods to near record levels.  As Canada’s economy reopens again and consumer spending gradually shifts back to services, the balance will result in demand for goods to decline.  The CPI is expected to move back toward the Bank of Canada’s two per cent target by the end of 2022.

Because of the elevated inflation, the tighter labour markets, and the favourable financial conditions and signs of housing market frothiness, the Bank of Canada is being pressured to begin tightening their monetary policy.

Office Outlook

The Canadian vacancy rate has continued to arise, albeit at a slower pace.  Despite a general consensus among most tenants that they need their office space for a variety of reasons, there has been a fundamental shift to a flexible working situation.  Many companies have realized that quality office space is a draw and is often necessary for the workplace culture and have since taken the time to ensure that their office space does reflect their needs.

Pre-pandemic levels of the vacancy rate for the Canadian office market showed that approximately 6.6 million square feet of vacant sublease space in the major Canadian office markets in Q1 2020, which reached an all-time high of over 13.5 million square feet in Q3 2021, and lowered to just over 13.1 million square feet in Q4 2021. 

Thought it was expected that a mass return to the office would come prior to the end of 2021, the Omicron variant threw a wrench into that idea.  Trying to be optimistic, however, many are taking on a “wait-and-see” approach to the health and safety of their workforce at the moment, and though we may never return to normal, it is expected that the Canadian office market will continue to prove its resilience.

Industrial Outlook

The vacancy registered a fresh historic low as occupancy costs accelerated throughout 2021.

Throughout 2019 and 2020, the national vacancy rate was already very low, resting in the 2.6 per cent to the 2.7 per cent rate.  2021 marked a year of even tighter market conditions, and the vacancy rate compressed to a new historic low of 1.6 per cent. 

Landlord favourable conditions were present in all major markets across the country, and as vacancy rates approach negligible levels, the runaway for further declines in most markets is limited.  However, with vacancy rates sitting below two per cent, rental rates have increased notably across the country in the last quarter of 2021. 

Industrial sales prices have also been on a similar trajectory.  The average sale price for industrial assets across the country was over $212 per square foot in the fourth quarter.  This represents a notable 20 per cent year-over-year increase, which is a stronger rate of increase than previously seen in ratel rates in 2021. 

Construction has continued to increase across the country as vacancy rates hit historic lows, and occupancy cost hit record highs. 

Retail Outlook 

The Canadian retail leasing market should successfully navigate the Omicron uncertainty wave.  Although in late 2021 and early 2022 several provinces reintroduced lockdown restrictions that hinder retailers’ ability to make plans, leasing activity is nonetheless expected to increase with the arrival of, hopefully, a more stable second quarter.

Retailers and landlords are now familiar with the restricted measures placed upon them and what they entail.  The federal government has also put into place emergency programs to assist the most impacted businesses. 

Since we’re going into year three of the COVID-19 pandemic, shoppers are less hesitant and much more confident in their purchases.  Many businesses have updated their online platforms, which has allowed for ease of shopping and flexible methods to cater to the varying levels of shoppers’ hesitancy. 

In the rest of the first quarter of 2022, rent should see their recovery trajectory slow, however they could quickly resume in the event of a short Omicron wave. 

You can check out the 2022 Canadian Real Estate Outlook for a more detailed look on all these outlooks across Canada, and how the statistics for local markets and trends are panning out by following the link, HERE.

Jenna Collignon

About the Author

Jenna joined the team in 2019, fresh out of the University of Manitoba with a Bachelor of Honours English Degree.  She had to attend the (excruciatingly) long convocation to receive her degree, all the while wishing she was back in office!  

When asked what she most likes about her position as an editor at Matrix, she has trouble answering. “That’s because,” she says, “what ISN’T there to like?  There is something new on my plate every day, with new challenges and lessons to be learned along with that. It also doesn’t hurt to be part of such a great team.”

Jenna is ready for whatever this job throws at her.  Her interest has always been English literature, writing, and editing.  She has been pursuing projects in the creative writing sphere almost her entire life and is incredibly happy to be exploring the technical aspects of writing and editing behind-the-scenes with this position.