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The past two years have left their mark on the Canadian Commercial Real Estate industry. The pandemic severely impacted the performance of every single CRE sector, but not always negatively – while retail and office sectors suffered some temporary losses, multi-family and industrial CRE thrived.
As we slowly return to normal, there is still a bit of uncertainty on how the market will respond. Still, we can adapt our investment strategies by analyzing the key factors that will shape Canadian CRE in 2021.
Demand and supply dynamics
Investors are taking advantage of low lending rates and inflationary fears to turn a profit while the market’s still hot. The demand for investment properties is rising, especially on the commercial front. However, the supply is lagging behind, making for quite a competitive Canadian CRE climate.
Office lease renewals
With the economy rebounding, experts estimate that office lease renewals will start going up. Still, the rising unemployment, the convenience of working from home, and vaccine mandates are likely to affect the rate of return.
Inflation and changing interest rates
Canadian CRE investors must keep a close eye on inflation and changing interest rates. Although it is estimated that inflation is just a temporary trend, if it grows, the government will be forced to raise interest rates and intervene in business loans.
Investor interest and adaptation
The pandemic has put much of Canadian investment capital on hold, but now tides are turning. Investors and lenders are putting money back into the market, reviving the Canadian CRE.
What is making the markets ever-more competitive is the adoption of technology, which has given investors access to real-time market data and allowed them to diversify their asset classes and expand to wider geographical regions.
Environmental, social, and corporate governance (ESG) could substantially impact the Canadian CRE markets than expected, especially now that the provinces are looking into ESG regulations.
ESG regulation would affect the tenants, the available rental space, and access to capital markets.
The abundance of capital
The past recessions were shaped by a severe lack of capital, but now during the pandemic, we’ve experienced an overabundance of capital. That is one of the main reasons why industrial, multi-family, curbside retail and similar sectors of the Canadian CRE continued to thrive throughout COVID-19.
Bank of Canada’s CRE valuation
Although many factors impact the value of Canadian CRE, it all ultimately depends on the Bank of Canada’s valuation. Investors should keep a close eye on the Bank of Canada’s actions and responses to gauge the best time to invest in CRE property.
Changing tenant expectations
Naturally, one of the main factors that shape the Canadian commercial CRE market is tenant expectation. New tenants will want the same convenience and overall customer experience as they received while working from home. Those that adapt quickly to the changing tenant expectations will have the highest chances of success in the post-pandemic markets.
The success of the Canadian CRE post-pandemic depends on an array of different factors. These factors could include Inflation, interest rates, wider adoption of technology, the amount of capital floating around, Bank of Canada valuation, and changing tenant expectations. Staying up-to-date on all these factors and latest developments will help predict how the post-pandemic markets will react and what to invest in next.