Today, Morguard Corporation released its 2020 Canadian Economic Outlook and Market Fundamentals Report, including a detailed report on the Greater Toronto Area (GTA) that predicts an increased demand for commercial real estate fuelled by projected positive economic and employment growth trends. The report outlines how a healthy job market and growth in the construction sector supported commercial real estate in the GTA in 2019, with the trend expected to continue into the new year.
The GTA is projected to maintain its stable economic growth trend through the next few years, projected by The Bank of Canada to grow approximately 2.5% between 2020 and 2023. These trends are pulling in demand from surrounding municipalities and regions, putting further strain on already inflated demand for housing and office space. The economic outlook section also touches on the thriving construction sector, which remained strong in 2019 and is expected to grow by another 3.4% in 2020, with much of this growth to be driven by the office market segment.
“Increased demand for office, industrial, and residential spaces combined with supply constraints across the board continued to add upward pressure to rent prices in the GTA,” reads a statement from Keith Reading, Director of Research at Morguard. “As of the midway mark of 2019, 9.3 million square feet of new supply were under construction. The completion of these projects in the near future is expected to provide some relief to the current supply shortage.”
2019 saw strong demand in the multi-suite residential asset class, resulting in a low rate of vacant residential units—below 2%—felt among both landlords and tenants. Competing bids from investors helped push above-average sales activity, including a a total of $1.0 billion in transaction volume reported during just the first half of 2019. Similarly, substantial growth was recorded in the industrial property class.
Healthy demand in the office leasing asset class remains driven by constraints in supply. Sales of $1.9 billion were recorded in the first half of 2019, in contrast to the $4.2 billion and $4.3 billion in transactions respectively reported after 2017 and 2018, and demand is projected to continue to outpace supply into the future. Among the office rental market, shared workspace and technology companies in the GTA were most active in looking for bigger spaces in 2019.
Brick and mortar retail has been struggling worldwide in recent years, though the retail asset class in the GTA has been showing signs of stabilization throughout 2019. Changes noted this year include an increased demand for new retail concepts, the expansion of discount and luxury brands and the growth of grocery stores. The $1.1 billion invested in retail properties during the first six months of 2019 is relatively low compared to the $2.9 billion transaction volumes from 2017 and 2018.
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