An air of optimism reigns in Atlantic Canada’s relatively stable commercial real estate industry heading into 2025. That was a theme of CBRE’s recent Atlantic Market Outlook event and was evident in a RENX interview with CBRE Halifax executive vice-president Bob Mussett.

“We don't have the peaks and valleys that are experienced in other markets,” Mussett said. “We don't go as high in the frothy times and we don't tend to go as low in the negative times.”

That's in part due to the fact the region has a broad economy, several higher education institutions, and a military infrastructure in Halifax which employs 30,000 people who contribute significantly to a relatively small economy.

With a focus on Halifax, he provided an overview of the market and the past 12 months in the major commercial real estate sectors.

Retail

Despite facing elevated interest rates and moderated consumer spending, Atlantic Canada’s retail sector remains robust. 

Bricks and mortar retail has shown good strength, particularly grocery-anchored sites, which along with enclosed retail projects are seeing increased financing activity.

With vacancy rates at record lows, retailers are facing stiff competition to secure prime locations. This has led to higher rents and more aggressive leasing terms in favour of landlords.

“There's been very little development and the retailers that survived the last number of years, as the whole industry pressed the reset button, have figured out how to be relevant to their clients,” Mussett said. “There's an under-supply of space because everything's been on hold for at least five years, so we're seeing rents and demand increase.”

While Mussett said the sector is tightly held in Atlantic Canada and doesn’t see a lot of trades, some major transactions have happened over the past year.

Westcliff bought Champlain Place, just outside Moncton, N.B., last month. Leyad purchased North Sydney Mall in North Sydney, N.S. and Wheeler Park Power Centre in Moncton over the past year. Primaris REIT acquired Halifax Shopping Centre and the Annex late in 2023.

Industrial

Pent-up demand for industrial space has eased with the completion of larger projects delivering a record-breaking amount of new supply this year, and a significant amount of construction is still underway.

“We've seen some spec building, with 28- to 30-foot clear height, best-in-class industrial that's just going into lease-up now,” Mussett said.  “On the sales side for industrial, it's closely held and performs very well. We get involved in the odd portfolio from time to time, but now isn’t one of those times.”

A severe lack of new industrial development land is causing land values to hit new highs. Construction costs are also elevated so rents are expected to continue to rise in the near term.

While leasing has slowed, Mussett said end-users are starting to make decisions about expanding or leasing new space again after delaying for the past while.

Multifamily

Mussett said condominiums comprise just five per cent of the Halifax multifamily market, which has always been apartment-focused.

“If you look at the larger REITs and institutions that like multifamily, Halifax is one of the best-performing markets for them,” he noted.

Despite record numbers of multifamily starts in Halifax, supply still lags drastically as vacancy and turnover are at historically low levels while absorption and rental growth remain strong.

“Vacancies are under one per cent and, even with the pullback on immigration and foreign students, we're still under-serving the market,” Mussett observed. “One per cent is a little too tight for a healthy market when there's no rollover.” 

New construction has been hindered by lengthy approval times, a lack of labour capacity and construction cost acceleration, even with the removal of the harmonized sales tax on purpose-built rental apartments. This has also contributed to slowing a formerly active transaction market.

“There is a pricing disconnect on the sales side for multifamily, and a very well-capitalized group of owners in Atlantic Canada holds that product,” said Mussett. “As we've seen construction costs go up by probably 30 per cent, cap rates have spiked a bit. 

“So if you're selling something now at a five cap, it’s well below replacement cost. If you don't need the money, why would you sell?”

Office

Halifax is outperforming the rest of Canada in terms of office space absorption and vacancy continues to trend downward as the market works through new supply from the past seven years. This includes large developments like Nova Centre, Queen’s Marque and Westway Park Corporate Centre.

The sector has experienced an unexpected increase in appetite from both investors and lenders. This is expected to grow and lead to increased capital allocation in 2025, though lenders are expected to target class-A office space.

Suburban assets comprise about two-thirds of the Halifax market, which differentiates it from most major Canadian cities, and the vacancy rate is below 10 per cent. These properties, particularly those with government or healthcare tenants, are expected to continue to outperform downtown buildings that have a vacancy rate of around 18 per cent. 

Mussett expects to see more office space built in Halifax’s suburbs, with rents at or above buildings in the core.

Some downtown office buildings are being converted to multifamily, including the 14-storey Centennial Building, which is taking some stock out of the market. Sidewalk Real Estate Development is transforming the structure to house 141 residential units as well as 75,000 square feet of retail and office space.

Other Atlantic Canada markets

“Moncton is still very much a leader when you look at centres around Atlantic Canada,” said Mussett. “Its geographic position is almost right in the middle of the region so we're seeing increased growth in the industrial sector there, and it's got a strong retail sector as well.”

Mussett said CN has been in talks to expand Moncton’s port facilities to make it a more desirable cross-shipping and logistics hub.

Moncton has seen multi-family development and that sector has been performing well. The city’s office market has been softer than Halifax’s but Mussett expects to see it improve.

His analysis was provided prior to the announcement late last week that Montreal developer Montoni Group has partnered with Expansion Dieppe to develop up to two million square feet of new space at the Dieppe Industrial Park just outside Moncton. Although no timeline was provided for construction, Montoni told local media it has several prospects interested in expanding or moving into the park.

A large wind farm and hydrogen project being built in Stephenville, Nfld. will create clean energy and employ thousands of people.