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Commercial rent trends in Canada: What to expect for the balance of 2023

The commercial market is currently going through major shifts that will impact the rest of the year.

Staying updated with real estate market happenings isn't an easy task especially at a time when things are changing day-to-day.

In similar fashion to the residential market, the commercial market is currently going through major shifts that will impact the rest of the year.

For your convenience, we've rounded up some of the most important commercial and retail rent trends in 2023.

Changing prices

In the wild world of commercial real estate, a major trend has emerged that has left both buyers and sellers scratching their heads: pricing discrepancies.

Owners are demanding top dollar for their properties, while buyers and tenants are hesitant to pay the steep prices.

This trend is particularly pronounced in sales, but it's also affecting leasing.

The trend is due to many factors, including interest rate increases, high inflation and global geopolitical uncertainty.

This uncertainty is causing everyone to be cautious, prolonging the process of determining the true value of a property.

Not all segments of commercial real estate are experiencing the same pricing problem, however.

Industrial properties remain hot commodities, with near-zero vacancy rates driving up competition and prices in Toronto and Vancouver.

Meanwhile, office properties are still in flux as companies struggle to determine their post-pandemic office needs. As a result, there has been an uptick in office subleases hitting the market.

Earlier (in December), Shopify caused a stir when it announced it wouldn't be using its new 348,000-square-foot office space in downtown Toronto and would instead be subleasing it.

This could be a trend we expect to see more of in the future, although its prevalence will vary across industries. For instance, some large companies like Deloitte and Google have recently expanded their Canadian office space.

On the retail front, the segment has made significant strides since pandemic measures have eased and in-store shopping has resumed.

However, investors are still trying to find ways to compete with the rise of e-commerce and entice shoppers back to physical stores.

Which areas are affected the most?

According to CBRE's Canada Retail Rent Survey, rent prices in the Western provinces saw the most extensive increase as all cities located west of Winnipeg reported at least two rent hikes.

The cities of Saskatoon and Vancouver were the most affected, with six of their key urban areas experiencing rental rate increases.

Demand for high-tech properties

Another trend we can see in the commercial property market is a shift towards high-tech features, such as property technology, that prioritize environmental sustainability, social responsibility and cybersecurity.

In the realm of office spaces, companies are looking for setups that can cater to remote workers and accommodate desk hotelling.

Staying competitive in this fast-changing landscape requires adapting to evolving market conditions and client needs, but rather than being intimidated by the idea of constant change, you should approach it as an opportunity for growth.

In fact, times of uncertainty often provide the best lessons and potential opportunities.

Differences between investors

In the market, we now see a clear divide between those who have ample capital and those who don't.

While some investors are strategically waiting for the right opportunity, others are struggling to move their projects forward due to rising interest rates and tighter borrowing requirements.

However, financial hurdles, such as mounting construction and labour costs, are posing a challenge for all developers. This is something that should be taken into account for the rest of the year.

However, don't let this discourage you. To overcome these obstacles, it's important to think outside the box and get creative with your financing and project costs.

This could mean offering more free rent, providing more tenant inducements or even lowering rent escalations to entice tenants.

In short, those who can adapt and be inventive will be the ones who succeed in the real estate industry, as history has shown.

Although Canada is still facing economic challenges, the retail industry and its members are optimistic as they head into the new year – this is another key finding of the Canada Retail Rent Survey.

2023 – a promising year for the multi-suite residential rental sector

At the beginning of the year, Morguard released its Canadian Economic Outlook and Market Fundamentals report for 2023.

According to the report, things are looking optimistic for the multi-suite residential rental sector.

That doesn't come as a surprise since the market remained steadfastly confident throughout 2021 and 2022 despite the heightened risks.

End notes

With many changes in the commercial real estate market, 2023 is bound to be an interesting year.

The surprise may come shortly.

Will the Bank of Canada raise interest rates in Q2 to slow inflation? Bond prices have seemingly already priced this in.

Follow Richard Crenian’s blog to stay updated on all the latest news.


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