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Reports forecast CRE trends in Canada, major cities: AY

Canada’s commercial real estate market should continue to benefit from the country’s “solid econo...

IMAGE: The Avison Young 2020 Forecast for Canada examines CRE trends across the country. (Courtesy Avison Young)

The Avison Young 2020 Forecast for Canada examines CRE trends across the country. (Courtesy Avison Young)

Canada’s commercial real estate market should continue to benefit from the country’s “solid economic fundamentals and a stable economy,” according to Avison Young’s Global 2020 Real Estate Forecast reports released this week.

“Though uncertainty remains on the minds of occupiers and investors in the extended financial and real estate cycles, fundamentals will continue to outweigh fear, at least in the near term,” says the global real estate services firm in its Canadian executive summary.

The Canadian reports include a national overview of trends and sector outlooks, as well as separate forecasts for nine of the country’s largest urban markets. Combined, they contain 54 pages of analysis and insights by sector, trend and city.

Calling Canada “the envy of G7 countries during the prolonged financial and commercial real estate cycles,” the national report cites a series of factors for its relatively buoyant 2020 outlook.

Canada’s CRE trends for 2020

The country:

* will continue to grow its knowledge-based economy;

* is experiencing significant population growth which drives activity in several CRE and real estate sectors;

* remains a magnet for industrial and commerce growth;

* and continue to draw strong interest from investors, primarily in the gateway cities such as Toronto, Vancouver and Montreal.

Among the potential concerns cited in the report are geopolitical uncertainties and trade issues, housing affordability in major cities, and high household debt levels.

It also notes the labour market, which has been a “catalyst for the property markets” might be losing steam as a driver for continued growth.

On a nationwide basis, Canada’s office sector saw significant tightening in 2019, with vacancy down 140 bps to 9.9 per cent, a trend expected to continue on a “modest” basis in 2020.

Leasing rates remained highest in Vancouver ($52.75 average asking rates per square foot) and Toronto ($43.02). The nationwide average was $32.36.

Booming industrial sector

The industrial sector continues to boom, with a national vacancy rate of just 2.3 per cent which is forecast to dip to 2.1 per cent this year. This dip could come despite a pipeline of 22.2 million square feet under construction, which would add about one per cent to the national inventory.

Retail remains “anything but stable” and an area of caution, the Avison Young report says. The combination of “bricks and clicks” retailing is causing a continuing transformation, and in major cities skyrocketing taxes (due to reassessments) are severely impacting some retailers.

“However, not all is doom and gloom as retailers and landlords continue to invest heavily in their assets and in analytics to enrich the customer experience,” the report says.

A continuing influx of international retailers is also buoying the sector. 

Avison Young also provided 2020 forecasts for nine major Canadian cities. Here are highlights for each, working roughly west to east:


Office and industrial vacancy rates will remain at record lows. In the office sector, rents will achieve “record highs” with no significant new space coming on stream until about 2022.

The trend toward industrial strata is expected to accelerate due to low interest rates, high land costs and rising lease rates. Most space coming on stream is pre-leased or pre-sold, so vacancy rates will not ease 

Overall CRE investment is forecast to accelerate.


The city’s GDP growth is forecast to reach two per cent in 2020, but  depends on “tangible progress” in new oil pipeline construction.

The office sector could top 24 per cent vacancy, after a two per cent rise to almost 23 per cent in 2019.

Industrial remains strong with six million square feet added in 2018-’19. If absorption continues, driven by ecommerce and distribution centres, new construction could be in the offing.

Retail big-box openings declined due to the uncertainty, but as Calgary’s population grows, local service-based retail has not kept pace.


A diverse economy will continue to shrink downtown office vacancy, even if the new UCP government executes plans to reduce spending by 2.8 per cent. If class-B and C office conversions continue, and oil pipeline construction accelerates, it will aid that trend.

Interestingly, Alberta has the most retail cannabis stores open since legalization, a benefit to retail leasing.

On the investment side, “smaller strip centres” are in demand, while core grocery-anchored product is scarce. There is also “unquenchable” demand for modern industrial buildings and high-rise multires.


The city is being hit by a double whammy: “Declines in prices for crude oil, natural gas, potash and uranium and China’s temporary ban on imports of canola and soybeans are impacting the provincial economy.”

After a 110 bps decline in 2019, government and business cuts could push office vacancies above 13 per cent in 2020. Industrial construction will slow due to reduced demand and leasing rates, but retail has remained stable with strong activity in the cannabis and liquor sectors.


A reputation as one of Canada’s most stable markets is expected to continue in 2020. Significant office and retail construction continues, but interestingly vacancy and rents are forecast to increase in both sectors in 2020.

Retail is being driven by the arrival of numerous new U.S. chains.

Industrial construction remains strong, but absorption is also strong leading to a forecast 2.5 per cent reduction in vacancy rates.


Demand from occupiers and investors still exceeds supply, especially for industrial, multifamily and office space.”

Office vacancy is at 2.2 per cent downtown, and the 10 million square feet under construction is largely committed, so leasing rates are expected to continue to rise.

There is 20 million square feet of industrial under construction, but that is insufficient to meet current rising demand levels and with vacancy already at a historic low of 0.7 per cent, rates are forecast to continue rising.

Tax hikes are hitting some segments of Toronto’s robust retail sector, though a strong mixed-use development trend means a continuation of both (moderately) increased vacancy and rising leasing rates.


The city-wide office market is seeing positive net absorption, driven largely by its thriving tech sector.

Industrial leasing rates remain among the highest in Canada, with little new product on the horizon.

A series of mixed-use developments on existing shopping centre sites is creating new live-work-play environments, while several purpose-built rental developments will boost lagging apartment supply.

Ottawa continues “attracting more than its fair share of investor interest for all classes of investment-grade assets.”


After years of decline in office vacancy to about 10.5 per cent, the sector is expected to stabilize somewhat in 2020.

So is office investment activity, which hit $1.6 billion in 2019. Employers continue to face challenges finding skilled employees, with the city’s unemployment rate down to 5.7 per cent.

A lack of modern industrial facilities with ceiling heights above 30 feet will continue to impact that sector, as land for new development also remains on the Island of Montreal.

Retail leasing rates are forecast to continue their climb, though vacancy might also rise as construction activity levels off.


Manfacturing and construction continue to fuel a mini-boom, driven by population and job growth.

The downtown office market continues to struggle with 20 per cent vacancy, but industrial remains strong (down 100 bps in 2019 to 8.3 per cent vacancy).

Office absorption could improve due to growth in financial, insurance, real estate and tech (life sciences, energy, clean tech and IT).

Numerous multires projects, combined with a new convention centre and the Queen’s Marque mixed-use project, see the downtown dotted with cranes.

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