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Cushman & Wakefield Hosts Inaugural The State of Real Estate in Toronto

TORONTO, May 5, 2017 – Cushman & Wakefield’s inaugural The State of Real Estate event highlighted unprecedented investor demand for Canadian commercial real estate and took a deeper look into global and U.S. economic drivers and changing market fundamentals post-oil crisis that influence the current and future state of the Canadian marketplace.

Global / U.S. Economic Drivers 

Kevin Thorpe, Chief Economist, Global Head of Research for Cushman & Wakefield lead an informed discussion that examined the global and U.S. economy and how it speaks to the Canadian commercial real estate landscape. According to Thorpe, the global economy is strong, and despite cycle length, growth will accelerate and demand for commercial real estate will remain healthy across most major markets and product types. Momentum in equity markets will create a positive wealth effect, linking to stronger consumer spending and creating job growth that will fuel demand for more real estate space. Where lies potential for risk is in the European elections results, labour markets nearing full employment, housing affordability pressures, and fiscal policy.

“Economic growth is accelerating in most regions of the world,” said Thorpe. “This is a strong indication that global demand for commercial real estate space will remain very healthy. However, labour markets have tightened substantially, and in time, we will soon see greater signs of inflation, and higher interest rates. This will put pressure on cap rates and values, but the silver lining to rising interest rates is that it typically signals stronger net operating incomes.”

The U.S. and Canadian economies are inherently joined. Trade between the two countries will remain an important driver as 33% of Canada’s GDP is exports. Despite Trump challenging NAFTA, Thorpe notes political incentives will most likely influence a continued friendly relationship. Vancouver, Montreal, and Toronto should continue to see positive growth across industrial and Central Business District (CBD) office markets into 2017 and 2018. Oil prices are firming and expected to rise going forward, which will create a positive outlook for Calgary and Edmonton. 

Overall, the Canadian economic outlook is trending upwards with continued, steady growth. The employment outlook remains positive as well, as Canada has three markets ranked in the top 25 for future job growth – #10 Toronto, #24 Montreal, and #25 Vancouver. 

Canada’s Outlook

Stuart Barron, National Research Director, Canada, examined the changing dynamics of Canadian gateway markets pre-and-post oil decline and the impact on the office and industrial sectors. 


Prior to the oil decline, Calgary and Edmonton were the fastest growing markets in Canada, where Calgary grew by 5.5%, or 6 million square feet (msf), and Edmonton was buoyed by oil price strength. Vancouver’s resource sector bolstered unexpected positive growth during this period. Toronto and Montreal experienced weak fundamentals, though, as confidence in these markets was shaken by weakening global economic conditions, including the banking crises in Europe. 

Post-oil price decline, the western Canadian energy markets showed surprising resilience. Calgary in particular was strengthened by the impact of ecommerce and is quickly becoming a hub for large national and international distribution logistics companies because of its prime location to access western Canada. This distribution growth, which has embraced consumer goods and food-related distribution, more than offset weak demand from the energy sector, and overall growth in Calgary remained strong with positive absorption over the post-oil price decline period of 2.9 msf. 

The non-oil producing markets, particularly Vancouver and Toronto, saw explosive growth after the oil-price decline, as interest rates, ecommerce, and a strong U.S. economy propelled demand forward. Industrial demand accelerated in Vancouver, reaching a growth rate of 4.6% post-oil price decline - the fastest growth rate of any Canadian market. Similarly, Toronto also experienced explosive growth, reaching 2.9% more absorption compared to the pre-oil crisis period, which translates to over 22 msf of industrial space being occupied. Montreal also saw a significant shift in momentum with over 2.7 msf of absorption. Combined, the Toronto and Vancouver industrial markets have contributed 80% of the total growth in the Canadian real estate landscape since the oil price downturn. Low interest rates will continue to fuel owner-occupier demand across industrial markets, pushing pricing of product and land to new record highs. 


CBD office market fundamentals were weak prior to the oil price decline due to the uncertainty generated by the European banking crisis. Post-oil shock, there was an impressive uptick in the non-oil producing office market growth. These markets significantly benefitted from low interest rates coupled with the onset of the technology and big data super-cycle that supported expansionary momentum in key markets such as Vancouver, Toronto, and to a lesser degree Montreal. Technology and big data will continue to drive growth in these markets, acting as a natural buffer against a modest slowdown of expansionary momentum across traditional sectors. As an incredibly tight downtown Toronto office market enters its third consecutive development cycle, tenants looking for larger blocks of space will welcome the flow of additional inventory coming to market. Generally, based on growth expectations, the market will see upward pressure on rental rates pre-2021 and rising vacancy as an estimated 6 msf of additional developments are projected to come to market. 

On the contrary, Calgary’s CBD office market was hit hard after the oil price decline, with over 6.5 msf of space returning to market. Calgary’s vacancy rate has not hit its cycle high, given 2.4 msf of new developments are in the pipeline to arrive to market over the next 16 months. Stabilizing oil prices are building confidence back into the Calgary market. While the recovery will be a slow, the market appears to be strengthening, and the volume of space returning to market from weakening occupier fundamentals has noticeably slowed. Class A product will benefit from a significant flight-to-quality as net rental rates head downward across both asset classes. 

“It’s encouraging to know that the Canadian marketplace as a whole is in a strong place,” said Chuck Scott, Cushman & Wakefield CEO Canada. “Each major city is thriving in its own unique way, and where Calgary and Edmonton are being hit hard on the office side, we are seeing positive growth in the industrial sector – it truly demonstrates the resilience of those markets. Vancouver and Toronto are in the midst of a very exciting time with a lot of momentum, and we’re now seeing an uptick in Montreal as well. It’s a great time to be part of this industry.”

Capital Markets

According to Janice Stanton, Executive Managing Director, Capital Markets, Canada is the third largest exporter of capital to real estate markets across the globe, trailing Greater China and the U.S., but remains ahead of the U.K., Singapore, and Germany. Despite the indisputable appeal to invest in the Canadian market, foreign investors face obstacles in penetrating the marketplace to acquire assets resulting in Canada’s low ranking as a real estate importer. Despite these obstacles, Canadian investment volume grew by 10% in 2016.

Global Capital Markets trading volume in the first quarter of 2017 fell 3.7% year-over-year versus a drop of 19% for the Americas overall. The Canadian deal volume in the first quarter of 2017 totaled $4.4 billion, down 7%, versus Q1 2016. Canadian sales volume in 2016 was 10% higher in 2015 at $24 billion, versus a 10% drop for the U.S. Chinese investor Leadon Investment purchased BCIMC’s hotel portfolio for $870 million, making it the largest Canadian deal of the first quarter of 2017. 

Cross-border buyers in Canada represented $5 billion in purchasing power in 2016 and $1 billion year-to-date in 2017. The majority of these cross-border investors were from APAC in 2016-2017. Foreign flows into Canada accounted for 22% of total transaction volume in the first quarter, down from the 29% of Q1 2016. Overall, global cross-border flows were down 10% in the first quarter of 2017.

Global office cap rates have fallen to near 10-year low levels, and while Canadian cap rates are at a 10-year low as well, the credit spread for buying real estate remains at 10-year-average levels.

The State of Real Estate Toronto event is the first of its kind with an attendance of 500 industry leaders. Chuck Scott, CEO Canada hosted the event, and Stefan Teague, Executive Managing Director, Market Leader, Greater Toronto Area, served as the master of ceremonies. The event was open to an audience of industry and business leaders at the St. Lawrence Centre for the Arts. 


Edna Canning-Park

Edna Canning-Park

Communications Manager

Toronto, ON

Phone +1 416 359-2581

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