PwC forecasts 2020 commercial market

by Neil Sharma on 20 Sep 2019

The industrial sector is forecasted to be strong next year with warehousing and fulfillment driving development. According to Q2-2019 statistics compiled by CBRE, the national vacancy rate for industrial space was 3.1%, however, in Vancouver that number is even lower with only 2.1% of spaces available, and they’re nearly all accounted for in Toronto where the vacancy rate is 1.5%.

The result is escalating rents because supply simply cannot keep apace demand. PwC cites an interviewee who pegged industrial real estate to be the strongest bet going forward, especially in Toronto, Vancouver, Ottawa and Montreal. Calgary has also shown promise, not to mention a reversal of fortune for the sector. But a scarcity of land upon which to develop industrial properties is concerning. Halifax is also slated to build more industrial space because the sector has witnessed many large portfolio transactions of late.

Canadian office is a very healthy area of the country’s overall real estate market. Survey respondents rated downtown properties fifth in terms of development prospects next year, and as the country’s economy continues growing—especially its tech sector—optimism is high in the office sector.

In spite of considerable office space construction, a substantial amount of units are preleased, and that’s reflected in a national vacancy rate of 10.5% during Q2-2019.

Co-working remains the preponderant disruptor in the office sector. Many players haven’t yet figured out how to respond to the burgeoning demand, but some are willing to work with larger companies in the co-working space and mimic their efforts. However, emulation is a challenge because co-work spaces require shorter-term leases, which don’t help property valuations much.

PwC quotes an interviewee who expects lenders to change their approach, stating seven-year leases are a thing of the past.

The retail sector’s troubles are well-documented and expected to persist, especially in light of recognized brands shutting down their brick and mortars for good. Outlet centres, regional malls and power centres are at the bottom of PwC’s commercial real estate development prospects.  What’s clear is that brick and mortar retail will not entirely disappear, but it is evolving and will look entirely different in the near future. Some operators are leasing space to co-working companies, while others are redeveloping their properties to include community services and residential uses.

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