Developers shift to purpose-built rentals as Canada’s population surpasses 40 million, reports RE/MAX
Strong population growth and housing supply issues are significantly shifting the Canadian commercial real estate market.
Builders and developers across the country are adopting an “all-hands-on deck” approach to address Canada's housing shortage, according to a report released by RE/MAX Canada.
RE/MAX Canada's 2024 Commercial Real Estate Report, which examined 12 markets across the country, found that the push for intensification in the first quarter of 2024 has gained momentum.
Builders and developers nationwide are focusing on purpose-built rental construction, often at the expense of new residential condominiums and commercial builds. Multi-family and industrial real estate are the top-performing asset classes, followed by retail.
Farmland in Saskatchewan has experienced one of its strongest years on record, with increased demand for hotels and strip plazas.
Christopher Alexander, RE/MAX Canada President, states, “The overwhelming need for shelter, combined with the CMHC's Apartment Loan Program, has created the perfect storm in today’s high interest rate environment.”
He adds that despite Canada’s population surpassing 40 million this year, residential construction is still falling short of the thousands of units required in most major markets.
Statistics Canada's Quarterly demographic estimates show that Canada’s population reached 40,769,890 as of January 1, with net international migrations in 2023 surpassing 1.2 million.
Commercial Real Estate Trends
Multi-Family Construction: Purpose-built rentals are the primary focus in every major urban centre, with student housing and seniors' residences following closely. Seven markets, including Vancouver, Calgary, Regina, Winnipeg, London, Ottawa, and Halifax, reported vacancy rates at or below 1.8 percent in 2023.
High-Density and Mixed-Use Development: Increasing population growth and limited land availability are leading mall and strip plaza landlords to explore higher density and mixed-use developments.
Capital Gains Tax Impact: Smaller investors are significantly affected by the increase in the capital gains tax inclusion rate from 50 percent to over 66 percent, causing many to delay selling their properties.
Industrial Real Estate: Strong demand continues, with tight inventory impacting several markets, including Hamilton and Newfoundland-Labrador. End users, particularly in warehousing and manufacturing, are most active.
Retail Sector: Despite the e-commerce boom, bricks and mortar retail stores remain appealing. Neighbourhood retail is performing well, especially in the health and wellness industries.
Luxury Retail: High-end retail brands continue to expand in major Canadian markets like Toronto’s Yorkville and Vancouver’s Alberni Corridor.
Farmland: Saskatchewan saw a 15.7 percent increase in farmland values in 2023, driven by large farming corporations.
Hospitality: The hospitality industry is thriving, with hotels in markets like Halifax experiencing high demand and new hotel chains entering.
Office Sector: The downtown office sector struggles with high availability rates, but conversions to residential space are helping reduce excess inventory.
Adaptive Reuse: Calgary leads the way in adaptive reuse of commercial office buildings, with several cities following suit to address housing shortages.
Vendor Take-Back Financing: Elevated interest rates have impacted land development, but some sellers in the Greater Toronto Area and Halifax are offering vendor take-back mortgages to close deals.
Alexander concludes, “Density, population growth, and the housing crisis remain significant factors influencing market activity. Economic performance, interest rates, incentives, and development policies will continue to impact the Canadian commercial real estate market as 2024 progresses.”
