You might have heard it on the news or read it on some article or blog post somewhere, these two varying headlines.
You have on one hand, investors claiming that the Commercial Real Estate market is cooling down.
In the other corner, the same Commercial Real Estate market set another record recently — and it’s on a hot streak to go even higher in 2019.
So, we, the common public, are left wondering, which is which? What is really the truth behind these opposing claims?
The fact is — the same market seems to be in the same moody predicament just like the lines to Katy Perry’s famous song:
“Cause you’re hot then you’re cold. You’re yes then you’re no. You’re in then you’re out!”
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Let’s examine the details behind each of the claims surrounding this topic.
The Cool Train
First, let’s talk about the cooling that has been said of the Canadian Real Estate market. A recent Reuters poll of property market analysts have uncovered the following results. The rise in interest rates and more stringent ruling on mortgages, has caused home prices to increase and sales to cool down.
The forecast from these analysts predicted national house prices will increase by 1.7% this year. These prices are said to increase another 2.1% next year and 2% by 2020. Yet how does this affect the commercial real estate market, you might think?
A LOT!
Keep in mind that for the past 100 years or so, any dips in the residential market is followed usually in the next 6 to 12 months. A recent example would be the downtrend in residential sales in early 2006 to late 2007. CRE then followed suit and has stopped putting out the numbers since 2008. With this same line of thinking, we can expect to continue on this gradual decline into late 2019 and into 2020.
HOT STREAK
Now, we’ll explore the details behind the positive outlook on the Canadian CRE market. Recent reports indicate that CRE transactions in the last quarter have amounted to a total of $16.5 billion. Last 2017, CRE had a record investments of more than $43.1 billion. Out of all the countries, Canada is among the four that have broken the record for investments. This has exceeded the previous $34.7 billion record in 2016. What’s even more amazing is that we are on track to surpass the record this year.
In the second quarter, CRE investment gained new highs due to a couple of huge purchases and acquisitions. Toronto recorded $5.7 billion in transactions followed closely by Vancouver at $3.2 billion. Both have the lowest industrial-availability rates in North America for 6 quarters in a row. For 4 consecutive quarters, these two cities have also held the tightest downtown office-vacancy rates. Canada has once again been in the centre of two very powerful investment trends this 2018.
Final Thoughts
It’s really difficult to predict what future lies ahead of us. Unlike regular real estate housing markets, CRE does not have any Key Performance Indicators (KPIs). It doesn’t have the tools that will help specifically measure market trends. The KPIs that we track are highly reliant on outside factors so we suggest taking any analysts’ predictions with a grain of salt.
What we do recommend is using a site like Spacie, to get a feel for the CRE market. This will ensure that you’re always on top of your game and never run out of properties to invest in. In addition to finding properties to invest in, you can also browse properties available for lease, which can help you better understand the competition in an area, along with current rental conditions.
