Canada's Multi-Suite Residential and Industrial Real Estate Investment Activity to Remain Elevated in 2023: Morguard

• Interest in the multi-suite residential rental sector will remain elevated in 2023, given healthy demand fundamentals and constrained supply
• The industrial leasing market outlook remains positive, as supply is constrained and vacancy rests close to the 2022 all-time low in 2023, a trend that will continue into 2023
• Office property investment activity stabilized in 2022, with investors targeting core urban and suburban property acquisitions
• Canada's retail property sector will continue to stabilize in 2023, following the leasing market improvement of 2022

MISSISSAUGA, ON, Jan. 10, 2023 /CNW/ - Morguard Corporation ("Morguard") (TSX: MRC) recently released its 2023 Canadian Economic Outlook and Market Fundamentals Report, offering a detailed analysis of Canada's commercial real estate market in 2022 and trends to watch for in 2023. Morguard's 25^th annual edition stated that Canada's multi-suite residential rental sector bounced back strongly from the pandemic downturn. Demand will continue to trend positively in the near term. The full report with regional insights and video is available at morguard.com/research.

"Investor confidence will remain strong in the multi-suite residential and industrial segments given the sectors' healthy performance track record during economic downturns," said Keith Reading, Director, Research at Morguard. "That said, commercial property performance risk will remain elevated in 2023."

Multi-Suite Residential Real Estate

Several factors contributed to the increase in demand for purpose-built multi-suite residential rental units in 2022. The primary causes included Canada's economic recovery, which boosted employment, as well as the loosening and subsequent removal of pandemic-related restrictions. Young workers in the 15 to 24 age cohort were able to secure employment and transition into the rental market. Rental demand pressure also increased as international migration grew. With the return of post-secondary and international students to in-person classes rental demand strengthened.

As demand strengthened, availability became increasingly constrained in several markets. Rents continued to steadily increase with Rentals.ca reporting a year-to-date national average asking rent increase of 7.7 percent in July 2022. Rent growth and strong rental market fundamentals supported record-high investment sales activity in 2022.

In 2023, Canada's multi-suite residential rental market will continue to tighten, as demand continues to outpace supply. Many families will continue to rent given the high cost of home ownership across much of the country. Given the sectors healthy outlook and performance track record, investors will continue exhibiting confidence in Canada's multi-suite residential rental sector over the near term.

Commercial Real Estate

Investors continued to target income-producing commercial properties with secure, long-term income streams in major urban centres or with proximity to mass transit hubs in 2022. Despite an increased level of sector risk, $5.5 billion in office property investment sales was recorded in the first half of the year, which was up 187 percent year over year and was well ahead of the previous year's pace. In 2023, some office tenants will further delay long-term leasing commitments in the office sector. Corporations as well as government agencies and departments will continue to adjust to changes in office space usage patterns as an aftereffect of the removal of capacity restrictions.  

The industrial property sector investment market trends were generally positive in 2022, a trend that will persist in 2023. A total of $11.7 billion of investment transaction volume was reported for the first six months of 2022, up 57.5 percent over the same period a year earlier. Industrial property and space supply remained historically low across Canada in 2022, with availability falling to an all-time low of 1.6 per cent at the midway mark of 2022. The generally positive leasing outlook for 2023 will continue to attract investment capital to the sector as investor confidence remains elevated.

The retail leasing market experienced a rebound in 2022 following the removal of restrictions on brick-and-mortar store capacities. Vacancies leveled off in certain market segments, having steadily climbed across much of the country over the past few years. The leasing market rebound supported the moderately attractive 3.1 per cent total investment return reported for the retail properties contained in the MSCI Index for the year ending June 30, 2022. Looking ahead, Canada's retail leasing market will continue to stabilize. However, the probability of an economic downturn in 2023 leaves the retail property investment market exposed to elevated risk over the near term.

Economic Factors

Canadian economic growth will slow significantly in 2023, due to a combination of interest rate hikes implemented by the Bank of Canada, declining household wealth, and record-high inflation. Consumer spending patterns will continue to slow through 2023, driven largely by the erosion of disposable income as households pay more for necessities and discretionary items. Residential investment will continue to moderate while shoppers delay big ticket purchases such as appliances and renovations. The continued implementation of interest rate hikes will weigh on households and slow economic growth throughout the year.

During 2022, labour shortages were common in most sectors of the Canadian economy, thereby limiting growth. In August 2022, the unemployment rate rose 50 basis points to 5.4 percent from the record low of 4.9 percent reported in July 2022. The rate is expected to range at a more sustainable level in 2023 despite continued labour shortages. Canada's labour market will remain tight over the near term, even with the rising unemployment rate trend.

The 2023 Canadian Economic Outlook and Market Fundamentals Report is a detailed analysis of the 2023 real estate investment trends to watch in Canada. The full report, including analysis for the real estate markets in Halifax, Montreal, Ottawa, Toronto, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver and Victoria, is available at morguard.com/research.

Morguard Corporation is a major North American real estate and property management company. It has extensive retail, office, industrial, hotel and residential holdings owned directly and through its investment in Morguard Real Estate Investment Trust and Morguard North American Residential REIT. Morguard also provides real estate management services to institutional and other investors. Morguard's owned and managed portfolio of assets is valued at $19.5 billion. Please visit morguard.com or follow us on LinkedIn. 

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SOURCE Morguard Corporation