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Apartments Remain Crowd Favourite as Commercial Investors Search for Yield

Morguard 7/17/2018

​Multi-suite residential transactions increase while office and industrial transactions slow due to product availability

The overall pace of Canadian commercial real estate transactions slowed in the second quarter of 2018 but the dip in volume has nothing to do with demand for assets, according to the latest Research Report issued by Morguard Corporation ("Morguard") (TSX: MRC).

"A drop in transaction volume in the second quarter is very much a function of low product availability rather than a drop in demand," said Keith Reading, Director of Research at Morguard. "With quality office and industrial space at a premium, apartments are a crowd favourite as investors search for yield."

Multi-suite residential properties bucked the second quarter trend, with transaction volumes growing by 17.5% year-over-year. Persistent rental growth, combined with a positive long-term sector forecast, has led to rising values for apartment properties in most of Canada's major markets. The U.S. multi-suite residential sector also continued to provide value for Canadian investors, given healthy fundamentals driven by positive demographic trends and stable demand.

The supply-demand imbalance has driven up prices in key markets and asset types to an extent, particularly for Class A, new-build assets. A shortfall of functional space has also been characteristic of the strong leasing activity in the office and industrial sectors, with cycle-low vacancy rates occurring in most regions. Newly built speculative development, while still lower than the long-term average, also saw substantial pre-leasing activity.

"Office and industrial tenants who are looking to expand or move to new premises are being forced to make do with what they have due to a lack of alternatives in the downtowns of certain metros," said Reading. "Landlords of prime assets are enjoying record occupancy levels and steadily increasing rents as supply remains tight."

On the economic front, the Bank of Canada's July interest rate increase was widely anticipated by investors. The rate hike indicates the Bank expects Canadian economic activity to pick up through the balance of the year, despite increasing concerns surrounding escalating Canada/U.S. trade tariffs and a slowdown in the national housing market.

The Second Quarter Update of the 2018 Economic Outlook and Market Fundamentals Research Report, released today by Morguard, provides a detailed analysis of the 2018 real estate investment trends to watch in Canada. The full report is available at www.morguard.com.

About Morguard Corporation

Morguard Corporation is a major North American real estate company.  It has extensive retail, office, industrial, multi–suite residential, and hotel holdings owned directly, or through its investment in Morguard REIT (TSX: MRT.UN), Morguard North American Residential REIT (TSX: MRG.UN) and Temple Hotels Inc. (TSX:TPH). Morguard also provides real estate management services to institutional and other investors. Morguard's owned and managed portfolio of assets is valued at $21.3 billion.

For more information, please visit www.morguard.com or follow us on LinkedIn.

Forward Looking Statement Disclaimer

Statements contained herein that are not based on historical or current fact, including without limitation statements containing the words "anticipates," "believes," "may," "continue," "estimate," "expects" and "will" and words of similar expression, constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions, both nationally and regionally; changes in business strategy; financing risk; existing governmental regulations and changes in, or the failure to comply with, governmental regulations; liability and other claims asserted; and other factors. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Publisher does not assume the obligation to update or revise any forward-looking statements.

For further information: K. Rai Sahi, Chief Executive Officer, T 905-281-3800; Keith Reading, Director of Research, T 905-281-3800

Morguard Corporation; Real Estate Investment