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2O16CanadaCOMM ERC IAL REAL ESTATE
MARKET OUTLOOK
CBRE Research
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2 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
INTRODUCTION
NATIONAL OUTLOOK
Investment ..................................................................................... 6
Offi ce ............................................................................................. 8
Industrial .....................................................................................10
Retail ............................................................................................12
Multifamily ..................................................................................14
Hotels ...........................................................................................16
Seniors Housing ...........................................................................18
REGIONAL OUTLOOK
Vancouver ..................................................................................... 22Calgary ......................................................................................... 24
Edmonton ..................................................................................... 26
Winnipeg ...................................................................................... 28
London & Kitchener/Waterloo ......................................................30
Toronto .........................................................................................32
Ottawa .........................................................................................36
Montreal .......................................................................................38
Atlantic Canada ........................................................................... 40
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3 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Progress is impossiblewithout change.This truism summarizes the outlook for Canadiancommercial real estate in 2016. Investors, landlordsand occupiers face significant change in the yearahead – much of it out of their control. In this dynamic
environment, some will identify and seize opportunities, while others will be le wanting.
For an industry known for its fixation on location,far-reaching global trends will overtake fine-graineddetails as the basis for real estate decisions in 2016.More than ever, new technologies are poised to deliveron the promise to alter the way we shop, ship, work andplay. The apparent end of the commodity supercycle hascurbed Canada’s economic momentum and questionsaround the nation’s growth prospects will need tobe answered. And while leasing activity has slowedin Canada, stimulative monetary policy globally will
continue to supercharge the investment market.
Not to be lost in the cross currents of change is the factthat Canada’s commercial real estate fundamentals aresome of the healthiest in the world. No building is futureproof, no business model is infallible, no lease term isindefinite, but Canada remains one of the best places toconfront technological advancements and the variabilityof the business cycle. The relative safety, stability, andreliability of returns offered by Canadian commercialreal estate will be welcome companions on the bumpyroad to progress.
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NATIONAL OVERVIEWS
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6 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
INVESTMENT SECTOR
The Canadian economy
is emerging from a slighttechnical recession and the U.S.Federal Reserve appears poisedto increase interest rates in thenear future; however, economic volatility remains high. Thisfactor, combined with a lowCanadian dollar and relativelystrong property fundamentals,should produce healthy demandfor Canadian commercial realestate in 2016.
Investors seeking safe, stablereturns will likely become evenmore selective in 2016. This will further divide a marketthat is already clearly splitbetween core and secondaryassets. As a result, super primeassets in desirable areas couldconceivably attract higherpricing and lower cap rates, while reducing liquidity foreverything else.
Scrutiny of the REIT sectorhas increased and yet there isa growing disconnect betweenREIT pricing and the value ofthe assets they hold. In 2016,markets may increasinglyfocus on the location andperformance of REIT holdingsto differentiate between thedifferent players in the sector.
This low cap rate environment
will put even greater emphasison development as a meansof enhancing return targets,although caution will berequired as some sectors arecharacterized by an oversupplyof new product.
The investment calculus haschanged most in Alberta,especially for offi ce properties where rental rates have fallenand the amount of sublet space
has risen to record levels.Successful transactions willneed to bridge the gap betweenbuyer and seller expectations,but little distressed sellingis expected in 2016. Low oilprices would likely have to besustained into 2017 for leaserenewals and lender pressure toforce the hand of some secondtier asset owners.
In terms of specific commercial
asset classes, land will beactively traded across thecountry in 2016, especially infilland development opportunities.High-quality retail, offi ce andmultifamily properties will alsobe sought aer, while covetedindustrial assets will remain inshort supply.
THIS COULD BE THE YEAR THAT
INTEREST RATES RISE, WHICH COULD
CAUSE INVESTORS TO RECALIBRATE
CHANGE
3DPRINTING
3D PRINTING
WORKPLACESTRATEGIES
WORKPLACESTRATEGIES
B I G D A T A
BIG DATA T E C H
TECH E C O M M E R C E
ECOMMERCE
FRACKING F R A C K I N G
$64,000 the
MAINLAND CHINESEINVESTORS WILL BE A
GROWING FORCE
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $6,435 $5,034 $5,710
Industrial $4,706 $4,404 $4,954
Retail $6,532 $4,880 $4,680
Multifamily $ 3,667 $4,966 $3,914
ICI Land $3,785 $3,420 $3,104
Hotel $1,010 $1,695 $1,264
Total $ 26,134 $ 24,39 9 $ 23,62 5
Source: CBRE Limited
Statistics
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7 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
INVESTMENT INVESTMENT
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8 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
OFFICE SECTOR
The Canadian offi ce market
enters 2016 with vacancy ratesclimbing to a decade-long highfollowing a prolonged landlord’smarket. With an additional11.2 million sq. . underconstruction in downtownmarkets and 6.4 million sq. .being built in the suburbs asof Q3 2015, vacancy rates arelikely to remain elevated for theforeseeable future.
While new supply has been the
dominant factor shaping offi cefundamentals, the demandside of the equation will becomeincreasingly important in the year ahead. With banks signalingtheir intention to restructuresome operations and offi ce usersgenerally moving to new effi cient workplace strategies, there is thepotential for a sustained rate ofabsorption below historic norms.
The technology sector is the
fastest growing segment ofthe market, while the finance,insurance and real estate sectorcontinues to account for thelargest proportion of significantleases. Cities across Canada arereporting increased demandfrom growing tech companiesas the sector accounted for arecord 38.0% of significantoffi ce leasing transactionsnationally in Q2 2015.
With tech companies in thedriver’s seat, downtown markets will continue to outpace thesuburbs from a leasing andconstruction perspective, asthat is largely where the labourpool for this sector is located.Existing offi ce stock willattempt to appeal to innovativeusers by ‘defixturing’ traditionaloffi ce space and offering the loaesthetic and the style of workthat these businesses naturally
gravitate towards.
The pace oftechnological changeis putting increasedpressure on landlordsto ensure that theirproperties areadaptable and remaincompetitive. ‘Futureproofing’ will becomean increasing concernand new buildings
will be structured sothat offi ce space isphysically adaptable without incurringsignificant costs.
It is your brand,culture andcompetitiveadvantage
OFFICE SPACEIS NO LONGER A COMMODITY
LIFE
TIME
Guarantee
WITH THE PACE OF CHANGE ACCELERATING, DEVELOPERS
WILL ATTEMPT TO ‘FUTUREPROOF’ BUILDINGS
CATCHING UP
THE TECH SECTOR RANKED 2ND
IN TERMS OF SIGNIFICANT
OFFICE LEASES NATIONALLY
SINCE Q4 2012
FIRE
26% 1 6 . 9
m i l l i o n s q . f t .
TECH
20% 1 3 . 2
m i l l i o n s q . f t .
Central 2014 2015 F 2016 F YoY
Vacancy Rate 8.5% 10.1% 11.1%
Class A Net Rental Rate (per sq. ft.) $25.84 $24.81 $23.71
Absorption (sq. ft. in millions) 1.52 (0.79) 1.46
New Supply (sq. ft. in millions) 3.52 3.47 4.47
Under Construction (sq. ft. in millions) 11.67 9.94 5.98
Suburban
Vacancy Rate 13.4% 15.1% 15.4%
Class A Net Rental Rate (per sq. ft.) $18.25 $17.92 $17.12
Absorption (sq. ft. in millions) 1.49 (0.34) 1.31
New Supply (sq. ft. in millions) 4.44 3.48 2.31
Under Construction (sq. ft. in millions) 6.73 5.55 4.27
Overall
Vacancy Rate 10.7% 12.3% 13.0%
Class A Net Rental Rate (per sq. ft.) $21.62 $21.18 $20.37
Absorption (sq. ft. in millions) 3.01 (1.13) 2.77
New Supply (sq. ft. in millions) 7.97 6.95 6.78
Under Construction (sq. ft. in millions) 18.40 15.49 10.25
Source: CBRE Limited
Statistics
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9 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
OFF ICE OFFICE
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CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
INDUSTR IAL SECTOR
▶ While economic growth has
been lacklustre and the officeand retail sectors are recording
higher vacancy rates, industrialproperty fundamentals remain
strong. The industrial market will outperform from a leasing
and investment perspectivein 2016, as a responsivedevelopment pipeline maintains
a healthy balance betweensupply and demand. Low
interest rates will support arobust owner-user market.
▶ Distribution and logisticsactivities will remain the
primary driver of leasing andinvestment activity in the
industrial sector. Retailers andindustrial businesses in general, will attempt to differentiate
themselves with supply chainenhancements that result
in cost savings and a betterclient experience.Industrial
construction and redevelopment
is being polarized between twotrends:
» The desire to consolidatelogistics operations in Canada’s
major distribution markets,Calgary and the Greater Toronto
Area, is spurring more frequent
construction of large buildingsand industrial parks nearing
the 1.0 million sq. . mark.This is a mature trend, but the
combination of pent-up and new
demand for large-bay space willmake this an enduring factor
through 2016.
» Ecommerce and same-daydelivery require proximity to
consumers, which is driving
demand for smaller ~50,000sq. . buildings within close
proximity to major populationcentres. This has the potential to
reinvigorate industrial properties
in the inner suburbs that wereformerly considered obsolete
for modern users; however,these same locations will face
pressure to be put to higher and
better use in 2016 as the generalurban intensification process
continues.
▶ Favourable foreign exchange
rates spurred hope of amanufacturing and export
renaissance, but there hasbeen a negligible impact onindustrial property demand
thus far. This is not expected
to change in 2016 as Mexico,China and other manufacturingpowerhouses are strong
competitors on a number offronts aside from exchangerates.
BIG VSSMALL
INDUSTRIAL DEMAND IS POLARIZED
BETWEEN LARGE DISTRIBUTION
CENTRES AND WELL-LOCATED
50,000 SF BUILDINGS
GREAT
EXPECTATIONS
Competitive Canadiandollar fails to alterindustrial decision making
SPEC CONSTRUCTION EQUALS52% OF INDUSTRIAL
DEVELOPMENT IN CANADA.WELL BELOW 66% IN THE U.S.
11.5MILLIONSQ. FT.
10.6MILLIONSQ. FT.
SPEC
BUILD-TO-SUIT
TIP P I N G
T H E S C A L E
2014 2015 F 2016 F YoY
Availabilit y Rate 5.4% 5.8% 5.8%
Net Rental Rate (per sq. ft.) $6.09 $6.45 $6.59
Sale Price (per sq. ft.) $101.68 $117.43 $117.92
Absorption (sq. ft. in millions) 18.36 12.49 12.61
New Supply (sq. ft. in millions) 14.87 20.13 13.80
Under Construction (sq. ft. in millions) 18.90 15.35 8.0 3
Source: CBRE Limited
Statistics
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11 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
INDUSTR IAL INDUSTRIAL
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12 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
RETAIL SECTOR
The Canadian retail market
will continue to recalibratefollowing the demise of Targetand a challenging year formid-market retailers. In 2016,foreign retailers will viewCanada as a worthy destination,but will be more selective onlocations and roll out moregradually. Canada’s appealstems from store productivityand less competition for newentrants than some other hotlytargeted destinations.
The shopping mall has longbeen at the centre of theCanadian retail market, afact that will be underscoredin 2016. High-end retailers,traditionally located onCanada’s high streets, willgravitate towards the increasedluxury of super regionalshopping centres like YorkdaleMall in Toronto and CF PacificCentre in Vancouver. This is
part of a trend that will see thetenant mix along Bloor Street inToronto evolve to include moreexperiential retailers and high-end entertainment.
Retail leasing activity willbecome increasingly polarizedin 2016. Retailers will fixate onurban locations and high-endmalls, while lingering vacancycan be expected in second andthird tier malls. The department
store segment will remaincompetitive with The Bay,Nordstrom, and Saks all active,
while H&M, Zara and Forever 21
will continue to put pressure onmid-market retailers.
In 2016, logistics will be asimportant to retailers as thebricks and mortar shoppingexperience. Expect retailersto increase the number oflocations at which consumerscan receive and return goodsthat were purchased online.Ecommerce will gain ontraditional retails sales, but
the physical distance betweenretailer and consumer willdecrease as more distributionpoints make for a moreconvenient experience.
New technology and the riseof the sharing economy willcontinue to shape the retailmarket in 2016. Brands willattempt to deliver an overalllifestyle to the Millennialshopper. Online and in person,
retailers will appeal to theconsumer’s mind, body, andsoul.
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 4.6% 2.2% 3.8%
COSTCO
MAKESGLUTTONS
OF MODEST
CANADIAN
CONSUMERS
The retail giant isextracting highersales per personand expanding asingle shop betterthan any otherretailer
ANNUAL ONLINE SALES EQUATE
TO THE PRODUCTIVITY OF 9.8
YORKDALE MALLS
INCREASED TOURISM IS HELPING
SPUR HIGHER RETAIL SALES DESPITE
LACKLUSTRE ECONOMIC GROWTH
* Conference Board of Canada
Statistics
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RETAIL RETAIL
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14 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
MULTIFAMILY SECTOR
The multifamily sector will
produce near record investment volume in 2015, following aperiod of constrained supply.Strong pricing and deferredmaintenance are causingowners to strategically re-examine their portfolios.Demand for multifamilyproduct is so widespread andfundamentals are so stablethat very little could derailinvestment activity in thissector in 2016.
The multifamily marketcontinues to evolve and thegrowing number of condosentering the rental universe willcontinue to shape the marketin 2016. Cap rates for Class Ahigh-rise apartments continueto tighten and are now at thelowest levels on record, which will translate into higher pricesfor investors and spur rentalrate increases and higher fees
for ancillary services such aslaundry and parking.
Baby boomer demand forseniors housing will peakin more than a decade, butin the interim, multifamilybuildings will benefit from a wave of empty nesters lookingto downsize. Multifamilyproperty fundamentals willalso benefit from an increasein new immigrants to Canada
and rising home prices willbar many Millennials frompursuing homeownership.
Alberta is the one province
breaking from the overall trendof stability. Vacancy rates areclimbing and rental rates areunder downward pressurein Calgary and Edmonton.Tertiary markets servicing oilsand operations in the northhave been hit harder. Rentaloccupancy rates could firmif economic diffi culties slowhousehold formation and createchallenges in the residentialownership market.
In 2015, there was a shi inthe market as new purpose-built construction increasedto the most significant levelin decades. Work on ongoingprojects will continue, butmuch of the new supply in2016 will likely be limited toopportunistic situations asowners of existing land arelooking to put it to higher andbetter use.
79% OF EXISTINGRENTAL STOCKIS >35 YEARS
OLD ANDINCREASINGLY IN
NEED OF CAPITALINVESTMENT.
NEW CONDOSOVERSHADOW
PURPOSE-BUILTRENTALS, BUT
HELP LIFTRENTAL
RATES
MULTIFAMILY FORMULAFOR SUCCESS
+
=
V A C A N T
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 2.3% 2.8% 2.9%
*Canada Mortgage and Housing Corporation, CBRE Limited
Statistics
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15 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
MULTIFAMILY MULTIFAMILY
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16 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
HOTEL SECTOR
The market and financial
performance of hotels in B.C.,Ontario & Quebec, whichrepresent over 70.0% of theindustry in Canada, will showstrong improvement in 2016.Properties in Vancouver,Toronto and Montrealspecifically are poised for strongtop and bottom line growth.The financial performancefor Alberta hotels, whichrepresents about 15.0% ofthe Canadian inventory, has
suffered from the resourcedownturn and overbuilding insome markets, but the declinehas been decelerating. Expectmore stability with possiblysome signs of recovery in late2016. In the balance of thecountry, market and financialperformance for the hotelindustry will be positive, butmoderate.
Although many Alberta and
Saskatchewan markets areexperiencing RevPAR declinesapproaching 10.0% relative tolast year, most other marketsacross the country have postedhealthy RevPAR increases.Downtown Vancouver is leadingthe way at 19.0% year-to-dateas of September 2015, fueledby both ADR and occupancygrowth.
The 6.6% increase in inbound
overnight trips to Canada year-to-date as of August2015, according to StatisticsCanada, and overall risingdemand will support stronghotel operating fundamentals.The low Canadian dollar willcontinue to entice visitors,especially from the U.S. and Asian countries. Vancouver,
Toronto and Montreal, as well
as the resort sector, will bethe prime beneficiaries of thistrend; however, staycationactivity will also bolster hoteldemand throughout thecountry, particularly in markets with economic uncertainty like Alberta.
In 2015, hotel investors wereable to choose from the mostdiverse range of availableproduct in recent memory. The
variety of available productenticed a deep buyer pool,especially for properties under$30.0 million, with overallinvestment volume forecast toreach $2.2 billion in 2015, a levelof activity not seen since 2007. We expect the level of activityand demand for all producttypes to continue to be strongin 2016.
The typical deal profile in 2016
will likely involve core marketslike Toronto and Vancouver, anda continuation of bundled orportfolio deals. Buyers will alsobe keen to acquire hotel assetsin redevelopment and value-addpossibilities. There will alsobe a diverse buyer pool, withgrowing interest from privateequity and institutional buyers.
Strong investor demand iscreating downward pressure on
hotel cap rates in Vancouver,Toronto and Montreal. In Alberta, Saskatchewan andother resource dependentmarkets, declining hotel cashflows have tempered cap rateincreases as investors looktowards revised, more moderateperformance levels.
UNPRECEDENTED CROSS-BORDER
TRAVEL INTO CANADA IS LIKELY TO
CONTINUE
INVESTMENT
ACTIVITY WILL EXPANDFROM A FOCUS ON
ICONIC HOTELS TO
PORTFOLIO AND
SINGLE ASSET
TRANSACTIONS
A DIVERSE GLOBAL BUYER
BASE AND WIDE-RANGING
CAPITAL SOURCES ARE
CREATING RECORD LIQUIDITY
J F K Y Y Z
N E W Y O R K J F K
T O R O N T O P E A
R S O N
N E W Y O R K J F K
T O R O N T O P E A R S O N
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17 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
HOTEL HOTELS
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18 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
SENIORS HOUSING S ECTOR
The Canadian seniors housing
market has been a hotbed ofinvestment activity in recent years starting with the entryof U.S. REITs and culminating with a wave of consolidation,including the Ontario Teachers’Pension Plan Board/BayBridgepurchase of Amica in 2015. While it will be a challengefor the market to match thesame volume of transactions in2016, sellers may want to takeadvantage of current pricing.
While cap rate compression wascommon for quality commercialreal estate assets across Canadain 2015, seniors housingrecorded a remarkable 75-100basis point drop in average caprates for the highest qualityassets. The sub-7.0% averagecap rate for Class A assetssignifies the fact that highquality seniors housing is nowbeing viewed as an institutional
grade investment. Low cap ratesare likely to endure for qualityassets as long as the buyer poolremains deep and liquidity ismaintained. The pricing gapbetween Class A and Class B/Cassets will likely widen slightlyin 2016.
Recent movements in pricing
will result in a period ofprice discovery in 2016 thatrequires disciplined dispositionprocesses to identify optimalbuyers and to maximize pricing.
There is no indication thatthe development cycle willend in 2016, following a waveof new supply in recent years. While new constructionhas historically focused onlucrative high-end assets,
this market has becomeincreasingly competitive. Thereare significant opportunitiesfor new projects offering mid-range pricing and services, asthis segment of the market isexpected to grow in the coming years.
Merchant developers will bemore active and will act asa supply conduit for largeroperators. Discipline will be key
to maintaining balance in themarket. Construction will needto be strategic and will likelyoccur outside of core markets inpockets with future potential tointensify.
C E R T I F I E D
I N S T I T U T ION A L
G R A D E
P R O D U C T
S E N I ORS HOU S I N G
AMICA SALE REVEALS DEEP POOL OFINVESTORS PURSUING SENIORS
HOUSING ASSETS
ONITOR RESIDENTIAL
ARKET CONDITIONS – A
KEY DRIVER OF SENIORS HOUSING
DEMAND
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19 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
SENIORS HOUSINGSENIORS HOUSING
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REGIONAL OVERVIEWS
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CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
VANCOUVER
▶ Western Canada will be a study
of contrasts. Alberta’s economyand property fundamentals are
expected to struggle, while B.C. will outperform in spite of, and
in part because of, Alberta’schallenges. Investor and tenant
demand in the region willcontinue to shi to B.C. in 2016and the province is likely to
outperform from an economicand commercial real estate
perspective.
▶ The Vancouver office growthstory will continue to be largelypositive with leasing activity
likely to exceed expectations.The market will continue to
work through the 2.4 millionsq. . of new supply that wasdelivered in 2015. While vacancy
will remain slightly elevated,an active tech sector along with
other professional services willhelp mitigate soness in the
resource sector.
▶ Insatiable investors and
available capital pushed Vancouver property prices to
record highs and cap ratesto record lows. This trend
will carry over into 2016 aslong as owners are willingto sell and remain open to
unsolicited offers. Foreigncapital, especially from Asia,
will continue to pursue primeassets, but local buyers will
remain competitive in the faceof low cap rates and may drivedemand for suburban assets as
product becomes limited in thecore.
▶ Vancouver’s importance as a
port city and key part of theincreasingly sophisticated
supply chain was underscoredby the California port strikes
in 2015. The subsequent spikein demand for industrial space
was unexpected and despitesignificant new supply in 2015,little is scheduled for delivery
in 2016. Expect availability totighten and construction starts
to climb in 2016 as developersrespond to demand.
▶ Investors and developers willcontinue to build strategies
around inner submarketslike Strathcona and Mount
Pleasant. These transitionalnodes are gaining momentumand their long-term potential
for intensification more than justifies the high land costs and
zoning hurdles.
8 32
216 634
> 100,000 sq. ft. 50 - 99,999 sq. ft.
10-49,999 sq. ft. 0-9,999 sq. ft.
INDUSTRIAL AVAILABILITIES
INVESTORS ARECONSIDERING
UNCONVENTIONAL
LAND LEASES TO ADDB.C. PROPERTIES TOTHEIR PORTFOLIOS
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23 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
VANCOUVER
TSAWWASSEN MILLSSHOPPING COMPLEX
Located at Highway 17 and 52nd Street on
Tsawwassen First Nation Lands, Ivanhoé
Cambridge’s Tsawwassen Mills will includeapproximately 1.2 million sq. . of retail, with
16 anchors, a unique mix of premium fashion
brands, factory outlets, restaurants and first
to market retailers, as well as a 1,100-seat foodcourt. Construction began in January 2014
and will be complete in fall 2016.
http://www.tsawwassenmills.ca/faq
THE EXCHANGE OFFICETOWER
Credit Suisse’s $200.0 million venture
into B.C. is a 31-story speculative, LEED
Platinum, state of the art offi ce tower withcutting edge technologies in Vancouver’s
financial district. It is scheduled for delivery
in 2017.
www.theexchangebuilding.ca
DEVELOPMENT OFDOWNTOWN FRINGE, THEMOUNT PLEASANT ANDBROADWAY CORRIDOR
Zoning changes have expedited thetransformation of these areas while
opening the door for a broader range of user
groups.
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 6.8% 9.9% 9.8%
Class A Net Rental Rate (per sq. ft.) $31.77 $33.85 $33.50
Absorption (sq. ft. in millions) (0.09) 0.89 0.14
Class A Cap Rate (%) 4.75-5.25 4.25-5.00 4.25-5.00
New Supply (sq. ft. in millions) 0.09 1.75 0.11
Under Construction (sq. ft. in millions) 2.09 0.47 0.71
Suburban
Vacancy Rate 13.4% 13.2% 12.6%
Class A Net Rental Rate (per sq. ft.) $23.44 $21.87 $20.45
Absorption (sq. ft. in millions) 0.42 0.61 0.39
Class A & B Cap Rate (%) 5.75-6.50 5.25-6.25 5.25-6.25
New Supply (sq. ft. in millions) 0.84 0.65 0.29
Under Construction (sq. ft. in millions) 1.04 0.61 0.32
Overall
Vacancy Rate 10.1% 11.5% 11.2%
Class A Net Rental Rate (per sq. ft.) $24.93 $27.10 $26.21
Absorption (sq. ft. in millions) 0.33 1.51 0.53
New Supply (sq. ft. in millions) 0.93 2.40 0.39 Under Construction (sq. ft. in millions) 3.13 1.08 1.03
2014 2015 F 2016 F YoY
Availability Rate 7.0% 5.9% 6.0%
Net Rental Rate (per sq. ft.) $8.06 $8.26 $8.45
Sale Price (per sq. ft.) $199.00 $231.90 $235.29
Absorption (sq. ft. in millions) 1.40 4.75 2.33
Class A & B Cap Rate (%) 5.25-6.25 5.00-6.25 5.00-6.25
New Supply (sq. ft. in millions) 2.41 3.03 2.58
Under Construction (sq. ft. in millions) 1.96 3.93 1.35
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $434 $477 $1,630
Industrial $814 $910 $956
Retail $886 $1,108 $1,163
Multifamily $533 $950 $998
ICI Land $438 $789 $500
Hotel* $216 $511 $250
Total $3,321 $4,744 $5,496
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 6.9% 8.7% 4.6%
Neighbourhood Cap Rate (%) 5. 50-6.00 5.00-5.75 5.00-5.75
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 1.0% 0.8% 1.0%
Apartment Cap Rate (%) 4.25-4.75 4.25-4.75 4.25-4.75
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
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24 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
CALGARY
The confidence within Calgary’s
local business community hasonly faltered slightly despitethe second largest drop inoil prices in history andthe second most protracteddecline. The prevailing opinionis that the market is facing aman-made downturn in oilprices, not a structural shithat would undermine long-term investments. In 2016,supply and demand dynamics,including OPEC decisions,
will provide additional clarityand allow tenants, ownersand investors to act with morecertainty.
While an anticipated reboundin oil prices would put a floorunder offi ce fundamentals,capital expenditure and job cutsare mounting. For 2016, this will translate into a continuedrise in offi ce vacancy rates, bothdowntown and in the suburbs,
with an anticipated peak inQ3 2016. It appears that thebulk of downsizing has alreadyoccurred which will allow thepace of vacancy rate increasesand rental rate declines to slow.
There is good news in theCalgary marketplace. Even within a challenged offi cesector, accountants and lawfirms remain active, and
engineering companies
are expected to benefitfrom increased provincialinfrastructure spending. Thehotel and resort sectors arealso posting strong numbersas Albertans vacation closer tohome and tourism from the U.S.increases.
Leasing activity in Calgary’sindustrial market has slowed,but this sector has beenmore resilient and reflects
the continued maturationof Calgary as a distributionand logistics hub for WesternCanada. Third party logisticscompanies and distributionactivity will continue to act asa hedge against the oil and gassector. Industrial constructionactivity will also benefit froma decline in construction coststhat is expected in 2016.
Aer a lean 2015, investment
volumes are likely to besomewhat higher in 2016 asthere will be more clarityaround economic and energyprice forecasts. Smaller assetsfrom all property types arelikely to make up the bulkof transaction activity, withgrocery anchored shoppingcentres particularly in demand.Lenders will be encouraged bymore realistic underwriting.
8.5%
5.5%
1.1%
1.1%
CALGARY
HOUSTON
DALLAS
HIGH CONCENTRATION,HIGH IMPACT
DENVER
Energy jobs aspercentage oftotal workforce
TENANTSFEEL THE HEATSUBLETPERCENTAGEOF VACANTSPACE COULDTOP 50%
CALGARY HAS
THE 7TH
LOWEST
INDUSTRIAL
AVAILABILITY
RATE IN NORTH
AMERICA
50%
30%
10%
7 TH
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25 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
CALGARY
STONEY TRAIL/CALGARY RING ROAD
Construction of the southwest portion
of the ring road, scheduled to begin in
2016, will bring Calgary one step closerto completing the 100 km highway. The
development will further unlock real estate
by providing access to land that is currently
only accessible via side roads and circuitousroutes.
www.transportation.alberta.ca
ALBERTA’S OIL AND GASROYALTY REVIEW
Although the province has indicated it will
hold off implementing changes until 2017,
any modification to the detriment of the oiland gas sector will negatively impact the
ability to attract and retain business.
www.energy.alberta.ca
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 9.8% 16.3% 18.4%
Class A Net Rental Rate (per sq. ft.) $33.03 $23.89 $18.81
Absorption (sq. ft. in millions) 0.52 (1.94) (0.32)
Class A Cap Rate (%) 5.50-6.00 6.00-6.50 6.00-6.50
New Supply (sq. ft. in millions) 0.84 0.82 0.62
Under Construction (sq. ft. in millions) 3.83 3.01 2.39
Suburban
Vacancy Rate 13.1% 17.5% 17.7%
Class A Net Rental Rate (per sq. ft.) $25.59 $23.12 $18.20
Absorption (sq. ft. in millions) 0.60 (0.20) 0.30
Class A & B Cap Rate (%) 5.75-7.25 6.00-7.75 6.25-7.75
New Supply (sq. ft. in millions) 0.98 0.90 0.44
Under Construction (sq. ft. in millions) 1.31 1.69 1.36
Overall
Vacancy Rate 11.0% 16.7% 18.1%
Class A Net Rental Rate (per sq. ft.) $29.76 $23.59 $18.59
Absorption (sq. ft. in millions) 1.12 (2.14) (0.03)
New Supply (sq. ft. in millions) 1.82 1.72 1.06 Under Construction (sq. ft. in millions) 5.14 4.70 3.75
2014 2015 F 2016 F YoY
Availability Rate 4.7% 8.3% 8.2%
Net Rental Rate (per sq. ft.) $8.40 $7.35 $7.25
Sale Price (per sq. ft.) $185.00 $176.00 $170.00
Absorption (sq. ft. in millions) 3.71 (0.43) 1.69
Class A & B Cap Rate (%) 5.25-6.75 5.50-7.00 5.50-7.00
New Supply (sq. ft. in millions) 1.64 4.45 1.78
Under Construction (sq. ft. in millions) 4.62 1.43 0.35
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $709 $105 $267
Industrial $639 $399 $432
Retail $401 $299 $323
Multifamily $202 $206 $144
ICI Land $439 $332 $167
Hotel* $148 $156 $80
Total $2,539 $1,497 $1,413
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 7.0% (0.7%) 2.7%
Neighbourhood Cap Rate (%) 5. 50-6.00 5.25-5.75 5.00-5.75
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 1.4% 3.5% 3.7%
Apartment Cap Rate (%) 4.25-4.75 4.50-5.00 4.50-5.00
*Canada Mortgage and Housing Corporation, CBRE Limited
*Market and surrounding region* Conference Board of Canada
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26 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
EDMONTON
Edmonton, much like
Calgary, is confrontingrepriced oil and gas. The twomarkets have weathered thedownturn differently andtheir performance will varyin 2016. Edmonton’s propertyfundamentals will largelyoutperform those in Calgary.
Both Edmonton and Calgaryface challenges in theirdowntown offi ce markets, butEdmonton’s diffi culties stem
from pending oversupply andlimited absorption in the core.Expect the Edmonton offi cetenant base to remain relativelystable in 2016; however, newleasing activity will be so astenants wait for 1.8 millionsq. . of new supply to comeonline downtown by 2018before making any longer termcommitments.
Offi ce property owners will
need to deploy stronger assetmanagement strategies asthe offi ce market adjusts tonew supply. In this tenant’smarket, expect inducements toincrease as offi ce users are ina position of strength in leasenegotiations.
Industrial property
fundamentals should benefitfrom the fact that new supply will drop by 50.0% in 2016.Small bay properties will stillbe in demand, while Class Bdistribution properties will seeless activity. There will be aflight to quality as new productis delivered to the market, which will occur at the expenseof less functional real estate.
Investment volume is unlikely
to change dramaticallyin 2016 unless economicconditions change significantly.Institutional owners of offi cespace will face rental rateerosion and there will be nosignificant influx of qualityproduct for sale. Demand will continue to be strong forClass A industrial, retail andmultifamily properties, butsupply will be limited.
$71.0 BILLION OF PROJECTS AREUNDER CONSTRUCTION ACROSS
ALBERTA
INVESTORS WILLHOLD ON TO CORE
ASSETS
PRICING WILL REMAIN ACHALLENGE DUE TO
THIN TRADING
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27 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
EDMONTON
EDMONTON ARENA DISTRICT
This multi-billion dollar project by
Katz Group of Companies and WAM
Development Group spans 25.0 acres ofoffi ce, retail, hospitality, residential and
hotel properties revamping Edmonton’s
urban core.
www.ead.ca
ANTHONY HENDAY RING ROAD
The north east quadrant of Edmonton’s
main ring road is scheduled to be
completed by October 2016. Whencomplete, Anthony Henday Drive will total
78.0 km and provide seamless access to
surrounding arterial highway to enhancemarket access for all industrial products.
www.northeastanthonyhenday.com
EDMONTON LRT VALLEY LINE
The 27.0 km Valley Line runs east to west,
linking Mill Woods to Lewis Estates. With
approval and funding in place for the 13.0km leg from Downtown to Millwoods,
construction will commence in 2016
and is scheduled to be complete by 2020.Densification along the line may attract
employees to work downtown.
www.edmonton.ca/SEtoWestLRT
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 10.0% 10.7% 17.5%
Class A Net Rental Rate (per sq. ft.) $24.05 $23.90 $21.61
Absorption (sq. ft. in millions) (0.04) (0.14) (0.06)
Class A Cap Rate (%) 6.25-6.75 6.25-6.75 6.25-6.75
New Supply (sq. ft. in millions) 0.00 0.00 1.17
Under Construction (sq. ft. in millions) 1.42 1.78 0.60
Suburban
Vacancy Rate 13.3% 14.5% 14.1%
Class A Net Rental Rate (per sq. ft.) $19.90 $20.99 $20.36
Absorption (sq. ft. in millions) 0.21 0.01 0.15
Class A & B Cap Rate (%) 6.75-7.75 6.75-7.75 6.75-7.75
New Supply (sq. ft. in millions) 0.41 0.18 0.13
Under Construction (sq. ft. in millions) 0.38 0.28 0.16
Overall
Vacancy Rate 11.3% 12.2% 16.2%
Class A Net Rental Rate (per sq. ft.) $22.28 $22.52 $21.19
Absorption (sq. ft. in millions) 0.17 (0.12) 0.09
New Supply (sq. ft. in millions) 0.41 0.18 1.30 Under Construction (sq. ft. in millions) 1.80 2.06 0.76
2014 2015 F 2016 F YoY
Availability Rate 3.8% 7.8% 8.2%
Net Rental Rate (per sq. ft.) $11.13 $11.20 $10.80
Sale Price (per sq. ft.) $144.09 $145.14 $123.37
Absorption (sq. ft. in millions) 3.64 (0.40) 1.13
Class A & B Cap Rate (%) 5.50-7.00 5.50-7.00 5.50-7.00
New Supply (sq. ft. in millions) 2.87 4.19 1.74
Under Construction (sq. ft. in millions) 2.68 1.74 0.25
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $213 $62 $50
Industrial $219 $83 $110
Retail $262 $76 $140
Multifamily $270 $395 $350
ICI Land $817 $532 $450
Hotel* $40 $35 $70
Total $1,820 $1,183 $1,170
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 6.9% (1.1%) 2.7%
Neighbourhood Cap Rate (%) 5.75- 6.25 5.75- 6.25 5.75-6.25
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 1.7% 3.0% 3.5%
Apartment Cap Rate (%) 5.00-5.50 4.75-5.25 4.75-5.25
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
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28 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
WINNIPEG
Winnipeg may not offer Alberta
boom times or the scale of Vancouver or Toronto, but when the tide goes out in othermarkets, tenants and investorsare reminded of the stabilitythat characterizes Winnipeg. Winnipeg’s appeal will likelyincrease in 2016 due to itsrelative economic resilience andsteady growth trajectory.
Winnipeg is one of the fewoffi ce markets in Canada
where there is no downtownoffi ce construction; however,expect there to be more clarityaround proposed Class Aoffi ce construction projects in2016. Tenant desire for qualityspace and investors needingto place capital has resulted insignificant offi ce constructioncycles in other Canadiancities and may spur new offi ceconstruction in Winnipeg as well.
Low energy prices andfavourable exchange ratesare bolstering the Winnipegindustrial market, especiallythe manufacturing sector. Largeorders at New Flyer, a Winnipegbased bus manufacturer, area harbinger of medium-termindustrial activity and propertydemand. Construction ofmodern industrial buildings, with high ceiling heights and
effi cient column spacing, willalso increase as new land isprepared for development.
Traditionally, commercial
property in Winnipeg is tightlyheld by long-term owners.Investors have recently had arare opportunity to acquireassets in Winnipeg as a resultof portfolio rebalancing andgenerational turnover. Propertyavailability is expected to persistand spur investment activity,but investors will have to actquickly when opportunitiesarise in 2016 as demand isexpected to keep pace.
The 2016 investment volume will be healthy and similarto 2015 when the marketexperienced an uptick in thenumber of transactions.TOP 3
DOWNTOWN REVITALIZATION EFFORTS HAVE HAD SUCCESS, BUT WILL AMBITIOUS NEW
PROJECTS TAKE SHAPE?
OIL
OIL’S IMPACT VARIES ACROSS CANADIAN PRAIRIES
OVER A BARREL
WINNIPEG HAS ONE OFTHE HIGHEST GDP GROWTH
RATES IN CANADA
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29 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistcs
WINNIPEG
RBC CONVENTION CENTRE
This $180.0 million project in downtown
Winnipeg will provide an additional
100,000 sq. . of multi-purpose space ontop of the existing 160,000 sq. . venue. The
expansion will meet LEED Silver standards
and will be the fourth largest publically-owned convention centre in Canada.
Completion is scheduled for early 2016.
http://www.wcc.mb.ca/expansion-2016
SEASONS WINNIPEG
Positioned as Central Canada’s premiere
shopping centre, this mixed-use
development will include residentialcomponents, open air strip centres, an
enclosed outlet mall, two luxury car
dealerships and a hotel. Outlet Collection at Winnipeg will be the city’s first pure outlet
centre when it opens in spring 2017.
http://seasonswinnipeg.ca/leasing
CENTREPORT CANADA – WATER TREATMENT FACILITY
Development of a new water treatment
facility within Centreport will enable
servicing of residential, industrial andmixed-use land, and increase the velocity of
development within CentrePort. The facility
is expected to be operational in early 2016.
www.centreportcanada.ca
OFFICE INDUSTRIAL
MULTIFAMILY
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 9.9% 11.7% 11.2%
Class A Net Rental Rate (per sq. ft.) $17.17 $17.58 $17.60
Absorption (sq. ft. in millions) 0.08 (0.09) 0.04
Class A Cap Rate (%) 5.50-6.00 5.50-6.00 5.25-5.75
New Supply (sq. ft. in millions) 0.00 0.08 0.00
Under Construction (sq. ft. in millions) 0.08 0.00 0.00
Suburban
Vacancy Rate 9.2% 13.3% 12.8%
Class A Net Rental Rate (per sq. ft.) n/a n/a n/a
Absorption (sq. ft. in millions) 0.14 (0.12) 0.01
Class A & B Cap Rate (%) 6.50-7.50 6.50-7.50 6.50-7.50
New Supply (sq. ft. in millions) 0.00 0.00 0.00
Under Construction (sq. ft. in millions) 0.00 0.00 0.00
Overall
Vacancy Rate 9.7% 12.1% 11.6%
Class A Net Rental Rate (per sq. ft.) $17.17 $17.58 $17.60
Absorption (sq. ft. in millions) 0.22 (0.20) 0.05
New Supply (sq. ft. in millions) 0.00 0.08 0.00 Under Construction (sq. ft. in millions) 0.08 0.00 0.00
2014 2015 F 2016 F YoY
Availability Rate 4.5% 4.8% 4.6%
Net Rental Rate (per sq. ft.) $6.90 $7.34 $6.84
Sale Price (per sq. ft.) $87.06 $86.70 $89.14
Absorption (sq. ft. in millions) (0.19) (0.16) 0.29
Class A & B Cap Rate (%) 6.00-7.50 6.00-7.00 5.75-6.75
New Supply (sq. ft. in millions) 0.16 0.10 0.15
Under Construction (sq. ft. in millions) 0.14 0.08 0.00
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 4.9% 2.0% 4.0%
Neighbourhood Cap Rate (%) 6. 50 -7.00 6. 50-7.00 6.50-7.00
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 2.5% 2.8% 3.0%
Apartment Cap Rate (%) 5.00-5.75 5.00-5.75 5.00-5.50
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
* Conference Board of Canada
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30 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
LONDON & K ITCHENER-WATERLOO
In recent years, it has been
diffi cult to speak aboutSouthwestern Ontario as ahomogenous region, but bothLondon and Kitchener-Waterloo will exhibit healthy leasingand investment activity as 2016unfolds, which is consistent with positive momentum acrossthe regional economy.
Waterloo and London willcontinue to see signs ofintensification in 2016 and new
development and investment will revolve around this trend.In Waterloo, the LRT is closerto the 2018 completion date, while London’s affordable core with ample parks and amenitiesis appealing to retirees andspurring the construction of anew 35-storey condo.
The industrial sector is oneof the most active parts ofthe market, but a very modest
amount of this activity can betied to favourable exchangerates. The market has retooledsince 2008 and industrialdecision making criteria in2016 will largely be the sameas in the prior year when theCanadian dollar was muchhigher. There is limitedavailability of industrialproperties >50,000 sq. . forsale or lease in London, while Waterloo is attracting industrial
tenants as an affordablealternative to Milton andMississauga in the western edgeof the GTA.
Waterloo will continue to attract
and foster the development ofinnovative businesses. Expectsignificant announcements,similar to the recent Shopifyexpansion, which will resultin offi ce absorption in 2016.London’s offi ce market willexperience a modest recoverythanks to a growing tech sector, which will be led by gamingcompany expansions.
Waterloo Region will outpace
London in terms of overallinvestment activity, but bothmarkets will post healthy volumes. The region will benefitas investors look for alternativedestinations outside of Albertaand Asian capital will also havean impact, albeit from mid-tierinvestors. 2016 will not be a yearof large trades and instead willbe characterized by mid-marketactivity.
LOCAL DEVELOPERS SPURMOST
CONSTRUCTION
IN THREE YEARS
LAND IS INDEMAND,
BODES WELL FORFUTURE GROWTH
THINKING
SMALL COULDHAVE A BIG
REAL ESTATE
IMPACT.
QUANTUM
NANOTECH-
NOLOGY
EMERGES AS
GROWTH SECTOR IN WATERLOO
REGION
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31 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
LONDON & K ITCHENER-WATERLOO
TRANSITION OF LONDON’SSOHO DISTRICT
Planning constraints in the city’s core
combined with increased demand for
creative space in heritage buildingscontinue to rejuvenate London’s SOHO
district.
WATERLOOREGIONAL LRT
Demand is expected to be high and
retrofitting will take place around LRT
stations, in particular the Columbia Streetnodes which are located on the edge of
University of Waterloo.
www.rapidtransit.regionofwaterloo.ca
REDEVELOPMENT OF VICTORIA HOSPITAL
The development community will get
clarity around the possibilities for the new
riverfront development south of London’sdowntown core. This will be the most
significant development opportunity in
London for the next decade.
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
London Kitchener/Waterloo
Central 2015 F 2016 F YoY 2015 F 2016 F YoY
Vacancy Rate 15.5% 14.5% 10.0% 9.3%
Class A Net Rental Rate (PSF) $14.00 $14.00 $11.84 $11.75
Absorption (MSF) 0.05 0.04 0.06 0.07
Class A Cap Rate (%) 6.50-7.50 6.50-7.50 6.00-7.00 6.00-7.50
New Supply (MSF) 0.03 0.00 0.00 0.04
Under Construction (MSF) 0.00 0.00 0.05 0.15
SuburbanVacancy Rate 9.0% 9.5% 12.0% 10.6%
Class A Net Rental Rate (PSF) n/a n/a $14.55 $14.50
Absorption (MSF) 0.10 0.05 0.05 0.13
Class A & B Cap Rate (%) 7.50-8.50 7.50-8.50 6.50-7.00 6.50-7.00
New Supply (MSF) 0.09 0.07 0.13 0.00
Under Construction (MSF) 0.07 0.09 0.00 0.22
Overall
Vacancy Rate 14.1% 13.4% 11.3% 10.1%
Class A Net Rental Rate (PSF) $14.00 $14.00 $13.69 $13.59
Absorption (MSF) 0.16 0.10 0.11 0.20
New Supply (MSF) 0.12 0.07 0.13 0.04
Under Construction (MSF) 0.07 0.09 0.05 0.37
London Kitchener/Waterloo
2015 F 2016 F YoY 2015 F 2016 F YoY
Availability Rate 11.2% 9.9% 6.1% 6.1%
Net Rental Rate (PSF) $4.15 $4.25 $5.07 $4.85
Sale Price (PSF) $65.00 $65.00 $65.04 $68.25
Absorption (MSF) 1.17 0.60 (0.23) 0.27
Class A & B Cap Rate (%) 7.50-9.00 7.50-9.00 6.00-7.50 6.00-7.50
New Supply (MSF) 0.16 0.10 0.61 0.33
Under Construction (MSF) 0.10 0.20 0.33 0.43
London Kitchener/Waterloo
Transactions ($ M) 2015 F 2016 F YoY 2015 F 2016 F YoY
Office $15 $30 $35 $43
Industrial $25 $28 $185 $164
Retail $30 $65 $141 $145
Multifamily $70 $100 $133 $140
ICI Land $15 $15 $19 $20
Hotel* $55 $25 $21 $22
Total $210 $263 $535 $533
London Kitchener/Waterloo
2015 F 2016 F YoY 2015 F 2016 F YoY
Retail Sales (YoY)* n/a n/a n/a n/a
Neighbourhood Cap Rate (%) 6.75-8.00 6.75-8.00 6.00-6.50 6.25-6.75
London Kitchener/Waterloo
2015 F 2016 F YoY 2015 F 2016 F YoY
Overall Vacancy Rate* 2.7% 2.7% 2.7% 2.8%
Apartment Cap Rate (%) 5.25-6.25 5.25-6.25 5.25-6.00 5.25-6.00
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
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32 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
TORONTO (Office)
The 3.7 million sq. . of
downtown offi ce spacescheduled for completion by late2017 will face an unprecedentedrate of technological changeand the continued evolution of workplace strategies. State ofthe art buildings and existingoffi ce stock will be challengedto anticipate change and remaincompetitive.
Expect a change in thecomposition of preleasing
activity for the next offi ceconstruction cycle. With thelargest offi ce tenants in themarket currently committedto leases and offi ce occupiersmoving towards more effi cientfootprints, the next wave ofoffi ce towers will likely be built with the backing of a mix oflarger tenants as opposed tothe traditional anchor or singletenant.
New supply will continue to putupward pressure on vacancyrates in 2016; however, newoffi ce buildings are expected tobe at least 80.0% leased uponcompletion. Existing buildings with vacant space to backfill will feel pressure to completemajor upgrades and attract newtenants that can replace lostrevenue. This is an opportunityfor the historical financial coreto reinvigorate itself.
Suburban and downtown
offi ce vacancy rates will showthe greatest disparity in over20 years in 2016; however,the rising cost of downtownoffi ce space combined withenhanced regional transit andhousehold formation amongstthe Generation Y cohort, couldspur more economic activityand demand for offi ce space indensifying areas of the suburbs.
A new phenomenon called
‘industrial decoupling’ will alsoserve as a driver of demand forsuburban offi ce space. Oncehoused together, companiesare separating their industrialand offi ce uses and movingthe offi ce component to moretraditional suburban offi cenodes. Expect this trendto continue as industrialcompanies place offi ceemployees in more appropriatepremises.
AS VACANCY RISES, TENANTS
WILL HAVE MORENEGOTIATINGPOWER
INDU S TRI A L
O F F I C E
T EN A N T S L A NDLOR D S
K I N G S T
F R O N T S T
B A Y S T
This trend will drive suburban office
demand in 2016
DECOUPLING USES WILL INCREASE
SUBURBAN OFFICE DEMAND
OFFICE ACTIVITY CONTINUES TO
SHIFT TO THE SOUTH CORE
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33 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
TORONTO (Office)
VAUGHAN METROPOLITANCENTRE (VMC)
This 442.0 acre area will continue to
be developed to include offi ce, retail,
residential opportunities and a subwayconnection, which will be completed in
2017. The KPMG Tower offi ce development
is expected to be completed in 2016.
www.vaughan.ca
METROLINX EGLINTONCROSSTOWN LINE
The Eglinton Crosstown Light Rail Transit
is a $5.3 billion investment that will run
across Eglinton Avenue between MountDennis (Weston Road) and Kennedy
Station. It is part of a consolidated effort
to integrate transportation in the Greater
Toronto Area. The project will be completein 2021.
www.thecrosstown.ca
BAY PARK CENTREDEVELOPMENT
This Ivanhoé Cambridge project consists of
two offi ce buildings and retail space, along
with a new GO Bus Terminal in partnership with Metrolinx. Watch for a significant
pre-leasing announcement and the
commencement of construction in 2016.
www.ivanhoecambridge.com
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 5.9% 6.0% 7.1%
Class A Net Rental Rate (per sq. ft.) $28.41 $29.02 $30.47
Absorption (sq. ft. in millions) 1.68 0.22 1.31
Class A Cap Rate (%) 5.25-5.75 4.75-5.25 4.50-5.00
New Supply (sq. ft. in millions) 1.59 0.29 2.39
Under Construction (sq. ft. in millions) 3.47 3.74 1.35
Suburban
Vacancy Rate 13.8% 16.0% 17.0%
Class A Net Rental Rate (per sq. ft.) $17.09 $17.30 $17.30
Absorption (sq. ft. in millions) (0.18) (0.78) (0.30)
Class A & B Cap Rate (%) 5.75-7.75 5.50-6.75 5.30-6.55
New Supply (sq. ft. in millions) 0.39 1.07 0.51
Under Construction (sq. ft. in millions) 2.49 1.29 0.78
Overall
Vacancy Rate 9.5% 10.7% 11.7%
Class A Net Rental Rate (per sq. ft.) $20.68 $20.81 $21.61
Absorption (sq. ft. in millions) 1.50 (0.56) 1.01
New Supply (sq. ft. in millions) 1.97 1.36 2.90 Under Construction (sq. ft. in millions) 5.96 5.03 2.13
2014 2015 F 2016 F YoY
Availability Rate 4.4% 4.1% 4.3%
Net Rental Rate (per sq. ft.) $5.19 $5.33 $5.89
Sale Price (per sq. ft.) $88.45 $110.00 $112.50
Absorption (sq. ft. in millions) 5.57 6.90 3.60
Class A & B Cap Rate (%) 5.25-7.50 5.00-7.50 5.00-7.00
New Supply (sq. ft. in millions) 5.83 4.58 5.44
Under Construction (sq. ft. in millions) 7.00 7.21 5.02
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $3,051 $3,337 $2,485
Industrial $2,190 $1,827 $2,270
Retail $2,616 $1,979 $1,704
Multifamily $1,176 $1,603 $998
ICI Land $1,426 $1,035 $1,226
Hotel* $323 $754 $500
Total $10,784 $10,533 $9,183
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 6.2% 3.2% 4.5%
Neighbourhood Cap Rat e (%) 5.50 -6.50 5.6 3-5.75 5.4 3-5.55
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 1.6% 1.7% 1.9%
Apartment Cap Rate (%) 4.50-5.25 4.63-4.88 4.43-4.68
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
7/24/2019 CBRE Market Outlook 2016
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34 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
TORONTO (Industrial)
With one of the lowest
industrial availability rates inNorth America, the GreaterToronto Area (GTA) is likelyto record an increase inspeculative construction activityin 2016; however, speculativedevelopment yields no longerprovide as large a premium forthe risk the builders assume dueto rising development chargesand increased constructioncosts.
The owner-user sale marketis coming off one of the mostcompetitive years on record. A lack of product, risingconstruction costs and readilyavailable financing are expectedto continue in 2016 andproduce another year of heatedcompetition amongst buyers.For investors, high demand toplace equity in the industrialsector is likely to force cap ratesto new benchmark lows.
Retailers will continue tobe the driving force behinddistribution centre activity in2016. Consumers are not buyingmore products as much asthey are purchasing productsdifferently through the omni-channel network concept.Therefore, as the ecommercecomponent of distributionnetworks evolve, so too willretailers’ industrial footprint.
In order to accommodate
ecommerce needs aroundspeed to market, there will beincreased demand for industrialproperties <50,000 sq. . withina twenty minute drive of thedowntown core; however,limited functional offeringsin South Scarborough, SouthEtobicoke and North York willforce users to be creative withtheir site selection criteria andapproach.
Leasing, investment andconstruction activity in the west end will outpace the restof the region. This area benefitsfrom the presence of superiortransportation infrastructureand intermodal facilities, whilethose with an eye to the futureanticipate highway wideningand new routes in the comingdecade.
LABOUR
AND SUPPLYCHAIN
EFFICIENCY
WILL BE KEY
FACTORS IN
INDUSTRIAL REAL
ESTATE DECISIONS
MILTON AND
GUELPH’S
INDUSTRIAL
PROSPECTS
ARE ON
THE RISE
GO
WEST!
NEW RECORD
INDUSTRIAL
SALE PRICES
AND RISINGLEASE RATES
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35 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
TORONTO (Industrial)
DEVELOPMENT OF NEW 400SERIES HIGHWAYS
New highway construction and extensions
on existing highways will directly impact
land purchases and drive industrial usersto consider new markets.
www.mto.gov.on.ca
INFILL DEVELOPMENTS INCORE MARKETS
Expect activity on older industrial facilities
in close proximity to core urban markets.
Carttera’s HBC infill development andthe CP/Dream land development are two
examples of the trend to revitalize older
stock.
CN INTERMODAL ANDLOGISTICS HUB IN MILTON
The $250.0 million intermodal and logistics
hub adjacent to its main line in the Town of
Milton will facilitate logistics development while attracting more warehousing
distribution centres and employment.
www.cn.ca
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 5.9% 6.0% 7.1%
Class A Net Rental Rate (per sq. ft.) $28.41 $29.02 $30.47
Absorption (sq. ft. in millions) 1.68 0.22 1.31
Class A Cap Rate (%) 5.25-5.75 4.75-5.25 4.50-5.00
New Supply (sq. ft. in millions) 1.59 0.29 2.39
Under Construction (sq. ft. in millions) 3.47 3.74 1.35
Suburban
Vacancy Rate 13.8% 16.0% 17.0%
Class A Net Rental Rate (per sq. ft.) $17.09 $17.30 $17.30
Absorption (sq. ft. in millions) (0.18) (0.78) (0.30)
Class A & B Cap Rate (%) 5.75-7.75 5.50-6.75 5.30-6.55
New Supply (sq. ft. in millions) 0.39 1.07 0.51
Under Construction (sq. ft. in millions) 2.49 1.29 0.78
Overall
Vacancy Rate 9.5% 10.7% 11.7%
Class A Net Rental Rate (per sq. ft.) $20.68 $20.81 $21.61
Absorption (sq. ft. in millions) 1.50 (0.56) 1.01
New Supply (sq. ft. in millions) 1.97 1.36 2.90 Under Construction (sq. ft. in millions) 5.96 5.03 2.13
2014 2015 F 2016 F YoY
Availability Rate 4.4% 4.1% 4.3%
Net Rental Rate (per sq. ft.) $5.19 $5.33 $5.89
Sale Price (per sq. ft.) $88.45 $110.00 $112.50
Absorption (sq. ft. in millions) 5.57 6.90 3.60
Class A & B Cap Rate (%) 5.25-7.50 5.00-7.50 5.00-7.00
New Supply (sq. ft. in millions) 5.83 4.58 5.44
Under Construction (sq. ft. in millions) 7.00 7.21 5.02
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $3,051 $3,337 $2,485
Industrial $2,190 $1,827 $2,270
Retail $2,616 $1,979 $1,704
Multifamily $1,176 $1,603 $998
ICI Land $1,426 $1,035 $1,226
Hotel* $323 $754 $500
Total $10,784 $10,533 $9,183
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 6.2% 3.2% 4.5%
Neighbourhood Cap Rat e (%) 5.50 -6.50 5.6 3-5.75 5.4 3-5.55
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 1.6% 1.7% 1.9%
Apartment Cap Rate (%) 4.50-5.25 4.63-4.88 4.43-4.68
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
7/24/2019 CBRE Market Outlook 2016
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36 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
OTTAWA
Downtown Ottawa will continue
the process of redefining itselfin 2016 and beyond. Much likethe suburban offi ce marketstruggled for a decade followingthe burst of the tech bubble, thedowntown offi ce market willneed to adjust as the federalgovernment rationalizes andupgrades its offi ce footprint.The downtown economy andoffi ce tenant base will need togradually diversify and bringthe downtown vacancy rate into
balance.
The federal governmentcontinues to be the dominantforce in Ottawa and the recentchange in government has giventhe public service a renewedsense of optimism. It remainsto be seen if the governmentoffi ce footprint will continue todecrease. A drastic change incourse is not expected in 2016as it will take the government
time to implement new policies.
The Kanata offi ce market, with the support of a healthytechnology sector, will continueto be a dominant force inthe leasing market. Kanatarepresents approximately 14.0%of Ottawa’s offi ce inventory, yetaccounted for 39.0% of totaldeal velocity through Q3 2015.Expect Kanata and the techsector to remain active in 2016.
Ottawa’s industrial sector will continue to face growthconstraints in the east end. With 40.0% of industrial spacelocated in the Belfast-Sheffi eldindustrial area, less than 2.0%of land in that area is availablefor development. This situation
is not easily rectified and the
industrial sector will need to berewired to facilitate growth innew areas over the long term.
Retail market activity willfocus on upgrades and growthof Ottawa’s regional shoppingcentres, including the expansionand renovation of CF RideauCentre and Bayshore ShoppingCentre. The recent addition ofa Nordstrom and completionof the Tanger Outlet reflect
the vibrancy of Ottawa’s retailmarket and high disposableincomes in this market.
Ottawa will attract investorslooking to diversify theirreal estate holdings. Ottawais poised for an active salesmarket as opportunistic offi ceowners attempt to maximizeproperty values and investorsseek to make strategic long-termbets on the nation’s capital.
Additionally, value-drivenbuyers will attempt to capitalizeon opportunities to repositionobsolete offi ce buildings. Retailand multifamily property will also be sought aer byinvestors, while industrialtrading activity is expected to bemuted.
Welcometo Ottawa 2016:
“A year of discovery”
NDP
C
LWINDS OF
POLITICAL CHANGE
COULD HAVEIMPLICATIONS FOR
COMMERCIAL
PROPERTY IN
OTTAWA
WORKPLACE 2.0 COULD
REDUCE THE FEDERAL
GOVERNMENT OFFICE
FOOTPRINT BY UP TO 1.8
MILLION SQ. FT. IF FULLY
IMPLEMENTED
22% reduction in total space isonly 10% complete
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37 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
OTTAWA
WESTBORO CONNECTION(319 MCRAE AVENUE)
This mixed-use development located in
Ottawa’s west-end embodies the live,
work, play model and features 116,304 sq.. of offi ce space, 32,165 sq. . of retail
space, and 141 rental apartment units. The
building will be completed at the close of
Q4 2015 and tenants will take possession in January 2016.
CIENA CANADA EXPANSIONIN KANATA
In late 2014, Ciena firmed up a 13-year
lease deal at 5050 Innovation Drive
totaling 170,500 sq. . The site was builtfor Blackberry and was sold to Spear
Street Capital and subsequently sold
to Crestpoint. Ciena has kicked off two
new offi ce buildings on the adjacent site– Building B will be ~152,000 sq. . and
Building C will be ~102,000 sq. .
LEBRETON FLATSREDEVELOPMENT
The National Capital Commission (NCC)
has pre-qualified four groups to propose
plans for the redevelopment of LeBretonFlats. Among these is a proposal from the
Ottawa Senators to build a major sporting
and event centre.
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 8.8% 9.3% 9.5%
Class A Net Rental Rate (per sq. ft.) $24.20 $23.00 $23.00
Absorption (sq. ft. in millions) 0.09 (0.11) (0.04)
Class A Cap Rate (%) 5.25-6.00 5.25-6.00 5.25-6.00
New Supply (sq. ft. in millions) 0.42 0.00 0.00
Under Construction (sq. ft. in millions) 0.00 0.00 0.00
Suburban
Vacancy Rate 10.4% 11.2% 11.4%
Class A Net Rental Rate (per sq. ft.) $16.51 $16.20 $16.25
Absorption (sq. ft. in millions) 0.06 (0.09) 0.06
Class A & B Cap Rate (%) 6.25-7.75 6.75-7.25 6.90-7.40
New Supply (sq. ft. in millions) 0.29 0.17 0.10
Under Construction (sq. ft. in millions) 0.19 0.21 0.32
Overall
Vacancy Rate 9.6% 10.3% 10.5%
Class A Net Rental Rate (per sq. ft.) $19.44 $19.04 $19.07
Absorption (sq. ft. in millions) 0.16 (0.20) 0.02
New Supply (sq. ft. in millions) 0.71 0.17 0.10 Under Construction (sq. ft. in millions) 0.19 0.21 0.32
2014 2015 F 2016 F YoY
Availability Rate 6.4% 6.6% 6.6%
Net Rental Rate (per sq. ft.) $8.83 $8.75 $8.70
Sale Price (per sq. ft.) $126.17 $130.81 $135.00
Absorption (sq. ft. in millions) 0.28 0.15 0.08
Class A & B Cap Rate (%) 6.00-7.50 6.25-6.75 6.25-6.75
New Supply (sq. ft. in millions) 0.26 0.23 0.07
Under Construction (sq. ft. in millions) 0.17 0.06 0.06
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $261 $261 $325
Industrial $78 $139 $145
Retail $152 $101 $140
Multifamily $397 $359 $335
ICI Land $98 $335 $325
Hotel* $84 $33 $158
Total $1,071 $1,227 $1,428
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 4.7% 2.6% 3.3%
Neighbourhood Cap Rate (%) 6. 25-7.00 6.00- 6.75 6.00- 6.75
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 2.6% 2.3% 2.0%
Apartment Cap Rate (%) 4.75-5.50 4.75-5.50 4.75-5.50
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
7/24/2019 CBRE Market Outlook 2016
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38 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
MONTREAL
In 2016, the alignment of private
and public sector investmentand an improving economicoutlook will help Montreal tocontinue on its path to renewal. As construction across theregion suggests, the city isa work in progress, but thegroundwork is being laid for abright future.
The offi ce sector will have 2016to digest the vacant space intwo downtown offi ce towers
that have been completed aspart of the ongoing 1.5 millionsq. . development cycle. Threeoffi ce buildings are slated forcompletion in 2017, Manulife,Desjardins, and L’Avenue, which makes economic growthand preleasing in 2016 all themore important. Despite anincrease in offi ce vacancy ratesdue to new supply, the newstock of modern offi ce towers isessential for Montreal to remain
a competitive destination forbusinesses and be a world-class city. As for the suburbanoffi ce markets, they maybenefit as U.S. companies seekout competitive labour andoccupancy costs.
Montreal continues to rapidlydensify as it plays catch-up withother major Canadian citiesin this regard. Griffi ntownand the area around the Bell
Centre remain examples of thisprocess as condo and apartmentdevelopment support a growingurban population.
The local industrial economy
continues to be dominated bydemand for distribution space,as retailers pursue supply chainenhancements. Downtownstreet front retail remainsdynamic as more internationalretailers move in to fill vacancies le by some localretailers who have struggled.
As for investment dynamics,Montreal will gain furtherattention as competition for
core assets in Vancouver andToronto has become intense.Comparatively reasonablepricing and relative economicstability should attract investorsto Montreal in 2016. In theabsence of trophy assets, expectmore Class B and C propertiesto trade hands.
2010 36,189
2015 42,956
2020 49,471
D O W
N T O WN
M O N T R E A L
URBAN POPULATION GROWTH AC CE LE RATI ON
Population growth within a 1.0 km radiusof Peel and Rene Levesque West
THE CITY OF MONTREAL HAS ALLOCATED $1.5 BILLION
TO ROAD REPAIROVER THE
NEXT THREE YEARS
THE CHAMPLAIN BRIDGE ANDTURCOT INTERCHANGE AREHELPING TO MODERNIZE
MONTREAL
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39 CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
MONTREAL
ROYALMOUNTRETAIL PROJECT
The $1.7 billion project located at the
intersection of Highways 15 and 40 offers
1.6 million sq. . of retail, 900,000 sq. . ofrestaurants and theatres, 1.5 million sq.
. of offi ce and two hotels. This has the
potential to capture retailers from other
Midtown locations like Rockland Centre.
http://www.carbonleo.com/en/project/royalmount-3/
PRIVATE SECTORINVESTMENT
Significant private companies are
committed to building new corporate
headquarters. Ericsson and ABB will beactive in the suburbs, while Manulife and
Desjardins will be active downtown.
VACANCY AT THE ROYAL VICTORIA, CHILDRENS’ ANDSHRINERS HOSPITALS
Situated on prime downtown real estate,
these three sites have the potential to
become part of the new urban fabric of
Montreal.
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 10.4% 10.7% 10.4%
Class A Net Rental Rate (per sq. ft.) $22.36 $23.45 $24.00
Absorption (sq. ft. in millions) (0.62) 0.30 0.15
Class A Cap Rate (%) 6.00-6.50 5.50-6.00 5.25-5.75
New Supply (sq. ft. in millions) 0.37 0.50 0.00
Under Construction (sq. ft. in millions) 0.58 0.75 0.75
Suburban
Vacancy Rate 16.3% 16.7% 17.4%
Class A Net Rental Rate (per sq. ft.) $15.30 $15.14 $15.50
Absorption (sq. ft. in millions) (0.04) 0.03 0.28
Class A & B Cap Rate (%) 6.25-8.00 6.00-7.75 5.75-7.50
New Supply (sq. ft. in millions) 0.93 0.17 0.58
Under Construction (sq. ft. in millions) 1.07 1.08 0.80
Overall
Vacancy Rate 12.7% 13.1% 13.2%
Class A Net Rental Rate (per sq. ft.) $19.06 $19.27 $19.53
Absorption (sq. ft. in millions) (0.66) 0.33 0.43
New Supply (sq. ft. in millions) 1.30 0.67 0.58 Under Construction (sq. ft. in millions) 1.65 1.82 1.55
2014 2015 F 2016 F YoY
Availability Rate 7.0% 7.5% 7.1%
Net Rental Rate (per sq. ft.) $5.18 $5.29 $5.23
Sale Price (per sq. ft.) $61.68 $65.95 $68.00
Absorption (sq. ft. in millions) 3.91 0.88 2.22
Class A & B Cap Rate (%) 6.00-8.25 5.75-8.00 5.50-7.75
New Supply (sq. ft. in millions) 1.37 2.67 1.31
Under Construction (sq. ft. in millions) 1.72 0.33 0.30
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $1,400 $600 $800
Industrial $608 $800 $800
Retail $1,945 $1,117 $850
Multifamily $813 $1,110 $750
ICI Land $399 $304 $350
Hotel* $116 $105 $115
Total $5,282 $4,035 $3,665
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 2.5% 2.8% 4.0%
Neighbourhood Cap Rate (%) 7.25-8.00 7.00-7.75 6.75-7. 50
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 3.4% 3.9% 4.2%
Apartment Cap Rate (%) 5.25-6.00 5.00-5.75 4.75-5.50
*Source: Canada Mortgage and Housing Corp., CBRE Limited.
*Market and surrounding region* Conference Board of Canada
7/24/2019 CBRE Market Outlook 2016
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CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
ATLANT IC CANADA
▶ Atlantic Canada is working
from a base of relative stability with Halifax, Moncton and St.
John’s among the five fastestgrowing Census Metropolitan
Areas in Canada from a GDPperspective. 2016 will present
interesting opportunities forbusiness and investors in theregion.
▶ Halifax will break from one
significant national trend in2016, while falling in line with
another:
» The region has largelybeen spared the negative
consequences of depressedenergy prices. The low cost
of offshore oil production,
especially projects that arealready producing, continues to
attract exploration investmentin the region. The regional
mining sector also continues toexpand and support economic
growth, with significant
projects in Newfoundland andLabrador.
» Halifax had been one of the
few major Canadian cities with suburban real estate
activity significantly outpacingthe downtown core. This is
poised to shi, with renewed
residential development, a newlibrary and convention centre,
and an overall desire to havean urban experience leading to
a rebalancing of the market in
favour of the Halifax Peninsula.
▶ The outlook for leasing activity
is favorable, with office usersbeginning a shi towards
the downtown market. Theindustrial sector is poised to
benefit from the combinationof a low Canadian dollar and
growing U.S. economy, as wellas Irving Ship building activityand offshore oil exploration
– a winning combination for Atlantic Canada.
▶ Atlantic Canada’s super
regional shopping centresare receiving significantinvestment and tweaks to
their tenant mix in orderto maintain their position
amongst the top 20 mostproductive shopping centres inCanada.
▶ Investors are increasingly
looking to Atlantic Canada’sleading markets as an
alternative destination for
capital due to higher yield.There should be opportunity
to purchase assets in 2016as owners rebalance their
portfolios. Commercialproperty in Atlantic Canada
continues to offer an attractivecombination of reliable returnsand solid fundamentals, which
should appeal to disciplinedinvestors at this stage in the
investment cycle.
GROWTH OF
POPULATION AND REAL
ESTATE DEMAND TO
SHIFT TO DOWNTOWN
HALIFAX FROM THE
SUBURBS
OST CRANES AND CONSTRUCTION
ACTIVITY IN THE PAST 20 YEARS
LOW CANADIAN
DOLLAR
SUPPORTING
RECORD CRUISE
SHIP TRAFFIC
AND AN INFLUX
OF TOURISTS
OIL PRODUCTION COSTS GIVE
ATLANTIC CANADA THE EDGE
P E R
B A R R E L >$3 0
P E R
B A R R E L <$2 0
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CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK
Projects to Watch
Market Statistics
ATLANT IC CANADA
MARITIME LINK PROJECT
The Maritime Link will allow Nova Scotia to
import hydro electricity from the Muskrat
Falls generating station in Labrador, which
is being developed by Nalcor Energy as part
of the Lower Churchill Project. The 35-year
investment is in exchange for 20.0% of the
electricity from Muskrat Falls.
www.emeranl.com/en/home/themaritimelink/overview.aspx
TRANSCANADA ENERGY
EAST PIPELINE
If approved, this 4,600 km pipeline will
carry 1.1 million barrels of crude per day
from Alberta and Saskatchewan to the
Irving Oil refinery in Saint John, the largest
and most advanced refinery in Canada.
Construction of a new tank terminal in
Saint John could also increase industrial
activity in the area.
www.transcanada.com
OFFICE INDUSTRIAL
MULTIFAMILY
INVESTMENT
RETAIL
Central 2014 2015 F 2016 F YoY
Vacancy Rate 13.6% 14.6% 14.7%
Class A Net Rental Rate (per sq. ft.) $19.61 $19.61 $19.50
Absorption (sq. ft. in millions) (0.07) (0.04) 0.12
Class A Cap Rate (%) 6.00-6.50 6.00-6.50 6.00-6.50
New Supply (sq. ft. in millions) 0.22 0.01 0.15
Under Construction (sq. ft. in millions) 0.16 0.15 0.03
Suburban
Vacancy Rate 13.7% 14.8% 13.6%
Class A Net Rental Rate (per sq. ft.) $16.80 $16.74 $17.00
Absorption (sq. ft. in millions) 0.17 0.03 0.24
Class A & B Cap Rate (%) 7.00-8.25 7.13-7.31 7.00-7.50
New Supply (sq. ft. in millions) 0.37 0.13 0.20
Under Construction (sq. ft. in millions) 0.23 0.32 0.22
Overall
Vacancy Rate 13.7% 14.7% 14.0%
Class A Net Rental Rate (per sq. ft.) $18.70 $17.93 $18.08
Absorption (sq. ft. in millions) 0.10 (0.00) 0.36
New Supply (sq. ft. in millions) 0.59 0.14 0.35 Under Construction (sq. ft. in millions) 0.39 0.47 0.25
2014 2015 F 2016 F YoY
Availability Rate 7.7% 9.7% 8.5%
Net Rental Rate (per sq. ft.) $7.61 $7.61 $7.65
Sale Price (per sq. ft.) $80.00 $80.00 $80.00
Absorption (sq. ft. in millions) 0.01 (0.14) 0.41
Class A & B Cap Rate (%) 6.50-7.75 6.50-7.75 6.50-7.50
New Supply (sq. ft. in millions) 0.17 0.11 0.30
Under Construction (sq. ft. in millions) 0.04 0.13 0.08
Transactions (in $ Millions) 2014 2015 F 2016 F YoY Office $61 $140 $80
Industrial $38 $36 $50
Retail $55 $30 $150
Multifamily $121 $140 $100
ICI Land $93 $60 $50
Hotel* $38 $28 $45
Total $405 $434 $475
2014 2015 F 2016 F YoY
Retail Sales (YoY)* 3.4% (0.5%) 4.5%
Neighbourhood Cap Rate (%) 6.25- 6.75 6.25- 6.75 6. 50-8. 50
2014 2015 F 2016 F YoY
Overall Vacancy Rate* 3.8% 4.1% 4.3%
Apartment Cap Rate (%) 5.75-6.25 5.38-6.00 5.00-5.50
*Canada Mortgage and Housing Corporation, CBRE Limited
*Market and surrounding region* Conference Board of Canada
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NationalContributors
RegionalContributors
National ResearchContributors
Regional ResearchContributors
Investment
Peter SenstPresident, Canadian Capital [email protected]
Paul MorassuttiExecutive Vice President, Managing Director
Retail
Tom BalkosDirector, Retailer [email protected]
Industrial
Andrew WrightExecutive Vice President, Managing [email protected]
Hotels
Bill StoneSale Representative, Executive Vice President
Seniors Housing & Healthcare
Matthew BurnettSale Representative, Associate Vice [email protected]
Stephen Hiscox Valuations and Advisory Services, Vice [email protected]
Sean McCrorieValuations and Advisory Services, Vice [email protected]
Offi ce
John O’TooleExecutive Vice President and Executive Managing [email protected]
Multifamily
Ross MooreDirector of Research, [email protected]
Vancouver
Norm TaylorExecutive Vice President and Managing [email protected]
Calgary
Greg KwongExecutive Vice President and Regional Managing [email protected]
Edmonton
Dave YoungExecutive Vice President and Managing [email protected]
Winnipeg
Ryan BehieVice President and Managing [email protected]
Southwestern Ontario
Peter WhatmoreSenior Vice President and Executive Managing [email protected]
Toronto (Offi ce)
John O’TooleExecutive Vice President and Executive Managing [email protected]
Adrian LeeExecutive Vice President and Managing [email protected]
Toronto (Industrial)
Werner DietlExecutive Vice President and Managing Director
Shawn HamiltonVice President and Managing [email protected]
Montreal
Alex SieberSenior Vice President and Senior Managing [email protected]
Atlantic Region
Robert MussettSenior Vice President and Senior Managing [email protected]
Ross MooreDirector of Research, [email protected]
Roelof van Dijk Research Manager, Canada/[email protected]
Christina CattanaResearch Team [email protected]
Ishita AbbottResearch [email protected]
Christian Denny Research [email protected]
Vancouver
Matthew Boddy Research Team [email protected]
Calgary
Jeffrey HurrenSenior Research [email protected]
Edmonton
Jayson de VeraSenior Research [email protected]
Winnipeg
Christian Denny Research [email protected]
Southwestern Ontario
Jaclyn HarrisonResearch [email protected]
Greater Toronto Area
Roelof van Dijk Research Manager, Canada/[email protected]
Ottawa
Daniel NiedraResearch [email protected]
Montreal
Lynn Johannesson
Research Team [email protected]
Halifax
Kara [email protected]
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