Commercial, office, industrial and multi-unit properties. What’s in store for 2022?
March 15, 2022
By Michel Limoges, chartered real estate broker with the Ayotte team As I write these lines, there is no shortage of risks : war in Ukraine and the possibility of it spreading, high inflation that could continue to rise, rising interest rates, logistical problems… And yet real estate markets are still doing well. What will happen for the rest of 2022?
More expensive borrowing due to rising interest rates
To combat inflation, which is at a 30-year high, the Bank of Canada raised its key rate by a quarter point on March 2. It now stands at 0.50%, its highest level since 1991.
This, of course, prompted our major banks to raise their prime interest rates. The result : the cost of borrowing, particularly for variable-rate mortgages, will also rise. And this is just the beginning. Indeed, analysts predict that the key rate could reach 2 % by the end of 2022, and 2.5 % in 2023. Of course, such increases, not to mention the materialization of any of the risks I’ve mentioned, could slow investor enthusiasm in all real estate markets. However, as I explain in the remainder of this article, these markets are still showing good prospects, and there are opportunities to be seized.
Commercial real estate : reallocations and reconversions
I observed a slight slowdown in commercial real estate at the beginning of the year. However, supply is still insufficient in relation to demand. What’s more, the post-pandemic economic recovery and the gradual return of people to their places of work should greatly benefit street-front stores and, consequently, encourage investment in this type of property. In fact, according to CBRE’s Canadian Real Estate Market Outlook study, Canadian commercial real estate transactions could reach an all-time high of $58.5 billion by 2022. Shopping center owners have had a very difficult time of it, however, due to the pandemic. That said, many buyers have been able to find excellent opportunities or implement projects for repositioning or conversion into multi-residential or mixed-use properties. Repositioning and repurposing are just some of the ways in which commercial assets can be made profitable in 2022. According to HUB International, the commercial sector is undergoing a profound transformation, as evidenced by some shopping centers that have become warehouses, entertainment spaces or restaurants.
This type of conversion is likely to accelerate, the insurance brokerage company also predicts. What’s more, many retailers and shopping centers are changing their business models, for example, by placing greater emphasis on experiential shopping in their physical premises. Yes, despite the growing trend towards online shopping, retail is here to stay! On this subject, read our article Why invest in commercial real estate.
Office and industrial buildings: sectors undergoing change
Despite confinement and telecommuting, office buildings won’t disappear either. While investment in this sector has seen a decline, which I’m still observing in the first quarter of 2022, the market will offer good opportunities in the coming months, especially as the mass return of workers to their desks continues. Here too, we’re talking about a market in the throes of transformation. With telecommuting becoming the norm for many employees, many companies are rethinking the size and layout of their premises, to make them more attractive and stimulating for staff.
As noted by the Bank of Canada (BDC), ” the pandemic has accelerated thinking about how offices fit into the overall workplace ecosystem. Their function is being rethought, not eliminated. ” In addition, CBRE Canada predicts that, ” in the technology sector, U.S.-based occupiers will resume their expansion plans in Canada, boosting demand for high-end office space “, and our urban centers would benefit. The industrial real estate sector, which was already very strong in 2021, should also see strong demand in 2022. According to BDC, industrial real estate will remain strong, thanks to the increase in online purchases. Indeed, this growth, together with the current difficulties in logistics, is stimulating demand for warehouses and distribution centers, or for premises that could be converted into such facilities.
Multi-family real estate : an excellent choice in 2022
A multi-unit property has always been, and will continue to be, an excellent asset, especially under current conditions, which are likely to continue into 2022. Indeed, in a context of wage increases (to retain scarce employees in times of labour shortage), full employment and low vacancy rates, demand for housing is high. Buying a multi-unit building can still be profitable, especially as selling prices may become more stable or increase only slightly, after 10 years of sustained increases. Interested in buying or selling an industrial, commercial, office or multi-unit property? Tell us about your project, and we’ll be happy to help you make it a success. Contact us today.