Continued strength in the e-commerce retail space is fueling a huge demand across Canada for industrial real estate to keep up with the demand.
“The overall strength of the Canadian economy continues to propel massive expansion in commercial markets across the country in 2022,” said Christopher Alexander, President, RE/MAX Canada. “What began as heightened demand for industrial space to accommodate a growing e-commerce platform during the pandemic has blossomed into a full-blown distribution and logistics network that encompasses millions of square feet in markets across the country. Recent volatility in the stock markets has also prompted a shift to greater investment in the commercial segment as investors look to real estate as a hedge against inflation.”
The RE/MAX Canada 2022 Commercial Real Estate Report said institutional and private investors remain exceptionally active in the commercial market across the country, spurring demand for industrial/office/retail product on a large-scale basis.
“Extensive portfolios are a primary target, especially those containing 10 or more properties. Spillover from activity in major centres is also serving to bolster smaller, secondary markets, where affordable price points, in relative terms, prove attractive, especially as savvy investors anticipate future needs and potential, given urban sprawl, density, population growth, pricing and inventory trends,” said the report.
“While retail is making a comeback in prime neighbourhoods, the return of foot traffic should have a positive impact on the market moving forward. Revitalization of older retail spaces and malls is underway to enhance the shopper experience and influence the return to in-person shopping. This, in turn, is attracting tenants. The sector is expected to continue to strengthen as markets move past former pandemic constraints and more favourable conditions emerge to support retail growth.
“RE/MAX Canada has found that cannabis outlets are largely over-represented in most major Canadian centres. As the industry amalgamates, there could be an influx of retail inventory returned to the market over the next 12 to 18 months.”
The report said retail is on the rebound in 75 per cent of major Canadian markets (9/12), with strong emphasis on prime locations in neighbourhood microcosms. The trend has been identified in Vancouver, Edmonton, Calgary, Saskatoon, Regina, Winnipeg, Hamilton-Burlington-Niagara, Toronto and Ottawa.
Elton Ash, Executive Vice President, RE/MAX Canada, said the retail sector is driven by consumer demand and confidence.
“Retail is being driven by strong consumer demand which is a result of coming out of the pandemic and people feeling more confident with the easing of restrictions. It all leads to this. There’s a sense of better buy now before prices get higher because combined with all of this is there’s more cash in Canadians’ pockets than has ever been. The savings rates are at record highs,” said Ash. “So there’s this underlying desire to take advantage of where things are at and this need to make up for lost time. Pent-up demand.
“Right now, the strength of the commercial market is in industrial warehousing and then multi-family. What’s driving that is retail distribution requirements. It’s looking positive to continue with the demand to stay strong. But I say that cautiously because we’re at this point right now where we don’t know how effective the Bank of Canada is going to be in trying to deal with inflation and slowing an overheated economy. What will that do to warehouse distribution? But there’s pent-up demand and I think there’s a shortage that has to be met and that will continue at least in the short term.”
Ash said suburbia is leading the trend when it comes to retail space.
“When you get out of the downtown cores and into the strip malls, smaller neighbourhood malls and that type of thing, there’s a real demand there,” said Ash. “Interestingly enough as we found in our report, cannabis is overbuilt. We were predicting that a while ago. With that aside, the rest of retail is very strong and foot traffic is building again from where it was two years ago this very time which was totally zero. We were all shuttered in our homes. We’re returning to pre-pandemic and I think pent-up demand will take us past that pre-pandemic level so it’s looking very positive.”