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Canada's Industrial Sector Continued to Outperform During Q2 2022: Morguard

·4 min read
  • There were no signs of a slowdown in the industrial investment property sector

  • Multi-suite residential rental rates continued to rise during the second quarter of 2022

  • National office vacancy rates continued to rise

  • Retail investment property sales activity continued to underwhelm

MISSISAUGA, ON, Aug. 25, 2022 /CNW/ - Canada's industrial investment property sector continued to outperform during the second quarter of 2022, according to Morguard's 2022 Canadian Economic Outlook and Market Fundamentals Second Quarter Update ("Morguard") (TSX: MRC). Overall, second quarter investment property sales declined from last year's rates. The largest investment declines were seen primarily in the retail sector and partly in the multi-suite residential rental sector. The industrial sector showed no signs of a slowdown. Investors competed intensely to acquire properties in the industrial sector as properties saw rents double and even triple since the onset of the pandemic.

"With the worst of the pandemic appearing to have passed, investors are demonstrating confidence in Canada's investment property sector," said Keith Reading, Director, Research at Morguard. "Sales are expected to remain brisk during the third quarter, however, investors are cautious due to concerns about the economy, financial markets, and the geopolitical environment."

Multi-Suite Residential Real Estate

Multi-suite residential rental rates continued to rise during the second quarter, continuing the year-to-date trend. The average rent increased by 5.7 per cent in May, which was the largest month-over-month increase witnessed in three years. Rising demand was a main factor contributing to the rise in rent. Additional contributors included increasing immigration demands and the return of students to in-person schooling. The multi-suite residential sector excelled throughout periods of uncertainty and concern, continuing the trend witnessed in the previous quarter.

Commercial Real Estate

There were no signs of a slowdown in Canada's industrial investment property market in the second quarter. Investors competed to acquire properties in the sector as rents continued to rise and availability held at record-low levels in most regions. Low availability allowed managers and owners to raise rents. The upward pressure is expected to continue over the second half of 2022.

Vacancy rates continued to rise in Canada's office market. The sector is expecting an uptick in supply completions in the second half of 2022 and 2023, coinciding with an economic growth slowdown. Organizations continued to transition to remote or hybrid workplace models, reducing the need for office space and contributing to sector vacancy. Ultimately, vacancy, in the near term, will continue to rise. Downward pressure on vacancy levels is expected to unfold by 2024 as construction declines and vacancy is gradually absorbed.

Retail property investment activity slowed during the second quarter. Few assets were made available and transaction closing volume dropped to a decade low. The second-quarter slowdown followed a modest increase in activity over the past couple of quarters.

Economic Factors

The Bank of Canada is continuing its policy tightening in attempts to combat a 40-year high record of inflation. Canadian consumers were concerned with rising prices which led the bank to respond with tighter monetary policies during the second quarter.

Canada's labour market improved during the second quarter of 2022. Unemployment rates fell to a record low of 4.9 per cent compared to the 5.3 per cent reported at the end of March. Previously, Canada's job vacancy rate had climbed to an all-time high because of the negative impacts stemming from the COVID-19 Omicron variant outbreak. Modest improvement in Canada's labour market is expected  for the remainder of 2022.

The second quarter update released today by Morguard of the 2022 Economic Outlook and Market Fundamentals Research Report provided a detailed analysis of the 2022 real estate investment trends to watch in Canada. The full report is available at morguard.com/research.

About Morguard Corporation 

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 $19.4 billion. 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.

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