Industrial sector investment property sales outperforming other sectors
By Adam Freill
Commercial Construction Industrial ResidentialRents rising in industrial and multi-suite residential markets amidst backdrop of rising office vacancy rates and underwhelming retail investment property sales.
Low availability had Canada’s industrial investment property sector continuing to outperform during the second quarter of 2022, according to Morguard’s 2022 Canadian Economic Outlook and Market Fundamentals Second Quarter Update, however dips in other investment property segments had overall sales volumes on the decline from last year.
The report indicates that while investment sales activity remained brisk during the second quarter, with transaction volume above the $10 billion mark, the second quarter was off significantly from the same period in 2021, when sales volumes reached $14 billion.
The largest investment declines were seen primarily in the retail sector and partly in the multi-suite residential rental sector, but the industrial sector showed no signs of a slowdown as investors competed to acquire properties that have seen rents double and even triple since the onset of the pandemic, according to the report. These rents are expected to continue to rise over the balance of 2022 against a backdrop of highly constrained supply.
According to Morguard, the decline for the four sectors combined was a function of availability rather than a demand softening, and a significant backlog of available capital remained in place during the second quarter. The company expects sales activity to remain brisk, despite a heightened level of economic and financial market uncertainty in the near term.
“With the worst of the pandemic appearing to have passed, investors are demonstrating confidence in Canada’s investment property sector,” said Keith Reading, director of 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.”
Retail investment property sales and office leasing are segments that remain mired in post-Covid slumps. Second-quarter transaction closing volumes in retail investment properties are at a decade-low, and the office leasing market was wrestling with a national vacancy rate of 16.5 per cent during the quarter. Approximately 13.9 million square feet of new office space is slated for completion in the second half of 2022 and 2023, and while much of that is pre-leased, some will be vacant upon completion, adding upward vacancy pressure to the market.
The opposite can be said for industrial lease rates, states the report. At the end of Q2, the national availability rate was at a record-low of 1.6 per cent. New supply completions have not alleviated the pressure, as most of the new space had been leased either prior to completion or shortly thereafter. Morguard’s report states that warehouse, logistics, and last-mile storage and delivery space were in particularly short supply.
Multi-suite residential rental rates also continued to rise during the second quarter. Rising demand due to such factors as increased immigration and the return to in-person classes by post-secondary students has resulted in reduced supply in many submarkets across the country. The report explains that the multi-suite rental sector has tended to outperform during periods of elevated uncertainty, and that the forecast is for rent growth over the near term.
The second quarter update is available on the Morguard website.
