Office, Retail Real Estate Sectors Setting in for Tough 2016

Canada's real estate industry will be affected by the low oil prices as office and retail supply as well as anxious investors drive down demand for commercial space and new condos.

The number of office vacancies are increasing in every market in the country with the national vacancy rate reaching its highest point in a decade. Developers are still scheduled to complete approximately 17 million square feet of new office space within the next two years.

The oversupply comes in the wake of dropping prices of oil that has lead Alberta's office vacancy rate rapidly jumping over 18 per cent in 2015. The concerns about the Canadian economy has resonated in real estate markets outside of the energy patch. Investors are anxiously watching from the sidelines. Along with this, commercial landlords are already facing structural shifts such as businesses are planning to cut their costs by cutting back on office space and a decreasing working-age population.

Paul Morassutti, executive vice-president at real estate firm CBRE Ltd., stated that lack of demand will be the biggest story in the office sector. He also indicated that foreign investors specifically from Asia are one of the forces helping to drive regional divergence. Foreign buyers purchased four out of the last give major downtown office spaces in Canada.

Canada's retail sector is also under pressure as there is still 60 per cent of space left by the closure of Target Canada that is not leased more than a year later. Landlord are facing the possibility of more closures of small and mid-market retailers as well as Sears Canada.

Investors are also cautiously watching the Toronto market due to the increasing land values and cost of construction. Prices for new condos remain steady without increasing or decreasing. Aside from this, in British Columbia some lenders on edge with the increasing demand for land and residential real estate.

Reference: The Globe and Mail

http://www.theglobeandmail.com/…/office-re…/article28858197/