Morguard - 2016 Real Estate Investment Trends to Watch in Eastern Canada

MISSISSAUGA, ON, Jan. 18, 2016 /CNW/ - Real estate remains an attractive investment alternative with continued healthy returns forecast for investors of assets in Eastern Canada in 2016. The strength of Eastern Canada's property markets over 2016 will drive transaction activity, predicted to approach the long-term annual transaction volume average of $13.6 billion.  

"U.S. economic momentum will act as a catalyst for advances in Eastern Canada's commercial property rental markets in 2016, against a backdrop of elevated global economic risk," said Keith Reading, Director of Research at Morguard. "Low interest rates and a low Canadian dollar will also boost economic activity fueling greater performance in commercial property markets."

In the 2016 Economic Outlook and Market Fundamentals Research Report released today by Morguard Corporation (TSX: MRC), the company published a detailed analysis of 2016 real estate trends to watch in Canada. The full Report is available at www.morguard.com.

2016 Real Estate Investment Trends - Eastern Canada

• With few exceptions, rental market conditions will provide stable and healthy income generation patterns for owners of assets across the major asset classes and markets of Eastern Canada.
• Pension funds, private capital, capital market groups, and other institutions will continue to compete for the limited volume of high-quality assets offered for sale in 2016, resulting in competitive bidding scenarios and aggressive pricing.
• Class A office, functional industrial buildings, regional shopping centres, and multi-suite residential properties will be the most highly regarded investments within the investor community.
• Investors will exercise caution when acquiring riskier office assets in the coming months, given ongoing delivery of new supply to the market during a period of modest demand. Development risk in the office sector will be relatively high over the next couple of years, with 5.2 million SF of space under construction in Toronto, 2.1 million SF in Montreal, and 422,000 SF in Halifax.
• Industrial market trends will continue to impress, with tight supply conditions, positive demand patterns, and a conservative development cycle.
• Retail sales growth will support leasing activity in Eastern Canada's established shopping centres and high streets, while the market adjusts to a number of short and long-term challenges.
• Multi-suite residential properties will remain a preferred asset class, given a long history of stable and secure income generation.
• Multi-suite residential development activity will rise sharply in 2016, supported by peak rents and vacancy shortages.

Toronto
The country's most important regional economy and largest commercial property market is expected to be a leader in terms of overall performance over the near term. After several years of playing second fiddle to the west, Toronto is expected to outperform for at least the next few years, according to the latest Conference Board of Canada (CBOC) forecast. The Toronto CMA's economy is forecast to expand by an annual average of 2.7% between 2016 and 2019, second only to Vancouver of the 13 largest Canadian cities. If the forecast proves accurate, then the region's commercial property sectors will most assuredly generate advances. In 2016, the region's office market will be forced to exhibit a measure of resilience, given the continued development and completion of a number of major towers. The industrial sector at the same time will remain stable and healthy, given an expected lift in demand rooted in the ongoing strength of the U.S. recovery. The region's consumers will continue to spend freely, with most being gainfully employed. This bodes well for the retail sector and multi-suite residential demand. The strength of the economic and related rental market forecasts will attract investors. The outperformance expected over the near term will add to an already impressive case for investing in the nation's largest economic and real estate driver.

Ottawa
Ottawa's economy is forecast to gradually improve over the near term, which bodes well for the national capital region's commercial property markets. The CMA will generate increased economic output in both 2016 and 2017, resulting in a predicted average annual growth of 1.8% over the two-year period. Previously, expansion of less than 1.0% was forecast for all of 2015. The expected rise in economic output should act as a catalyst for rental market demand. A stronger economy will support healthier labour market conditions, which will boost multi-suite residential demand and bolster retail spending. Office and industrial sector demand will also improve, given their more direct relationship to economic performance. In short, rental market risk will be relatively low for all four of the region's commercial property sectors over the near term. This fact will add to the rationale for investing in a market that has had a long-term history of healthy investment performance.      

Montreal
Economic expansion forecast for the Greater Montreal Area (GMA) in 2016 will result in mostly positive commercial property market trends over the period. Economic output will increase by 2.3% in 2016, with similar rates of expansion anticipated annually through to 2019. This forecast expansion is expected have a positive impact on rental market demand. In the industrial sector, for example, the region's manufacturing base is forecast to strengthen. This will support expansion activity. At the same time, expansion in the services production industry will support office space demand. Overall, economic growth will result in healthier consumer spending patterns and job growth, which will benefit the multi-suite residential sector. Rental market advances will drive income growth and investment returns. Largely positive rental market trends will serve as a foundation for healthy investment trends over the near term. Investors will continue to look to the GMA commercial property sector to achieve their investment yield objectives. Generally positive investment market conditions over the near term are in keeping with the forecast GMA commercial property outlook.       

Halifax
Halifax's commercial property markets are forecast to strengthen over 2016, due in large part to a healthier economic outlook. Over 2016, economic output is expected to increase by a more robust 3.0%, after a modest 2.3% in 2015. The strengthening is due to gains in the manufacturing and construction sector in conjunction with smaller declines in primary and utilities output. Shipyard work will benefit the region's manufacturers in 2016. Most segments of the economy will also post advancement, in support of stable and healthy rental market trends, which will largely track those of 2015.  Product supply will remain an issue for investors looking to increase their exposure to the region. Interest levels will likely increase, given a stronger near-term economic outlook.   

About Morguard
Morguard Corporation (TSX: MRC) is a major North American real estate and property management company.  It has extensive retail, office, industrial, and multi-suite residential holdings owned directly and through its investment in Morguard REIT (TSX: MRT.UN) and Morguard North American Residential REIT (TSX: MRG.UN). Morguard also provides real estate management services to institutional and other investors. Morguard's combined real estate portfolio is valued at $15.5 billion.

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SOURCE Morguard Corporation