Canada's economy and real estate market is expected to rebound in 2022 from early pandemic sluggishness shaken off through 2021, a real estate management company said in its annual forecast.
"Multi-suite residential rental and industrial properties are anticipated to continue outperforming when compared to office and retail assets," said Keith Reading, research director at Morguard Corporation. "As the economic picture improves in 2022, investors will broaden their investment horizons in 2022 by looking to increasingly acquire office and retail assets."
Investment performance remained strong in 2021 for industrial and multi-suite residential rental properties, while office and retail showed signs of stabilization due to efforts to reduce COVID-19's spread and the subsequent easing of some restrictions, according to Morguard's 2022 Canadian Economic Outlook and Market Fundamentals Report.
First and foremost, the real estate sector is dependant on how the economy rebounds, a situation further depending on what happens with the pandemic. And that's an unknown given current spikes in infections, although vaccination rates continue to rise, with 81 percent of the population receiving at least one vaccine dose as of Dec. 11, according to the Public Health Agency of Canada.
Morguard said the economy is expected to continue to bounce back from the pandemic-driven correction in 2022, with output rising between 4-5 percent on an annualized basis.
The report predicted the services sector as a critical driver of growth in the coming year, following proportionately stronger expansion in the goods production sector in the earlier stages of the pandemic.
It further predicts Canada's labour market will strengthen in 2022. This is due to the fact that by the fall of 2021, the unprecedented job losses due to the pandemic had been recouped, which drove the national unemployment rate down closer to the pre-pandemic level.
Effects on real estate
The national residential vacancy rate rose 1 percent year-over-year in October 2021 to a four-year high of 3.2 percent, with more pronounced vacancies in large cities. With the reopening of Canada's borders and continued job growth, rental demand is forecast to gradually grow in 2022 and remain a preferred target for investors.
Decreased levels of immigration and post-secondary students due to border closures entering the country throughout 2021 contributed to reduced demand in the multi-suite residential segment.
In the commercial real estate sector, investment activity in the office segment in 2021 was relatively muted given the uncertainty of when pandemic restrictions would lift.
A total of $1.9 billion in office property sales was reported in the first half of 2021, down 37 percent year-over-year from $3.0 billion reported in the same period in 2020.
In 2022, most office-space tenants are expected to have employees return, putting tenants in a position to make decisions on longer-term leasing needs. If that happens the report predicted, activity levels and market conditions could stabilize leading to increased investor confidence will increase.
For the first half of 2021, Vancouver saw the lowest office vacancy rate level of major cities at 6.9 percent.
Industrial assets had record-low inventory levels across Canada in 2021. The national industrial availability rate reported a low of 2.3 percent at 2021's mid-year mark. Availability rates of 1.1, 1.2 and 1.4 percent were reported at the midway mark of 2021 for Vancouver, Toronto and Montreal, respectively.
The situation was different in the warehouse, logistics and e-commerce sectors that saw businesses continue expanding at a relatively rapid rate, continuing the trend seen since mid-2020.
Leasing demand in those areas continues to outpace supply, creating a situation where tenants may have difficulty finding available industrial space in 2022 despite an anticipated pickup in construction activity.
Restrictions and retail
COVID restrictions impacting in-person shopping led to reduced activity in the retail sector in 2021.
The report said short-term lease renewals and government aid supported Canadian retail operations through the year but extended lockdowns contributed to declines in landlord and retailer revenues, and, in some cases, forced independent businesses to close
However, the report forecast, retail sector performance patterns are expected to improve in 2022, with the loosening of pandemic restrictions and the return of shoppers to retail centres.