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Canada
C O M M E R C I A L R E A L E S TAT E
M A R K E T O U T LO O K
CBRE Research

INTRODUCTION

NATIONAL OUTLOOK
Investment..................................................................................... 6
Office ............................................................................................. 8
Industrial .....................................................................................10
Retail ............................................................................................12
Multifamily ..................................................................................14
Hotels ...........................................................................................16
Seniors Housing ...........................................................................18
REGIONAL OUTLOOK
Vancouver .....................................................................................22
Calgary .........................................................................................24
Edmonton .....................................................................................26
Winnipeg ......................................................................................28
London & Kitchener/Waterloo......................................................30
Toronto .........................................................................................32
Ottawa .........................................................................................36
Montreal.......................................................................................38
Atlantic Canada ...........................................................................40

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

Progress is impossible
without change.
This truism summarizes the outlook for Canadian
commercial real estate in 2016. Investors, landlords
and occupiers face significant change in the year
ahead much of it out of their control. In this dynamic
environment, some will identify and seize opportunities,
while others will be left wanting.
For an industry known for its fixation on location,
far-reaching global trends will overtake fine-grained
details as the basis for real estate decisions in 2016.
More than ever, new technologies are poised to deliver
on the promise to alter the way we shop, ship, work and
play. The apparent end of the commodity supercycle has
curbed Canadas economic momentum and questions
around the nations growth prospects will need to
be answered. And while leasing activity has slowed
in Canada, stimulative monetary policy globally will
continue to supercharge the investment market.
Not to be lost in the cross currents of change is the fact
that Canadas commercial real estate fundamentals are
some of the healthiest in the world. No building is future
proof, no business model is infallible, no lease term is
indefinite, but Canada remains one of the best places to
confront technological advancements and the variability
of the business cycle. The relative safety, stability, and
reliability of returns offered by Canadian commercial
real estate will be welcome companions on the bumpy
road to progress.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

NATIONAL OVERVIEWS

I N V E S T M E N T S E C TO R

the

The Canadian economy

$64,000
THIS COULD BE THE YEAR THAT
INTEREST RATES RISE, WHICH COULD
CAUSE INVESTORS TO RECALIBRATE

3D PRINTING

ECOMMERCE

WORKPLACE
STRATEGIES

TECH

BIG DATA

WORKPLACE
STRATEGIES
3D FRACKING
PRINTING

ECOMMERCE

TECH
FRACKING

CHANGE BIG DATA

MAINLAND CHINESE
INVESTORS WILL BE A
GROWING FORCE

is emerging from a slight


technical recession and the U.S.
Federal Reserve appears poised
to increase interest rates in the
near future; however, economic
volatility remains high. This
factor, combined with a low
Canadian dollar and relatively
strong property fundamentals,
should produce healthy demand
for Canadian commercial real
estate in 2016.

Investors seeking safe, stable

returns will likely become even


more selective in 2016. This
will further divide a market
that is already clearly split
between core and secondary
assets. As a result, super prime
assets in desirable areas could
conceivably attract higher
pricing and lower cap rates,
while reducing liquidity for
everything else.

This low cap rate environment

will put even greater emphasis


on development as a means
of enhancing return targets,
although caution will be
required as some sectors are
characterized by an oversupply
of new product.

The investment calculus has

changed most in Alberta,


especially for office properties
where rental rates have fallen
and the amount of sublet space
has risen to record levels.
Successful transactions will
need to bridge the gap between
buyer and seller expectations,
but little distressed selling
is expected in 2016. Low oil
prices would likely have to be
sustained into 2017 for lease
renewals and lender pressure to
force the hand of some second
tier asset owners.

In terms of specific commercial

Scrutiny of the REIT sector

asset classes, land will be


actively traded across the
country in 2016, especially infill
and development opportunities.
High-quality retail, office and
multifamily properties will also
be sought after, while coveted
industrial assets will remain in
short supply.

has increased and yet there is


a growing disconnect between
REIT pricing and the value of
the assets they hold. In 2016,
markets may increasingly
focus on the location and
performance of REIT holdings
to differentiate between the
different players in the sector.

Statistics
Transactions (in $ Millions)

2014

2015 F

2016 F

YoY

Office

$6,435

$5,034

$5,710

Industrial

$4,706

$4,404

$4,954

Retail

$6,532

$4,880

$4,680

Multifamily

$3,667

$4,966

$3,914

ICI Land

$3,785

$3,420

$3,104

Hotel

$1,010

$1,695

$1,264

Total

$26,134

$24,399

$23,625

Source: CBRE Limited

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

INVESTMENT

INVESTMENT

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

O F F I C E S E C TO R
The Canadian office market

OFFICE SPACE
IS NO LONGER
A COMMODITY
It is your brand,
culture and
competitive
advantage

FIRE
26%

13.2 million sq.ft.

16.9 million sq.ft.

CATCHING UP

TECH
20%

THE TECH SECTOR RANKED 2ND


IN TERMS OF SIGNIFICANT
OFFICE LEASES NATIONALLY
SINCE Q4 2012

LIFE
TIME

Guarantee

enters 2016 with vacancy rates


climbing to a decade-long high
following a prolonged landlords
market. With an additional
11.2 million sq. ft. under
construction in downtown
markets and 6.4 million sq. ft.
being built in the suburbs as
of Q3 2015, vacancy rates are
likely to remain elevated for the
foreseeable future.

While new supply has been the

Vacancy Rate

2015 F

2016 F YoY

8.5%

10.1%

11.1%

$25.84

$24.81

$23.71

1.52

(0.79)

1.46

New Supply (sq. ft. in millions)

3.52

3.47

4.47

Under Construction (sq. ft. in millions)

11.67

9.94

5.98

Vacancy Rate

13.4%

15.1%

15.4%

Class A Net Rental Rate (per sq. ft.)

$18.25

$17.92

$17.12

Absorption (sq. ft. in millions)

1.49

(0.34)

1.31

New Supply (sq. ft. in millions)

4.44

3.48

2.31

Under Construction (sq. ft. in millions)

6.73

5.55

4.27

Vacancy Rate

10.7%

12.3%

13.0%

Class A Net Rental Rate (per sq. ft.)

$21.62

$21.18

$20.37

Absorption (sq. ft. in millions)

3.01

(1.13)

2.77

New Supply (sq. ft. in millions)

7.97

6.95

6.78

18.40

15.49

10.25

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)

WITH THE PACE OF CHANGE


ACCELERATING, DEVELOPERS
WILL ATTEMPT TO FUTURE
PROOF BUILDINGS

drivers seat, downtown markets


will continue to outpace the
suburbs from a leasing and
construction perspective, as
that is largely where the labour
pool for this sector is located.
Existing office stock will
attempt to appeal to innovative
users by defixturing traditional
office space and offering the loft
aesthetic and the style of work
that these businesses naturally
gravitate towards.

Statistics
2014

fastest growing segment of


the market, while the finance,
insurance and real estate sector
continues to account for the
largest proportion of significant
leases. Cities across Canada are
reporting increased demand
from growing tech companies
as the sector accounted for a
record 38.0% of significant
office leasing transactions
nationally in Q2 2015.

With tech companies in the

dominant factor shaping office


fundamentals, the demand
side of the equation will become
increasingly important in the
year ahead. With banks signaling
their intention to restructure
some operations and office users
generally moving to new efficient
workplace strategies, there is the
potential for a sustained rate of
absorption below historic norms.

Central

The technology sector is the

Suburban

Overall

Under Construction (sq. ft. in millions)


Source: CBRE Limited

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

The pace of
technological change
is putting increased
pressure on landlords
to ensure that their
properties are
adaptable and remain
competitive. Future
proofing will become
an increasing concern
and new buildings
will be structured so
that office space is
physically adaptable
without incurring
significant costs.

OFFICE

OFFICE

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

I N D U S T R I A L S E C TO R

BIG

While economic growth has

VS
SMALL

INDUSTRIAL DEMAND IS POLARIZED


BETWEEN LARGE DISTRIBUTION
CENTRES AND WELL-LOCATED
50,000 SF BUILDINGS

GREAT
EXPECTATIONS

Competitive Canadian
dollar fails to alter
industrial decision making

TIPPING TH
E

10.6
MILLION
SQ. FT.

BUILD-TO-SUIT

SCA
LE

1MILLION
1.5

SQ. FT.
SPEC

SPEC CONSTRUCTION EQUALS


52% OF INDUSTRIAL
DEVELOPMENT IN CANADA.
WELL BELOW 66% IN THE U.S.

been lacklustre and the office


and retail sectors are recording
higher vacancy rates, industrial
property fundamentals remain
strong. The industrial market
will outperform from a leasing
and investment perspective
in 2016, as a responsive
development pipeline maintains
a healthy balance between
supply and demand. Low
interest rates will support a
robust owner-user market.

Distribution and logistics

activities will remain the


primary driver of leasing and
investment activity in the
industrial sector. Retailers and
industrial businesses in general,
will attempt to differentiate
themselves with supply chain
enhancements that result
in cost savings and a better
client experience.Industrial
construction and redevelopment
is being polarized between two
trends:

The desire to consolidate

logistics operations in Canadas


major distribution markets,
Calgary and the Greater Toronto
Area, is spurring more frequent
construction of large buildings
and industrial parks nearing
the 1.0 million sq. ft. mark.
This is a mature trend, but the

Statistics
Availability Rate
Net Rental Rate (per sq. ft.)

combination of pent-up and new


demand for large-bay space will
make this an enduring factor
through 2016.

Ecommerce and same-day

delivery require proximity to


consumers, which is driving
demand for smaller ~50,000
sq. ft. buildings within close
proximity to major population
centres. This has the potential to
reinvigorate industrial properties
in the inner suburbs that were
formerly considered obsolete
for modern users; however,
these same locations will face
pressure to be put to higher and
better use in 2016 as the general
urban intensification process
continues.

Favourable foreign exchange

rates spurred hope of a


manufacturing and export
renaissance, but there has
been a negligible impact on
industrial property demand
thus far. This is not expected
to change in 2016 as Mexico,
China and other manufacturing
powerhouses are strong
competitors on a number of
fronts aside from exchange
rates.

2014 2015 F 2016 F YoY


5.4%

5.8%

5.8%

$6.09

$6.45

$6.59

$101.68

$117.43

$117.92

Absorption (sq. ft. in millions)

18.36

12.49

12.61

New Supply (sq. ft. in millions)

14.87

20.13

13.80

Under Construction (sq. ft. in millions)

18.90

15.35

8.03

Sale Price (per sq. ft.)

Source: CBRE Limited

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

INDUSTRIAL

INDUSTRIAL

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

11

R E TA I L S E C TO R
COSTCO
MAKES
GLUTTONS
OF MODEST
CANADIAN
CONSUMERS
The retail giant is
extracting higher
sales per person
and expanding a
single shop better
than any other
retailer

The Canadian retail market

will continue to recalibrate


following the demise of Target
and a challenging year for
mid-market retailers. In 2016,
foreign retailers will view
Canada as a worthy destination,
but will be more selective on
locations and roll out more
gradually. Canadas appeal
stems from store productivity
and less competition for new
entrants than some other hotly
targeted destinations.

The shopping mall has long

ANNUAL ONLINE SALES EQUATE


TO THE PRODUCTIVITY OF 9.8
YORKDALE MALLS

been at the centre of the


Canadian retail market, a
fact that will be underscored
in 2016. High-end retailers,
traditionally located on
Canadas high streets, will
gravitate towards the increased
luxury of super regional
shopping centres like Yorkdale
Mall in Toronto and CF Pacific
Centre in Vancouver. This is
part of a trend that will see the
tenant mix along Bloor Street in
Toronto evolve to include more
experiential retailers and highend entertainment.

while H&M, Zara and Forever 21


will continue to put pressure on
mid-market retailers.

In 2016, logistics will be as

important to retailers as the


bricks and mortar shopping
experience. Expect retailers
to increase the number of
locations at which consumers
can receive and return goods
that were purchased online.
Ecommerce will gain on
traditional retails sales, but
the physical distance between
retailer and consumer will
decrease as more distribution
points make for a more
convenient experience.

New technology and the rise

of the sharing economy will


continue to shape the retail
market in 2016. Brands will
attempt to deliver an overall
lifestyle to the Millennial
shopper. Online and in person,
retailers will appeal to the
consumers mind, body, and
soul.

Retail leasing activity will

INCREASED TOURISM IS HELPING


SPUR HIGHER RETAIL SALES DESPITE
LACKLUSTRE ECONOMIC GROWTH

become increasingly polarized


in 2016. Retailers will fixate on
urban locations and high-end
malls, while lingering vacancy
can be expected in second and
third tier malls. The department
store segment will remain
competitive with The Bay,
Nordstrom, and Saks all active,

Statistics

2014 2015 F 2016 F YoY

Retail Sales (YoY)*

4.6%

2.2%

3.8%

* Conference Board of Canada

12

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

R E TA I L

RETAIL

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

13

M U LT I FA M I LY S E C TO R
79% OF EXISTING
RENTAL STOCK
IS >35 YEARS
OLD AND
INCREASINGLY IN
NEED OF CAPITAL
INVESTMENT.

VACA
N

MULTIFAMILY FORMULA
FOR SUCCESS

NEW CONDOS
OVERSHADOW
PURPOSE-BUILT
RENTALS, BUT
HELP LIFT
RENTAL
RATES

The multifamily sector will

Alberta is the one province

The multifamily market

In 2015, there was a shift in

produce near record investment


volume in 2015, following a
period of constrained supply.
Strong pricing and deferred
maintenance are causing
owners to strategically reexamine their portfolios.
Demand for multifamily
product is so widespread and
fundamentals are so stable
that very little could derail
investment activity in this
sector in 2016.
continues to evolve and the
growing number of condos
entering the rental universe will
continue to shape the market
in 2016. Cap rates for Class A
high-rise apartments continue
to tighten and are now at the
lowest levels on record, which
will translate into higher prices
for investors and spur rental
rate increases and higher fees
for ancillary services such as
laundry and parking.

breaking from the overall trend


of stability. Vacancy rates are
climbing and rental rates are
under downward pressure
in Calgary and Edmonton.
Tertiary markets servicing oil
sand operations in the north
have been hit harder. Rental
occupancy rates could firm
if economic difficulties slow
household formation and create
challenges in the residential
ownership market.
the market as new purposebuilt construction increased
to the most significant level
in decades. Work on ongoing
projects will continue, but
much of the new supply in
2016 will likely be limited to
opportunistic situations as
owners of existing land are
looking to put it to higher and
better use.

Baby boomer demand for

seniors housing will peak


in more than a decade, but
in the interim, multifamily
buildings will benefit from a
wave of empty nesters looking
to downsize. Multifamily
property fundamentals will
also benefit from an increase
in new immigrants to Canada
and rising home prices will
bar many Millennials from
pursuing homeownership.

Statistics
Overall Vacancy Rate*

2014 2015 F 2016 F YoY


2.3%

2.8%

2.9%

*Canada Mortgage and Housing Corporation, CBRE Limited

14

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

M U LT I FA M I LY

MULTIFAMILY

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

15

H OT E L S E C TO R
The market and financial
Z
JFK YY
RK
NEW YO

JFK

RK
NEW YO

JFK

N
O PEARSO
TORONT

N
O PEARSO
TORONT

UNPRECEDENTED CROSS-BORDER
TRAVEL INTO CANADA IS LIKELY TO
CONTINUE

A DIVERSE GLOBAL BUYER


BASE AND WIDE-RANGING
CAPITAL SOURCES ARE
CREATING RECORD LIQUIDITY

performance of hotels in B.C.,


Ontario & Quebec, which
represent over 70.0% of the
industry in Canada, will show
strong improvement in 2016.
Properties in Vancouver,
Toronto and Montreal
specifically are poised for strong
top and bottom line growth.
The financial performance
for Alberta hotels, which
represents about 15.0% of
the Canadian inventory, has
suffered from the resource
downturn and overbuilding in
some markets, but the decline
has been decelerating. Expect
more stability with possibly
some signs of recovery in late
2016. In the balance of the
country, market and financial
performance for the hotel
industry will be positive, but
moderate.

INVESTMENT Although many Alberta and


ACTIVITY WILL EXPAND Saskatchewan markets are
FROM A FOCUS ON experiencing RevPAR declines
ICONIC HOTELS TO approaching 10.0% relative to
PORTFOLIO AND last year, most other markets
SINGLE ASSET across the country have posted
TRANSACTIONS healthy RevPAR increases.

Downtown Vancouver is leading


the way at 19.0% year-to-date
as of September 2015, fueled
by both ADR and occupancy
growth.

The 6.6% increase in inbound

overnight trips to Canada


year-to-date as of August
2015, according to Statistics
Canada, and overall rising
demand will support strong
hotel operating fundamentals.
The low Canadian dollar will
continue to entice visitors,
especially from the U.S. and
Asian countries. Vancouver,

16

Toronto and Montreal, as well


as the resort sector, will be
the prime beneficiaries of this
trend; however, staycation
activity will also bolster hotel
demand throughout the
country, particularly in markets
with economic uncertainty like
Alberta.

In 2015, hotel investors were

able to choose from the most


diverse range of available
product in recent memory. The
variety of available product
enticed a deep buyer pool,
especially for properties under
$30.0 million, with overall
investment volume forecast to
reach $2.2 billion in 2015, a level
of activity not seen since 2007.
We expect the level of activity
and demand for all product
types to continue to be strong
in 2016.

The typical deal profile in 2016

will likely involve core markets


like Toronto and Vancouver, and
a continuation of bundled or
portfolio deals. Buyers will also
be keen to acquire hotel assets
in redevelopment and value-add
possibilities. There will also
be a diverse buyer pool, with
growing interest from private
equity and institutional buyers.

Strong investor demand is

creating downward pressure on


hotel cap rates in Vancouver,
Toronto and Montreal. In
Alberta, Saskatchewan and
other resource dependent
markets, declining hotel cash
flows have tempered cap rate
increases as investors look
towards revised, more moderate
performance levels.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

H OT E L

HOTELS

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

17

market has been a hotbed of


investment activity in recent
years starting with the entry
of U.S. REITs and culminating
with a wave of consolidation,
including the Ontario Teachers
Pension Plan Board/BayBridge
purchase of Amica in 2015.
While it will be a challenge
for the market to match the
same volume of transactions in
2016, sellers may want to take
advantage of current pricing.

DUCT
PRO

CERTIFIED

The Canadian seniors housing

UTIONAL GR
T IT
A

DE

IN

S E N I O R S H O U S I N G S E C TO R

SENIORS HOUSING

While cap rate compression was

AMICA SALE REVEALS DEEP POOL OF


INVESTORS PURSUING SENIORS
HOUSING ASSETS

common for quality commercial


real estate assets across Canada
in 2015, seniors housing
recorded a remarkable 75-100
basis point drop in average cap
rates for the highest quality
assets. The sub-7.0% average
cap rate for Class A assets
signifies the fact that high
quality seniors housing is now
being viewed as an institutional
grade investment. Low cap rates
are likely to endure for quality
assets as long as the buyer pool
remains deep and liquidity is
maintained. The pricing gap
between Class A and Class B/C
assets will likely widen slightly
in 2016.

Recent movements in pricing

will result in a period of


price discovery in 2016 that
requires disciplined disposition
processes to identify optimal
buyers and to maximize pricing.

There is no indication that

the development cycle will


end in 2016, following a wave
of new supply in recent years.
While new construction
has historically focused on
lucrative high-end assets,
this market has become
increasingly competitive. There
are significant opportunities
for new projects offering midrange pricing and services, as
this segment of the market is
expected to grow in the coming
years.

Merchant developers will be

more active and will act as


a supply conduit for larger
operators. Discipline will be key
to maintaining balance in the
market. Construction will need
to be strategic and will likely
occur outside of core markets in
pockets with future potential to
intensify.

MONITOR RESIDENTIAL
MARKET CONDITIONS A
KEY DRIVER OF SENIORS HOUSING
DEMAND

18

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

S E N I O R S H O U SSENIORS
ING

HOUSING

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

19

REGIONAL OVERVIEWS

21

VANCOUVER
Western Canada will be a study

INDUSTRIAL AVAILABILITIES

> 100,000 sq. ft.

216

10-49,999 sq. ft.

32

50 - 99,999 sq. ft.

634

0-9,999 sq. ft.

INVESTORS ARE
CONSIDERING
UNCONVENTIONAL
LAND LEASES TO ADD
B.C. PROPERTIES TO
THEIR PORTFOLIOS

of contrasts. Albertas economy


and property fundamentals are
expected to struggle, while B.C.
will outperform in spite of, and
in part because of, Albertas
challenges. Investor and tenant
demand in the region will
continue to shift to B.C. in 2016
and the province is likely to
outperform from an economic
and commercial real estate
perspective.

The Vancouver office growth

story will continue to be largely


positive with leasing activity
likely to exceed expectations.
The market will continue to
work through the 2.4 million
sq. ft. of new supply that was
delivered in 2015. While vacancy
will remain slightly elevated,
an active tech sector along with
other professional services will
help mitigate softness in the
resource sector.

Vancouvers importance as a

port city and key part of the


increasingly sophisticated
supply chain was underscored
by the California port strikes
in 2015. The subsequent spike
in demand for industrial space
was unexpected and despite
significant new supply in 2015,
little is scheduled for delivery
in 2016. Expect availability to
tighten and construction starts
to climb in 2016 as developers
respond to demand.

Investors and developers will

continue to build strategies


around inner submarkets
like Strathcona and Mount
Pleasant. These transitional
nodes are gaining momentum
and their long-term potential
for intensification more than
justifies the high land costs and
zoning hurdles.

Insatiable investors and

available capital pushed


Vancouver property prices to
record highs and cap rates
to record lows. This trend
will carry over into 2016 as
long as owners are willing
to sell and remain open to
unsolicited offers. Foreign
capital, especially from Asia,
will continue to pursue prime
assets, but local buyers will
remain competitive in the face
of low cap rates and may drive
demand for suburban assets as
product becomes limited in the
core.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

VANCOUVER
Projects to Watch
TSAWWASSEN MILLS
SHOPPING COMPLEX

THE EXCHANGE OFFICE


TOWER

Located at Highway 17 and 52nd Street on


Tsawwassen First Nation Lands, Ivanho
Cambridges Tsawwassen Mills will include
approximately 1.2 million sq. ft. of retail, with
16 anchors, a unique mix of premium fashion
brands, factory outlets, restaurants and first
to market retailers, as well as a 1,100-seat food
court. Construction began in January 2014
and will be complete in fall 2016.

Credit Suisses $200.0 million venture


into B.C. is a 31-story speculative, LEED
Platinum, state of the art office tower with
cutting edge technologies in Vancouvers
financial district. It is scheduled for delivery
in 2017.

DEVELOPMENT OF
DOWNTOWN FRINGE, THE
MOUNT PLEASANT AND
BROADWAY CORRIDOR
Zoning changes have expedited the
transformation of these areas while
opening the door for a broader range of user
groups.

www.theexchangebuilding.ca

http://www.tsawwassenmills.ca/faq

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

6.8%

9.9%

9.8%

Class A Net Rental Rate (per sq. ft.)

$31.77

$33.85

$33.50

Absorption (sq. ft. in millions)

(0.09)

0.89

0.14

4.75-5.25

4.25-5.00

Class A Cap Rate (%)

4.25-5.00

Availability Rate
Net Rental Rate (per sq. ft.)
Sale Price (per sq. ft.)
Absorption (sq. ft. in millions)

2014

2015 F

2016 F YoY

7.0%

5.9%

6.0%

$8.06

$8.26

$8.45

$199.00

$231.90

$235.29

1.40

4.75

2.33

New Supply (sq. ft. in millions)

0.09

1.75

0.11

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

2.09

0.47

0.71

New Supply (sq. ft. in millions)

2.41

3.03

2.58

Under Construction (sq. ft. in millions)

1.96

3.93

1.35

Vacancy Rate

13.4%

13.2%

12.6%

Class A Net Rental Rate (per sq. ft.)

$23.44

$21.87

$20.45

0.42

0.61

0.39

2014

2015 F

2016 F YoY

1.0%

0.8%

1.0%

Suburban

Absorption (sq. ft. in millions)


Class A & B Cap Rate (%)

5.75-6.50 5.25-6.25 5.25-6.25

New Supply (sq. ft. in millions)

0.84

0.65

0.29

Under Construction (sq. ft. in millions)

1.04

0.61

0.32

5.25-6.25 5.00-6.25 5.00-6.25

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall

4.25-4.75 4.25-4.75 4.25-4.75


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

Vacancy Rate

10.1%

11.5%

11.2%

Class A Net Rental Rate (per sq. ft.)

$24.93

$27.10

$26.21

Absorption (sq. ft. in millions)

0.33

1.51

0.53

INVESTMENT

New Supply (sq. ft. in millions)

0.93

2.40

0.39

Transactions (in $ Millions)

2014

2015 F

2016 F

Under Construction (sq. ft. in millions)

3.13

1.08

1.03

Office

$434

$477

$1,630

Industrial

$814

$910

$956

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

2014

2015 F

2016 F YoY

6.9%

8.7%

4.6%

5.50-6.00 5.00-5.75 5.00-5.75

YoY

Retail

$886

$1,108

$1,163

Multifamily

$533

$950

$998

ICI Land

$438

$789

$500

Hotel*

$216

$511

$250

$3,321

$4,744

$5,496

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

23

CALGARY
HIGH CONCENTRATION,
HIGH IMPACT Energy jobs as

percentage of
total workforce

5.5%
HOUSTON

1.1%

8.5%

DALLAS
1.1%

DENVER

50%
30%
10%

CALGARY

TENANTS
FEEL THE HEAT
SUBLET
PERCENTAGE
OF VACANT
SPACE COULD
TOP 50%

CALGARY HAS
THE 7TH
LOWEST
INDUSTRIAL
AVAILABILITY
RATE IN NORTH
AMERICA

24

The confidence within Calgarys


local business community has
only faltered slightly despite
the second largest drop in
oil prices in history and
the second most protracted
decline. The prevailing opinion
is that the market is facing a
man-made downturn in oil
prices, not a structural shift
that would undermine longterm investments. In 2016,
supply and demand dynamics,
including OPEC decisions,
will provide additional clarity
and allow tenants, owners
and investors to act with more
certainty.

While an anticipated rebound

in oil prices would put a floor


under office fundamentals,
capital expenditure and job cuts
are mounting. For 2016, this
will translate into a continued
rise in office vacancy rates, both
downtown and in the suburbs,
with an anticipated peak in
Q3 2016. It appears that the
bulk of downsizing has already
occurred which will allow the
pace of vacancy rate increases
and rental rate declines to slow.

There is good news in the

TH

Calgary marketplace. Even


within a challenged office
sector, accountants and law
firms remain active, and

engineering companies
are expected to benefit
from increased provincial
infrastructure spending. The
hotel and resort sectors are
also posting strong numbers
as Albertans vacation closer to
home and tourism from the U.S.
increases.

Leasing activity in Calgarys

industrial market has slowed,


but this sector has been
more resilient and reflects
the continued maturation
of Calgary as a distribution
and logistics hub for Western
Canada. Third party logistics
companies and distribution
activity will continue to act as
a hedge against the oil and gas
sector. Industrial construction
activity will also benefit from
a decline in construction costs
that is expected in 2016.

After a lean 2015, investment

volumes are likely to be


somewhat higher in 2016 as
there will be more clarity
around economic and energy
price forecasts. Smaller assets
from all property types are
likely to make up the bulk
of transaction activity, with
grocery anchored shopping
centres particularly in demand.
Lenders will be encouraged by
more realistic underwriting.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

CALGARY
Projects to Watch
STONEY TRAIL/
CALGARY RING ROAD

ALBERTAS OIL AND GAS


ROYALTY REVIEW

Construction of the southwest portion


of the ring road, scheduled to begin in
2016, will bring Calgary one step closer
to completing the 100 km highway. The
development will further unlock real estate
by providing access to land that is currently
only accessible via side roads and circuitous
routes.

Although the province has indicated it will


hold off implementing changes until 2017,
any modification to the detriment of the oil
and gas sector will negatively impact the
ability to attract and retain business.
www.energy.alberta.ca

www.transportation.alberta.ca

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

9.8%

16.3%

18.4%

Availability Rate

$33.03

$23.89

$18.81

Net Rental Rate (per sq. ft.)

0.52

(1.94)

(0.32)

Sale Price (per sq. ft.)

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)
Class A Cap Rate (%)

5.50-6.00 6.00-6.50 6.00-6.50

Absorption (sq. ft. in millions)

2014

2015 F

2016 F YoY

4.7%

8.3%

8.2%

$8.40

$7.35

$7.25

$185.00

$176.00

$170.00

3.71

(0.43)

1.69

New Supply (sq. ft. in millions)

0.84

0.82

0.62

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

3.83

3.01

2.39

New Supply (sq. ft. in millions)

1.64

4.45

1.78

Under Construction (sq. ft. in millions)

4.62

1.43

0.35

Vacancy Rate

13.1%

17.5%

17.7%

Class A Net Rental Rate (per sq. ft.)

$25.59

$23.12

$18.20

0.60

(0.20)

0.30

5.75-7.25

6.00-7.75

6.25-7.75

2014

2015 F

2016 F YoY

New Supply (sq. ft. in millions)

0.98

0.90

0.44

1.4%

3.5%

3.7%

Under Construction (sq. ft. in millions)

1.31

1.69

1.36

Vacancy Rate

11.0%

16.7%

18.1%

Class A Net Rental Rate (per sq. ft.)

Suburban

Absorption (sq. ft. in millions)


Class A & B Cap Rate (%)

5.25-6.75 5.50-7.00 5.50-7.00

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall

4.25-4.75 4.50-5.00 4.50-5.00


*Canada Mortgage and Housing Corporation, CBRE Limited

INVESTMENT

$29.76

$23.59

$18.59

Absorption (sq. ft. in millions)

1.12

(2.14)

(0.03)

New Supply (sq. ft. in millions)

1.82

1.72

1.06

Transactions (in $ Millions)

2014

2015 F

2016 F

YoY

Under Construction (sq. ft. in millions)

5.14

4.70

3.75

Office

$709

$105

$267

Industrial

$639

$399

$432

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

2014

2015 F

2016 F YoY

7.0%

(0.7%)

2.7%

5.50-6.00 5.25-5.75 5.00-5.75

Retail

$401

$299

$323

Multifamily

$202

$206

$144

ICI Land

$439

$332

$167

Hotel*

$148

$156

$80

$2,539

$1,497

$1,413

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

25

E D M O N TO N
Edmonton, much like

$71.0 BILLION OF PROJECTS ARE


UNDER CONSTRUCTION ACROSS
ALBERTA

Calgary, is confronting
repriced oil and gas. The two
markets have weathered the
downturn differently and
their performance will vary
in 2016. Edmontons property
fundamentals will largely
outperform those in Calgary.

Both Edmonton and Calgary

INVESTORS WILL
HOLD ON TO CORE
ASSETS

face challenges in their


downtown office markets, but
Edmontons difficulties stem
from pending oversupply and
limited absorption in the core.
Expect the Edmonton office
tenant base to remain relatively
stable in 2016; however, new
leasing activity will be soft as
tenants wait for 1.8 million
sq. ft. of new supply to come
online downtown by 2018
before making any longer term
commitments.

Office property owners will

PRICING WILL REMAIN A


CHALLENGE DUE TO
THIN TRADING

26

Industrial property

fundamentals should benefit


from the fact that new supply
will drop by 50.0% in 2016.
Small bay properties will still
be in demand, while Class B
distribution properties will see
less activity. There will be a
flight to quality as new product
is delivered to the market,
which will occur at the expense
of less functional real estate.

Investment volume is unlikely

to change dramatically
in 2016 unless economic
conditions change significantly.
Institutional owners of office
space will face rental rate
erosion and there will be no
significant influx of quality
product for sale. Demand
will continue to be strong for
Class A industrial, retail and
multifamily properties, but
supply will be limited.

need to deploy stronger asset


management strategies as
the office market adjusts to
new supply. In this tenants
market, expect inducements to
increase as office users are in
a position of strength in lease
negotiations.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

E D M O N TO N
Projects to Watch
EDMONTON ARENA DISTRICT

ANTHONY HENDAY RING ROAD EDMONTON LRT VALLEY LINE

This multi-billion dollar project by


Katz Group of Companies and WAM
Development Group spans 25.0 acres of
office, retail, hospitality, residential and
hotel properties revamping Edmontons
urban core.

The north east quadrant of Edmontons


main ring road is scheduled to be
completed by October 2016. When
complete, Anthony Henday Drive will total
78.0 km and provide seamless access to
surrounding arterial highway to enhance
market access for all industrial products.

www.ead.ca

www.northeastanthonyhenday.com

The 27.0 km Valley Line runs east to west,


linking Mill Woods to Lewis Estates. With
approval and funding in place for the 13.0
km leg from Downtown to Millwoods,
construction will commence in 2016
and is scheduled to be complete by 2020.
Densification along the line may attract
employees to work downtown.
www.edmonton.ca/SEtoWestLRT

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

10.0%

10.7%

17.5%

Availability Rate

Class A Net Rental Rate (per sq. ft.)

$24.05

$23.90

$21.61

Net Rental Rate (per sq. ft.)

Absorption (sq. ft. in millions)

(0.04)

(0.14)

(0.06)

Sale Price (per sq. ft.)

Class A Cap Rate (%)

6.25-6.75 6.25-6.75 6.25-6.75

Absorption (sq. ft. in millions)

2014

2015 F

2016 F YoY

3.8%

7.8%

8.2%

$11.13

$11.20

$10.80

$144.09

$145.14

$123.37

3.64

(0.40)

1.13

New Supply (sq. ft. in millions)

0.00

0.00

1.17

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

1.42

1.78

0.60

New Supply (sq. ft. in millions)

2.87

4.19

1.74

Under Construction (sq. ft. in millions)

2.68

1.74

0.25

Vacancy Rate

13.3%

14.5%

14.1%

Class A Net Rental Rate (per sq. ft.)

$19.90

$20.99

$20.36

0.21

0.01

0.15

6.75-7.75

6.75-7.75

2014

2015 F

2016 F YoY

New Supply (sq. ft. in millions)

0.41

0.18

0.13

1.7%

3.0%

3.5%

Under Construction (sq. ft. in millions)

0.38

0.28

0.16

Vacancy Rate

11.3%

12.2%

16.2%

Class A Net Rental Rate (per sq. ft.)

$22.28

$22.52

$21.19

0.17

(0.12)

0.09

INVESTMENT

Suburban

Absorption (sq. ft. in millions)


Class A & B Cap Rate (%)

6.75-7.75

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall

Absorption (sq. ft. in millions)

5.50-7.00 5.50-7.00 5.50-7.00

5.00-5.50 4.75-5.25 4.75-5.25


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

New Supply (sq. ft. in millions)

0.41

0.18

1.30

Transactions (in $ Millions)

2014

2015 F

2016 F

Under Construction (sq. ft. in millions)

1.80

2.06

0.76

Office

$213

$62

$50

Industrial

$219

$83

$110

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

2014

2015 F

2016 F YoY

6.9%

(1.1%)

2.7%

5.75-6.25 5.75-6.25 5.75-6.25

YoY

Retail

$262

$76

$140

Multifamily

$270

$395

$350

ICI Land

$817

$532

$450

Hotel*

$40

$35

$70

$1,820

$1,183

$1,170

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

27

WINNIPEG
OVER A
BARREL

OIL

OILS IMPACT VARIES


ACROSS CANADIAN PRAIRIES

Winnipeg may not offer Alberta

boom times or the scale of


Vancouver or Toronto, but
when the tide goes out in other
markets, tenants and investors
are reminded of the stability
that characterizes Winnipeg.
Winnipegs appeal will likely
increase in 2016 due to its
relative economic resilience and
steady growth trajectory.

Winnipeg is one of the few

TOP 3
WINNIPEG HAS ONE OF
THE HIGHEST GDP GROWTH
RATES IN CANADA

office markets in Canada


where there is no downtown
office construction; however,
expect there to be more clarity
around proposed Class A
office construction projects in
2016. Tenant desire for quality
space and investors needing
to place capital has resulted in
significant office construction
cycles in other Canadian
cities and may spur new office
construction in Winnipeg as
well.

Traditionally, commercial

property in Winnipeg is tightly


held by long-term owners.
Investors have recently had a
rare opportunity to acquire
assets in Winnipeg as a result
of portfolio rebalancing and
generational turnover. Property
availability is expected to persist
and spur investment activity,
but investors will have to act
quickly when opportunities
arise in 2016 as demand is
expected to keep pace.

The 2016 investment volume


will be healthy and similar
to 2015 when the market
experienced an uptick in the
number of transactions.

Low energy prices and

DOWNTOWN REVITALIZATION
EFFORTS HAVE HAD SUCCESS,
BUT WILL AMBITIOUS NEW
PROJECTS TAKE SHAPE?

28

favourable exchange rates


are bolstering the Winnipeg
industrial market, especially
the manufacturing sector. Large
orders at New Flyer, a Winnipeg
based bus manufacturer, are
a harbinger of medium-term
industrial activity and property
demand. Construction of
modern industrial buildings,
with high ceiling heights and
efficient column spacing, will
also increase as new land is
prepared for development.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

WINNIPEG
Projects to Watch
RBC CONVENTION CENTRE

SEASONS WINNIPEG

This $180.0 million project in downtown


Winnipeg will provide an additional
100,000 sq. ft. of multi-purpose space on
top of the existing 160,000 sq. ft. venue. The
expansion will meet LEED Silver standards
and will be the fourth largest publicallyowned convention centre in Canada.
Completion is scheduled for early 2016.

Positioned as Central Canadas premiere


shopping centre, this mixed-use
development will include residential
components, open air strip centres, an
enclosed outlet mall, two luxury car
dealerships and a hotel. Outlet Collection at
Winnipeg will be the citys first pure outlet
centre when it opens in spring 2017.

http://www.wcc.mb.ca/expansion-2016

http://seasonswinnipeg.ca/leasing

CENTREPORT CANADA
WATER TREATMENT FACILITY
Development of a new water treatment
facility within Centreport will enable
servicing of residential, industrial and
mixed-use land, and increase the velocity of
development within CentrePort. The facility
is expected to be operational in early 2016.
www.centreportcanada.ca

Market Statistcs

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

9.9%

11.7%

11.2%

Availability Rate

Class A Net Rental Rate (per sq. ft.)

$17.17

$17.58

$17.60

Net Rental Rate (per sq. ft.)

0.08

(0.09)

0.04

5.50-6.00 5.50-6.00

5.25-5.75

Absorption (sq. ft. in millions)


Class A Cap Rate (%)

2014

2015 F

2016 F YoY

4.5%

4.8%

4.6%

$6.90

$7.34

$6.84

Sale Price (per sq. ft.)

$87.06

$86.70

$89.14

Absorption (sq. ft. in millions)

(0.19)

(0.16)

0.29

New Supply (sq. ft. in millions)

0.00

0.08

0.00

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

0.08

0.00

0.00

New Supply (sq. ft. in millions)

0.16

0.10

0.15

Under Construction (sq. ft. in millions)

0.14

0.08

0.00

9.2%

13.3%

Class A Net Rental Rate (per sq. ft.)

n/a

n/a

Absorption (sq. ft. in millions)

0.14

(0.12)

6.50-7.50

6.50-7.50

6.50-7.50

2014

2015 F

2016 F YoY

New Supply (sq. ft. in millions)

0.00

0.00

0.00

2.5%

2.8%

3.0%

Under Construction (sq. ft. in millions)

0.00

0.00

0.00

Vacancy Rate

9.7%

12.1%

11.6%

Class A Net Rental Rate (per sq. ft.)

Suburban
Vacancy Rate

Class A & B Cap Rate (%)

12.8%
n/a
0.01

Overall

6.00-7.50 6.00-7.00 5.75-6.75

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

5.00-5.75 5.00-5.75 5.00-5.50


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

$17.17

$17.58

$17.60

Absorption (sq. ft. in millions)

0.22

(0.20)

0.05

New Supply (sq. ft. in millions)

0.00

0.08

0.00

Under Construction (sq. ft. in millions)

0.08

0.00

0.00

2014

2015 F

2016 F YoY

4.9%

2.0%

4.0%

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

6.50-7.00 6.50-7.00 6.50-7.00


* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

29

LO N D O N & K I TC H E N E R-W AT E R LO O
THINKING
SMALL COULD
HAVE A BIG
REAL ESTATE
IMPACT.
QUANTUM
NANOTECHNOLOGY
EMERGES AS
GROWTH SECTOR IN WATERLOO
REGION

LAND IS IN
DEMAND,
BODES WELL FOR
FUTURE GROWTH

In recent years, it has been

difficult to speak about


Southwestern Ontario as a
homogenous region, but both
London and Kitchener-Waterloo
will exhibit healthy leasing
and investment activity as 2016
unfolds, which is consistent
with positive momentum across
the regional economy.

Waterloo and London will

continue to see signs of


intensification in 2016 and new
development and investment
will revolve around this trend.
In Waterloo, the LRT is closer
to the 2018 completion date,
while Londons affordable core
with ample parks and amenities
is appealing to retirees and
spurring the construction of a
new 35-storey condo.

The industrial sector is one

LOCAL DEVELOPERS SPUR


MOST
CONSTRUCTION
IN THREE YEARS

30

of the most active parts of


the market, but a very modest
amount of this activity can be
tied to favourable exchange
rates. The market has retooled
since 2008 and industrial
decision making criteria in
2016 will largely be the same
as in the prior year when the
Canadian dollar was much
higher. There is limited
availability of industrial
properties >50,000 sq. ft. for
sale or lease in London, while
Waterloo is attracting industrial
tenants as an affordable
alternative to Milton and
Mississauga in the western edge
of the GTA.

Waterloo will continue to attract


and foster the development of
innovative businesses. Expect
significant announcements,
similar to the recent Shopify
expansion, which will result
in office absorption in 2016.
Londons office market will
experience a modest recovery
thanks to a growing tech sector,
which will be led by gaming
company expansions.

Waterloo Region will outpace

London in terms of overall


investment activity, but both
markets will post healthy
volumes. The region will benefit
as investors look for alternative
destinations outside of Alberta
and Asian capital will also have
an impact, albeit from mid-tier
investors. 2016 will not be a year
of large trades and instead will
be characterized by mid-market
activity.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

LO N D O N & K I TC H E N E R-W AT E R LO O
Projects to Watch
TRANSITION OF LONDONS
SOHO DISTRICT

WATERLOO
REGIONAL LRT

REDEVELOPMENT OF
VICTORIA HOSPITAL

Planning constraints in the citys core


combined with increased demand for
creative space in heritage buildings
continue to rejuvenate Londons SOHO
district.

Demand is expected to be high and


retrofitting will take place around LRT
stations, in particular the Columbia Street
nodes which are located on the edge of
University of Waterloo.

The development community will get


clarity around the possibilities for the new
riverfront development south of Londons
downtown core. This will be the most
significant development opportunity in
London for the next decade.

www.rapidtransit.regionofwaterloo.ca

Market Statistics

OFFICE
Central

INDUSTRIAL
London

Kitchener/Waterloo

2015 F 2016 F YoY

2015 F 2016 F YoY

London

Vacancy Rate

15.5%

14.5%

10.0%

9.3%

Availability Rate

Class A Net Rental Rate (PSF)

$14.00

$14.00

$11.84

$11.75

Net Rental Rate (PSF)

0.06

0.07

Absorption (MSF)
Class A Cap Rate (%)

0.05

0.04

6.50-7.50 6.50-7.50 6.00-7.00 6.00-7.50

Sale Price (PSF)

Kitchener/Waterloo

2015 F

2016 F YoY

2015 F

2016 F YoY

11.2%

9.9%

6.1%

6.1%

$4.15

$4.25

$5.07

$4.85

$65.00

$65.00

$65.04

$68.25

0.60

(0.23)

0.27

Absorption (MSF)

1.17

New Supply (MSF)

0.03

0.00

0.00

0.04

Class A & B Cap Rate (%)

Under Construction (MSF)

0.00

0.00

0.05

0.15

New Supply (MSF)

0.16

0.10

0.61

0.33

Under Construction (MSF)

0.10

0.20

0.33

0.43

Suburban
Vacancy Rate
Class A Net Rental Rate (PSF)
Absorption (MSF)
Class A & B Cap Rate (%)

9.0%

9.5%

n/a

n/a

0.10

0.05

12.0%

10.6%

$14.55

$14.50

0.05

0.13

0.09

0.07

0.13

0.00

Under Construction (MSF)

0.07

0.09

0.00

0.22

Vacancy Rate

14.1%

13.4%

11.3%

10.1%

Class A Net Rental Rate (PSF)

$14.00

$14.00

Overall
$13.69

$13.59

Absorption (MSF)

0.16

0.10

0.11

0.20

New Supply (MSF)

0.12

0.07

0.13

0.04

Under Construction (MSF)

0.07

0.09

0.05

0.37

RETAIL
London
2015 F
Retail Sales (YoY)*

MULTIFAMILY
London

7.50-8.50 7.50-8.50 6.50-7.00 6.50-7.00

New Supply (MSF)

n/a

2016 F YoY
n/a

Kitchener/Waterloo
2015 F
n/a

2016 F YoY
n/a

Neighbourhood Cap Rate (%) 6.75-8.00 6.75-8.00 6.00-6.50 6.25-6.75

7.50-9.00 7.50-9.00 6.00-7.50 6.00-7.50

Overall Vacancy Rate*


Apartment Cap Rate (%)

Kitchener/Waterloo

2015 F

2016 F YoY

2015 F

2016 F YoY

2.7%

2.7%

2.7%

2.8%

5.25-6.25 5.25-6.25 5.25-6.00 5.25-6.00


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

INVESTMENT
London
Transactions ($ M)
Office

Kitchener/Waterloo

2015 F

2016 F

YoY

2015 F

2016 F

YoY

$15

$30

$35

$43

Industrial

$25

$28

$185

$164

Retail

$30

$65

$141

$145

Multifamily

$70

$100

$133

$140

ICI Land

$15

$15

$19

$20

Hotel*

$55

$25

$21

$22

Total

$210

$263

$535

$533

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

31

TO R O N TO (Office)
AS VACANCY RISES, TENANTS
WILL HAVE MORE
NEGOTIATING
POWER

The 3.7 million sq. ft. of

LANDLORDS

T ENAN T S

downtown office space


scheduled for completion by late
2017 will face an unprecedented
rate of technological change
and the continued evolution of
workplace strategies. State of
the art buildings and existing
office stock will be challenged
to anticipate change and remain
competitive.

OFFICE

Expect a change in the

INDUSTRIAL

DECOUPLING USES WILL INCREASE


SUBURBAN OFFICE DEMAND

This trend will drive suburban office


demand in 2016

composition of preleasing
activity for the next office
construction cycle. With the
largest office tenants in the
market currently committed
to leases and office occupiers
moving towards more efficient
footprints, the next wave of
office towers will likely be built
with the backing of a mix of
larger tenants as opposed to
the traditional anchor or single
tenant.

New supply will continue to put


KING

Suburban and downtown

office vacancy rates will show


the greatest disparity in over
20 years in 2016; however,
the rising cost of downtown
office space combined with
enhanced regional transit and
household formation amongst
the Generation Y cohort, could
spur more economic activity
and demand for office space in
densifying areas of the suburbs.

A new phenomenon called

industrial decoupling will also


serve as a driver of demand for
suburban office space. Once
housed together, companies
are separating their industrial
and office uses and moving
the office component to more
traditional suburban office
nodes. Expect this trend
to continue as industrial
companies place office
employees in more appropriate
premises.

upward pressure on vacancy


rates in 2016; however, new
office buildings are expected to
be at least 80.0% leased upon
completion. Existing buildings
with vacant space to backfill
will feel pressure to complete
major upgrades and attract new
tenants that can replace lost
revenue. This is an opportunity
for the historical financial core
to reinvigorate itself.

ST

T
BAY S

T ST

FRON

OFFICE ACTIVITY CONTINUES TO


SHIFT TO THE SOUTH CORE

32

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

TO R O N TO (Office)
Projects to Watch
VAUGHAN METROPOLITAN
CENTRE (VMC)

METROLINX EGLINTON
CROSSTOWN LINE

BAY PARK CENTRE


DEVELOPMENT

This 442.0 acre area will continue to


be developed to include office, retail,
residential opportunities and a subway
connection, which will be completed in
2017. The KPMG Tower office development
is expected to be completed in 2016.

The Eglinton Crosstown Light Rail Transit


is a $5.3 billion investment that will run
across Eglinton Avenue between Mount
Dennis (Weston Road) and Kennedy
Station. It is part of a consolidated effort
to integrate transportation in the Greater
Toronto Area. The project will be complete
in 2021.

This Ivanho Cambridge project consists of


two office buildings and retail space, along
with a new GO Bus Terminal in partnership
with Metrolinx. Watch for a significant
pre-leasing announcement and the
commencement of construction in 2016.

www.vaughan.ca

www.ivanhoecambridge.com

www.thecrosstown.ca

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

5.9%

6.0%

7.1%

$28.41

$29.02

$30.47

1.68

0.22

1.31

5.25-5.75

4.75-5.25

4.50-5.00

New Supply (sq. ft. in millions)

1.59

0.29

2.39

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

3.47

3.74

1.35

New Supply (sq. ft. in millions)

5.83

4.58

5.44

Under Construction (sq. ft. in millions)

7.00

7.21

5.02

Vacancy Rate

13.8%

16.0%

17.0%

Class A Net Rental Rate (per sq. ft.)

$17.09

$17.30

$17.30

Absorption (sq. ft. in millions)

(0.18)

(0.78)

(0.30)

2014

2015 F

2016 F YoY

1.6%

1.7%

1.9%

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)
Class A Cap Rate (%)

Suburban

Class A & B Cap Rate (%)

5.75-7.75 5.50-6.75 5.30-6.55

New Supply (sq. ft. in millions)

0.39

1.07

0.51

Under Construction (sq. ft. in millions)

2.49

1.29

0.78

9.5%

10.7%

11.7%

$20.68

$20.81

$21.61

1.50

(0.56)

1.01

Availability Rate
Net Rental Rate (per sq. ft.)
Sale Price (per sq. ft.)
Absorption (sq. ft. in millions)

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)

2015 F

2016 F YoY

4.4%

4.1%

4.3%

$5.19

$5.33

$5.89

$88.45

$110.00

$112.50

5.57

6.90

3.60

5.25-7.50 5.00-7.50 5.00-7.00

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall
Vacancy Rate

2014

4.50-5.25 4.63-4.88 4.43-4.68


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

INVESTMENT

New Supply (sq. ft. in millions)

1.97

1.36

2.90

Transactions (in $ Millions)

2014

2015 F

2016 F

YoY

Under Construction (sq. ft. in millions)

5.96

5.03

2.13

Office

$3,051

$3,337

$2,485

Industrial

$2,190

$1,827

$2,270

Retail

$2,616

$1,979

$1,704

Multifamily

$1,176

$1,603

$998

ICI Land

$1,426

$1,035

$1,226

Hotel*

$323

$754

$500

$10,784

$10,533

$9,183

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

2014

2015 F

2016 F YoY

6.2%

3.2%

4.5%

5.50-6.50 5.63-5.75 5.43-5.55

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

33

TO R O N TO (Industrial)
With one of the lowest
LABOUR
AND SUPPLY
industrial availability rates in
CHAIN
North America, the Greater
EFFICIENCY
Toronto Area (GTA) is likely
WILL BE KEY
to record an increase in
FACTORS IN
speculative construction activity
INDUSTRIAL REAL
in 2016; however, speculative
ESTATE DECISIONS

NEW RECORD
INDUSTRIAL
SALE PRICES
AND RISING
LEASE RATES

GO
WEST!

MILTON AND
GUELPHS
INDUSTRIAL
PROSPECTS
ARE ON
THE RISE

development yields no longer


provide as large a premium for
the risk the builders assume due
to rising development charges
and increased construction
costs.

The owner-user sale market

is coming off one of the most


competitive years on record.
A lack of product, rising
construction costs and readily
available financing are expected
to continue in 2016 and
produce another year of heated
competition amongst buyers.
For investors, high demand to
place equity in the industrial
sector is likely to force cap rates
to new benchmark lows.

In order to accommodate

ecommerce needs around


speed to market, there will be
increased demand for industrial
properties <50,000 sq. ft. within
a twenty minute drive of the
downtown core; however,
limited functional offerings
in South Scarborough, South
Etobicoke and North York will
force users to be creative with
their site selection criteria and
approach.

Leasing, investment and

construction activity in the


west end will outpace the rest
of the region. This area benefits
from the presence of superior
transportation infrastructure
and intermodal facilities, while
those with an eye to the future
anticipate highway widening
and new routes in the coming
decade.

Retailers will continue to

be the driving force behind


distribution centre activity in
2016. Consumers are not buying
more products as much as
they are purchasing products
differently through the omnichannel network concept.
Therefore, as the ecommerce
component of distribution
networks evolve, so too will
retailers industrial footprint.

34

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

TO R O N TO (Industrial)
Projects to Watch
DEVELOPMENT OF NEW 400
SERIES HIGHWAYS

INFILL DEVELOPMENTS IN
CORE MARKETS

CN INTERMODAL AND
LOGISTICS HUB IN MILTON

New highway construction and extensions


on existing highways will directly impact
land purchases and drive industrial users
to consider new markets.

Expect activity on older industrial facilities


in close proximity to core urban markets.
Cartteras HBC infill development and
the CP/Dream land development are two
examples of the trend to revitalize older
stock.

The $250.0 million intermodal and logistics


hub adjacent to its main line in the Town of
Milton will facilitate logistics development
while attracting more warehousing
distribution centres and employment.

www.mto.gov.on.ca

www.cn.ca

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

5.9%

6.0%

7.1%

$28.41

$29.02

$30.47

1.68

0.22

1.31

5.25-5.75

4.75-5.25

4.50-5.00

New Supply (sq. ft. in millions)

1.59

0.29

2.39

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

3.47

3.74

1.35

New Supply (sq. ft. in millions)

5.83

4.58

5.44

Under Construction (sq. ft. in millions)

7.00

7.21

5.02

Vacancy Rate

13.8%

16.0%

17.0%

Class A Net Rental Rate (per sq. ft.)

$17.09

$17.30

$17.30

Absorption (sq. ft. in millions)

(0.18)

(0.78)

(0.30)

2014

2015 F

2016 F YoY

1.6%

1.7%

1.9%

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)
Class A Cap Rate (%)

Suburban

Class A & B Cap Rate (%)

5.75-7.75 5.50-6.75 5.30-6.55

New Supply (sq. ft. in millions)

0.39

1.07

0.51

Under Construction (sq. ft. in millions)

2.49

1.29

0.78

9.5%

10.7%

11.7%

$20.68

$20.81

$21.61

1.50

(0.56)

1.01

Availability Rate
Net Rental Rate (per sq. ft.)
Sale Price (per sq. ft.)
Absorption (sq. ft. in millions)

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)

2015 F

2016 F YoY

4.4%

4.1%

4.3%

$5.19

$5.33

$5.89

$88.45

$110.00

$112.50

5.57

6.90

3.60

5.25-7.50 5.00-7.50 5.00-7.00

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall
Vacancy Rate

2014

4.50-5.25 4.63-4.88 4.43-4.68


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

INVESTMENT

New Supply (sq. ft. in millions)

1.97

1.36

2.90

Transactions (in $ Millions)

2014

2015 F

2016 F

YoY

Under Construction (sq. ft. in millions)

5.96

5.03

2.13

Office

$3,051

$3,337

$2,485

Industrial

$2,190

$1,827

$2,270

Retail

$2,616

$1,979

$1,704

Multifamily

$1,176

$1,603

$998

ICI Land

$1,426

$1,035

$1,226

Hotel*

$323

$754

$500

$10,784

$10,533

$9,183

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

2014

2015 F

2016 F YoY

6.2%

3.2%

4.5%

5.50-6.50 5.63-5.75 5.43-5.55

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

35

OT TA W A

Welcome
to Ottawa 2016:

A year of discovery

L
C
NDP

22%

Downtown Ottawa will continue


the process of redefining itself
in 2016 and beyond. Much like
the suburban office market
struggled for a decade following
the burst of the tech bubble, the
downtown office market will
need to adjust as the federal
government rationalizes and
upgrades its office footprint.
The downtown economy and
office tenant base will need to
gradually diversify and bring
the downtown vacancy rate into
balance.

WINDS OF
POLITICAL CHANGE
COULD HAVE
IMPLICATIONS FOR
COMMERCIAL
The federal government
PROPERTY IN
continues to be the dominant
OTTAWA

reduction in total space is


only 10% complete
WORKPLACE 2.0 COULD
REDUCE THE FEDERAL
GOVERNMENT OFFICE
FOOTPRINT BY UP TO 1.8
MILLION SQ. FT. IF FULLY
IMPLEMENTED

force in Ottawa and the recent


change in government has given
the public service a renewed
sense of optimism. It remains
to be seen if the government
office footprint will continue to
decrease. A drastic change in
course is not expected in 2016
as it will take the government
time to implement new policies.

The Kanata office market,

with the support of a healthy


technology sector, will continue
to be a dominant force in
the leasing market. Kanata
represents approximately 14.0%
of Ottawas office inventory, yet
accounted for 39.0% of total
deal velocity through Q3 2015.
Expect Kanata and the tech
sector to remain active in 2016.

is not easily rectified and the


industrial sector will need to be
rewired to facilitate growth in
new areas over the long term.

Retail market activity will

focus on upgrades and growth


of Ottawas regional shopping
centres, including the expansion
and renovation of CF Rideau
Centre and Bayshore Shopping
Centre. The recent addition of
a Nordstrom and completion
of the Tanger Outlet reflect
the vibrancy of Ottawas retail
market and high disposable
incomes in this market.

Ottawa will attract investors

looking to diversify their


real estate holdings. Ottawa
is poised for an active sales
market as opportunistic office
owners attempt to maximize
property values and investors
seek to make strategic long-term
bets on the nations capital.
Additionally, value-driven
buyers will attempt to capitalize
on opportunities to reposition
obsolete office buildings. Retail
and multifamily property
will also be sought after by
investors, while industrial
trading activity is expected to be
muted.

Ottawas industrial sector

will continue to face growth


constraints in the east end.
With 40.0% of industrial space
located in the Belfast-Sheffield
industrial area, less than 2.0%
of land in that area is available
for development. This situation

36

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

OT TA W A
Projects to Watch
WESTBORO CONNECTION
(319 MCRAE AVENUE)

CIENA CANADA EXPANSION


IN KANATA

LEBRETON FLATS
REDEVELOPMENT

This mixed-use development located in


Ottawas west-end embodies the live,
work, play model and features 116,304 sq.
ft. of office space, 32,165 sq. ft. of retail
space, and 141 rental apartment units. The
building will be completed at the close of
Q4 2015 and tenants will take possession in
January 2016.

In late 2014, Ciena firmed up a 13-year


lease deal at 5050 Innovation Drive
totaling 170,500 sq. ft. The site was built
for Blackberry and was sold to Spear
Street Capital and subsequently sold
to Crestpoint. Ciena has kicked off two
new office buildings on the adjacent site
Building B will be ~152,000 sq. ft. and
Building C will be ~102,000 sq. ft.

The National Capital Commission (NCC)


has pre-qualified four groups to propose
plans for the redevelopment of LeBreton
Flats. Among these is a proposal from the
Ottawa Senators to build a major sporting
and event centre.

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

8.8%

9.3%

9.5%

$24.20

$23.00

$23.00

Net Rental Rate (per sq. ft.)

0.09

(0.11)

(0.04)

Sale Price (per sq. ft.)

Class A Net Rental Rate (per sq. ft.)


Absorption (sq. ft. in millions)
Class A Cap Rate (%)

5.25-6.00 5.25-6.00 5.25-6.00

Availability Rate

Absorption (sq. ft. in millions)

2014

2015 F

2016 F YoY

6.4%

6.6%

6.6%

$8.83

$8.75

$8.70

$126.17

$130.81

$135.00

0.28

0.15

0.08

New Supply (sq. ft. in millions)

0.42

0.00

0.00

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

0.00

0.00

0.00

New Supply (sq. ft. in millions)

0.26

0.23

0.07

Under Construction (sq. ft. in millions)

0.17

0.06

0.06

Vacancy Rate

10.4%

11.2%

11.4%

Class A Net Rental Rate (per sq. ft.)

$16.51

$16.20

$16.25

0.06

(0.09)

0.06

6.25-7.75

6.75-7.25

6.90-7.40

2014

2015 F

2016 F YoY

New Supply (sq. ft. in millions)

0.29

0.17

0.10

2.6%

2.3%

2.0%

Under Construction (sq. ft. in millions)

0.19

0.21

0.32

9.6%

10.3%

10.5%

Suburban

Absorption (sq. ft. in millions)


Class A & B Cap Rate (%)

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall
Vacancy Rate

6.00-7.50 6.25-6.75 6.25-6.75

4.75-5.50 4.75-5.50 4.75-5.50


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

$19.44

$19.04

$19.07

Absorption (sq. ft. in millions)

0.16

(0.20)

0.02

INVESTMENT

New Supply (sq. ft. in millions)

0.71

0.17

0.10

Transactions (in $ Millions)

Under Construction (sq. ft. in millions)

0.19

0.21

0.32

Office

Class A Net Rental Rate (per sq. ft.)

Industrial

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

2014

2015 F

2016 F YoY

4.7%

2.6%

3.3%

6.25-7.00 6.00-6.75 6.00-6.75

2014

2015 F

2016 F

YoY

$261

$261

$325

$78

$139

$145

Retail

$152

$101

$140

Multifamily

$397

$359

$335

ICI Land

$98

$335

$325

Hotel*

$84

$33

$158

$1,071

$1,227

$1,428

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

37

MONTREAL

THE CITY OF MONTREAL HAS


ALLOCATED $1.5 BILLION
TO ROAD REPAIR
OVER THE
NEXT THREE
YEARS

URBAN POPULATION GROWTH


ACCELERATION
Population growth within a 1.0 km radius
of Peel and Rene Levesque West

TOWN MONTR
EA

2010 36,189
2015 42,956
2020 49,471

38

The local industrial economy

The office sector will have 2016

As for investment dynamics,

and public sector investment


and an improving economic
outlook will help Montreal to
continue on its path to renewal.
As construction across the
region suggests, the city is
a work in progress, but the
groundwork is being laid for a
bright future.

THE CHAMPLAIN BRIDGE AND


TURCOT INTERCHANGE ARE
HELPING TO MODERNIZE
MONTREAL

N
OW

In 2016, the alignment of private

to digest the vacant space in


two downtown office towers
that have been completed as
part of the ongoing 1.5 million
sq. ft. development cycle. Three
office buildings are slated for
completion in 2017, Manulife,
Desjardins, and LAvenue,
which makes economic growth
and preleasing in 2016 all the
more important. Despite an
increase in office vacancy rates
due to new supply, the new
stock of modern office towers is
essential for Montreal to remain
a competitive destination for
businesses and be a worldclass city. As for the suburban
office markets, they may
benefit as U.S. companies seek
out competitive labour and
occupancy costs.

continues to be dominated by
demand for distribution space,
as retailers pursue supply chain
enhancements. Downtown
street front retail remains
dynamic as more international
retailers move in to fill
vacancies left by some local
retailers who have struggled.
Montreal will gain further
attention as competition for
core assets in Vancouver and
Toronto has become intense.
Comparatively reasonable
pricing and relative economic
stability should attract investors
to Montreal in 2016. In the
absence of trophy assets, expect
more Class B and C properties
to trade hands.

Montreal continues to rapidly

densify as it plays catch-up with


other major Canadian cities
in this regard. Griffintown
and the area around the Bell
Centre remain examples of this
process as condo and apartment
development support a growing
urban population.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

MONTREAL
Projects to Watch
ROYALMOUNT
RETAIL PROJECT

PRIVATE SECTOR
INVESTMENT

The $1.7 billion project located at the


intersection of Highways 15 and 40 offers
1.6 million sq. ft. of retail, 900,000 sq. ft. of
restaurants and theatres, 1.5 million sq.
ft. of office and two hotels. This has the
potential to capture retailers from other
Midtown locations like Rockland Centre.

Significant private companies are


committed to building new corporate
headquarters. Ericsson and ABB will be
active in the suburbs, while Manulife and
Desjardins will be active downtown.

VACANCY AT THE ROYAL


VICTORIA, CHILDRENS AND
SHRINERS HOSPITALS
Situated on prime downtown real estate,
these three sites have the potential to
become part of the new urban fabric of
Montreal.

http://www.carbonleo.com/en/project/royalmount-3/

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

10.4%

10.7%

10.4%

Availability Rate

Class A Net Rental Rate (per sq. ft.)

$22.36

$23.45

$24.00

Net Rental Rate (per sq. ft.)

(0.62)

0.30

0.15

6.00-6.50 5.50-6.00

5.25-5.75

Absorption (sq. ft. in millions)


Class A Cap Rate (%)

Sale Price (per sq. ft.)


Absorption (sq. ft. in millions)

2014

2015 F

2016 F YoY

7.0%

7.5%

7.1%

$5.18

$5.29

$5.23

$61.68

$65.95

$68.00

3.91

0.88

2.22

New Supply (sq. ft. in millions)

0.37

0.50

0.00

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

0.58

0.75

0.75

New Supply (sq. ft. in millions)

1.37

2.67

1.31

Under Construction (sq. ft. in millions)

1.72

0.33

0.30

Vacancy Rate

16.3%

16.7%

17.4%

Class A Net Rental Rate (per sq. ft.)

$15.30

$15.14

$15.50

Absorption (sq. ft. in millions)

(0.04)

0.03

0.28

6.25-8.00

6.00-7.75

5.75-7.50

2014

2015 F

2016 F YoY

New Supply (sq. ft. in millions)

0.93

0.17

0.58

3.4%

3.9%

4.2%

Under Construction (sq. ft. in millions)

1.07

1.08

0.80

Vacancy Rate

12.7%

13.1%

13.2%

Suburban

Class A & B Cap Rate (%)

6.00-8.25 5.75-8.00 5.50-7.75

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall

5.25-6.00 5.00-5.75 4.75-5.50


*Source: Canada Mortgage and Housing Corp., CBRE Limited.

Class A Net Rental Rate (per sq. ft.)

$19.06

$19.27

$19.53

Absorption (sq. ft. in millions)

(0.66)

0.33

0.43

INVESTMENT

New Supply (sq. ft. in millions)

1.30

0.67

0.58

Transactions (in $ Millions)

2014

2015 F

2016 F

Under Construction (sq. ft. in millions)

1.65

1.82

1.55

Office

$1,400

$600

$800

$608

$800

$800

Industrial

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

Retail
2014

2015 F

2016 F YoY

2.5%

2.8%

4.0%

7.25-8.00

7.00-7.75 6.75-7.50

YoY

$1,945

$1,117

$850

Multifamily

$813

$1,110

$750

ICI Land

$399

$304

$350

Hotel*

$116

$105

$115

$5,282

$4,035

$3,665

Total

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

39

AT L A N T I C C A N A D A
Atlantic Canada is working
MOST CRANES AND CONSTRUCTION
ACTIVITY IN THE PAST 20 YEARS

Halifax will break from one

GROWTH OF
POPULATION AND REAL
ESTATE DEMAND TO
SHIFT TO DOWNTOWN
HALIFAX FROM THE
SUBURBS

significant national trend in


2016, while falling in line with
another:

The region has largely

been spared the negative


consequences of depressed
energy prices. The low cost
of offshore oil production,
especially projects that are
already producing, continues to
attract exploration investment
in the region. The regional
mining sector also continues to
expand and support economic
growth, with significant
projects in Newfoundland and
Labrador.

LOW CANADIAN
DOLLAR
SUPPORTING
RECORD CRUISE
SHIP TRAFFIC
AND AN INFLUX
OF TOURISTS

>$30
PER B AR RE L

from a base of relative stability


with Halifax, Moncton and St.
Johns among the five fastest
growing Census Metropolitan
Areas in Canada from a GDP
perspective. 2016 will present
interesting opportunities for
business and investors in the
region.

<$20

Halifax had been one of the

PER B AR REL

OIL PRODUCTION COSTS GIVE


ATLANTIC CANADA THE EDGE

few major Canadian cities


with suburban real estate
activity significantly outpacing
the downtown core. This is
poised to shift, with renewed
residential development, a new
library and convention centre,
and an overall desire to have
an urban experience leading to
a rebalancing of the market in
favour of the Halifax Peninsula.

The outlook for leasing activity


is favorable, with office users
beginning a shift towards
the downtown market. The
industrial sector is poised to
benefit from the combination
of a low Canadian dollar and
growing U.S. economy, as well
as Irving Ship building activity
and offshore oil exploration
a winning combination for
Atlantic Canada.

Atlantic Canadas super

regional shopping centres


are receiving significant
investment and tweaks to
their tenant mix in order
to maintain their position
amongst the top 20 most
productive shopping centres in
Canada.

Investors are increasingly

looking to Atlantic Canadas


leading markets as an
alternative destination for
capital due to higher yield.
There should be opportunity
to purchase assets in 2016
as owners rebalance their
portfolios. Commercial
property in Atlantic Canada
continues to offer an attractive
combination of reliable returns
and solid fundamentals, which
should appeal to disciplined
investors at this stage in the
investment cycle.

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

AT L A N T I C C A N A D A
Projects to Watch
MARITIME LINK PROJECT

TRANSCANADA ENERGY
EAST PIPELINE

The Maritime Link will allow Nova Scotia to


import hydro electricity from the Muskrat
Falls generating station in Labrador, which
is being developed by Nalcor Energy as part
of the Lower Churchill Project. The 35-year
investment is in exchange for 20.0% of the
electricity from Muskrat Falls.

If approved, this 4,600 km pipeline will


carry 1.1 million barrels of crude per day
from Alberta and Saskatchewan to the
Irving Oil refinery in Saint John, the largest
and most advanced refinery in Canada.
Construction of a new tank terminal in
Saint John could also increase industrial
activity in the area.

www.emeranl.com/en/home/themaritimelink/overview.aspx

www.transcanada.com

Market Statistics

OFFICE

INDUSTRIAL

Central

2014

2015 F

2016 F YoY

Vacancy Rate

13.6%

14.6%

14.7%

Availability Rate

Class A Net Rental Rate (per sq. ft.)

$19.61

$19.61

$19.50

Net Rental Rate (per sq. ft.)

Absorption (sq. ft. in millions)

(0.07)

(0.04)

0.12

Class A Cap Rate (%)

6.00-6.50 6.00-6.50 6.00-6.50

Sale Price (per sq. ft.)


Absorption (sq. ft. in millions)

2014

2015 F

2016 F YoY

7.7%

9.7%

8.5%

$7.61

$7.61

$7.65

$80.00

$80.00

$80.00

0.01

(0.14)

0.41

New Supply (sq. ft. in millions)

0.22

0.01

0.15

Class A & B Cap Rate (%)

Under Construction (sq. ft. in millions)

0.16

0.15

0.03

New Supply (sq. ft. in millions)

0.17

0.11

0.30

Under Construction (sq. ft. in millions)

0.04

0.13

0.08

Vacancy Rate

13.7%

14.8%

13.6%

Class A Net Rental Rate (per sq. ft.)

$16.80

$16.74

$17.00

0.17

0.03

0.24

7.00-8.25

7.13-7.31

7.00-7.50

2014

2015 F

2016 F YoY

New Supply (sq. ft. in millions)

0.37

0.13

0.20

3.8%

4.1%

4.3%

Under Construction (sq. ft. in millions)

0.23

0.32

0.22

Vacancy Rate

13.7%

14.7%

14.0%

Class A Net Rental Rate (per sq. ft.)

Suburban

Absorption (sq. ft. in millions)


Class A & B Cap Rate (%)

6.50-7.75 6.50-7.75 6.50-7.50

MULTIFAMILY
Overall Vacancy Rate*
Apartment Cap Rate (%)

Overall

5.75-6.25 5.38-6.00 5.00-5.50


*Canada Mortgage and Housing Corporation, CBRE Limited

$18.70

$17.93

$18.08

Absorption (sq. ft. in millions)

0.10

(0.00)

0.36

INVESTMENT

New Supply (sq. ft. in millions)

0.59

0.14

0.35

Transactions (in $ Millions)

2014

2015 F

2016 F

YoY

Under Construction (sq. ft. in millions)

0.39

0.47

0.25

Office

$61

$140

$80

Industrial

$38

$36

$50

RETAIL
Retail Sales (YoY)*
Neighbourhood Cap Rate (%)

Retail
2014

2015 F

2016 F YoY

3.4%

(0.5%)

4.5%

6.25-6.75 6.25-6.75 6.50-8.50

$55

$30

$150

$121

$140

$100

ICI Land

$93

$60

$50

Hotel*

$38

$28

$45

Total

$405

$434

$475

Multifamily

* Conference Board of Canada

CBRE RESEARCH | 2016 CANADIAN MARKET OUTLOOK

*Market and surrounding region

National
Contributors

Regional
Contributors

National Research
Contributors
Ross Moore
Director of Research, Canada
Ross.Moore@cbre.com

Regional Research
Contributors

Investment

Vancouver

Peter Senst
President, Canadian Capital Markets
Peter.Senst@cbre.com

Norm Taylor
Executive Vice President and Managing Director
Norm.Taylor@cbre.com

Paul Morassutti
Executive Vice President, Managing Director
Paul.Morassutti@cbre.com

Calgary

Roelof van Dijk


Research Manager, Canada/GTA
Roelof.VanDijk@cbre.com

Greg Kwong
Executive Vice President and Regional Managing Director
Greg.Kwong@cbre.com

Christina Cattana
Research Team Lead
Christina.Cattana@cbre.com

Jeffrey Hurren
Senior Research Analyst
Jeffrey.Hurren@cbre.com

Edmonton

Ishita Abbott
Research Analyst
Ishita.Abbott@cbre.com

Edmonton

Retail
Tom Balkos
Director, Retailer Services
Tom.Balkos@cbre.com

Dave Young
Executive Vice President and Managing Director
Dave.Young@cbre.com

Industrial
Andrew Wright
Executive Vice President, Managing Director
Andrew.Wright@cbre.com

Winnipeg

Hotels
Bill Stone
Sale Representative, Executive Vice President
Bill.Stone@cbre.com

Seniors Housing & Healthcare


Matthew Burnett
Sale Representative, Associate Vice President
Mathew.Burnett@cbre.com
Stephen Hiscox
Valuations and Advisory Services, Vice President
Steve.Hiscox@cbre.com
Sean McCrorie
Valuations and Advisory Services, Vice President
Sean.McCrorie@cbre.com

John OToole
Executive Vice President and Executive Managing Director
John.OToole@cbre.com

Multifamily
Ross Moore
Director of Research, Canada
Ross.Moore@cbre.com

Matthew Boddy
Research Team Lead
Matthew.Boddy@cbre.com

Calgary

Jayson de Vera
Senior Research Analyst
Jayson.deVera@cbre.com

Winnipeg

Ryan Behie
Vice President and Managing Director
Ryan.Behie@cbre.com

Christian Denny
Research Analyst
Christian.Denny@cbre.com

Southwestern Ontario

Southwestern Ontario

Peter Whatmore
Senior Vice President and Executive Managing Director
Peter.Whatmore@cbre.com

Jaclyn Harrison
Research Associate
Jaclyn.Harrison@cbre.com

Toronto

Greater Toronto Area

(Office)

John OToole
Executive Vice President and Executive Managing Director
John.OToole@cbre.com

Roelof van Dijk


Research Manager, Canada/GTA
Roelof.VanDijk@cbre.com

Adrian Lee
Executive Vice President and Managing Director
Adrian.Lee@cbre.com

Ottawa

Toronto

Office

Christian Denny
Research Analyst
Christian.Denny@cbre.com

Vancouver

(Industrial)

Werner Dietl
Executive Vice President and Managing Director
Werner.Dietl@cbre.com

Ottawa
Shawn Hamilton
Vice President and Managing Director
Shawn.Hamilton@cbre.com

Montreal

Daniel Niedra
Research Analyst
Daniel.Niedra@cbre.com

Montreal
Lynn Johannesson
Research Team Lead
Lynn.Johannesson@cbre.com

Halifax
Kara Hobbs
Researcher
Kara.Hobbs@cbre.com

Alex Sieber
Senior Vice President and Senior Managing Director
Alexandre.Sieber@cbre.com

Atlantic Region
Robert Mussett
Senior Vice President and Senior Managing Director
Robert.Mussett@cbre.com

www.cbre.ca/marketoutlookcanada
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