Rising interest rates are unlikely to put a damper on a red-hot local commercial real estate investment market that’s coming off a record year in 2021, CBRE says.
The real estate services company is predicting another “robust” year of investment activity in the nation’s capital, according to its 2022 Canadian real estate outlook.
“Attractive capitalization rates, a backlog of deployable capital, improving property market fundamentals, and the closing of several landmark transactions in 2021 will all contribute to continued investment conviction,” the report says. “Coupled with a robust offerings pipeline, investor intentions will drive another year of elevated investment activity across property types in 2022.”
After a 2021 that saw Place de Ville, one of the city’s largest office complexes, change hands for $350 million as well as other blockbuster deals that included KingSett Capital taking over sole ownership of the Bayshore Shopping Centre, the managing director of CBRE’s Ottawa office is expecting more of the same for the rest of this year.
"Obviously we finished off 2021 very strong with the Place de Ville (sale), and right now, 2022 is starting just as healthy."
“Obviously we finished off 2021 very strong with the Place de Ville (sale), and right now, 2022 is starting just as healthy,” Louis Karam told OBJ on Wednesday morning. “I think it stems from the fact that we have a stable office market in Ottawa. So there’s an interest.”
CBRE appears just as bullish on Ottawa’s office rental market, which has the lowest downtown class-A vacancy rate of any city in Canada at 9.9 per cent.
CBRE is predicting the rate will fall to 9.5 per cent by the end of 2022 thanks to a solid base of tenants in sectors such as government and tech that have emerged from the pandemic in better shape than many other industries.
“Demand and occupancy were able to remain relatively stable through the pandemic given the market’s base of government and technology occupiers and this trend is expected to persist into the new year,” the company’s outlook said.
While a return to measures aimed at blunting the spread of COVID-19 and disruptions caused by the three-week-long protests against vaccine mandates briefly stalled the office market’s momentum, Karam said he expects things to pick up again quickly.
Strong signals of hope
“We’re seeing light at the end of the tunnel with some companies starting to talk about returning to the office,” he said.
Karam was also heartened by Treasury Board president Mona Fortier’s decision earlier this week to give the green light for federal departments and agencies to start bringing workers back to the office, saying it sends a clear signal that the region’s largest employer is serious about re-occupying some of its vacant real estate sooner rather than later.
“It’s a great sign,” he said. “What I’m looking to see is just how quickly this is enacted and if we can see some real return to office in the next quarter.”
On the industrial front, CBRE sees little relief in sight for tenants seeking space in one of the country’s tightest markets.
Demand for industrial space has skyrocketed in the National Capital Region in recent years amid an online shopping boom that’s turned Ottawa into a thriving e-commerce distribution hub.
With virtually no new construction projects on the books, CBRE is predicting the city’s availability rate will fall below one per cent this year while net asking rents – already at record highs of more than $12 a square foot – will soar above $13 by the end of 2022.
Karam said supply-chain bottlenecks caused by the pandemic are prompting businesses to shift from storing only as much merchandise in warehouses as necessary to meet immediate demand – the so-called “just-in-time” approach – to a strategy of carrying more inventory in case the flow of goods is interrupted.
CBRE forecasts that a five per cent increase in inventory levels could boost occupier demand for warehouse space in Canada by an additional 90 to 120 million square feet over the next few years – more than has been built in the entire country in the last five years combined.
“We’re seeing a lot of supply-chain disruptions, which we believe are going to lead to more demand on warehousing and storage spaces,” Karam said.
He said delays in project approvals and a severe shortage of vacant industrial land are hampering efforts to boost Ottawa’s industrial footprint, adding he doesn’t see the situation improving any time soon.
“I’m crossing my fingers to see if something comes to the table, but right now it doesn’t look like (any) new supply is going to help us in 2022,” Karam said.