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Canadian commercial real estate set to break investment record for third consecutive year in 2018

Photo: James Bombales

It has been another year for the Canadian commercial real estate market. With more than $ 43.1 billion in investments, 2017 is the best year ever and 2018 is expected to perform even stronger, CBRE said.

This year, the growing demand from tenants, combined with declining vacancy rates, is expected to lead to an increase in rental costs, despite rising interest rates and NAFTA uncertainty, according to CBRE Canada's 2018 Real Estate Market Outlook- report published today.

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"Every year we critically evaluate the threats to the Canadian commercial real estate market, but for every challenge we encountered, there was a even stronger reason to be optimistic in 2018, "says Paul Morassutti, Executive Managing Director of CBRE Canada, in a press release.

The report found that the commercial real estate investment volume of 2017 exceeded the record record amount of $ 34.7 billion in 2016 by almost a quarter. As a result, Canada was one of only four countries around the world that made a back-to-back investment report.

According to the commercial real estate and the investment firm, 2018 could see that commercial real estate "sets a historical treble of successive investment files", whereby investors continue to buy in the market.

Morassutti says Canada will once again be at the center of two powerful investment trends this year.

"Firstly, our status as a safe haven with a stable rule of law becomes more pronounced if geopolitical instability continues to accelerate," says Morassutti.

"Secondly, real estate has arrived as a real" fourth power class "that yields returns in a world in which the harvest is starving.As a result, the institutional allocations over the next five years will increase by more than 20 percent increase, "he adds.

However, there are potential risks that the commercial real estate market could encounter in 2018. Expected interest rate rises could increase the book value of landlords and put the cap rates under pressure, but CBRE expects interest rate hikes to be weakened by rental growth.

NAFTA negotiations pose another threat to the market, but CBRE says the outcome on Canada's industrial market will be small due to the demand from the ongoing tenant.

2018 will prove to be a difficult year for investors, because offices in the inner city in several Canadian markets still have to deal with falling vacancy levels, which are at or near the low point.

Toronto and Vancouver start in 2018 with the lowest vacancies in the city center in North America with 3.7 percent and 5 percent, respectively. With an offer that can not meet this growing demand until at least 2020, CBRE predicts that vacancy in the city center will drop to 3.3 percent in Toronto and 4.9 percent in Vancouver this year.

In 2018, vacancy percentages are also expected to fall in London, Waterloo Region, Ottawa, Montreal and Halifax.

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