Healthy construction industry markets predicted for Ottawa and Toronto in 2020: Morguard

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By Mark Buckshon

Ontario Construction News staff writer

The construction market is expected to be healthy in both Toronto and Ottawa in the next year, according Morguard’s Canadian Economic Outlook and Market Fundamentals Report released on Tuesday.

In Ottawa, “construction sector growth eased during 2019, following a period of rapid expansion,” Morguard reports. “Sector output was expected to rise by 1.2% in 2019, having advanced by an annual average of 3.5% during the five-year period ending in 2017. Last year, output rose by a solid 2.9%.

“Sector activity was expected to rise significantly in 2020, with output surging by 3.9%. The continued development of the region’s LRT was cited as a key growth factor over the forecast period.”

Meanwhile, in Toronto Morguard says: “Positive momentum continued to characterize the GTA’s construction sector during the past year.”

“The sector was tracking an increase in output of 2.4% in 2019, which was only moderately lower than the decade average.

“Next year, output was projected to surge by 3.4%, given a plethora of projects expected to begin. Non-residential construction will continue to be the sector’s growth leader, driven by several office buildings in the region’s pipeline of projects. Positive construction sector momentum was expected to continue to unfold over the next few  years.

Nationally, Morguard’s report, its 22nd annual edition, states that investor-confidence remained strong in the multi-suite residential, industrial and office segments in 2019 as demand continued to outpace supply of properties in these asset classes. For 2020, Morguard forecasts a positive outlook for Canadian real estate assets and a retail segment that will continue to adapt to industry changes.

The full report, with regional insights and video, is available on Morguard’s website at morguard.com/research.

“Commercial real estate remained one of the most attractive and stable long-term investments in 2019 and will continue to attract interest from investors in 2020,” said Keith Reading, director of research at Morguard. “The real estate industry, along with the Canadian economy, continued to expand in 2019 despite the global trade dispute and challenges in the oil and gas sector impacting domestic business confidence. However, an improvement in troubled energy sector is anticipated for 2020.”

The multi-suite residential asset class performed at a healthy level for investors in 2019. Nationally, economic growth and ongoing demographic trends continued to support strong rental market conditions throughout the year. Increased demand from downsizing baby boomers and families looking to rent due to the high cost of home ownership in major cities drove the segment’s strong performance. In 2020, positive rental demand patterns and constrained supply will continue to place upward pressure on rents in major cities.

The industrial asset class experienced an extension of the bullish phase of its investment cycle as investors continued to bid on available properties with confidence, following record high annual transaction volume of $12.7 billion in 2018. Most Canadian markets experienced strong rent price appreciation in the segment in 2019 as demand continued to outpace supply. Sourcing available space to lease remained a significant challenge across the country, forcing several businesses to look at design-build opportunities to meet their accommodation needs. In 2020, sales activity is expected to remain brisk, continuing the trend of the past few years.

In the office market, investment sales activity continued at a record pace in 2019. Canada’s technology sector continued to drive demand for leased space, resulting in upward pressure on average rents, especially in downtown areas of major cities. Canadian office leasing fundamentals continued to strengthen against a backdrop of regional disparity, with the national average vacancy down appreciably in the first half of 2019.

Ongoing changes in the retail industry and the resulting uncertainty drove investors to exercise increased caution in 2019. Investment transaction activity has remained relatively brisk, with sales above the long-term average.

“Continued changes in consumer spending habits, e-commerce and demographic shifts forecasted for 2020 has reinvigorated the retail environment. Retail owners are introducing a new consumer experience in the tenant mix and more service retail among other measures to engage shoppers and keep up with industry changes,” added Reading.

Canada’s economic growth is forecasted to stabilize over the near term, representing the continuation of a trend that unfolded in the latter half of 2018. Consumer spending growth is expected to increase in the coming year, driven by continued wage growth and low interest rates. Canada’s labour market performed extremely well in 2019, seeing the lowest unemployment rates over the last 50 years.

The 2020 Economic Outlook and Market Fundamentals Report is a detailed analysis of the 2020 real estate investment trends to watch in Canada. The full report, including analysis for the real estate markets in Halifax, Montreal, Ottawa, Toronto, Winnipeg, Regina, Saskatoon, Calgary, Edmonton, Vancouver and Victoria is available at morguard.com/research.

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