Building Magazine


Western markets looking golden in 2014

Western Canada’s commercial property market is poised to outperform after a strong 2013 according to Morguard’s 2014 Canadian Economic Outlook and Market Fundamentals Research Report. Western Canadian markets including, Winnipeg, Saskatoon, Regina, Calgary, Edmonton, Vancouver, and Victoria, are expected to benefit from the stronger economic trend, driving stronger performances in the region’s commercial property markets. Investors will continue to look west for growth, in an effort to capitalize on a region that will outperform the eastern cities, on average over the near term.

“Western Canadian commercial property markets are expected to continue to outperform, as commodities demand helps produce economic growth that is superior to the national average,” said Keith Reading, Director of Research at Morguard. “Western Canada will continue to lead the nation in economic activity this year, supported by resource-rich markets.”

2014 Real Estate Investment Trends to Watch in Western Canada

  • Western Canada’s major urban centres will see stronger rates of economic growth in 2014, with Edmonton, Regina, Calgary, and Saskatoon above the national average and Winnipeg, Vancouver, and Victoria slightly below but still healthy.
  • Western Canada’s economic performance will continue to depend to a large extent on the ongoing strength of the commodities sector demand trend. In particular, oil and gas exports will support continued growth. However, a fall off in demand would have a negative impact on the region’s outlook.
  • Core property values will hover close to the peak, supported by strong investor interest and a relative abundance of low cost debt and equity capital allocated to the sector.
  • Generally positive rental market performance is expected to drive positive income trends for owners, with some softening in certain markets.
  • New supply will present challenges in the office sector, as demand fails to meet the introduction of newly constructed space, with Calgary and Winnipeg being two examples.
  • Construction activity will rise over the next few years. In the office sector, development activity will rise markedly in Winnipeg, Vancouver, and Calgary. Retail construction activity will rise in Alberta, with a range of retailers ready to move in. Industrial development is on the rise on most markets, given a strong outlook for the sector. Purpose-built rental development will be met with sufficient demand to justify investment.
  • U.S. retailers, like Target, will continue to look to western cities, in light of the relatively buoyancy of their economies.
  • The multi-family residential real estate sector will continue to stabilize, as rental buildings remain largely full. However, competition from the rental condominium market will remain higher through 2014 and perhaps beyond.

Real Estate Investment Overview

On balance, Western Canada’s commercial property markets will continue to outperform over the near term, after a strong 2013. Once again, the economies of Western Canada’s largest cities are, for the most part, expected to best the national average in terms of growth. Calgary, Edmonton, and Saskatoon will generate above-average economic output, as a result of strong global demand for commodities and resources while Winnipeg and Vancouver will post only slightly less robust forecasts. The strength of Western Canadian economy in 2014 and beyond will produce equally positive trends in the region’s commercial property investment markets.

Holders of assets in Western Canada will benefit from a market characterized by investment fundamentals, which represent the continuation of the current cycle strength. Core property values, on the rise for much of the past few years, will hold at the peak. Non-core property values will slowly stabilize, having slipped slightly in 2013. Demand for investment-grade property will continue to outpace supply. Capital flows will be limited only by the availability of assets, rather than demand. Investors will continue to look to the west for growth. Attractive return performance will also attract investment. In short, commercial real estate owners can expect another run of solid results in 2014, barring an unforeseen shift in market fundamentals.

The 2014 outlook for Winnipeg’s commercial property sector is generally healthy, given a slightly more robust economic growth forecast. Services growth and improved manufacturing demand will help produce economic expansion of 2.1 per cent for 2014 following 1.4 per cent, according to the Conference Board of Canada. As a result, rental market conditions are expected to stabilize, with modest improvement in the industrial, retail and multi-residential sectors. In the office sector demand will likely fall short of supply. The positive overall outlook will translate into continued investment market stabilization over the near term.

Healthy investment trends are anticipated for Winnipeg’s commercial property market over the next 12 months. Core assets will be popular, with plenty of capital available. This will produce healthy demand characteristics, with local and national groups actively scanning the market for product. Returns will continue at attractive levels, buoyed by stable and positive income performance tracked in the IPD Index. Offerings will be met with aggressive bids. In short, investment and rental market trends in Winnipeg’s commercial property market will reflect ongoing stability through much of the next 12 to 18 months.

Saskatoon’s 2014 retail property market forecast calls for ongoing strength, which will represent a continuation of the region’s above-average performance of the post-recession period. Space market fundamentals will continue to be among the strongest in the country. Vacancy continues to range in the high nineties, given strong retailer expansion activity in this market. New construction and the expansion of existing sites will continue, as a byproduct of healthy demand. Average rents for premium locations will hold at the peak, with the potential for new highs being set. Not surprisingly, the strength of the rental market has acted as a draw for investment in this market.

On balance, investment trends will remain strong throughout 2014 and beyond. Though in short supply, core assets will garner strong investor interest. Healthy fundamentals will attract investment, including a robust local economy. Property values will hover at the peak. The supply of available core assets will continue to fall short of demand. However, on aggregate, conditions in Saskatoon’s retail investment market are expected to remain stable and positive over the near term.

Calgary’s property market will experience another year of strong results throughout 2014, after a largely positive outcome in 2013. Rental market conditions will, for the most part, continue to impress. Industrial occupancy is expected to range in the mid-nineties, in keeping with the trend of the last few years. This tightness has given rise to speculative development with several large-scale deliveries scheduled over the next few years, an indicator of the strength of this sector. Retail and multi-family rental fundamentals will also remain healthy, with some demand softness anticipated in the office sector. On balance, rental market conditions will be reflective of Calgary’s current growth oriented cycle, driven by above-average economic expansion. It is this growth that has attracted investment recently, a trend that will continue over the near-to-medium term.

Calgary will see a spate of new office developments in its downtown area over the next few years. The question to be answered is whether demand will keep pace with the delivery of several large-scale pr
ojects. As 2013 came to a close, it was clear space demand had softened. The continuation of this trend would cause vacancy to rise and downward pressure on rents. However, a strong local economy, rooted in the commodities sector, was expected to drive broadly healthy space demand in 2014.

Healthy investment property market trends will also continue through 2014. Investors, both local and national, will look to Calgary for growth. The strength of the local resource sector will continue to be an incentive for investing. Consequently, prices will hold at the peak for the cycle. The challenge will be to source product in a very competitive environment. This competition will be typical of the overall vibrancy of Calgary’s investment market over the next few years.

Edmonton’s commercial property market will be characterized by strong growth in 2014, albeit at a slower pace than in the previous year. Expansion will continue to be driven by the region’s oil and gas sectors, more specifically engineering and exploration activity. This will provide a significant boost in economic activity, with GDP expansion of over 3.0 per cent forecast for all of 2014. As a result, rental market fundamentals will be arguably the strongest in the nation. Demand for space in the industrial, office, and retail sectors will be strong enough to produce an ongoing peak for the cycle. The region’s purpose-built residential rental sector will follow a similar path. The growth profile of this market will fuel investment and the overall health of the city’s property market.

The region’s property investment market will continue to lead the nation in performance over the near term. Capital will be drawn to the region, given expected growth and stability of the local economy and rental markets. Consequently, investment demand will ensure values hold at the peak for the cycle. Returns will also continue to lead the nation, as an added incentive. In short, Edmonton’s property market will continue to outperform the nation in overall performance over the near term.


Vancouver’s commercial property market will post continued progress in 2014, despite a softening trend in the city’s office space market. A firmer economic growth trend will result in generally positive results in 2014, with rental markets generating gains. Industrial, retail and multi-family rental fundamentals will strengthen, building on solid 2013 performance. The only exception to this rule will be in the office sector. Modestly positive demand will coincide with the delivery of more than one million square feet of new supply over the next few years. While this will likely cause some short-term softening, the long-term trend will remain positive. The underlying strength of the region’s rental markets will continue to drive healthy investment performance.

Vancouver’s investment property market will likely generate continued strength over the near term, in keeping with the medium-term trend. Returns will remain attractive, after double digit results over much of the past year. This will attract investment in one of the nation’s most sought-after markets. Yields will continue to be among the nation’s lowest, and prices among the highest. The driver of this trend will be the persistent shortage of available core assets. Competition will, therefore, reflect this limited opportunity to access a core market. In short, Vancouver’s commercial property market is expected to see another year of solid results in 2014, continuing the post-recession trend.


Victoria’s commercial property market will experience the benefits of one of the strongest lifts in economic activity of Canada’s largest CMAs in 2014. Victoria’s economy is forecast to rise by 2.2 per cent in 2014, according to the Conference Board of Canada, after sluggish performances in 2012 and 2013. The 2014 performance should boost rental market demand, particularly in the office and industrial sectors. The region’s manufacturing sector is expected to be a bright spot in 2014, which will drive industrial demand. The region’s retail and multi-family rental sectors are also expected to generate steady gains in the coming year. Rental market gains are expected to contribute to ongoing strength in Victoria’s investment market over the near term.

Another year of investment market health is on tap for 2014. Strong local demand will continue, with national groups also looking to add market exposure. Core assets will once again be in short supply, largely due to the relative size of this market. However, when they become available demand will be strong and bidding aggressive. An added attraction for investors will be yields that are higher than those of the nation’s major markets and a history of strong performance. Consequently, prices will hold at the peak for the cycle. Indeed, Victoria’s commercial property market is expected to perform solidly over the next year, in keeping with the medium-term trend.

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