Two years ago Canada’s residential real estate market was a world leader as far as investors were concerned. Housing prices were surpassing record highs, the rental vacancy rate was tight and annual capital appreciation was in double digits while interest rates were at record lows. Foreign investors couldn’t get enough.
Then the government stepped in. Within a year Vancouver and Toronto home sales were down 35 per cent and national housing values had dropped 12 per cent, all without benefiting rental tenants.
This year commercial real estate is hitting new highs after coming off a record performance in 2017. In the second quarter of 2018 alone, more than $5 billion worth of commercial real estate was transacted every month, up 38 per cent from the quick pace a year earlier. The first half of this year rang up $26.8 billion in deals, an all-time high for a half-year period.
And it is a broad-based boom. Calgary’s long-suffering office sector recorded one of the two biggest transactions in the country in the second quarter. Edmonton had its best quarter ever, recording $1.49 billion in commercial real estate investments, a 51 per cent increase from the previous quarterly record.
Vancouver and Toronto are posting the lowest office vacancy rates in North America. Across Canada, the average commercial real estate deal this year is pegged at a record high of $9.6 million.
Vancouver welcomed $3 .2 billion in transactions in the second quarter, an increase of 91 per cent compared with the five-year average, second only to Toronto. Vancouver also recorded the largest price increase in North America for downtown prime office space and the world’s largest rental increase for prime industrial and logistics space, according to CBRE.
Normally sleepy Montreal posted commercial real estate sales of $1.7 billion in the three-month period.
So what could possibly go wrong?
Anyone who thinks all three levels of politicians are not looking at the surging commercial sector as a tax and regulatory target is dreaming.
In Vancouver and other big cities, it is translating into soaring development fees. Provincially, there is noise about extending the foreign-buyer tax, now only on residential, into the multifamily market, perhaps even into all commercial sectors. The federal government, meanwhile, stumbles through trade talks and resource developments, apparently doing everything it can to discourage foreign capital from flowing into Canada.
Commercial real estate is now about the hottest spot in the Canadian economy. It will remain so only if governments can keep their mitts off it.