Report: Industrial and Commercial Outlook 09

Cushman & Wakefield LePage releases its Outlook ’09 and Annual Market Review (Toronto)

A survey of 11 of Canada’s top commercial real estate markets indicates that while landlords and tenants are taking a wait-and-see approach to commercial real estate transactions, the country is well-prepared to weather this economic downturn.

“We don’t expect to see any radical market corrections in Canadian commercial real estate – thanks to solid lending practices and conservative development strategies over the past decade.”

In past economic downturns over development and less rigorous financial requirements on developers led to an oversupply of commercial real estate – driving up vacancy rates to unsustainable levels and pushing some over-leveraged companies into bankruptcy.

“Canada’s five largest markets were the tightest when compared to the ten largest markets in the US and, while we do expect to see vacancy rates increase because of lower demand and some new space coming onto the market, we don’t expect that these conditions will seriously unbalance the market,” said Bergevin.

The industrial sector can expect a large amount of additional new supply in the next year, and that will put downward pressure on rental rates and will increase vacancy; however, the lower Canadian dollar and lower prices for oil may help the manufacturing, distribution and warehousing sector – providing some stability to the industrial market in Central Canada.

“Toronto is the third largest industrial market in North America – and it has certainly been through its share of market cycles,” said Bergevin. “The market will make adjustments as new space is absorbed more slowly and rental rates will certainly come down, but as the overall economic conditions improve, so will the industrial real estate sector.”

Retailers in Canada have had several years of solid economic growth based on strong Canadian job growth and increases in personal disposable income, providing a good environment for expansion. With the economy turning, retailers will have to be more strategic and settle in for lower sales and curtailed growth.

“We fully expect that discount and big box retailers may find increased traffic as shoppers look for bargains. There may be opportunities for these companies to consider conservative expansions into suburban markets even as the economy shows weakness,” said Bergevin. “Similarly, but on the other end of the spectrum, we will see premium brands and luxury retailers continue to scout locations with premier addresses – like Bloor Street in Toronto and Robson Street in Vancouver.”

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