Commercial activity in multiple asset classes holds steady in Q1 2023 as markets continue to grapple with higher borrowing costs and inflationary pressures, says RE/MAX

TORONTO and KELOWNA, BC, June 1, 2023 /CNW/ -- While caution characterized investment activity in the first three months of 2023, sentiment is shifting in Canada's commercial real estate sector. Positive indicators have emerged, led by rising demand and the re-entry of major players to the marketplace, suggesting a significant upswing in demand may be in the cards for the back half of the year, according to a report released today by RE/MAX Canada.

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The RE/MAX 2023 Commercial Property Report examined 12 commercial real estate markets from Greater Vancouver to Newfoundland-Labrador in the first quarter of 2023 and found considerable resilience despite a commercial real estate landscape that continues to evolve post-pandemic. A number of key trends were identified, including:

• Industrial real estate continued to outperform almost every other asset class, with all markets reporting strong sales and lease activity. With both property and lease values climbing, investors and end users in British Columbia and Ontario have extended their search perimeter for distribution and warehousing facilities to neighbouring provinces with more affordable pricing. A spillover of demand from these provinces and key markets have bolstered sales of industrial product in Edmonton, Calgary, Regina, Saskatoon, London-St. Thomas, Halifax and St. John's. While demand has softened from peak levels reported in 2022 in most Canadian markets, inventory levels remain extraordinarily low, given the headwinds the industry has encountered.
• Land sales remain solid, despite higher interest rates and construction costs, with acreage zoned industrial, multi-family and retail most sought-after in major Canadian centres. Approvals in place have been a critical component in bringing deals to fruition, given the lengthy approval process that exists in most markets. Red tape and development fees have been a barrier in all types of new construction. Vendor take-back mortgages have also re-emerged in several markets as sellers work with buyers to close the deal.
• Retail continues to be surprisingly robust, given the growth of online sales in recent years, with almost 92 per cent of markets (11/12) reporting solid activity in retail nodes and shopping centres. From storefront on major arteries to strip plazas and shopping malls, the bricks and mortar experience is resonating with today's consumers. Investment dollars have been pouring into major shopping malls across the country as landlords seek to enhance the shopping experience. Landlords are also cashing in the live-work-shop phenomenon, with the number of residential applications on commercially zoned property growing across the country.
• The office sector continues to struggle in markets across the country as employers wrestle with hybrid work models, particularly in the downtown core. While reducing the physical footprint to reduce costs is top of mind with some companies, others are looking to incentivize employees return by creating a more social component within the workplace.
• Repurposing of commercial office space to residential planned or underway in major Canadian centres hold key to healthy, vibrant downtown cores, with 50 per cent of markets (6/12) surveyed reporting conversion activity in this growing segment.

"Although activity has come off peak levels reported in the first quarter of 2022, demand for commercial real estate remains relatively healthy in most major centres," says Christopher Alexander, President of RE/MAX Canada. "Owner-users and tenants have stepped up to fill in some of the gaps created by the pullback from Real Estate Investment Trusts (REITs) in the second half of 2022 and early 2023. Several markets, including Edmonton, Calgary, Regina and Saskatoon, experienced strong activity in the first quarter of the year, despite challenging market conditions. A shortage of available inventory across various asset classes continues to place upward pressure on commercial values and lease rates, especially within the industrial sector. Prices remain buoyant as a result with further escalation anticipated as momentum improves heading into the latter half of the year."

In key centres, RE/MAX brokers have noted that buyers and sellers rose to the challenge in the first quarter of the year, pulling out all stops to make deals happen. In an analysis of closed transactions in the Greater Toronto Area in Q1 2023, for example, the number of vendor take-back mortgages (VTBs) as a percentage of total sales over $2 million rose substantially over year-ago levels, climbing to 9.55 per cent, up from 5.82 per cent in Q1 2022, with VTBs now representing almost one in 10 transactions*. In Western Canada, investors took advantage of attractive financing for construction of purpose-built rentals through Canada Mortgage and Housing Corp. (CMHC), while those interested in existing buildings cut deals that allowed for the assumption of CMHC mortgage financing at lower interest rates.

Real estate investment trusts (REITs) are now slowly venturing back into the market, driving demand for industrial, multi-family, retail and, to a lesser degree, office product. Conditions are ripe for investment, particularly for multi-family properties, given growing demand for housing in markets across the country. According to Statistics Canada, the nation's population climbed to just short of 40 million in January of 2023, the highest annual population growth on record. The increase has served to further exacerbate the country's already critical housing shortage, which showed vacancy rates for purpose-built rentals fell to 1.9 per cent nationally and condominium rentals dropped to 1.6 per cent, according to CMHC. Rental rates have risen in response to tight inventories in markets across the country, with double-digit increases noted year-over-year in most markets. The trend has bolstered already strong demand for existing multi-family, but product is scarce.

"On the office front, with the work-from-home model taking root, many corporations within the downtown core of major Canadian centres are envisioning smaller footprints in their future," says Alexander. "As sublet space expands and lease renewals involve reduced space requirements, management is reconsidering their options."

RE/MAX found that for some Class B and C buildings, the answer may lie in repurposing their buildings, as demand for residential housing reaches critical levels. Although not all buildings will be ideally suited for retrofit, some major centres are providing incentives to encourage conversion to residential. Calgary introduced the Downtown Calgary Development Incentive Plan in 2021 which provides a $75-per-square-foot subsidy to developers for converting offices to residential, with 10 buildings approved to date. By way of conversion, more than 1,200 new homes will be created and approximately one million square feet of commercial office space will be eliminated, breathing new life into Calgary's downtown core. There are a growing number of buildings targeted for conversion in various stages of planning and development in Halifax, Ottawa, London, Toronto and Winnipeg.

"Commercial office markets are experiencing a transformational shift in the aftermath of the pandemic," says Alexander. "Downtown cores were virtually decimated by Covid restrictions and have yet to come back to life in many Canadian centres. The conversion programs now underway ensure that our city centres remain vibrant in the future, restoring vital foot traffic that is the lifeblood of the country's core urban areas. The retrofit and renovation activity not only brings desperately needed residential product online, but it also supports the surrounding retail shops and restaurants, transit systems, and the overall health of our downtown neighbourhoods."

The most significant holdback is the red tape that currently exists in regard to zoning amendments, applications and approvals at local and provincial government levels. With housing supply at critical levels and an immigration commitment of at least 800,000 new Canadians over the next two years, governments must be prepared to act quickly.

"Population and GDP growth will continue to be a strong driver bolstering urban expansion in cities across the country," says Elton Ash, Executive Vice President of RE/MAX Canada. "Naturally, a growing population base attracts new business and services, and we are seeing that translate into solid demand for most types of commercial real estate across the board. We need partners in our city planning offices to streamline the applications and approvals process in a timely manner – months, not years – to bring these properties to market."

RE/MAX also found that lower inventory levels, across the board and in almost every asset class, have hampered activity to some extent. In the first three months of the year, the shortages sparked competition, particularly in the industrial segment. Once again, supply plays a critical role and availability remains tight for quality product. Without an influx of available listings, this trend is expected to continue through to year-end, assuming supporting positive fundamentals remain in place.

"Overall, a number of encouraging indicators characterize Canada's commercial real estate market," says Alexander. "Renewed demand for housing has sparked builders and developers' interest, with projects placed on hold in the latter half of 2022 once again on the table. Employment growth may support the recovery of the country's most lacklustre segment, although a changed culture favouring work-life balance suggests a return to pre-pandemic occupancy in the office sector is unlikely. On the retail side, consumer gravitation back to bricks and mortar stores after some post-pandemic online fatigue will bode well for business, while industrial will remain the sweetheart investment, drawing suitors from both a local and global audience. The momentum is building, with some pent-up demand evident. The fundamentals underpinning the market squarely supporting ongoing commercial activity in the year ahead."

*Compiled from data available from RealTrack.

Market-by-Market Overview:

Greater Vancouver

• Industrial remains the top performing sector in Greater Vancouver with vacancy rates under one per cent. Consistent demand exists for warehousing and distribution space throughout the GVA, with conditionals tightest in suburban areas outside Vancouver Proper in Richmond, Delta, Burnaby and Langley.
• Area malls are rethinking the value proposition of their expansive parking lots and replacing them with multi-family buildings and commercial office space. Multiple malls and shopping centres are in various stages of development, with many offering a mix of multi-family, office, retail and restaurants.
• Housing continues to be Vancouver's greatest challenge and residential builders and developers can't get their shovels in the ground fast enough, but red tape and delays from application to approvals and development fees are dragging out the development process.

While the rising cost of borrowing against an inflationary backdrop has somewhat stifled demand for commercial real estate in the Greater Vancouver Area (GVA), several asset classes continue to outperform the overall market.

Industrial remains the top performing sector in Greater Vancouver with vacancy rates under one per cent. Consistent demand exists for warehousing and distribution space throughout the GVA, with conditions tightest in suburban areas outside Vancouver Proper in Richmond, Delta, Burnaby and Langley. Real Estate Investment Trusts (REITs) are slowly coming back to the market, as evidenced by the purchase of two industrial properties earlier this year by Crestpoint Real Estate Investments. The purchase included six buildings representing over 190,000 square feet in Burnaby as well as the 428,000-square-foot Coaster Heights Distribution Centre in Surrey's Campbell Heights Industrial Park. Strata industrial product has also experienced an uptick in demand this year, with some upward pressure on values.

Availability rates for industrial space have edged higher, at 2.1 per cent in the first quarter of 2023, compared to the same period in 2022, but are still amongst the lowest in the country at present, according to data from the Altus Group. The greater influx of space in the market has yet to impact lease rates, which have risen by double-digits (almost 20%) year-over-year to $22 net per square foot on average. Prospective tenants are exercising patience in their decision-making as a result, while existing tenants are looking to achieve greater efficiencies by reducing their footprints.

Vancouver's office sector has seen upward pressure on availability rates, climbing just over one per cent above the year-ago level to 10.9 per cent, according to Altus Group. As companies continue to hammer out work schedules with employees, it's clear that some sort of hybrid model will emerge, and the likelihood of a return to a five-day work week fades. Many corporate offices in downtown Vancouver, where lease rates currently hover at $40 net per square foot, are looking to reduce costs by eliminating unnecessary space, but some are leaving the core for more affordable office space in the suburbs, where lease rates average $25 net per square foot. There has been some retrofitting of existing commercial space to residential, primarily in terms of student housing near the university, but that may change down the road if some of the red tape is eliminated from the conversion process.

Land sales continued but at a more tempered pace in the first quarter of the year. Property zoned residential, industrial, and some retail throughout the Greater Vancouver Area were sold but the selling process has been extended, with due diligence periods increased to 90 days, up from 30 to 45 days in Q1 2022, and much longer closing periods as high as one year and more taking hold. Industrial builds are moving forward, especially when they are pre-leased to quality tenants who sign on for at least five years. New restrictions on residential rentals, however, have put a damper on condominium development. While purpose-built rentals are still occurring throughout the city, investor margins are low, which is discouraging investment in this asset class to some extent. Existing multi-family portfolios are the exception to the rule for this exceptionally coveted asset class but are seldom available.

A resurgence in foot traffic has contributed to a brighter outlook for the retail sector. Retail nodes in the downtown core continue to evolve, with storefront on arteries including Fourth Avenue, Alberni Street, West Georgia Street, Robson Avenue, and residential neighbourhoods such as Yaletown, Gastown and False Creek in high demand but low supply. Big box stores are welcoming new retailers, bringing in a more diverse mix that resonates with the local community, including restaurants and grocery stores. Area malls are rethinking the value proposition of their expansive parking lots and replacing them with multi-family buildings and commercial office space. The Oakridge Shopping Centre, which has closed until 2024, is a prime example. The 574,000-square-foot shopping centre, which sits on 28 acres, will add between 15 to 20 new high-end restaurants and will eventually house 6,000 people in a mix of low and high-rise buildings as the live-work-shop phenomenon gains traction. Multiple malls and shopping centres are in various stages of development, with many offering a mix of multi-family, office, retail and restaurants, including Park Royal, in West Vancouver; the CF Richmond Centre; Burnaby's Metrotown Mall; the Amazing Brentwood; and the Lougheed Shopping Centre, to name but a few.

Vancouver's footprint and sizeable population continue to face challenges regarding growth. The Vancouver CMA grew by an estimated 2.8 per cent between July of 2021 and July of 2022 to close to 2.85 million, bringing an additional 77,798 new residents to the city, according to Statistics Canada. Vacancy rates, on the other hand, dropped below one per cent at year-end 2022 for purpose-built rentals, while condominiums hovered at 2.2 per cent, according to CMHC's Rental Report. Housing continues to be Vancouver's greatest challenge and residential builders and developers can't get their shovels in the ground fast enough, but red tape and delays from application to approvals and development fees are dragging out the development process. Streamlining the process will go a long way in getting much-needed inventory to market.

Edmonton

• Edmonton's ideally positioned for strong investment activity in 2023 as the city posts one of its strongest first quarters in recent history.
• Out-of-province investors are increasingly drawn to the city's affordable price point for land, young and educated labour force, and favourable provincial tax structure and incentive programs.
• While the Industrial sector leads the way, other asset classes are experiencing an uptick in activity this year.

Commercial investment in the Edmonton region posted one of its strongest first quarters in recent history, with overall sales volume rising close to $800 million and sales nearing 200, according to data available from The Network. Industrial and land were the top performing asset classes in terms of dollar volume, up 76 per cent and 45 per cent respectively in the first three months of the year, compared to the same period in 2022, followed by multi-family, retail and office.

Momentum continues to ramp up in the industrial sector as logistics, warehousing and distribution tenancies spillover from the Lower Mainland and Toronto. Large organizations such as Amazon and Home Depot have been drawn to the region's affordable price point for land, its young, educated labour force, and favourable provincial tax structure and incentive programs. Last September, the city was named the centre of Western Canada's new hydrogen economy, with construction well underway on Air Products' new $1.6 billion hydrogen facility. New business has also been pulled to the region, with Delta, BC's English Bay Blending and Fine Chocolates recently announcing their decision to relocate and expand in Stoney Plain, Alberta. The company will invest approximately $30 million in the construction of a 120,000-square-foot food and manufacturing facility later this year, creating 70 permanent positions.

Owner-users and single tenants continue to seek industrial product, but inventory remains tight, especially for multi-bay properties, despite on-going construction in Edmonton's peripheral areas. As such, there has been upward pressure on average lease rates, which have climbed 3.5 per cent year-over-year, especially in sought-after areas such as Parkland County and Acheson. Demand has also accelerated in the Greater Edmonton Area, where activity is now as strong or stronger than Edmonton Proper. Availability rates for industrial continue to fall in Edmonton, now sitting at 6.2 per cent, down from 7.5 per cent in the first quarter of 2022, according to the Altus Group.

Development land has seen significant growth over the past year, with 54 sales in Edmonton in the first quarter of the year up 26 per cent to over year-ago levels for the same period and dollar volumes rising to $132 million. Industrial product is becoming increasingly difficult to find in Edmonton Proper and construction is more expensive due to inflation and higher interest rates. The surrounding counties have experienced an uptick in activity in recent years as a result, given the greater supply of land at a lower price point and tax base. Twenty-one tracts of land zoned industrial traded in the first three months of the year in Edmonton, followed by up urban/agricultural.

Multi-family land sales fell just short of last year's levels, with eight sales valued at over $21 million moving in the first three months of the year. Existing sales of apartments in Edmonton were down marginally from Q1 2022, with 19 high-rise, walk-up, and townhomes changing hands, as fewer private portfolios make it to market. Financing land can be a challenge for some in today's higher interest rate environment, which has prompted an uptick in vendor-take-back mortgages at a lower rate than currently available at conventional lenders. Approvals in place have also helped to accelerate land sales on readily available land with servicing and zoning in place.

Activity in the office sector softened in the first quarter of the year despite greater inducements, with availability rates edging slightly higher to 20.4 per cent, according to data available from Altus Group. Vacancy rates remain high, even with the traffic the Ice District, a mixed-use sports and entertainment district surrounding Rogers Place and Ford Hall, that includes office, condominium, hotels, restaurants and retail brings to the core. Construction is underway on a 500,000-square-foot office tower in the city core, slated for completion in 2025, with Canadian Western Bank as its lead tenant. There has been a flight to quality, prompting landlords in B and C class buildings to enhance their lobbies, hallways, and retail space. Companies expecting employees to return to the office in some sort of hybrid model are also upping their game, including new kitchens with coffee bars, tenant mixers, accessible parking and increased safety measures. Few conversions from commercial to office have occurred to date, given that many buildings in the core are not well-suited for repurposing. Demand for suburban office space, on the other hand, has held relatively steady.

Retail continues to be exceptionally strong, particularly in the city suburbs, given population growth and higher disposable incomes within the province. Twenty-six sales were reported in the first quarter of 2023 in Edmonton, an increase of 28 per cent over year-ago levels. Sales volumes more than doubled year-over-year, approaching $107 million, up from almost $50 million in Q1 2022. Strip plazas and shopping centres continue to be a favourite with investors, with good product moving quickly. No vacuum has been reported in the wake of the Nordstrom's exit, with at least half a dozen tenants expressing interest in the space. Loblaw recently announced its intention to invest $2 billion to open 38 new and/or renovated stores. Demand for smaller retail footprints is increasing as retailers become more efficient. Space optimization is happening across the city, from retail storefront on main arteries to large power and retail centres. Average price per square foot now ranges between $28 to $38 per square foot.

Edmonton's commercial market is expected to build on its strong first quarter throughout the remainder of the year as inflation slowly subsides and the cost of construction stabilizes. Industrial will remain the city's commercial frontrunner, characterized by strong demand and low supply, but the remaining asset classes should perform well except for office space in the core. Greater clarity regarding work from home policies should help employees return to offices in the core, likely in some sort of hybrid work model. Incentives provided by the province through Alberta's Investment and Growth Fund (IGF) are expected to continue to attract investment and business to Alberta from other parts of the country who are seeking competitive land pricing, lower development costs, and a younger, educated, workforce. Companies committed to a minimum capital investment of $10 million have the added benefit of a 12 per cent provincial tax credit in the province. Population growth will continue to contribute to the overall economy in the years ahead, with over 36,000 new residents added between July 2021 and July 2022, bringing the total population in Edmonton to more than 1.5 million, according to estimates from Statistics Canada.

Calgary

• Investors from British Columbia and Ontario are exceptionally active in Calgary's commercial market, driving demand for industrial and multi-unit residential product.
• Calgary has bucked the national trend, with availability rates in both industrial and office leasing trending downward in the first quarter of 2023.
• With a growing tech presence and 10 commercial buildings slated to undergo conversion to residential, excitement is building in Calgary's downtown core, with demand for retail and restaurant space on the upswing.

Alberta's strong economic performance continues to fuel Calgary's commercial real estate market, with most asset classes experiencing solid activity from both a lease and sales perspective.

Spillover from out of province remains a major source of business in the industrial sector, with warehousing and distribution properties topping the list of investor demands. Given limited availability of industrial space in the lower mainland, most containers that are shipped to BC are now loaded onto trucks for a 13-hour journey to Calgary's 'inland port.' The supply of serviced land zoned industrial has fallen as a result, placing upward pressure on prices and raising lease rates, especially for newer product. Older properties available for sale may provide better returns, or more affordable rental opportunities. Availability continues to trend downward despite on-going new construction, with rates falling to 3.9 per cent in the first quarter of 2023, down from 5.5 per cent during the same period one year ago, according to Altus Group. De Havilland Canada is one of the recent companies to set up shop in Calgary, through its acquisition of 1500 acres in Wheatland County just 30 minutes east of Calgary. The company intends to build a state-of-the-art facility that includes aircraft assembly, runway, parts manufacturing, distribution centres and maintenance repair and overhaul centre. De Havilland Field is expected to be up and running in 2025 and employ more than 1,500 people.

Calgary's office market has made some headway in the first quarter of the year, with availability rates edging downward. Two factors have contributed to the decline: the uptick in tech businesses and the repurposing of existing commercial to residential. Attracted to the value proposition of the Calgary commercial real estate market, a young workforce, and incentives offered by the Alberta's Investment and Growth Fund, tech companies, including global tech firm Applexus Technologies, have started moving into the downtown core. Commercial repurposing has also met with success, thanks in large part to a government program providing incentives to convert office space to residential. Ten buildings have been earmarked for repurposing, representing more than 1,200 new homes in the core. The move also eliminates one million square feet of empty office space. Together, these factors have had an enormous impact on the downtown core, increasing vibrancy and sparking renewal in the city that includes a strong retail/restaurant component to service the growing residential presence. These two incentive programs have been so effective to date that lease rates are starting to climb in the core once again.

Suburban office space, particularly in Calgary's Quarry Park, has been an attractive alternative to the core in recent years, with Imperial Oil leading the charge to the suburbs about eight years ago. The low-key presence within residential communities continues to resonate with many tenants. Lease rates for office space in the suburbs range from $10 per square foot to $15 per square foot.

Low vacancy rates characterize demand for retail space and buildings in Calgary at present. The area's shopping malls remain vibrant, with Canadian Tire taking over many of the Bed, Bath and Beyond locations in Calgary.

Land sales overall remain brisk, with out-of-province investors seeking industrial, multi-family, and retail properties for development. Existing multi-family is experiencing solid demand from Ontario buyers, especially for new buildings with assumable CMHC financing in place. Recent data available from the Canadian Home Builders Association's (CHBA) 2022 Municipal Benchmarking Report, prepared by Altus Group, shows that estimated approval timelines for residential development are amongst the fastest in the country at five months in 2022, down from 12 months in 2020. Cap rates in this segment of the market have waned over the past year. REITs are active in the market, typically seeking land zoned residential with approvals for purpose-built rentals in place. Given the higher interest rate environment, some vendor take back mortgages are available but they are generally found on overpriced listings.

Strong population growth, government incentives, and lower tax structures continue to draw companies both east and west of the province to Calgary and its surrounding communities. After an extended period of financial hardship between 2010 and 2020 in the province, the rebound in oil and gas prices, combined with a growing tech centre, and new residential development in the downtown core, are changing the landscape for the better.

Saskatoon

• Industrial sales are the driving force in the commercial sector, with REITs and institutional investors vying against end users. Lack of supply continues to hamper activity, prompting some end users to purchase older, existing buildings and rehabilitate or tear down, according to their requirements.
• Retail in suburban neighbourhoods has also soared, with limited inventory contributing to skyrocketing rates. Retail leases are hovering between $25 to $30 per square foot, with common costs amounting to another $12 to 15 per square foot. Demand is so strong that landlords feel no pressure to negotiate, especially for newer, up and coming areas, where product is few and far between.
• Office leasing on the other hand has faced some challenges in the downtown core with key players such as banks and corporate offices leaving former A class space for new A class office buildings on the riverfront. The new construction has drawn so many tenants from neighbouring offices that an estimated 50 per cent of B class buildings are vacant.

Saskatoon's commercial real estate market is thriving in most sectors, with a shortage of space for lease in multiple asset classes placing upward pressure on price per square foot, while limited availability is hampering sales activity.

Industrial is extremely tight, with any space coming to market immediately scooped up. In 2018, lease rates hovered between $5 to $7 per square foot on the northside of town – that's now doubled, with rates closer to $12 to $15 per square foot and rising. Retail in suburban neighbourhoods has also soared, with limited inventory contributing to skyrocketing rates. Retail leases are hovering between $25 to $30 per square foot, with common costs amounting to another $12 to 15 per square foot. Demand is so strong that landlords feel no pressure to negotiate, especially for newer, up and coming areas, where product is few and far between.

Office leasing on the other hand has faced some challenges in the downtown core with key players such as banks and corporate offices leaving former A class space for new A class office buildings on the riverfront. The new construction has drawn so many tenants from neighbouring offices that an estimated 50 per cent of B class buildings are vacant. Landlords are willing to work with the right tenant, offering step leases and long-term improvement allowance.

The multi-family residential segment remains strong, with door values climbing about 17 per cent year-over-year, rising from $115,0000 to $135,000. Demand for units is robust, with new Canadians and young buyers representing the lion's share of activity. Investors from Ontario and BC are especially active in this segment of the market.

Land is available for sale but is primarily situated on the city's borders. Priced from $1 million an acre for land serviced to the property line, the combination of land cost and development levies are not for the faint of heart. Smaller developers are struggling under the weight of these expenses, made worse by the extended approval process at city hall and its endless series of hurdles to be satisfied. In today's high interest rate environment, when builders' margins are already thin, returns can be disappointing. Infill is also occurring, with the city's foremost developers snapping up land within older, established areas for high-end condominiums.

Industrial sales are the driving force in the commercial sector, with REITS and institutional investors vying against end users. Lack of supply continues to hamper activity, prompting some end users to purchaser older, existing buildings and rehabilitate or tear down, according to their requirements. In one recent instance, three large buildings at least 35,000 square feet in size were torn down for a massive, three-storey building constructed on the same footprint. While Toronto is well-known for its crane count, Saskatoon is now home to the backhoe.

Retail in suburban neighbourhoods has also soared, with limited inventory contributing to skyrocketing rates. Retail leases are hovering between $25 to $30 per square foot, with common costs amounting to another $12 to 15 per square foot. Demand is so strong that landlords feel no pressure to negotiate, especially for newer, up and coming areas, where product is few and far between.

Strong demand and heated activity now characterize the market for farmland, where no comparable sales currently exist. Every quarter sale is now setting a new record. Rents are up significantly, with current costs rising from $80 an acre one year ago to $165. Large farmers continue to expand their operations, with road gear dictating their purchase price. Land that is closer to existing operations fetches higher prices than those farther away. According to Farmland Credit Canada's most recent report, overall values rose 14.2 per cent in Saskatchewan in 2022, compared to one year earlier, with a lack of availability threatening to push prices higher. While large farming operations have dominated the landscape for many years, there has been a notable increase of small farmers returning to the province over the past year.

Regina

• Industrial sales and leasing are at the forefront for most, with vacancy rates at less than one per cent. Developers are scrambling to meet demand but with little or no serviced land left in the city, industrial continues to be pushed to Regina's peripheral areas.
• Regina's housing shortage, coupled with strong population growth, has accelerated the development of purpose-built rentals, with some spillover into neighbouring Weyburn and Estevan.
• Farmland remains buoyant, with record sales occurring as large farm operations continue to expand into adjacent properties.

Regina's commercial real estate market is turning the corner, with both out-of-provinces and international inquiries regarding existing opportunities growing in almost every asset class.

Industrial sales and leasing are at the forefront for most, with vacancy rates at less than one per cent. Developers are scrambling to meet demand but with little or no serviced land left in the city, industrial continues to be pushed to Regina's peripheral areas where the cost per acre of serviced industrial land has now risen to between $450,000 and $550,000 an acre. There is some redevelopment land in westside adjacent, but offsite levies and service fees would bring the cost to $750,000 an acre, leaving little return on investment in today's high interest rate environment.

Developments east of Regina, including Emerald Park, White City, and Pilot Butte, and the city's north end (Parker Industrial) are thriving, with tenants now vying for space. The global transportation hub west of the city has seen an uptick in activity over the last year or so, with particular emphasis on warehousing and distribution space with some manufacturing mixed in. Supply issues have prompted some in the city to manufacture small goods locally, which has also contributed to the upswing in demand for manufacturing facilities. As availability rates decline, lease rates have firmed up across the board, running between $12 and $13 per square foot net, with newer buildings leasing at closer to $13 to $14 per square foot.

Regina's housing shortage, coupled with strong population growth, has accelerated the development of purpose-built rentals in Regina, with some spillover into neighbouring Weyburn and Estevan. Small to mid-size REITs are the main drivers in this market, while smaller developers from Manitoba and Ontario are investing in repairable multi-family buildings in good locations, cashing in on rising rental rates.

The retail market has been relatively steady over the past year, with demand greatest for leased space in sought-after locations. South Albert Street continues to be Regina's premier shopping destination with demand outpacing supply. Although enclosed malls have fallen out of favour with consumers, several REITs have revitalized some locations by adding superstores and increasing foot traffic.

Office space in the core continues to drag on the Regina commercial market, with the pandemic only serving to further exacerbate existing issues. Smaller offices in the suburbs have fared slightly better, but the overall market is still underperforming. Availability is high, particularly in downtown Regina, where many corporate offices are reconfiguring space requirements to accommodate hybrid work models. Sublet space is a growing factor in overall availability as a result.

Farmland remains buoyant, with record sales occurring as large farm operations continue to expand into adjacent properties. Price increases have followed in lock step, with percentage gains in North Eastern and West Central Saskatchewan experiencing the greatest upswing in 2022, climbing 24.2 per cent and 17.2 per cent respectively, according to the 2022 FCC Farmland Values Report. Irrigated farmland in the province's West Central and South Western areas have jumped 26 per cent, rising from $5,700 to $8,000 per acre. Interest in the market has grown exponentially, with both out-of-province and foreign investors looking to participate in the upward momentum.

Financing, however, is becoming increasingly challenging in today's high interest environment, particularly with the big six chartered banks who are tightening lending criteria. Arranging financing on farmland or the sale of businesses remains most frustrating for investors, with lenders now demanding down payments upwards of 45 per cent. While there are alternative lenders available to farmland investors, those selling businesses in Regina continue to see deals fall apart.

With Saskatchewan once again poised for solid economic growth in 2023, investment in Regina is likely to continue. Economic fundamentals remain strong, buoyed by population growth in Regina which climbed a further 1.7 per cent between 2021 and 2022 cent to almost 270,000 residents, according to Statistics Canada, building on a 5.3 per cent increase between 2016 and 2021. Net migration to the city topped 6,000. Prospects for newcomers to Regina remain positive, as unemployment has fallen to 4.6 per cent. Net migration to the city topped 6,000. Commodity prices for wheat and canola are climbing, with demand for potash on the upswing. The price for Western Canadian Select (WCS) oil currently hovers at $53 USD per barrel at present but is expected to climb. Investment in the city continues unabated, including Cargill's$350 million canola crushing plant currently under construction and scheduled to open in 2024. The economic outlook for Saskatchewan overall remains robust, as forecasts suggest the province will lead the country yet again in GDP growth. With solid fundamentals on tap, a significant positive net impact is expected for commercial real estate in Regina in the year ahead.

Winnipeg

• Industrial remains at the forefront in 2023, leading development citywide, while the multi-family sector has reignited buyer attention this year in large part due to attractive CMHC financing.
• Fewer investors have been active in the industrial market this year, with end users picking up the slack. Newer warehousing and distribution space remains most sought-after, generating competition, with lease rates rising year-over-year and prompting some to consider older product in secondary markets.
• The office sector remains soft in the downtown core, prompting some conversions, but the suburban market has been robust.
• The retail sector experiences solid demand, demonstrated by tighter vacancy rates. Strip malls and shopping plazas remain a coveted asset.

Stability continues to be the hallmark of Winnipeg's affordable commercial real estate market, with healthy demand for a variety of asset classes. Industrial remains at the forefront in 2023, leading development citywide, while the multi-family sector has garnered increased attention this year in large part due to attractive CMHC financing.

As the perennial favourite, industrial sales and leasing enjoy strong demand in Winnipeg. Warehousing and distribution facilities are the primary drivers behind the push for industrial, given the city's geographical location and billing as the country's national transportation hub. Newer, large scale industrial product is coveted, with rare, well-built, well-priced space generating competitive offering situations. Upward pressure on lease rates for newer product has prompted some industrial tenants to consider older inventory in secondary markets, where some good quality product exists at a lower price point. Most new construction continues to be located in the rural municipalities surrounding Winnipeg, particularly in the R.M. of Rosser, Springfield, and MacDonald.

A lack of supply of serviced land within the city limits has created tighter market conditions for industrial and multi-family. Most new industrial developments currently under construction are fully or partially pre-leased, with just a handful of projects built on speculation. Fewer investors have been active in the industrial market this year, with end users picking up the slack.

Multi-family residential continues to experience solid demand as Winnipeg's population and rental rates climb. CMHCs Rental Construction Financing Initiatives (RCFI) have proven especially enticing in today's environment, with favourable financing rates and generous terms including 10-year terms at fixed rates and amortization periods of up to 50 years. Vacancy rates in the city have declined year-over-year and currently sit at 2.7 per cent for purpose-built rentals in Winnipeg and closer to one per cent in sought-after areas such as East Kildonan, Transcona, St. James and Assiniboine Park, according to the CMHC's 2023 rental market report. Well-executed multi-family rentals are changing the city landscape, creating hip new urban enclaves such as the East Exchange District.

Purpose-built rentals are popping up in locations surrounding concentrated retail nodes, with the latest billion-dollar announcement the proposed Shindico/Cadillac Fairview multi-unit development utilizing vacant land adjoining CF's Polo Park Mall. The new Refinery District, with just over 100 acres of mixed-use infill development, is currently underway in South Winnipeg and is expected to eventually house almost 48,000 people in a three-kilometre radius when completed. Twenty-three acres have been designated retail, which should add to the city's retail presence. Artis' REITs 300 Main St., a 42-storey luxury apartment complex in the core, is banking on young professionals buying into live-work-shop phenomenon to help breathe new life into the downtown district.

Downtown office space has struggled in the aftermath of the pandemic. While landlords in these properties are offering attractive incentives to potential tenants, it will likely take eight to ten years to absorb all the excess office space in the core. The Wawanesa Insurance tower, part of the True North Square development, is scheduled for completion in fall of this year. While landlord's have been anticipating this vacancy for some time, it will exacerbate rising vacancy rates as more than 1,000 employees move into the new space. An oversupply of dated office buildings will inspire developers to embark on conversion properties at the right price. To date, several have undergone or are undergoing some level of conversion, including 433 Main St. 175-185 Carlton St., and 315 Bannatyne. Unfortunately, most buildings do not lend themselves well to a conversion.

The crux of the retail shopping experience in Winnipeg remains the shopping malls, where vacancy rates in areas outside the downtown core remain relatively tight. Investor interest peaked last year for strip malls and shopping plaza, and the value-add of land. As such, this remains a coveted asset class that is highly desired but difficult to realize in Winnipeg.

Given solid economic fundamentals, the stage is set for a continuation of healthy commercial activity in 2023. GDP growth in the province is forecast to climb just under one per cent in the year ahead, with new trade agreements and higher commodity prices for wheat and canola contributing to the provinces' prosperity. Immigration continues to bolster population growth with an estimated 1.5-per-cent increase in the number of residents recorded between 2021 and 2022 to reach close to 872,000, according to Statistics Canada. Affordability will continue to be a major factor in the city's expansion, as the low cost of living and doing business in the centre attracts both newcomers and business to the Winnipeg market.

London-St. Thomas

• Industrial continues to lead the way, with lease rates and sale prices rising substantially over year-ago levels. Vacancy rates remain at historically low levels, with solid demand for warehousing and distribution space prompting an abundance of new construction in the region.
• Land sales remain solid in both the residential and industrial segment, while the pace of activity has slowed somewhat from year-ago levels. The challenge to date has been the development process, which is cumbersome and slow moving.
• Office leasing and sales remain soft, with the effects of the pandemic still lingering. The downtown core has been particularly hard hit, with availability rates now hovering over 20 per cent. Older B and C class buildings will have to undergo major upgrades to attract tenants, with landlords offering inducements and step leases to sweeten the deal.

Despite rising interest rates and the fallout from the pandemic, London's commercial real estate market has remained relatively buoyant.

Industrial continues to lead the way, with lease rates and sale prices rising substantially over year-ago levels. Vacancy rates remain at historically low levels, with solid demand for warehousing and distribution space prompting an abundance of new construction in the region. The city's geographic proximity to major arteries and rail lines at an affordable price point continue to attract global investment. Prominent examples include large-scale operations such as the new high-tech Amazon facility boasting 2.8 million sq. ft. on four levels on the old Ford Talbotville site and the multi-billion-dollar Volkswagen electric vehicle battery plant in St. Thomas –the largest in the world—both slated to open in coming years. Availability rates have edged lower in tandem with growing demand in Southwestern Ontario, according to Altus Group, with rates now sitting at 3.3 per cent. Cap rates continue to rise for both industrial and retail, rising about one percentage point from one year ago to between five and five and a half per cent.

Land sales remain solid in both the residential and industrial segment, while the pace of activity has slowed somewhat from year-ago levels. The challenge to date has been the development process, which is cumbersome and slow moving. Fees charged by the municipality and the province also continue to impede development and need to be streamlined to increase new building activity.

There continues to be strong interest demonstrated in new multi-unit residential construction. REITs remain active in this segment of the market. Higher rental rates –up significantly year-over-year in the London area– are contributing to the enthusiasm in this sector.

The retail sector has performed quite well over the past year, with strip malls in new and older housing developments in high demand. Supply is tight, falling well short of demand, with the number of properties listed for sale few and far between. The area's major malls, however, are struggling to lease space and some have converted their retail space to office and commercial in an effort to attract new tenants.

Office leasing and sales remain soft, with the effects of the pandemic still lingering. The downtown core has been particularly hard hit, with availability rates now hovering over 20 per cent. Older B and C class buildings will have to undergo major upgrades to attract tenants, with landlords offering inducements and step leases to sweeten the deal. There has been some talk about converting some commercial buildings in the core to residential, but not all floor plates are an easy transition.

Lower interest rates and greater clarity surrounding the remote work issue should help to revive the ailing commercial office sector. The only question is when?

Hamilton

• Manufacturing facilities are most sought-after in Hamilton, representing approximately 50 to 60 per cent of all sales/leasing activity, followed by warehousing and distribution sites. Inventory remains tight throughout the area, with new industrial parks in and around the Hamilton Airport now fully leased.
• Owners of malls and plazas continue to find exceptional value in their parking lots, submitting proposals to convert underutilized areas into high-density residential/commercial developments that promote live-work-shop communities.
• While some improvement has been noted in demand for urban/suburban office space, the work from home phenomenon has had a significant impact on the city's commercial office space.

The industrial asset class continues to lead Hamilton's commercial real estate market, with strong demand for both properties listed for sale or lease demonstrated throughout much of the first quarter. Sales volume was up more than 50 per cent to $45.1 million in Q1 2023, up from $29.5 million during the same period in 2022, according to Co-Star.

Manufacturing facilities are most sought-after in Hamilton, representing approximately 50 to 60 per cent of all sales/leasing activity, followed by warehousing and distribution sites. Inventory remains tight throughout the area, with new industrial parks in and around the Hamilton Airport now fully leased. Rental rates for industrial space remain on an upward trajectory, now sitting at an average of $13.65 per square foot. Cap rates continue to trend lower, at just under six per cent in 2023. Last year's sale of the Stelco site, with more than 800-acres of zoned industrial, is expected to bring approximately 725 acres of Class A industrial product to the market once the site is remediated and re-developed (75 acres have been leased back to Stelco). Apart from the Stelco site, which is expected to take years to develop, industrial land remains scarce and hard to come by throughout the region.

Retail product, especially strip plazas, has also experienced strong demand in the first quarter of the year in Hamilton. Ownership of both malls and plazas continue to find exceptional value in their parking lots, submitting proposals to convert under-utilized areas into high-density residential/commercial developments that promote live-work-shop communities. Eastgate Square, for example, has a proposal before council that includes of 5,162 residential units on its 45-acre property, while Lime Ridge Mall is seeking approval on 320 units in two 12-storey buildings on their site. Given the current housing shortage in Hamilton, characterized by tight inventory levels and upward pressure on both housing values and rental rates in recent years, these proposals may offer a feasible solution to existing market challenges. Recent retail sales, while falling short of last year's levels, saw a significant uptick in price per square foot, rising from $267 to $416 year-over-year, based on data from Co-Star.

The availability rate for office space in Hamilton's downtown core was accelerated by the pandemic and remains high to date, pushing close to 20 per cent. While some improvement has been noted in demand for urban/suburban office space, the work from home phenomenon has had a significant impact on the city's commercial office space. There have been some discussions regarding the conversion of existing office space to much-needed residential in the downtown core, but the ability to convert remains in question, given that very few of the buildings have floor plates conducive to residential.

REITs continue to be an active participant in industrial real estate but have stepped back from other commercial asset classes in the Hamilton, given the rising cost of construction in today's high interest rate environment. The promise of lower rates down the road should once again spur investment in multi-unit residential and other sectors, although the impact may not materialize until early 2024.

Greater Toronto Area

• Industrial remains by far the strongest sector, with vacancy rates still under one per cent. Lack of inventory continues to hamper activity in the industrial sector, with both sales and leasing opportunities few and far between.
• Land with approvals in place is most sought after. Industrial, retail, and residential apartments in all sizes – multi-plex to high-rise – all represent opportunity but finding land at a decent price is challenging, especially after taking into consideration the additional cost of construction, project management, and development charges.
• Shopping centres and malls in and around the 416-area code continue to innovate, with residential condominium developments currently under construction or proposed. Construction is already underway at the Promenade Mall where residential development will provide a captive audience for the site's retail presence.

Greater Toronto Area's (GTA) commercial real estate market continues to evolve, with the lingering effects of the pandemic shaping a new commercial landscape. Asset classes are changing up, with demand for office in 2023 lagging behind industrial, retail, multi-use residential, and land sales.

Industrial remains by far the strongest sector, with vacancy rates still under one per cent. The shift from manufacturing to warehousing and distribution that was accelerated during the pandemic will remain the top usage for industrial space. Large transactions continue to occur in the GTA, as evidenced by the recent sale of a $70 million tract of land. Lack of availability continues to hamper activity in the industrial sector, with both sales and leasing opportunities few and far between. While availability rates from Altus Group show improvement over the first quarter of 2022, at just two per cent in Q1 2023, levels in the GTA are still the lowest in the country. Shortages exist in large industrial units for both lease and sale in the 5,000- to 20,000-square-foot range. Demand continues to outpace supply, even for smaller-sized units between 2,000 and 5,000 square feet with loading docks.

Land with approvals in place is most sought after, with the weighted average of estimated approval timelines for residential applications climbing from 21 months to 32 months between 2020 and 2022, according to the Municipal Benchmarking Report by the Canadian Home Builder's Association (CHBA), prepared by Altus Group. Industrial, retail, and residential apartments in all sizes – multiplex to high-rise – all represent opportunity but finding land at a decent price is challenging, especially after taking into consideration the additional cost of construction, project management, and development charges. There has been little product priced at buyer expectation to date and a much wider gap in returns. Higher risk factors make financing land exceptionally more expensive than in the third quarter of 2022, with conventional interest rates hovering at 8.5 per cent and more today. Vendor take-back (VTB) mortgages are becoming increasingly popular as a result, and some sellers are willing to provide financing if the numbers make sense, which has returned some equilibrium to proformas and respite for end users in the commercial, industrial and retail sectors. In an analysis of closed transactions in the Greater Toronto Area in Q1 2023, the number of vendor-take-back mortgages as a percentage of total sales over $2 million rose substantially over year-ago levels, climbing to 9.55 per cent from 5.82 per cent in Q1 2022, with VTBs now representing close to one in every 10 transactions, according to data available from RealTrack.

As prices continue to climb in the industrial sector, some companies that moved their offices into their industrial facilities may be prompted to re-investigate opportunities available in the office sector. According to Altus Group, availability in Toronto has climbed to 17.8 per cent, up just over two percentage points and higher if you factor in sub-leased space, which will translate into some cost savings for new tenants, especially in B and C class buildings. Leasing rates will remain similar to those charged pre-pandemic in class A space in the core, with landlords offering inducements to offset net effective rents. The downtown core is still struggling with levels of vacancy virtually unheard of in pre-pandemic times as employers attempt to work out some sort of hybrid work schedule. The ability to work remotely, made possible by the pandemic, is now a perk that few employees will discard. In fact, in recent contract negotiations, remote work was front and centre for federal public servants.

In the suburbs, office space has fared slightly better with an uptick in small-sized companies looking for commercial space, particularly in stand-alone buildings. Medical space, and space for schools and daycare facilities are especially coveted.

Retail has shown remarkable resilience, especially urban retail storefront along the city's main arteries. As construction winds down on streets like Eglinton Avenue, revitalization will take hold, increasing both retail values and rental rates. Vacancies will also decline as more players enter the market. Growth is anticipated in the retail sector as prime new retail spaces come up for lease offering ground floor access in mixed-use developments along streets close to transit hubs such as Avenue Road, Weston Road, Eglinton Avenue, Yonge Street and Kingston Road.

Shopping centres and malls in and around the 416-area code continue to innovate, with residential condominium developments currently under construction or proposed. Construction is already underway at the Promenade Mall where residential development will provide a captive audience for the site's retail presence. There's been similar movement at the Hillcrest Mall, the Markham Town Centre, and the Pickering Town Centre. With Nordstrom's the latest in US retailers to pull out of the Canadian marketplace, there have been some concerns voiced regarding the vacuum they leave as they vacate retail space. Department stores such as the Hudson's Bay Company now factor real estate holdings in their portfolio into their formula and have sold locations as recently as 2021/2022 in Vancouver and Winnipeg to free up available cash flow.

Perhaps the strongest sign of well-being in the retail sector is the recent closing of Bed, Bath and Beyond. Within days of liquidation, Canadian Tire announced that they had acquired 10 leases (nearly 250,000 square feet) in Ontario, Alberta and British Columbia, while Winners picked up two leases. Rooms + spaces subsequently announced that they, too, had secured 21 BBB stores in Ontario, British Columbia, Alberta, Saskatchewan and Newfoundland.

Multi-unit residential continues to be a top performer, with demand soaring for existing portfolios and values accelerating at a rapid pace. Population growth and a shortage of available rental apartments have contributed to increased demand for purpose-built rentals throughout the GTA, but recent policies regarding rent control and zoning regulations have had an impact on new construction. However, some condominium developers watching the recent pull-back in buying activity over the past year have turned to purpose-built rentals, taking advantage of inducements and credits offered by government and CMHC financing. With vacancy rates hovering at about one and half per cent for purpose-built rentals and the average price of a two-bedroom unit up approximately 20 per cent year-over-year in Toronto, the timing is ideal for the shift, according to the most recent CMHC Rental Report.

Those in the industry remain cautiously optimistic with regards to the commercial real estate market in the Greater Toronto Area moving forward. The outcome of the upcoming mayoralty race may provide greater direction from the mayor's office in terms of viable solutions to the city's critical housing issues, with the potential to partner with developers in a public-private relationship committed to increasing the existing stock.

Ottawa

• Industrial sales and leasing remain tightest, with demand greatest for manufacturing, warehousing and distribution facilities. While availability rates edged up year-over-year in Ottawa, according to a recent report by Altus Group, vacancy rates remain stubbornly low, hovering at just over one per cent.
• Land sales have soared in 2023 with industrial now fetching $1 million an acre (and has moved for as high as $1.2 million an acre in recent months).
• Opportunities currently exist within Ottawa for commercial investors, many of whom are attracted to the market because of its reasonable price point. Small office buildings, industrial buildings, and residential land, particularly product on the greenbelt, all represent a solid investment strategy.

Scarcity best describes the state of the commercial real estate market in the nation's capital, with all asset classes reporting product shortages except for office space in the city's downtown core.

Industrial sales and leasing remain tightest, with demand greatest for manufacturing, warehousing and distribution facilities. While availability rates edged up year-over-year in Ottawa, according to a recent report by Altus Group, vacancy rates remain stubbornly low, hovering at just over one per cent. Competition is fierce in the marketplace, with little product available, particularly within the urban boundaries.

Land sales have exploded in 2023 with industrial land now fetching $1 million an acre (and has moved for as high as $1.2 million an acre in recent months). With the expansion of the city's official plan, there's also been an uptick in the sale of development land for residential use, with purpose-built rentals and condominiums a top priority. Projects with approvals in place tend to move quickly, as evidenced by the recent quarter billion-dollar sale for a mixed-use development on 55 acres. The revitalization of LeBreton Flats, according to the LeBreton Flats Master Concept Plan, continues unabated, with several new buildings underway and applications for two more high-rise buildings under consideration. The Aqueduct District, situated within LeBreton Flats fronting the Ottawa River, will be ground zero for development in Ottawa over the next decade.

Retail has also experienced growth this year, especially in sought-after areas such as Westboro, Glebe, Centertown, and downtown. Demand for retail storefront in high traffic areas has been especially brisk. Malls and shopping centres are also doing well, with the Hudson's Bay Company recently relaunching the Zeller's brand within their locations in Rideau Centre and St. Laurent Shopping Centre. Chapters-Indigo recently closed its bookstore on Rideau St. to relocate to a new, large-format store within the Rideau Centre.

The office sector has had its challenges during the pandemic and its aftermath, with civil servants recently identifying the ability to work from home as a major bargaining chip in their contract negotiations. There are some very real questions regarding the future of commercial office space in downtown Ottawa, given that the city's largest employer will likely not require as much space as it has had in the past. That said, the price per square foot for leased space has flatlined, but limited supply at this point is keeping current prices elevated. Altus Group recently pegged the availability rate for office space at 12.5 per cent in Ottawa during the first quarter of 2023, up from year-ago levels, but still amongst the lowest levels in the country. While the impact on downtown office leasing has yet to be determined, one commercial office building is already transitioning to residential. It's expected the buyer will keep the existing structure but gut the interior down to the concrete base and reconfigure for residential use. Small office buildings, on the other hand, are in high demand throughout the city, with medical services the typical end user.

Opportunities currently exist within Ottawa for commercial investors, many of whom are attracted to the market because of its reasonable price point. Small office building, industrial buildings, and residential land, particularly product on the greenbelt, all represent a solid investment strategy. For those looking longer term, commercial office space is expected to bounce back, against a backdrop of population growth both nationally and within Ottawa itself.

Halifax

• Commercial office vacancies hovering at 18 to 20 per cent in the core, coupled with the shrinking footprints of existing corporate offices, have prompted a seismic shift in the office market. While not all office buildings are well-suited for residential conversion, the city's abundance of heritage buildings offer a unique opportunity to preserve history and provide homeownership opportunities in prime real estate on Halifax's picturesque waterfront.
• Vacancy rates under one per cent are behind much of the push for purpose-built rentals in Halifax and the surrounding areas, with not enough product to accommodate the city's rapidly growing population. With the population approaching 500,000, the need for housing has never been greater, yet the estimated 24,000 units planned in 10 to 15 buildings throughout the Halifax Regional Municipality, are on hold, with developers waiting for more favourable conditions to present.
• The city's malls continue to fare well, with few vacancies despite higher lease rates. Retailers are reducing their footprints in area malls, given robust on-line shopping sales while management is looking to enhance the shopping experience by adding more restaurants, gyms, and in some cases, higher-end grocery stores. Some landlords have revamped large parking lots, adding office towers and a residential element to complement existing retail.

Commercial real estate activity continues to ramp up as investor appetite for key asset classes escalates within Halifax and the surrounding areas. Despite the higher interest rate environment, out-of-province and out-of-country buyers continue to seek out affordable opportunities in multi-family, industrial, and/or office conversion, contributing to the city's rapidly changing landscape.

Commercial office vacancies hovering at 18 to 20 per cent in the core, coupled with the shrinking footprints of existing corporate offices, have prompted a seismic shift in the office market. While not all office buildings are well-suited for residential conversion, the city's abundance of heritage buildings offer a unique opportunity to preserve history and provide homeownership opportunities in prime real estate on Halifax's picturesque waterfront. The Centennial building, a 156,000-square-foot building offering spectacular views of the Halifax Harbour, is one of the first to undergo a complete retrofit. Slate's Maritime Centre is currently in discussions regarding the possible conversion of its 600,000-square-foot property to residential while Purdy's Wharf is considering the retrofit of one of its two towers to multi-family residential. At least four to five large scale projects involving the repurposing of existing buildings are approved and will come to market within the next 24-month period.

Vacancy rates under one per cent are behind much of the push for purpose-built rentals in Halifax and the surrounding areas, with not enough product to accommodate the city's rapidly growing population. The Halifax Regional Municipality (HRM) is one of the fastest growing urban regions in Canada, adding more than 20,000 people to their population between July 2021 and July 2022, according to Statistics Canada. With the population approaching 500,000, the need for housing has never been greater, yet the estimated 24,000 units planned in 10 to 15 buildings throughout the Halifax Regional Municipality, are on hold, with developers waiting for more favourable conditions to present. The situation is expected to resolve itself somewhat with improvements to the existing supply chain and greater stability in construction costs in the year ahead.

The city's malls continue to fare well, with few vacancies despite higher lease rates. Retailers are reducing their footprints in area malls, given robust on-line shopping sales while management is looking to enhance the shopping experience by adding more restaurants, gyms, and in some cases, higher-end grocery stores. Some landlords have revamped large parking lots, adding office towers and a residential element to complement existing retail. Big box retail power centres are having difficulty leasing larger stores ranging from 5,000 to 10,000 square feet or larger in today's retail climate, as evidenced by the 30 to 40 per cent vacancy rate at Dartmouth Crossing. Proposed residential development in the area may help bolster activity at the centre in the future. Bayers Lake is adapting to new market realities by interspersing smaller stores, restaurants and a movie theatre into the mix. Their location, conveniently situated within Clayton Park, has also contributed to their success. In the downtown core, there have been a number of new rental buildings constructed on Spring Garden, with each housing a vibrant retail component on the main floor.

Inventory in the city's industrial parks remains tight, with availability levels falling to four per cent in the first quarter of 2023, according to data from the Altus Group. Halifax was one of two markets in the country that experienced further decline this year. Warehousing, distribution and flex-space is most sought-after, although there is some demand for manufacturing facilities. The shipyards have experienced tremendous growth over the past decade, with more than $350 million spent by the Irvings to modernize their operations in anticipation of building 15 warships for the federal government, a contract now valued at close to $85 billion. Construction is scheduled to begin in 2024.

With growth in Halifax and the surrounding areas on an upward trajectory, the outlook for commercial real estate is bright. Last year alone, interprovincial migration accounted for 40 per cent of the surge in population growth, while international migration accounted for the remainder of growth. According to Statistics Canada, more than 10,000 business were in operation in Halifax in January of 2022 – a figure higher than pre-pandemic – with the 15-per-cent increase over 2020 numbers providing a clear indication as to what the future holds for the HRM.

St. John's, Mount Pearl, Paradise

• Newfoundland-Labrador is forecast to lead Atlantic Canada in GDP growth in 2023 as capital spending ramps up in the province.
• Industrial inventory shortage in Ontario may spill over into Newfoundland-Labrador as potential buyers and tenants' express interest in the St. John's industrial product.
• After moving en masse to the suburbs, is there a potential return to downtown core for corporate offices?

With Newfoundland-Labrador forecast to lead Atlantic Canada in terms of GDP growth in 2023, demand for commercial properties is expected to rise in tandem in St. John's and surrounding communities. To date, commercial sales are up more than 20 per cent, while dollar volume has soared to $18.8 million, up from $6.4 million during the same period in 2022.

Industrial remains the strongest commercial asset class in St. John's, characterized by solid demand and limited supply. Just five industrial properties are currently listed for sale on the St. John's real estate board, with the highest MLS sale on record –a 60,000 square foot warehouse— reported in St. John's earlier this year. The city's affordable price-point for both sales and leased space has recently drawn the attention of potential industrial buyers/tenants from Ontario, the most recent of which was interested in a facility to manufacture parts for electric vehicles.

While vacancy rates for commercial office space in the core topped 20 per cent in the first quarter of the year, the outlook is improving. Recent inquiries suggest a potential shift back into the downtown core. Several years ago, the province's largest corporations moved their office space from the core to the suburbs, where greater square footage and available parking at a lower cost proved irresistible. With the shift to remote working, the abundance of space is unnecessary for many employers, and the move back to the vibrancy of the city centre is attractive to employees from both a recreational and social point of view. The Bank of Montreal, for example, just located their corporate offices to the new Class A commercial space at 331 Water St., a new development which also offered ground-level retail space for their branch.

Retail sales and leasing continue to thrive in St. John's, Mount Pearl, and Paradise. Avalon Mall, one of the top enclosed malls in Atlantic Canada, remains the city's premier shopping destination with almost 100 per cent of its premises leased. The Shoppes at Galway is the city's latest big-box development, housing big-name retailers such as Costco, Home Sense, Marshalls, Orangetheory, Starbucks and Tim Hortons within it's 700,000 square feet of existing retail space with another 300,000 square feet planned for the future. Demand for retail properties and lease opportunities is expected to remain healthy, with average lease rates holding relatively stable year-over year, ranging $21 per square foot net in the waterfront district to $30 plus per square foot in high-demand shopping centres.

Investment in the province has ramped up significantly, with the natural resource sector behind much of the push this year. Of the $18.3 billion in major capital spending on projects valued over $25 million that are planned and underway in 2023, mining and oil top the list at $8.9 billion, according to the government of Newfoundland and Labrador. The spill over into the St. John's commercial market is inevitable, as evidenced by the more than $37 million in commercial building permits issued in the city in the first three months of the year, up 57 per cent from one year ago.

About the RE/MAX Network 
As one of the leading global real estate franchisors, RE/MAX, LLC is a subsidiary of RE/MAX Holdings (NYSE: RMAX) with more than 140,000 agents in almost 9,000 offices with a presence in more than 110 countries and territories. RE/MAX Canada refers to RE/MAX of Western Canada (1998), LLC, RE/MAX Ontario-Atlantic Canada, Inc., and RE/MAX Promotions, Inc., each of which are affiliates of RE/MAX, LLC. Nobody in the world sells more real estate than RE/MAX, as measured by residential transaction sides.

RE/MAX was founded in 1973 by Dave and Gail Liniger, with an innovative, entrepreneurial culture affording its agents and franchisees the flexibility to operate their businesses with great independence. RE/MAX agents have lived, worked and served in their local communities for decades, raising millions of dollars every year for Children's Miracle Network Hospitals® and other charities. To learn more about RE/MAX, to search home listings or find an agent in your community, please visit remax.ca. For the latest news from RE/MAX Canada, please visit blog.remax.ca.

Forward looking statements
This report includes "forward-looking statements" within the meaning of the "safe harbour" provisions of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as "believe," "intend," "expect," "estimate," "plan," "outlook," "project," and other similar words and expressions that predict or indicate future events or trends that are not statements of historical matters. These forward-looking statements include statements regarding housing market conditions and the Company's results of operations, performance and growth. Forward-looking statements should not be read as guarantees of future performance or results. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These risks and uncertainties include (1) the global COVID-19 pandemic, which has impacted the Company and continues to pose significant and widespread risks to the Company's business, the Company's ability to successfully close the anticipated reacquisition and to integrate the reacquired regions into its business, (3) changes in the real estate market or interest rates and availability of financing, (4) changes in business and economic activity in general, (5) the Company's ability to attract and retain quality franchisees, (6) the Company's franchisees' ability to recruit and retain real estate agents and mortgage loan originators, (7) changes in laws and regulations, (8) the Company's ability to enhance, market, and protect the RE/MAX and Motto Mortgage brands, (9) the Company's ability to implement its technology initiatives, and (10) fluctuations in foreign currency exchange rates, and those risks and uncertainties described in the sections entitled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission ("SEC") and similar disclosures in subsequent periodic and current reports filed with the SEC, which are available on the investor relations page of the Company's website at www.remax.com and on the SEC website at www.sec.gov. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. Except as required by law, the Company does not intend, and undertakes no duty, to update this information to reflect future events or circumstances.

SOURCE RE/MAX Canada

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Contact:

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