Mr. K. Rai Sahi reports

CANADA'S MULTI-SUITE RESIDENTIAL SECTOR RECORDS STEADY GROWTH IN Q2 2023: MORGUARD

Major Canadian commercial property sectors remained resilient during the second quarter of 2023, according to Morguard Corp.'s 2023 Canadian economic outlook and market fundamentals second quarter update. Over all, the total sales figure for the multisuite residential rental, office, industrial and retail property types combined rose in the second quarter compared with previous quarters. Investors continued to target industrial and multisuite residential rental properties because of healthy fundamentals and rent growth forecasts.

"Despite the overall muted growth in the commercial real estate industry, the Canadian economy demonstrated a significant amount of resilience," said Keith Reading, senior director of research at Morguard. "The modest growth in various real estate sectors within the last quarter signifies that the outlook for the remainder of this year remains positive."

Multisuite residential real estate

The multisuite residential sector continued to grow as total sales of rental properties rose by 29.5 per cent quarter-over-quarter. Additionally, the rent growth phase of the multisuite residential rental market cycle persisted during the second quarter, with a year-over-year increase of 10.6 per cent in the average asking monthly rent for listed units for the 25 cities tracked by Rentals.ca as of the end of May.

Rental market demand/supply dynamics have driven rents progressively higher over the past several quarters despite the addition of a near-record-high volume of new supply in recent years. This can be mainly attributed to a record-high immigration rate and stronger-than-expected job growth. The demand for rental accommodation is expected to remain robust over the next few years with the federal government's plan to welcome additional international arrivals.

Commercial real estate

The Canadian commercial property sector investment sales activities grew modestly in the second quarter. Due largely to a surge of activity in the industrial sector as investment property, sales increased 117.9 per cent quarter-over-quarter. It is worth noting that available industrial space remained in short supply during the second quarter, continuing the medium-term trend and keeping leasing market conditions tight.

The second quarter also saw a continued downturn in the office leasing market. The national aggregate vacancy rate continued to rise, partially attributed to tenants reducing expenses by downsizing their office spaces as their employees work remotely and tenants delay long-term leasing decisions.

Retail investment property sales activity remained muted in the second quarter. The investment sales slowdown of the past few years can be attributed to multiple factors, including the Bank of Canada's interest rate hikes and the evolution of consumer shopping behaviour. Smaller and value-add assets with repositioning potential have been brought to market more commonly, amid an environment of relatively muted sales activity.

Economic factors

Canada's economy demonstrated resilience in the second quarter despite some challenges. While consumer spending slowed significantly during the period, it was generally healthier than expected in the first half of 2023, even as inflation and rising debt payments impacted household spending power. Canada's labour market remained stable due in large part to a stronger-than-expected economic growth trend. Moving forward into the second half of the year, both retail spending patterns and job growth are expected to remain moderately positive.

The Bank of Canada again raised its target overnight rate by 25 bps (basis points) in July to 5 per cent, the highest it has been since 2001. Inflation pressure eased in the second quarter, with Canada's Consumer Price Index (CPI) down from the 4.4 per cent in April to 3.4 per cent year-over-year in May. Stronger-than-anticipated economic and job market performance still pose significant upside inflationary risks. As a result, the probability of further interest rate hikes have not been ruled out.

The second-quarter update released today by Morguard of the 2023 economic outlook and market fundamentals research report provided a detailed analysis of the 2023 real estate investment trends to watch in Canada. The full report is available at the company's website.

About Morguard Corp.

Morguard is a major North American real estate and property management company. It has extensive retail, office, industrial, hotel and residential holdings owned directly and through its investment in Morguard Real Estate Investment Trust and Morguard North American Residential REIT. Morguard also provides real estate management services to institutional and other investors. Morguard's owned and managed portfolio of assets is valued at $18.6-billion.

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