After a period of muted transactions, Vancouver’s commercial real estate market is positioned for future growth, particularly in the industrial and retail sub-sectors, according to Colliers International Group Inc.
Colliers said in a Nov. 19 report that global commercial real estate is rebounding, with one local expert adding that Vancouver’s bright spots include logistics facilities and retail developments with grocery components.
As optimism re-emerges across asset classes, prime targets in Vancouver include industrial, particularly around distribution centres and logistics supporting e-commerce and online retail.
This is partly because Vancouver is a port city and a portal to Western Canada, said Susan Thompson, associate research director with Colliers.
“E-commerce and online shopping is not going away,” she said. “It continues to grow, so there is a huge focus to serve that market.”
Thompson said another asset class with long-term fundamentals is grocery-anchored retail, which can support necessity-based consumer activity including personal care and health care.
“Any retail that focuses around those core needs is going to be in high demand, and they are going to be looking to locate in areas along transit and in dense neighbourhoods,” she said.
Vacancy rates in Metro Vancouver for industrial and retail continue to be quite low, at several percentage points beneath a balanced market. Vancouver tends to operate at a lower mark than much of North America due to regional supply constraints.
“It’s still phenomenally low in the two- to three-per-cent range, so that tells us there’s still good demand for space in there,” Thompson said, noting that sub-two-per-cent vacancy rates can be observed in some sub-markets.
Looking internationally, enhanced geopolitical risk is contributing to heightened business concerns, with the recent presidential election in the U.S. and a pending federal election in Canada.
Anticipating further cuts to Canada’s overnight rate, market participants may also be waiting to lock in financing, delaying some deals as a result.
“People are still waiting on more than likely another interest rate cut, if not more than one,” said Thompson. “People are like, ‘Well, we’ve already had three interest rate cuts, I can wait another few months for the next one before I decide to lock in some financing.’ So there’s a lot of parts that haven’t quite settled into place yet.”
Another trend is that institutional investors have become increasingly cautious, supplanted to a certain extent by international and private capital. When they become available, trophy assets could draw domestic investors back to the table in 2025.
Finally, there may be solid opportunities in the office market, where values have come down recently. The segment could bounce back as employers, including in the tech and public sectors, implement stringent return-to-office policies.
“That could change the tide on office occupancy and leasing, which means we could see a bit of a comeback around office [space],” said Thompson. “There could be investors ready to jump on some well-priced opportunities in there.”
Globally, commercial real estate markets are showing signs of positive momentum, driven by improving sentiment, easing inflation, lower interest rates and stabilizing asset values. Risks remain, however, in the form of geopolitical uncertainty, regulatory pressures and a potential resurgence in inflation, said the report.
