Marcus & Millichap Releases 2024 Canada Investment Forecast Report
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Insights
The release of Marcus & Millichap's 2024 Canada Investment Forecast Report presents significant indicators for the commercial real estate market, an important asset class within the broader financial landscape. The report's anticipation of interest rate cuts by the Central Bank, in response to a cooling labor market and declining inflation, suggests a potential increase in commercial real estate transactions. Lower borrowing costs typically stimulate property investment, as they can lead to higher capital values and improved yields.
Furthermore, the report's mention of Canada's robust population growth, driven by historic immigration levels and the subsequent impact on multifamily and retail property sectors, underscores the interplay between demographic trends and real estate demand. A growing consumer base can bolster retail property performance, particularly in essential-based neighborhood retail, which benefits from population-driven demand stability. Meanwhile, the multifamily sector is likely to see sustained performance due to the combination of increased population and limited housing supply, which may result in upward pressure on rents and low vacancy rates.
An analysis of the projected interest rate cuts and their impact on the commercial real estate market reveals potential implications for investors. Lower interest rates can lead to a more favorable lending environment, encouraging both the acquisition of new properties and the refinancing of existing assets. The report's positive outlook for the multifamily and retail sectors may translate into investment opportunities, with investors potentially seeking to capitalize on the expected demand growth.
However, it is important to note the forecasted uptick in the national vacancy rate for industrial assets, despite being lower than historical levels. This suggests a nuanced market where investor diligence is required. While industrial assets remain a preferred investment, the softening demand and increased supply could moderate growth prospects. Investors should consider the potential for yield compression and assess long-term demand drivers before committing to new industrial investments.
The interrelation between macroeconomic factors and the commercial real estate market is evident in the report's projections. The expected easing of monetary policy in response to a cooling labor market and receding inflationary pressures could lead to a more accommodative economic environment for the latter half of the year. This macroeconomic shift is poised to influence real estate dynamics, potentially increasing liquidity in the market and affecting asset valuations.
Demographic factors such as record-setting population growth due to immigration are also critical to understanding the market's trajectory. Such growth can lead to increased demand for housing and retail spaces, potentially driving economic expansion in these sectors. However, the anticipated increase in the supply of industrial assets may signal a future balance between supply and demand, which could stabilize or even reduce rental growth rates in the industrial sector.
“With inflation trending down and the labor market cooling, the Central Bank is expected to begin cutting interest rates as early as the second quarter,” said Mark Paterson, first vice president and regional manager of Marcus & Millichap’s
Highlights of the report include:
- Canada’s population expanded at a record-setting pace as of the third quarter of last year, growing 3.2 per cent annually amid historic immigration. Combined with limited housing supply across the country, multifamily performance will remain robust over the coming year.
- Given record population growth expanding Canada’s consumer base, a relatively healthy labor market and limited supply, Canada’s retail property sector is well-positioned for 2024. This is especially true for essential-based neighborhood retail as the sector’s stability and its role in servicing communities seeing strong population growth are resulting in healthy investor and tenant demand.
- Industrial assets are expected to remain a preferred investment option. While the national vacancy rate is forecast to trend up further due to softening demand and elevated levels of new supply coming to market, it is still notably lower compared to years past. Tight vacancy, even in the face of substantial construction, is reinforcing the sector’s strength.
Access Marcus & Millichap’s 2024 Canada Investment Forecast Report here.
About Marcus & Millichap, Inc. (NYSE: MMI)
Marcus & Millichap, Inc. is a leading brokerage firm specializing in commercial real estate investment sales, financing, research and advisory services with offices throughout
View source version on businesswire.com: https://www.businesswire.com/news/home/20240126671101/en/
Gina Relva, VP of Public Relations
Gina.Relva@marcusmillichap.com
510-999-1284
Source: Marcus & Millichap, Inc.
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