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2018 REAL ESTATE MARKET OUTLOOK Canada CBRE RESEARCH
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2018REAL ESTATE

MARKET OUTLOOK

Canada

CBRE RESEARCH

2 CANADA MARKET OUTLOOK 2018CBRE LIMITED

EIGHT KEY TRENDS IN 2018

Office sale price and rental rate records

Tenants forced to get creative

Land in demand

Speculative construction to surge

Record investment volume

Urban industrial renaissance

New metrics and perspectives on the market

Landlords to embrace big data

3 CANADA MARKET OUTLOOK 2018CBRE LIMITED

CONFIDENCE OVER QUESTION MARKSHousehold debt to disposable income at record levels

0%

30%

60%

90%

120%

150%

180%

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Hous

ehol

d cr

edit

mar

ket t

o di

spos

able

inco

me

Source: OECD, February 2018.

4 CANADA MARKET OUTLOOK 2018CBRE LIMITED

CONFIDENCE OVER QUESTION MARKSCanadian consumer confidence index

60

70

80

90

100

110

120

130

Dec 2015 Jun 2016 Dec 2016 Jun 2017 Dec 2017

Cana

da: 2

014

= 1

00

Source: The Conference Board of Canada, February 2018.

5 CANADA MARKET OUTLOOK 2018CBRE LIMITED

CONFIDENCE OVER QUESTION MARKSBusiness survey outlook indicator

-4

-3

-2

-1

0

1

2

3

4

Dec 2015 Jun 2016 Dec 2016 Jun 2017 Dec 2017

Stan

dard

ized

Uni

ts

Source: Bank of Canada, February 2018.

6 CANADA MARKET OUTLOOK 2018CBRE LIMITED

CANADA IN THE SPOTLIGHTCanada leads G7 nations in GDP growth over last decade

15.5% 13.7% 12.9% 11.6% 7.5% 5.2%

-5.4%

3.0%

2.2%2.5%

1.5%1.8%

1.5% 1.6%

-2%

-1%

0%

1%

2%

3%

4%

-10%

-5%

0%

5%

10%

15%

20%

Canada UnitedStates

Germany UnitedKingdom

France Japan Italy

2017

GDP

Gro

wth

Fore

cast

Cum

ulat

ive

10Yr

GDP

Gro

wth

2007 - 2016 Cumulative GDP Growth 2017 Growth Forecast

Source: OECD, February 2018.

7 CANADA MARKET OUTLOOK 2018CBRE LIMITED

CANADA IN THE SPOTLIGHTNorth American downtown office vacancy rates

Source: CBRE Research, Q4 2017.

8 CANADA MARKET OUTLOOK 2018CBRE LIMITED

CANADA IN THE SPOTLIGHT

Source: U.S. News & World Report

Overall best countries rankingRANK COUNTRY

1 Switzerland

2 Canada

3 Germany

4 United Kingdom

5 Japan

6 Sweden

7 Australia

8 United States

9 France

10 Netherlands

Source: Economist Intelligence Unit

World’s most livable citiesRANK CITY COUNTRY

1 Melbourne Australia

2 Vienna Austria

3 Vancouver Canada

4 Toronto Canada

5 Calgary Canada

6 Adelaide Australia

7 Perth Australia

8 Auckland New Zealand

9 Helsinki Finland

10 Hamburg Germany

9 CANADA MARKET OUTLOOK 2018CBRE LIMITED

THE RISING COST OF THE CANADIAN DREAM

Canadian Immigration Levels

310,00New permanent residents

in Canada in 2018

Source: CBC News, February 2018.

10 CANADA MARKET OUTLOOK 2018CBRE LIMITED

THE RISING COST OF THE CANADIAN DREAM

Multifamily rents forecast to rise in 2018 according to CMHC

VANCOUVER+2%

TORONTO+1%

Source: CMHC, February 2018.

11 CANADA MARKET OUTLOOK 2018CBRE LIMITED

NEW RULES OF THE GAME

Which inning of the cycle are we in?Our forecast suggests considering the possibility that the very rules of the game have changed.

12 CANADA MARKET OUTLOOK 2018CBRE LIMITED

NEW RULES OF THE GAMEThird longest period of economic expansions

5873

92103 106

120

1975 Q1-1980 Q1

2001 Q4-2007 Q4

1982 Q4-1990 Q3

Current 1961 Q1-1969 Q4

1991 Q1-2001 Q1

16.9%21.6% 22.6%

31.1%37.9%

63.4%

2001 Q4-2007 Q4

Current 1975 Q1-1980 Q1

1982 Q4-1990 Q3

1991 Q1-2001 Q1

1961 Q1-1969 Q4

Duration (Months) – U.S. Cumulative GDP per Capita Growth - CANADA

22.1%Approx. amount of national GDP

is Canadian exports to the U.S.

Source: BEA, NBER, CIBC, Statistics Canada, February 2018.

13 CANADA MARKET OUTLOOK 2018CBRE LIMITED

NEW RULES OF THE GAME

VS

The diversifying economy has altered the rules of the game.

There is the potential for the current cycle to continue.

An unlikely combination of risks or a black swan event may be required to end this bull run.

14 CANADA MARKET OUTLOOK 2018CBRE LIMITED

RISING INTEREST IN INTEREST RATES

Increased key overnight rate three times since July 2017

1.25%Jan 17, 2018

1.00%Sep 6, 2017

0.75%Jul 12, 2017

Source: Bank of Canada, February 2018. Source: CBRE Research

Number of deals over $100 million

15 CANADA MARKET OUTLOOK 2018CBRE LIMITED

RISING INTEREST IN INTEREST RATESSpread between bonds and cap rates have shrunk

2.04%

5.69%

0%

2%

4%

6%

8%

10%

12%

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Cap

Rate

10-yr GoC Bond Yield National Average Cap Rate

211 bps

426 bps

231 bps465 bps

365 bps

Source: CBRE Research, December 2017.

16 CANADA MARKET OUTLOOK 2018CBRE LIMITED

TECHNOLOGY: WAKE UP CALL OR ALARM BELLS?

Landlords are re-examining parking requirements and planning for autonomous

vehicle drop-offs.

17 CANADA MARKET OUTLOOK 2018CBRE LIMITED

TECHNOLOGY: WAKE UP CALL OR ALARM BELLS?

The real estate industry needs to embrace technology and set the terms of the forthcoming transformation.

Tech users in the market

Source: CBRE Research, 2017.

2017 online sales

Source: eMarketer, 2018.

18 CANADA MARKET OUTLOOK 2018CBRE LIMITED

2018: RUNWAY FOR OPPORTUNITY

“Everyone has their day and some days last longer than others.”

~ Winston Churchill

OTTAWA

20 CANADA MARKET OUTLOOK 2018CBRE LIMITED

OTTAWA - PROJECTS TO WATCH

900 Albert Trinity Development Group Inc. will be breaking ground on their mixed-use development 900 Albert later this year. The project will feature three towers between 50 and 59 storeys, with 187,000 sq. ft. of office space, 116,000 sq. ft. of retail and over 1,600 residential units. 900 Albert will be located adjacent to the Bayview Station with prime accessibility to the Confederation LRT Line and the O-Train.

ZibiZibi, a multi-phase, mixed-use development by Windmill Development Group Ltd. and Dream Office REIT will transform the old Domtar lands in Ottawa and Gatineau into a world-class sustainable community. Set to start development in 2018, Phase I is scheduled to be complete for 2023, with the full site anticipated by 2026.

Confederation LRT Line (Phase I) Phase I of Ottawa’s LRT line, the Confederation Line, is scheduled for ridership mid-2018. This is the largest infrastructure project in Ottawa since the Rideau Canal and has spurred extensive renovations to buildings located along the line and an increase in density to encourage transit-oriented developments. While it is still early to speculate on the ultimate effect on rental rates and commuting patterns, the Confederation Line will enhance connectivity across the city and provide alternatives to transportation.

21 CANADA MARKET OUTLOOK 2018CBRE LIMITED

OTTAWA – MARKET STATISTICS

OfficeCENTRAL 2016 2017 2018 F YoY

Vacancy Rate 10.2% 9.5% 9.2% q

Class A Net Asking Rent (per sq. ft.) $23.12 $23.05 $23.25 p

Net Absorption (million sq. ft. ) -0.11 0.10 0.06 q

New Supply (million sq. ft.) 0.00 0.00 0.00 tu

Under Construction (million sq. ft.) 0.00 0.00 0.08 p

SUBURBAN

Vacancy Rate 11.9% 11.8% 10.9% q

Class A Net Asking Rent (per sq. ft.) $16.67 $16.48 $16.96 p

Net Absorption (million sq. ft. ) -0.07 0.40 0.21 q

New Supply (million sq. ft.) 0.03 0.44 0.00 q

Under Construction (million sq. ft.) 0.42 0.00 0.00 tu

OVERALL

Vacancy Rate 11.1% 10.8% 10.1% q

Class A Net Asking Rent (per sq. ft.) $18.37 $18.12 $19.57 p

Net Absorption (million sq. ft. ) -0.18 0.51 0.27 q

New Supply (million sq. ft.) 0.03 0.44 0.00 q

Under Construction (million sq. ft.) 0.42 0.00 0.08 p

Industrial

Retail

2016 2017 2018 F YoY

Availability Rate 5.4% 4.6% 4.4% q

Net Asking Rent (per sq. ft.) $9.17 $9.72 $9.96 p

Sale Price (per sq. ft.) $134 $134 $134 tu

Net Absorption (million sq. ft.) 0.25 0.43 0.09 q

New Supply (million sq. ft.) 0.06 0.20 0.03 q

Under Construction (million sq. ft.) 0.09 0.03 0.00 q

2016 2017 2018 F YoY

Total Retail Sales per Capita $14,545 $15,067 $15,338 p

Total Retail Sales Growth 5.7% 5.2% 3.0% q

Mall Sales Productivity (per sq. ft.) $697 $704 $709 p

New Supply (million sq. ft.) 0.66 0.31 0.31 p

Source: CBRE Research, 2018.

Source: CBoC, ICSC, CBRE Research, 2018.

Source: CBRE Research, 2018.

22 CANADA MARKET OUTLOOK 2018CBRE LIMITED

OTTAWA – MARKET STATISTICS

Source: CMHC, CBRE Research, 2018.

InvestmentVOLUME ($ millions) 2016 2017 2018 F YoY

Office $132 $1,067 $575 q

Industrial $117 $107 $125 p

Retail $212 $208 $250 p

Multifamily $686 $279 $400 p

ICI Land $252 $310 $325 p

Hotel* $128 $54 $100 p

Total $1,527 $2,025 $1,775 q

CAP RATES (%)

Office - Downtown Class A (%) 5.25 - 5.75 5.00 - 5.50 5.00 - 5.50 tu

Office - Suburban Class A & B (%) 6.25 - 7.50 6.00 - 7.25 6.00 - 7.25 tu

Industrial - Class A & B (%) 6.00 - 7.25 4.50 - 6.50 4.50 - 6.50 tu

Retail - Neighbourhood (%) 5.75 - 6.50 5.75 - 6.50 5.75 - 6.50 tu

Multifamily - High Rise Class B (%) 4.75 - 5.50 4.00 - 4.25 4.00 - 4.25 tu

Hotel - Downtown Full Service (%) 7.00 - 8.00 7.00 - 8.00 7.00 - 8.00 tu

Multifamily

Hotel

2016 2017 2018 F YoY

Vacancy Rate 3.0% 1.7% 3.2% p

2-Bedroom Average Rent $1,201 $1,232 $1,245 p

New Rental Supply (units) 523 575 1,846 p

2016 2017 2018 F YoY

Inventory 10,252 10,431 11,078 p

Occupancy 72.0% 75.0% 73.0% q

Average Daily Rate $156.00 $172.00 $178.00 p

Source: CBRE Research, 2018.

*Market and surrounding region.

Source: CBRE Research, 2018.


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