Canadian real estate sees growth in Q2 as inflation eases and rate cuts loom

Morguard’s 2024 Economic Outlook and Market Fundamentals Second Quarter Update reported positive momentum in the Canadian commercial real estate sector.

The multi-suite residential rental property market remained stable, while industrial investment property transactions surged in the second quarter.

“Both the commercial real estate and multi-suite residential rental sector exhibited a measure of resilience in the second quarter, which built on a solid foundation for growth,” said Angela Sahi, president, and chief operating officer of Morguard.

She noted that easing inflation pressures and signs of potential rate cuts suggest the Canadian real estate market is on a path to recovery.

The report anticipates further rate cuts by the Bank of Canada and easing inflationary pressures throughout 2024. Investor confidence is expected to grow as monetary policy becomes less restrictive, despite slower economic growth.

Keith Reading, senior director, Research at Morguard, added, “Real estate investors will continue to exhibit a measure of confidence in Canada's commercial real estate sector as evidenced by the uptick in transaction volume in the second quarter.”

He suggested this confidence will persist as the sector recovers from the recent economic slowdown.

The multi-suite residential rental market-maintained investor confidence in the second quarter of 2024. Strong long-term fundamentals and a positive rent growth outlook supported the sector’s stability.

Although borrowing rates remained high, optimism grew following the Bank of Canada's 25-basis-point overnight rate cut in June. The sector is expected to continue performing positively.

Industrial property transactions surged by 48.1 percent in the second quarter across five major markets, boosting overall Canadian investment volume. However, industrial leasing demand slowed as construction increased, raising the national availability rate.

The office leasing market made progress, driven by pre-leased spaces in newly constructed buildings. Toronto and Montreal saw positive absorption rates in the second quarter, reflecting a preference for high-quality, amenity-rich office space.

Retail leasing activity also grew as retailers sought premium physical spaces. However, retail property investment slowed, as institutional buyers remained selective in acquisitions.

Canada’s economy grew modestly in the second quarter, despite the combined impacts of high interest rates, inflation, forest fires, and labour disruptions. Inflation pressures eased, with the Consumer Price Index falling below 3.0 percent.

The Bank of Canada’s rate cut in June was a response to this inflation drop and the slowing labour market. Further rate cuts are anticipated in the second half of the year.