U.S., Canadian commercial real estate markets expected to perform well in 2020

U.S., Canadian commercial real estate markets expected to perform well in 2020: Survey

Transwestern Commercial Services and Devencore has released the results of their 2020 Commercial Real Estate Sentiment Survey, summarizing the firms’ outlook for U.S. and Canadian commercial real estate markets.

Brokers and analysts across 43 North American offices shared insight on the office/medical office and industrial sectors.

“While political turmoil, upcoming elections and an elevated construction pipeline in select regions do raise some concerns, cautious expansion is expected in U.S. commercial real estate markets,” said Elizabeth Norton, Managing Research Director for Transwestern. “Tight conditions and healthy expectations for e-commerce activity continue to drive industrial, while medical office is helping to bolster the office sector, which nears flatter conditions.”

The U.S. index averaged 106.9 for 2020 office market conditions, signaling expansion above the 100 neutral zone, but still down from 111.2 in the 2019 outlook. A little more than half of the respondents believe that office asking rents will be slightly to significantly higher in 2020, elevated by new construction deliveries. Leasing velocity and tenant prospects are expected to be flat in 2020, as tenants now require more time to finalize decision processes. Tenant densification also factors into slow growth expectations.

Contrastingly, medical office will handsomely outperform in 2020, with the U.S. forecast index averaging 134.2, well above 100, which is considered flat conditions. Leasing activity, tenant walkthroughs, asking rents and development in the medical office sector are all expected to be higher in 2020. Respondents did note some consternation around growing costs to build out medical space, as well as healthcare regulations, which could impact how medical office is utilized.

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The U.S. index averaged 116.2 for 2020 industrial market conditions, down slightly from 122.1 last year. Slight deceleration in leasing velocity and tenant walkthroughs is due to some markets having limited availability of new product, which is exacerbated by rising construction prices and lack of available land to build. Half of respondents expect asking rents to rise, with most expecting development levels to remain flat to slightly higher.

“Similar to the U.S., Canadian commercial real estate markets also are expected to perform well in 2020…”

“Similar to the U.S., Canadian commercial real estate markets also are expected to perform well in 2020, with mild concerns stemming from political and trade impacts as well as rising construction costs,” said Jean Laurin, President and CEO of Devencore. “Our economy is healthy and job growth is steady. With the exception of certain regions, major Canadian provinces like Ontario, British Columbia and Quebec all show robust conditions.”

For the Canadian office sector, just over half of respondents predict leasing velocity and tenant prospects will pick up during 2020, with 86% expecting stronger rent growth over the year, especially in industries such as tech and the service sector. In tighter markets, large blocks are sparse, rents are up and incentives are coming down – all signs that will trigger new development. Tenant densification is expected to continue in 2020 but at a slightly decelerating pace compared to 2019. Approximately 56% of respondents expect development levels to be higher in 2020, and Quebec, Ontario and British Columbia state scarce quality space availability. Alberta, on the other hand, faces concerns about high vacancy rates due to deteriorating market conditions.

READ ALSO : Moderate growth expected for U.S commercial real estate in the coming years

Within the industrial sector, there is a sharp divide between regions. In Quebec and Ontario, a scarcity of available space is forcing tenants to renew, while in Alberta, the market is experiencing a flight to quality as tenants take advantage of lower rates amidst available space. Market concerns stem from the current political environment, especially surrounding the energy sector. Despite this, 64% of respondents expect overall industrial asking rents to rise due to limited availability in select markets. Land costs are also expected to rise as the availability of prime sites continues to decrease. In this environment, the attraction for industrial investment by the capital markets remains high.

Download the full report here: https://twurls.com/2020-sentiment-report