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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
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.