Asset class is in uncertain straits after the failure of several major retail chains
Canada’s commercial property sector surged to its 10th year of stellar performance in 2018, but investors might want to hold off from investing in retail real estate this year due to the segment’s current unpredictability, Avison Young warned.
In its 2019 North America, Europe and Asia Commercial Real Estate Forecast released in mid-January, Avison Young wrote that vacancy in the asset class “remains in flux,” largely because of notable failures among some large-scale retail chains.
A lot of the closures were also those of underperforming properties shutting down due to the disruptive influence of e-commerce.
“The focus on creating memorable consumer experiences will endure across the Canadian retail landscape in 2019. Significant investment in technology to track millennial behaviour is being made by retailers developing and enhancing their physical locations and online market shares while seeking the correct balance in the symbiotic relationship between bricks and clicks,” Avison Young principal and practice leader of research (Canada) Bill Argeropoulos explained.
However, these deficiencies will likely be compensated for by the commercial market’s overall strength.
“Supported by relatively sound leasing fundamentals in almost every market, debt reduction and asset and geographic diversification will continue in 2019, while asset values are expected to remain elevated and cap rates low for prime assets,” Argeropoulos added.
Read more: Supply, employment to further impel commercial boom
Late last year, Morguard Corporation expressed confidence that the influx of investment in Canada’s commercial property market will stay robust in 2019, and that the retail sector would enjoy good performance despite the risks presented by erratic leasing performance.
A large contributor of this predicted strength will stem from the increased purchasing power inherent in a steadily recovering economy.
“Sustained economic expansion over the next few years bodes well for the Canadian commercial real estate sector as a service provider to the economy. Canadian commercial property sales activity will remain robust over the near term, against a backdrop of positive overall sector performance,” Morguard said.
“While retail sales growth continues to moderate, properties with development or repositioning potential are expected to generate strong interest among the investment community looking ahead to 2019.”
