Recovery and growth of commercial and residential real estate in 2022 | RENX
North American real estate markets have soared throughout 2021, fueled in large part by governments’ pandemic-related monetary and fiscal stimulus. Other factors that have increased demand across all asset classes include pent-up consumer demand, migration, a return to pre-pandemic immigration levels (especially in Canada), vaccination levels that have allowed reopening in states and provinces (although at very different paces). and in some regions temporarily) and economic growth.
Overall stabilization of the sector
Overall, investment performance has been strong in 2021, particularly for industrial and multi-family residential rental properties in North America. With these asset classes now priced higher, and office and retail vacancy levels beginning to stabilize, as restrictions ease in the United States and Canada, investor demand for offices and retail has resumed. In the fourth quarter, office rental prices pushed up. We expect this trend to continue in 2022 as the economic situation continues to improve and tenants return to the office.
Multifamily and industrial properties are expected to continue to outperform offices and retail in 2022, however, the demand delta between the two different sets of asset classes is expected to narrow. Improved investor confidence is evident as private investors retreated last year, increasing the volume of commercial real estate investment year-to-date (through September 2021) by around 12% from 2019 levels. According to CRBE’s Canadian Investment Overview, the multi-family and industrial sectors were the most active in 2021 with investment volumes of $4.4. billion.
We are not seeing any slowdown in residential real estate markets in North America. We see people returning to city life and office work schedules, but are not necessarily where they started.
Migration during the pandemic has accelerated trends, particularly in the United States, toward warmer climates that offer business-friendly environments and low taxation. States where Trez Capital is active, including but not limited to; Texas, Arizona, Colorado, Utah, Florida, South Carolina and Georgia account for 68.5% of projected net population growth in the United States from 2021 to 2026.
In Canada, a combination of increased immigration, which saw 401,000 new permanent residents in 2021 (surpassing the 1913 record as reported by the Government of Canada), and the flexibility of working from home, has fueled a strong residential demand in primary and secondary urban centres. markets. Immigration will continue to support demand with 411,000 and 421,000 immigrants expected in 2022 and 2023, respectively.
2022 will be another strong year for housing across Canada based on the performance of 2021 which saw housing markets across the country surpass historic investment levels. Toronto, Montreal and Vancouver recorded investment volumes of $7 billion, $2.8 billion and $2.6 billion – record totals.
Recently, Trez Capital provided a $48 million construction loan for a condominium development in downtown Toronto. The loan supports the construction of a four-story building totaling over 57,000 square feet, with 36 units.
Trez Capital also provided a $38 million revolving line for the acquisition, renovation and stabilization of duplexes, triplexes, quadplexes and townhouses in various municipalities across Southern Ontario, creating a park essential rental. Both loans underscore Trez Capital’s strategic approach to development in Eastern Canada, which targets both primary and secondary markets experiencing strong population growth.
Likewise, some smaller markets like Victoria, BC have seen a disproportionate rise in rental prices (Victoria is now perhaps the most expensive city in the country to rent according to liv.rent). This is likely related to the pandemic and the ability to work remotely. Provincially, Alberta and Saskatchewan are expected to lead the country in economic growth in 2022, and Trez Capital expects to be active in all of these markets.
Operating from our offices in Vancouver and Toronto, Trez Capital’s experienced loan origination team is well positioned to serve the Canadian market. The team, combined, has over 90 years of experience in credit, banking and commercial real estate.
Commercial Real Estate Outlook
Growing communities depend on different types of commercial real estate categories. Sectors that will continue to see growth in 2022 are storage, retail (of goods and services), hospitality and manufacturing. By fall 2021, unemployment had rebounded to near pre-pandemic levels, showing positive signs that as restrictions ease, the economy will respond and demand for real estate space business will increase.
We continue to see projects in the planning and land acquisition phase and expect industrial and logistics demand to strengthen. Overall, our team seeks projects across all asset classes with strong fundamentals and borrowers with consistent track records to deliver the best projects.
The Bank of Canada is expected to raise interest rates in the first half of 2022 to ease inflationary pressures, although ongoing pandemic restrictions may factor into the timing and amount of the increase(s). The Bank of England and National Australia Bank raised rates in December 2021, a sign of what’s to come for Canada. Developers will need to test their pro formas and financing cost assumptions for the coming year, although increased revenue (whether upward pressure on rental rates or a increase in sales prices) should offset part of the financing costs, with capitalization rates expected to remain stable in most cases. markets.
Respond to market demands
The Canadian economy is expected to rebound in 2022, providing a much-needed correction to the effects of the pandemic. The team continues to seek projects with solid fundamentals.
Capital of Trez has exceeded $4 billion in assets under management and has funded over 1,600 transactions totaling over $13.5 billion CAD since its inception. About half of loans since 2009 have been to repeat borrowers and Trez Capital’s first borrower and first investor still does business with us today.
For more information please contact:
Eric Horie, Senior Managing Director, Head of Origination, Canada