Blue Book: Commercial Real Estate 2021 Outlook
The Canadian real estate sector experienced one of its most surprising years ever in 2020. With the COVID-19 pandemic significantly affecting the broader economy, the expectation was for real estate to have major challenges with income property commercial mortgage payment defaults and a housing market correction. Instead, we saw one of the strongest market rebounds in history, a veritable z-shaped recovery where the markets are – by and large – stronger than what was seen pre-COVID.
To be sure, a number of our clients needed assistance to get through the worst of the downturn. We provided relief such as commercial mortgage deferrals, which helped clients manage cash flow and allowed them to be more flexible with their tenants.
As well, relief measures implemented by the government helped to prop up the real estate side, and we expect this to continue until the vaccines roll out. These government support measures have brought tangible results. At the height of the pandemic driven downturn, we offered mortgage deferrals to under a fifth of our commercial mortgage clients. Given that real estate represents a major segment of the wider economy – around 20 per cent of GDP – the success of the deferral programs, along with the various government supports, cannot be underestimated.
Across the country, we have seen a modest shift away from major cities and centrally located offices. As a result, there have been changes in rents and buying patterns. That said, the commercial real estate market has been particularly strong across the country, and notably in Montreal and Toronto. It’s been an average year in the Atlantic region and B.C., but housing market trends in all locations are strengthening in recent months. Alberta had a very weak market during the worst of the pandemic but has solid stable trends and the outlook for the coming year is positive.
In downtown spaces, some corporate landlords are using the opportunity to reconfigure presently high vacancy retail spaces; they remain confident that people will be back in office towers eventually and are taking advantage of the current situation. Some studies have predicted that over 95% of employees will return to office spaces, but the lingering question is the number of days per week which will impact office demand and adjacent retail foot traffic.
As we move into 2021, we expect to see a continuing albeit declining ebb and flow in lockdowns across the country. To the extent lockdowns push out longer than expected, it will put additional pressure on businesses; this inevitably works its way up the chain, with some tenants still struggling to pay rent meaning corporate landlords having trouble paying mortgages. However, the situation has tended to be more stable in recent months in the wake of vaccination news and the vaccine rollout.
Pandemic-related risks remain. A slower rollout of vaccines will affect the entire economy’s ability to rebound; the hope is that any slow starts will be corrected once vaccinations are rolled out to the general public. While growth should level off given weaker employment, low rates and anticipated net immigration will bode well for stable housing and commercial real estate markets.
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Mike Beg
Head, Real Estate Finance
Mike Beg as Head, Real Estate Finance, Canada is responsible for management of BMO’s Commercial Real Estate Finance group and its client relationships across …(..)
View Full Profile >The Canadian real estate sector experienced one of its most surprising years ever in 2020. With the COVID-19 pandemic significantly affecting the broader economy, the expectation was for real estate to have major challenges with income property commercial mortgage payment defaults and a housing market correction. Instead, we saw one of the strongest market rebounds in history, a veritable z-shaped recovery where the markets are – by and large – stronger than what was seen pre-COVID.
To be sure, a number of our clients needed assistance to get through the worst of the downturn. We provided relief such as commercial mortgage deferrals, which helped clients manage cash flow and allowed them to be more flexible with their tenants.
As well, relief measures implemented by the government helped to prop up the real estate side, and we expect this to continue until the vaccines roll out. These government support measures have brought tangible results. At the height of the pandemic driven downturn, we offered mortgage deferrals to under a fifth of our commercial mortgage clients. Given that real estate represents a major segment of the wider economy – around 20 per cent of GDP – the success of the deferral programs, along with the various government supports, cannot be underestimated.
Across the country, we have seen a modest shift away from major cities and centrally located offices. As a result, there have been changes in rents and buying patterns. That said, the commercial real estate market has been particularly strong across the country, and notably in Montreal and Toronto. It’s been an average year in the Atlantic region and B.C., but housing market trends in all locations are strengthening in recent months. Alberta had a very weak market during the worst of the pandemic but has solid stable trends and the outlook for the coming year is positive.
In downtown spaces, some corporate landlords are using the opportunity to reconfigure presently high vacancy retail spaces; they remain confident that people will be back in office towers eventually and are taking advantage of the current situation. Some studies have predicted that over 95% of employees will return to office spaces, but the lingering question is the number of days per week which will impact office demand and adjacent retail foot traffic.
As we move into 2021, we expect to see a continuing albeit declining ebb and flow in lockdowns across the country. To the extent lockdowns push out longer than expected, it will put additional pressure on businesses; this inevitably works its way up the chain, with some tenants still struggling to pay rent meaning corporate landlords having trouble paying mortgages. However, the situation has tended to be more stable in recent months in the wake of vaccination news and the vaccine rollout.
Pandemic-related risks remain. A slower rollout of vaccines will affect the entire economy’s ability to rebound; the hope is that any slow starts will be corrected once vaccinations are rolled out to the general public. While growth should level off given weaker employment, low rates and anticipated net immigration will bode well for stable housing and commercial real estate markets.
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