Commercial real estate investments in Canada are expected to reach about C$31.94 billion in 2017, marking the third-best year in the country's history, according to the latest report from CBRE Ltd.
The projected investment activity for 2017 is lower than the record-setting C$34.71 billion in 2016, when foreign capital reached new highs, at 27.0% of all commercial real estate sales, led by Chinese investments.
In 2017, demand for commercial property in Toronto and Vancouver is expected to be the primary driver of investment activity as the cities continue to attract domestic and foreign capital, with the two markets expected to account for roughly 66% of the total national investment volume.
CBRE forecasts that greater Toronto will lead the country's investment market in 2017, with activity expected to focus primarily on the office, industrial and land sectors. The region is projected to hit a new annual record of C$12.6 billion in investments, up 3.2% from the 2016 level.
From a North American point of view, CBRE said Toronto is an A-lister in terms of commercial real estate performance, with the city recording the lowest downtown office vacancy rate and the second-lowest industrial availability rate of any major market in the region. Toronto's retail sector is also a primary destination for new entrants and robust demand is expected to trigger a wave of development, including a potential 10.0 million square feet of new office space, CBRE said.
In Vancouver, total investment volume is forecast to reach C$7.50 billion in 2017, compared with C$8.07 billion in 2016. CBRE cited several reasons as to why it expects Vancouver to see sustained investment activity in the year ahead. "[G]eopolitical instability is likely to continue to encourage a flight to quality, income-producing assets; global gateway cities will be sought after; and investors will find it difficult to pass up opportunities to own the rare, iconic properties that are coming to market while others will be enticed to sell into favorable market conditions."
Nationwide, CBRE forecasts the office market to see the largest investment volume for 2017, at about C$7.34 billion, down from C$7.75 billion a year ago. Investment volume in the industrial sector is expected to total C$5.89 billion, up from C$5.79 billion a year ago. The retail sector is expected to see total investment of C$5.75 billion, down from C$6.78 billion in 2016.
As residential housing markets remain strong and commercial development gears up, the land assets are also expected to continue to outperform, with the sector expected to reach about C$5.20 billion in investment volume in 2017.
"The Canadian commercial real estate market is on a sustainable path, but now more than ever, there is the potential for speed bumps along the way," CBRE said in the report.