Expert Advice

Economic Trends Affecting the GTA Commercial Real Estate Market in 2015

Economic Trends Affecting the GTA Commercial Real Estate Market in 2015

RE/MAX Realtron Commercial Division

Oil Prices

Much has been made in the media recently about the impact of declining oil prices and the short term negative affect on the Canadian economy.  This may be true for the National economy, as a net oil exporter, but this is not the case for every region of Canada. 

Low oil prices are positive for Ontario and the GTA.   Ontario is a net importer of oil and oil products.  Lower oil prices put more dollars in the hands of consumers and businesses to consume and invest.    The positive impact will start to show in the second half of 2015.

Canadian Dollar Exchange Rate

In addition, the Canadian dollar is a commodity currency -- it is highly correlated to commodity prices.

A lower exchange rate versus the US dollar (our largest customer) is positive for businesses in Ontario (and Canada).  Exporters price their goods predominantly in US dollars whereas their costs (mainly labour and capital) are in Canadian dollars.   It takes some time for this to filter into the economy, but is also a good, strong and positive trend for the Ontario and GTA economy and employment.

The U.S. Economy

We expect that this has not slipped past your radar, but just in case, the US economy is growing.  The first quarter GDP numbers were disappointing, but we believe that the final numbers will be higher when published in June and that the second quarter will be much more positive.   It’s been a long haul, but the US is growing at a good clip.  Another positive for Ontario and the GTA.

So what does all of this mean?

Prices for all commercial asset classes will continue to rise this year.   Our prediction.   Industrial will perform best, retail will perform worst.  Why?

E-based businesses need industrial space with access to major arteries and the Canadian and US consumer.   This is a trend that will continue for years to come.  

In addition, industrial, all things being equal, has a higher risk profile so a higher return profile for investors.  Institutional investors are hungry for yield.  They are increasingly looking to industrial, even smaller industrial properties, for investment purposes and to match their long term liability and cash flow needs (i.e pension, REIT and insurance).

At the opposite end of the spectrum is retail.  You don’t have to look further than Target or Future Shop or your local retail strip to see why.   Competition is fierce.  Consumers have additional power through e-based shopping.   Landlords are increasing rents, but retail tenants are not able to absorb them.   You will see continued turnover of local, niche retailers in all of the popular retail strips in the GTA (i.e. the Beach, Bloor West Village, Bloor Street, Bayview and Yonge).

Retail is currently priced to perfection in the GTA.   If you own retail, this may be your best time to capture your gains and re-invest your capital.   Let us help you make that call.

Written by:

Cam Forbes, MBA, CPA, CMA

General Manager / Broker

Director, Commercial Division

RE/MAX Realtron Realty Inc., Brokerage.




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May 2015