Posthaste: Real estate investors are shying away from Canada's biggest city
Good morning,
Real estate investors are drawing back from Canada’s biggest city as high interest rates, construction costs and remote work take a deeper toll.
Commercial real estate investment in the Greater Toronto Area dropped 27 per cent in the second quarter of this year, down more than $2.5 billion from the year before, according to the latest report from CRE intelligence firm Altus Group.
Not surprisingly, office investment was the hardest hit, falling 61 per cent to $414 million from $1.07 billion in the second quarter of last year.
The plight of office real estate since the pandemic is well known. In a recent report McKinsey Global Institute predicted that remote work could wipe US$800 billion from the value of office buildings in the world’s major cities.
Globally office attendance still is 30 per cent lower than what it was before the pandemic and McKinsey expects demand for office space to sink 13 per cent by the end of the decade.
The return-to-office has also stalled in Canada, said Altus.
The national office availability rate climbed to 18 per cent in the second quarter and hit 18.5 per cent in the GTA, the third highest in Canada after Calgary and Edmonton.
Sublet space rose to almost 25 per cent of the total available office space, up four per cent from the year before.
But interest rate hikes by the Bank of Canada, a shortage of skilled labour and rising construction costs are also taking a toll on residential investment, which fell 44 per cent from the year before.
“However, investors are optimistic as the constrained supply of rental housing and the high cost of housing in the market supports asset fundamentals,” Altus said.
The only sector that’s growing is industrial, where
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