Land Sales Remain Solid in Major Canadian Centres

The Canadian economy has been grappling with higher interest rates, soaring labour costs, elevated price inflation, and slowing growth. And yet, Canada’s commercial real estate market is exceeding expectations, with land sales remaining solid. There has been incredible demand for acreage-zoned industrial, multi-family, and retail units for the past year across many Canadian centres.

But how could this be?

Industry experts note that approvals in place have allowed deals to be established. Indeed, industrial real estate supply has struggled to keep up with demand as lengthy approval processes, exorbitant development fees, and an abundance of red tape have resulted in substantial barriers to new construction.

Because of the scarcity of industrial-zoned land, it has transformed into one of the best asset classes in many parts of the country. Of course, the demand for warehousing and distribution centres has been buoyed by e-commerce, logistics, and manufacturing growth. Market experts note that companies and investors are capitalizing on these trends by purchasing vast amounts of land in strategic locations, especially areas close to transportation networks and cities.

Retail-zoned land is also facing tremendous demand, even as the sector endures enormous competition from online shopping. It might seem surprising to consumers, but major urban centres are witnessing vibrant retail scenes, with investors establishing or bolstering commercial real estate developments. Therefore, limited retail-zoned land can offer leasing opportunities to a broad array of businesses, like entertainment venues, restaurants, and retail outlets.

But are solid land sales ubiquitous nationwide or only pockets of the Canadian commercial real estate market? Let’s take a look at some of the data to find out:

Land Sales Remain Solid in Major Canadian Centres

Here are four markets to assess:

Vancouver

In the first quarter of 2023, land sales, from industrial to retail, in the Greater Vancouver Area (GVA) climbed at a modest pace. Although sales moderated from a year ago, demand remains strong, especially as new reports show that the selling process has suffered notable delays from the due diligence period growing from 45 days to 90 days. According to commercial real estate analysis, the immediate-term threat posed to this Canadian asset class is narrower profit margins, which could result in less investment.

London-St. Thomas

Land sales have been impressive in the jurisdiction’s industrial market. The data do show that the pace of activity has slowed from a year ago. Experts purport that the primary hurdle has been the development process, which many argue is slow and cumbersome. Another challenge for the London-St. Thomas commercial real estate sector is the significant fees implemented by the municipal and provincial governments, which industry leaders contend diminishes development. According to a chorus of experts, the solution is to streamline the entire process for new building activity, a strategy that can be applied to both residential and commercial real estate.

Ottawa

So far this year, land sales have skyrocketed, with industrial land going for about $1 million per acre. Some land transactions have fetched more than $1.2 million an acre in certain locations. While industrial use has been a primary factor, the expansion of Ottawa’s official plan has led to an increase in development for purpose-built rentals and condominiums. Retail has been another driver of the plethora of land sales, with demand for retail storefronts in high-traffic areas growing at exponential rates.

St. John’s

The Newfoundland and Labrador capital city is seeing a bump in land sales thanks to investors searching for affordability options outside of Ontario and British Columbia. But not only does St. John’s provide more affordable industrial options, but commercial real estate experts also assert that investors are realizing the long-term potential of the Atlantic Canada location. This is especially true of retail. An example of this strength is Avalon Mall. This is one of the top enclosed malls in Atlantic Canada, and it continues to be the city’s premier shopping destination, with almost 100 percent of its premises leased.

Strength Will Persist

From scarcity to robust demand, Canada’s industrial real estate is outperforming nearly every other asset. This is true in the Prairies and Maritimes as much as the most populous provinces of Ontario and British Columbia. Experts explain that a spillover effect has bolstered sales in several urban centres, such as Edmonton, Saskatoon, and Halifax. It is true that demand has slowed from its peak in 2022. However, low inventory levels are offsetting any possible moderation. So, even with higher interest rates and sluggish growth in the broader economy, the Canadian commercial real estate market is still showing signs of enjoying a boom.