Positive Expectatives In Real Estate: Commercial And Industrial Markets-00-6585

By Author: rafalinares
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Scotia Bank says: Looking ahead, we anticipate a period of reasonably healthy commercial leasing and sales activity, but with few major new developments breaking ground over the next several years. Rather, construction plans will likely be geared more to the refurbishment and retrofiting of existing older space to meet the growing demand for more energyefficient, smart buildings. Meanwhile, any reduction in the pace of new home construction — as we predict for the latter half of 2010 and into 2011 —will in turn dampen related retail expansion, including gasoline stations, grocery stores and bigbox malls.

Industrial property markets mirror the improvement in commercial activity. Rising sales and leasing
demand are piggybacking on the recovery in global trade and industrial production, and higher commodity prices. The national average industrial vacancy rate has edged down from a peak of 7.0% in the third quarter of 2009 to 6.4% in Q1 of 2010, though it is still about a percentage point above its 20-year average.

Industrial space vacancy is typically more stable than its commercial ...
... counterpart, with a greater share of properties purpose-built and/or owner-occupied. In contrast to Canada's office and retail markets, there was only modest new industrial supply in 2009. There are currently few major new developments under construction or planned for 2010.

We foresee a further cautious improvement in industrial market activity this year and next, with vacancy rates and rents remaining fairly steady.

Holding back a bigger turnaround is a significant amount of excess production capacity. Indeed,weak capacity utilization rates top the list of business concerns in many recent business surveys, including those from the Conference Board of Canada, the Bank of Canada and the Canadian Federation of Independent Business.

Historically, firms have been reluctant to expand their operations when capacity utilization is below 85%. Average industrial capacity use among Canadian businesses is currently running around 70%, for both manufacturers and mining firms. Among the 21 major manufacturing sub-groups, only the computers & electronics industry is broaching the 85% level.

Despite more recent positive developments in both commercial and industrial property sectors, overall activity is likely to remain on a relatively modest growth track over the next several years. This in turn will reinforce a more subdued residential construction and renovation outlook, and a winding down of public infrastructure spending. As a result, we expect the broad construction sector to make a much smaller contribution to domestic growth and employment than has been the case in recent years.

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