While commercial real estate in Newfoundland and Labrador represents a smaller percentage of the overall market, economic growth in St. John’s, especially in terms of the oil and gas sector, is likely to stimulate greater activity in the future. This, according to the new 2022 Commercial Real Estate Report from RE/MAX Canada. Emergence from the depths of the Covid-19 pandemic, and the slow but steadily improving economic picture has helped to bolster job growth in the province, with employment trending upward, while unemployment trends downward, hovering just below 12 per cent.
Most employees are back to work and have been for some time. St. John’s did not experience as big a shift to work-from-home arrangements that were evident in many other provinces because of Covid. The effect on the office market has been positive in St. John’s, with activity climbing in all areas. Vacancy rates are edging downward, although they remained just under 20 per cent overall in the first quarter.
Both vacancy and lease rates remain relatively stable for industrial space in 2022. There has been an increase demand for processing space for the fishing industry, as evidenced by the recent sale of a $3 million building in town to a local fish harvester. Some institutional movement also took place, with the former Centre for Health specializing in dementia selling for $3.1 million in Q4 2021.
Sticker shock is impacting the retail sector, as inflation and supply chain issues have created havoc in the market. The cost of construction materials has soared, while car lots are empty. Cap rates are at seven to nine per cent at present, but rising interest rates will place downward pressure on rates in coming months. The Big Box sector has experienced some movement with Costco and Princess Auto having recently sold their locations in the East End of the city, as both retailers relocated to the West end. The Princess Auto deal closed in late 2021 and the Costco space is sold conditionally. It is expected to move forward in the coming months.
In general, St. John’s is not experiencing a lot of turnover, but revitalization is occurring in the retail sector. Take for example the $160-million renovation of the trendy Avalon Mall, which is currently 90 per cent tenanted. This type of activity typically impacts lease rates, but the major brands have been attracted to quality spaces.
Population growth continues to place increased pressure on the residential market, with an influx of 2,000 new families annually. That is expected to climb as Newfoundland is forecast to attract upwards of 5,100 new families annually by 2025. A shortage of residential properties exists, with a three-month supply currently available versus the typical norm of 15 to 16 months of inventory. As such, vacancy rates remain low for residential rentals, hovering around three per cent*. Demand exists from investors for multi-unit product, although it’s tough to build on spec due to rising interest rates and inflation.
Overall, the commercial market in Newfoundland and Labrador is poised for continued improvement, as positive economic news continues to mount. The Bay Du Nord project, a huge, deep water well, has been given the green light by the federal government, creating employment opportunities for 600 people in recent months. West White Rose, the $3.2-billion expansion project on the Argentia Peninsula, will also be reignited. While oil production is down at Hibernia, Hebron and White Rose, revenue is up 12 per cent, as a result of the impact of rising gas values. Vale recently signed a substantial contract with Tesla to supply Voisey’s Bay nickel for electric vehicles—a deal that will help fuel expansion in Canada’s electric car market. Capital investment is up 4.8 per cent in 2022 to $7.9 billion**. Unemployment is expected to trend downward, with a forecast decline to 10 per cent by 2026. Challenges remain with higher interest rates and inflation, but buyers will always look for opportunity with more new projects coming on stream and good potential for growth.
*CMHC Rental Market Survey, October 2021
**Statistics Canada, CMHC, Economics Division, Newfoundland-Labrador Department of Finance
National Commercial Real Estate Highlights
With North American stock markets dangerously close to correction, bricks-and-mortar commercial real estate continues to resonate with institutional and private investors, particularly those who are personally vested, across almost every commercial asset class in major Canadian centres, say RE/MAX brokers.
The RE/MAX Canada 2022 Commercial Real Estate Report found demand for industrial, multi-unit residential—particularly purpose-built rentals—and farmland was unprecedented in the first quarter of 2022, with values hitting record levels, while retail and office are starting to show signs of growth in multiple markets.
The report examined 12 major Canadian centres from Metro Vancouver to St. John’s. Regional highlights include the following:
- 92 per cent of markets surveyed (11/12) reported extremely tight market conditions for industrial product in the first quarter of 2022. Newfoundland-Labrador was the only outlier.
- 67 per cent of markets surveyed (8/12) found challenges leasing industrial space. Included in the mix were Vancouver, Edmonton, Calgary, Winnipeg, Ottawa, the Greater Toronto Area, Hamilton-Burlington-Niagara and London. Some realtors are recommending tenants start their search for new premises at least 18 months before their current leases come up for renegotiation.
- While demand for overall office space in the core remains relatively soft in 92 per cent of markets (11/12) across the country, Metro Vancouver continues to buck the trend.
- Suburban office space continues to prove exceptionally resilient in 67 per cent of markets surveyed (8/12). Those markets include Vancouver, Calgary, Saskatoon, Winnipeg, Hamilton-Burlington-Niagara, Ottawa, Halifax-Dartmouth and Newfoundland-Labrador.
- Development land remained sought after (industrial/residential) in 67 per cent of markets surveyed (8/12) including Vancouver, Calgary, Regina, Saskatoon, Winnipeg, Ottawa, the Greater Toronto Area and Halifax-Dartmouth.
- End users are encountering challenges in terms of expanding their businesses due to land constraints/shortages, with specific mentions of this noted in Vancouver, the Greater Toronto Area and Regina.
- Retail is on the rebound in 75 per cent of major Canadian markets (9/12), with strong emphasis on prime locations in neighbourhood microcosms. The trend has been identified in Vancouver, Edmonton, Calgary, Saskatoon, Regina, Winnipeg, Hamilton-Burlington-Niagara, Toronto and Ottawa.