After a record-setting year in 2017, most major urban centres also experienced a strong market throughout 2018, with high occupancy levels and a steady influx of new developments.
Canada’s commercial real estate market is going strong, but the competitive landscape is changing — and property owners need to be prepared.
Despite the strength of the market, commercial landlords should not be lulled into a sense of complacency. The industry, like many before it, is ripe for disruption. Property owners need to understand how current and future trends affect the market and their business strategy. Landlords with commercial properties should stay up to date on these particular real estate disruptors.
1. Shared workspaces
The way we work is changing, driven by Canada’s growing start-up community and the influence of Millennials in the workplace. Business owners and entrepreneurs across a variety of sectors are moving away from traditional office environments in favour of shared or co-working spaces.
Shared workspaces are often designed to encourage collaboration and flexibility, and — perhaps more importantly — drive down operational costs. Smaller businesses and entrepreneurs can enjoy the amenities and social perks of premium office space, but on a short-term or as-needed basis.
Landlords can no longer rely on having one or a few tenants occupy a single building. Property owners need to be adaptable and break away from the status quo, which could mean redeveloping to offer the kind of modern professional environment that is in demand, such as open concept spaces or flexible suites. Other options could include offering incentives for renovations or lower rent prices to stay competitive.
2. The influence of online retail
Online retail sales in Canada grew by an estimated 30% in 2017, according to eMarketer. Clearly, Canadians are embracing e-commerce. While some see online shopping as a threat to traditional retail (and consequently, the retail real estate sector), a recent BDO report on retail trends in Canada has a different perspective.
Retailers recognize the need for an omnichannel business strategy that incorporates both bricks and mortar and e-commerce channels. Shopping is still a highly social and experiential activity, particularly for items like clothing, electronics, groceries, or “big ticket” purchases, but the purpose of physical stores is changing. Many retailers are scaling down or redesigning their stores as showrooms while moving inventory and fulfillment online.
Property owners should prepare themselves for the changing demands of the retail industry and work with their tenants to adapt spaces into destinations that attract today’s shoppers. Those with larger holdings may also want to consider redeveloping properties as mixed-use, with residential and office space in addition to retail.
3. The demand for industrial real estate
Industrial space is in high demand in Canada. According to the CBRE, Toronto and Vancouver have some of the lowest availability rates for industrial real estate in North America — yet these areas may be where the need is greatest.
E-commerce is a key driver behind the growing need for clean, automated distribution centres that are accessible to major urban areas. With a growing demand for options like overnight shipping and same-day delivery, fulfillment and product availability are significant competitive differentiators for retailers. This is leading to a tighter industrial real estate market relative to downtown centres as companies push to meet customer expectations.
By diversifying their holdings, commercial property owners may find themselves less susceptible to changing market conditions and better positioned to respond to an economy that now places equal importance on moving products as it does building them.
4. New digital tools
While digital disruption has been slower to take hold in real estate, new technologies are helping commercial property owners grow their business. Tools such as lease management software can help improve operations and reduce costs, while virtual reality site tours offer ways to reach new tenants.
Data analytics are a powerful way for landlords to make informed, timely business decisions. In addition to measuring tenant activity and property performance, analytics can help identify trends and predict future behaviours, such as the shift to co-working spaces or changing tenant demands.
To stay competitive, property owners need to adopt a digital mindset. Invest in a technology plan that can help support and shape your business strategy, as well as provide a better understanding of your tenants, your properties, and the market.
Developing a blueprint for the future
The ways that Canadians live and conduct business, from how we approach work-life balance to how we shop, are shifting dramatically — which means big changes for the real estate industry. Whether developing, redeveloping, or selling their assets, property owners need to respond to today’s market trends while preparing themselves for the demands of the next 5, 10, and even 20 years.
BDO’s real estate industry team offers a wide range of services to help clients respond to and plan for changing market conditions across the country. Contact us to learn how we can help you develop your strategy.