2018- A Good Year For Commercial Real Estate (CRE)

Will the commercial real estate boom in 2018? There are two sets of factors affecting the answer to this fundamental question – factors to curb commercial real estate and factors to boost commercial real estate.

Factors to curb

Foreign buyers taxed: Vancouver and Toronto introduced foreign buyer tax to curb the overseas demand for Canadian real estate. This somehow affected the market as sales and prices fell but in the bigger picture it had little effect.

Stress test rules introduced: new rules were introduced to make sure that borrowers can pay off their mortgage if the rates were to rise. This means that those who fail the test have to look for something less expensive or entirely sit out.

Higher rates: The Bank of Canada raised its benchmark interest rate twice last year. Experts predict that there is 50 percent chance that the interest rates will continue to increase. The higher the rate, the fewer people can afford buying homes, so consequently, prices fall.

Factors to boost

Despite of all these factors, the Canadian commercial market continues to boost. And here is why.

Mortgage rate will still be affordable: Despite of rising interest rates experts point out that mortgage rate will still be lower than they were 10 or 5 years ago. “While the Bank of Canada implemented its first interest rate increases in seven years earlier this year, they still remain near historic lows with an overnight rate of one per cent and have had little impact on the high demand for Canadian commercial real estate”, Real Estate New Report claims.

Peak millennials: There is an interesting demographic trend that will affect commercial real estate big time. The children of baby boomers, also known as millennials, are reaching home-buying age in record number. Statistics Canada projected 2,559,200 people between the ages of 25 and 30 in 2018 which is up by 150,000 from five years earlier. Surveys show that only 35 percent of them own a house and 65 % wanted to buy one within the next five years.

Immigration growth: CTV News reports Canada added between 236,800 and 281,000 immigrants annually between 2004 and 2014. It is very likely that immigration will add up to the demand, especially in the bigger cities where immigrants are most likely to settle.

Opinions on the question whether housing prices will go up are somewhat divided. Most, however, predict that demand for commercial real estate from domestic and international investors will remain robust through next year.

 

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