Year in Review
Q4 2022 Market Report
Q4 2022 Market Report
“Raw Stats sometimes don’t tell the WHOLE story”
- Commercial real estate is a long deal cycle, with many deals taking many months between initial negotiation and deal commencement/completion. That means that some market statistics can be stale the minute we publish them, particularly in a rapidly changing market.
- Although the Oakville, Burlington, and Hamilton submarket is substantial (80,000,000 SF Industrial, 20,000,000 SF Office, and thousands of acres of development land), sometimes there are not enough data points (ie. sales, leases) to extrapolate a trend in each quarter. For instance, our team uses a 12-month rolling average for examining land sale data because there may be only 1 or 2 data points in each quarter.
- Context is key. In this edition, we have introduced some case studies which we feel give a much better feel of how deals are being put together. We encourage our readers to reach out to our team for a more in-depth discussion of market trends.
“What recession? What interest rate hikes?”
Notwithstanding successive interest rate hikes and recession fears, Q4 saw continued substantial increases in industrial real estate pricing on both a sale and lease basis. The simple explanation is the continued deal velocity is driven by strong demand from the owner-occupier market, a lack of current built inventory, and a backlog of new projects that are experiencing extraordinary delays.
The reality is that most businesses are still highly profitable and need to expand/invest. Unlike investors and developers, owner-occupiers aren’t trying to time their entry or exit from the market. Barring some major macroeconomic events, we feel that pricing will either begin to stabilize at current levels or continue to increase over the next few quarters.
“Return to the Office?”
The office market was completely gutted during COVID, but, there are signs of light. As was predicted during the pandemic, the suburban office in Halton and Hamilton is outperforming the downtown office. As companies allow many employees to work from home when possible, and closer to home, we are seeing the embrace of a hub-and-spoke model where companies downsize their downtown office footprint, and augment with satellite offices around the Greater Golden Horseshoe.
Of note, Hamilton is getting strong interest from office tenants which is a relatively new phenomenon that we expect to increase and sustain. Very recently the office leasing market velocity has increased substantially. Our Q4 2022 stats hint at this, but we feel that the next quarters will show much more profound decreases in vacancy rates for office space in Oakville, Burlington, and Hamilton.
Development land was the hottest asset class over the past 2 years in Oakville, Burlington, and Hamilton, but has also been the hardest hit by recent interest rate hikes. Where smaller sites (under 5 acres) are still attracting strong interest from owner-users, selling larger sites to developers has become more challenging and requires much more deal creativity to get them done. If you believe (as we do) that inflation is getting under control and that the next few interest rate hikes will be the last ones, then the developers should proceed again in a ‘new normal’ and proceed to develop land with real estate products so much in demand.
Development land is one of the most complicated land asset classes to examine. Although we publish statistics on price per ‘gross’ acre (ie. the acreage of the total site), what needs to be considered is sites can be dramatically different with respect to developable acreage, site servicing, geotechnical and environmental conditions, and zoning. We encourage readers to contact us to discuss the intricacies of the land market in more detail than is practical to discuss in this report