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Whereas most investors and developers used to rush to Canada’s biggest cities for their industrial, office, and retail CRE projects pre-pandemic, they are now turning to greener pastures. Mid-sized cities are quickly becoming a hub for larger developers looking to establish a stronger presence in the Canadian CRE markets.
However, while they offer lucrative opportunities for growth, mid-sized cities also bring their unique obstacles and challenges. Take a look at what the future holds for Canadian industrial, office, and retail CRE outside the country’s biggest urban centers.
The pandemic has left its mark on North America’s busiest metropolises. During the most challenging months of COVID-19, we have seen once buzzing downtowns of Toronto, Montreal, Calgary, Ottawa, and others turn all but desolate. With all the lockdowns, business closures, rent hikes, and more happening in Canada’s biggest cities, most have turned their attention to smaller, yet more lucrative markets, even now when things are slowly but surely stabilizing.
Many city-dwellers have escaped to the more affordable medium-sized cities where the price of land and living costs are lower – cities like Victoria have seen increases in both population and employment rates. These smaller centers also present greater value and growth opportunities for businesses, attracting domestic and international investors and developers like never before.
The renewed interest in mid-sized Canadian cities has allowed them to rise to the top amid the pandemic and become the best performers in industrial, office and retail CRE sectors.
Of course, that presents unique challenges for new and existing businesses in mid-sized cities. The competition is growing ever fiercer, and the demand for local knowledge is rising.
According to Judy Wall, president of East Port Properties, Atlantic Canada has seen a massive rise in demand for industrial CRE properties.
Since the start of 2020, ecommerce markets have grown exponentially. More shoppers have turned to online retailers, relying on fast shipping and same-day deliveries to get everything from groceries to apparel, home decor, and furniture. The changing consumer habits have been forcing businesses to open warehouses and supply centers that are closer to their end-users, allowing for quicker purchase processing and deliveries. Hence the demand for more industrial land in Atlantic Canada.
The problem, however, is the supply. There is a severe shortage of industrial land across Canada, which has caused industrial rent increases in the country.
The development of mid-sized cities has raised environmental concerns, though seemingly unnecessarily. Sustainability has become a top priority for industrial, office, multi-family, and retail CRE developers, especially those with international tenants coming from Europe.
Europe has long had strict sustainability policies, and abiding by them is the only way to attract attention from international audiences.
Therefore, developers such as East Port Properties are focusing on developing net-zero industrial buildings, creating green facilities, and lowering their environmental footprint, helping Canada reach its Paris Agreement goals sooner than anticipated.
As part of improving sustainability, developers are also looking to rejuvenate their older properties, install green features, and convert their buildings into mixed-use spaces.
Although mainly industrial land is in demand in mid-sized cities at the moment, developers like Jason Castellan, founder and CEO of Skyline Group of Companies, are advising portfolio diversification.
Despite the pandemic, many mid-sized Canadian cities have seen immigration increases over the past few years, which have created a greater need for affordable and multi-family housing solutions. Businesses are slowly turning their eyes to mid-sized cities, which has increased the need for office space. The retail sectors in smaller towns have proven to be more resilient than in big cities, creating a demand for retail CRE solutions.
Focusing on university towns, farming communities, retirement communities, even blue-collar cities and diversifying asset classes allows developers to improve their risk management and future-proof their businesses.
The shift in how we do business, where we live and where we invest has changed since the start of the pandemic. In Canada and many places around the world, investors and developers focusing on mid-sized cities have lucrative opportunities for growth and development. Although the competition in these areas is growing fiercer by the day, the demand for more industrial, office, and retail CRE solutions is rising, offering investors a chance to diversify their portfolios and improve performance.