The year 2010 will be better for North American real estate than the 2009 storm that battered the U.S. and took a lesser toll on Canada, a new forecast reports.
U.S. markets bore the brunt of the 2009 downturn, although recovery is expected this year. Canadian real estate market fundamentals, though shaken, remained relatively intact.
These are some of the key trends noted in Avison Young's new 2010 National Forecast. The annual report covers the office, industrial, retail and investment markets in 13 regions across the U.S. and Canada. Avison Young is a Canadian-based commercial real estate firm.
"If anyone needs to be reminded, commercial real estate is a cyclical industry," says Mark E. Rose, Avison Young's Chair and CEO. "In our 2009 Forecast last January, we predicted one overriding theme: Decision-making would grind to a halt until key metrics stabilized and new trends appeared."
Rose continues: "Due to government intervention, the concept of distressed selling and buying did not materialize anywhere in North America. The U.S. government put money into the major banks, which in turn extended every loan they could to avoid realizing losses. The Securities and Exchange Commission watched from the sidelines and allowed the impacted lenders to postpone the inevitable."
"2010 is shaping up to be more of the same, but with a slightly positive bias," he says. "Fundamentals have firmed, decision makers are getting their sea legs back, and the second half of 2010 should produce favorable comparisons to 2009. This, in turn, will drive the confidence we have been sorely missing and allow for activity to return to more normal levels."
However, he added, recovery will depend on certain circumstances-especially job growth.
Mounting job losses in the corporate arena and the corresponding fall in the demand for office space have led to higher vacancy rates in markets across the U.S., although those rates are expected to stabilize this year, the report says.
Occupancy of industrial space is also down, with some markets harder hit than others. Demand for industrial space is variable by location even within a given market, and demand for certain types of well-located industrial property remains robust.
"[T]he dramatic drop in transaction volume has undoubtedly reached a cyclical low-point," says Earl Webb, President, U.S. Operations, Avison Young. "Rents, while remaining well below their peaks in 2006-2007, appear to have settled out at cyclical lows in most markets and asset classes."
The national vacancy rate for office space in Canada increased in 2009 and is poised to climb to the 10% range by year-end 2010. The leasing market for industrial space was also hit hard, experiencing escalating vacancy rates on average across Canada.
On the retail front, consumer spending was more resilient in Canada than in the U.S. through 2009. While some national chains fell victim to the recession, extensive discounting by retailers was common, especially in the pre-holiday shopping season. Though the final tally has yet to be determined on the overall performance in 2009, the outlook for the retail market is for stability or modest growth this year.
The full report is available at http://www.avisonyoung.com.