Commercial real estate investment expected to shrink in 2016

Commercial real estate investment is expected to fall for the fourth straight year in 2016, according to a new report.

In a report provided to the Financial Post, real estate firm CBRE projected that investment in commercial real estate would shrink to $23.6 billion next year, down from a projected total of $24.4 billion this year and $26.1 billion in 2014.

The presence of Chinese investors in the Canadian marketplace, however, is expected to continue growing, the Financial Post reported.

“It’s part of a global trend,” Ross Moore, director of research for CBRE in Canada, told the Financial Post. “It’s not like (Canada) s the only place the Chinese are investing in. We saw it in New York, we saw it in London. What was interesting to me is Chinese capital is highly selective. It’s only going to maybe four or five countries. You look at the ties between the countries, you’ve got a large Chinese population in Vancouver and Toronto. So they go with what they know.”

While Chinese interest continues to grow, overall leasing activity on commercial property is expected to soften, according to the Financial Post. CBRE predicts that central vacancy rates will grow to 10.1% nationally by the end of this year, and grow to 11.1% next year.

Although commercial property investment is down, it’s not disastrous, Moore told the Financial Post. He said that “the magic number is $20 billion,” and anything above that should be considered a strong year.

“It would be a mistake to say, ‘Yikes, what a terrible year,” he said. Moore noted that annual investment fell to as low as $12.5 billion during the global recession.

Overall commercial property investment may still be strong, but that doesn’t mean there aren’t trouble spots. Alberta cities like Calgary have already taken a big hit in the oil slump, and Moore told the Financial Post that investment in the province will continue to be slow.

“Alberta office will be deadly quiet,” he said. “Downtown office there is nothing (in terms of sales). People will just sit on their hands and wait things out.”

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