Costs of building supplies have soared, but commercial real estate remains an attractive asset class
in April by half a percentage point to 1 per cent – the largest single increase since 2000 – and stated more hikes are forthcoming.
“The overriding factor for commercial real estate right now is that we are looking at extremely strong job growth – a very large increase in the number of workers hired,” says Jean-François Perrault, senior vice-president and chief economist at Bank of Nova Scotia. “And, of course, you need to put those workers somewhere.
“What happens in expansions is, real estate, in particular, does really well. So, the macro context in which people make investment decisions, including within the commercial real estate sector, is really quite favourable.” “The economy is raring,” Mr. Stovell says. “Tenants are coming back. Very large U.S. tech company tenants and other business firms are forcefully coming back into the office market, taking a lot of space. [Many] of those companies grew tremendously during COVID.
“It’s hard to know” whether the war is the direct cause of higher steel prices, Mr. Stovell admits, “because supply chains are multinational and very complicated. But it’s definitely all part of the overall uncertainty.”The China-made flooring is manufactured from Russia-supplied oak, and while trade between those countries continues, the supply chain has been disrupted, he explains. The price of the popular light-hued flooring has quadrupled just since the war began.
Owners of multifamily apartment buildings can only increase rents based on the inflation rate. “Residential tenants are looking at a 5-per-cent rent increase or even higher,” Mr. Stovell says.Tal Benjamin, deputy chief economist at CIBC World Markets, says inflation could be a short-term problem. “Sixty to 65 per cent of the inflation we are seeing now is COVID-related,” Mr. Benjamin said at the recent Vancouver Real Estate Forum.
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