Commercial real estate in Halifax-Dartmouth is experiencing growing pains, as Atlantic Canada’s fastest-growing city plays catch-up to rising demand, according to the new 2022 Commercial Real Estate Report from RE/MAX Canada. Multi-unit residential construction has taken flight in Halifax-Dartmouth in 2022, as developers shift to higher-density to accommodate population growth. Transactions* in 2021 were up over 71 per cent, climbing from 441 sales valued at $163.5 million in 2020 to 757 sales valued at $314.9 million. Supply is currently limited for commercial real estate in Halifax-Dartmouth, and rental vacancy rates have fallen to less than one per cent.
Over the past two-to-three years, residential and industrial land values have doubled and tripled. Land remains scarce, with much of it owned by the private sector. Almost every REIT is now represented in Halifax-Dartmouth. Re-purposing is well underway as developers amass housing blocks in the Centre Plan areas and acquire older office buildings for repositing and new construction, particularly in the city’s peninsula area. Some area malls are planning are now planning high-density developments in multi-unit residential to bolster the retail component. The Mic Mac mall, second-largest in the region, was recently sold to a private group that will convert the mall to mixed-use residential, commercial and retail. Multi-unit residential cap rates hover at four to 4.25 per cent for newer product, while older stock has a cap rate of 4.5 to five per cent. Upward pressure on cap rates is expected as interest rates continue to climb.
The retail sector has been soft in recent years, with the pandemic forcing the shift to online shopping—much of which is still occurring. Demand for retail space remains limited at present, with malls struggling to attract shoppers, but population growth is expected to fuel retail sales in Halifax-Dartmouth over the next few years. New plans for large retail developments feature open-air concepts, with higher-end restaurants and entertainment, and a strong residential component. Mixed-use developments in the downtown core, on streets like Barrington and Spring Garden, that have replaced older storefront retail with new boutique-style stores and restaurants have been relatively successful. Cap rates for retail in the downtown core currently run between 6.25 per cent and 7.5 per cent.
Office leasing has yet to recover from the pandemic, with many employees still working from home. With hybrid work schedules, the market will see a move toward smaller office footprints and shared workspaces in the future. Overall availability rates hovered at 14.9 per cent in the first quarter of the year, up from 14.5 per cent during the same period in 2021. Older office buildings sitting on prime real estate in the core have been earmarked, with potential conversion to multi-unit residential planned for the future. Suburban office space in areas like Bedford and Sackville is performing well under the circumstances, with lower lease rates attracting business from the core. Vacancy rates in the suburbs run at about eight per cent. Cap rates for class A office space in the core runs between 6.5 to 7.25 per cent, while the same product in the suburbs hovers between 6.5 and seven per cent.
Like other areas of the country, the industrial asset class continues to operate on all cylinders in Halifax-Dartmouth. Availability rates have fallen to 4.5 to five per cent, from eight to 8.5 per cent, and continue to edge lower. Large warehousing space is especially coveted, with the likes of Amazon setting up shop in the city. A large influx of investors from Ontario and Western Canada will bring more than one million square feet of much-needed flex space to the market over the next 12 months.
Building on the strong GDP growth experienced in 2021, Nova Scotia is expected to experience a further increase of 2.5 per cent in 2022, buoyed by an upswing in capital spending, robust housing starts and a thriving construction industry. Continued population growth is also forecast in 2022, with Canada set to welcome more than 400,000 new Canadians, many of whom will choose to live in the coastal region. Between 2016-2021, Census data showed that Halifax-Dartmouth was one of the fastest-growing areas in the country, climbing 9.1 per cent to 465,703 residents.
- Altus Group
- RBC Economics, Provincial Outlook, March 10, 2022
- Greater Halifax Partnership Economic Strategy 2022-2027
- NSAR MLS Service 2020-2022
- NS Industry members projections
National Commercial Real Estate Highlights
With North American stock markets dangerously close to correction, bricks-and-mortar commercial real estate continues to resonate with institutional and private investors, particularly those who are personally vested, across almost every commercial asset class in major Canadian centres, say RE/MAX brokers.
The RE/MAX Canada 2022 Commercial Real Estate Report found demand for industrial, multi-unit residential—particularly purpose-built rentals—and farmland was unprecedented in the first quarter of 2022, with values hitting record levels, while retail and office are starting to show signs of growth in multiple markets.
The report examined 12 major Canadian centres from Metro Vancouver to St. John’s. Regional highlights include the following:
- 92 per cent of markets surveyed (11/12) reported extremely tight market conditions for industrial product in the first quarter of 2022. Newfoundland-Labrador was the only outlier.
- 67 per cent of markets surveyed (8/12) found challenges leasing industrial space. Included in the mix were Vancouver, Edmonton, Calgary, Winnipeg, Ottawa, the Greater Toronto Area, Hamilton-Burlington-Niagara and London. Some realtors are recommending tenants start their search for new premises at least 18 months before their current leases come up for renegotiation.
- While demand for overall office space in the core remains relatively soft in 92 per cent of markets (11/12) across the country, Metro Vancouver continues to buck the trend.
- Suburban office space continues to prove exceptionally resilient in 67 per cent of markets surveyed (8/12). Those markets include Vancouver, Calgary, Saskatoon, Winnipeg, Hamilton-Burlington-Niagara, Ottawa, Halifax-Dartmouth and Newfoundland-Labrador.
- Development land remained sought after (industrial/residential) in 67 per cent of markets surveyed (8/12) including Vancouver, Calgary, Regina, Saskatoon, Winnipeg, Ottawa, the Greater Toronto Area and Halifax-Dartmouth.
- End users are encountering challenges in terms of expanding their businesses due to land constraints/shortages, with specific mentions of this noted in Vancouver, the Greater Toronto Area and Regina.
- Retail is on the rebound in 75 per cent of major Canadian markets (9/12), with strong emphasis on prime locations in neighbourhood microcosms. The trend has been identified in Vancouver, Edmonton, Calgary, Saskatoon, Regina, Winnipeg, Hamilton-Burlington-Niagara, Toronto and Ottawa.