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Commercial real estate in Halifax continues to ramp up as investor appetite for key asset classes escalates in the region. Despite the higher interest rate environment, out-of-province and out-of-country buyers continue to seek out affordable opportunities in multi-family, industrial, and/or office conversion, contributing to the city’s rapidly changing landscape.

Commercial office vacancies hovering at 18 to 20 per cent in the core, coupled with the shrinking footprints of existing corporate offices, have prompted a seismic shift in the office market. While not all office buildings are well-suited for residential conversion, the city’s abundance of heritage buildings offer a unique opportunity to preserve history and provide homeownership opportunities in prime real estate on Halifax’s picturesque waterfront. The Centennial building, a 156,000-square-foot building offering spectacular views of the Halifax Harbour, is one of the first to undergo a complete retrofit. Slate’s Maritime Centre is currently in discussions regarding the possible conversion of its 600,000-square-foot property to residential while Purdy’s Wharf is considering the retrofit of one of its two towers to multi-family residential. At least four to five large scale projects involving the repurposing of existing buildings are approved and will come to market within the next 24-month period.

Vacancy rates under one per cent are behind much of the push for purpose-built rentals in Halifax and the surrounding areas, with not enough product to accommodate the city’s rapidly growing population. The Halifax Regional Municipality (HRM) is one of the fastest growing urban regions in Canada, adding more than 20,000 people to their population between July 2021 and July 2022, according to Statistics Canada. With the population approaching 500,000, the need for housing has never been greater, yet the estimated 24,000 units planned in 10 to 15 buildings throughout the Halifax Regional Municipality, are on hold, with developers waiting for more favourable conditions to present. The situation is expected to resolve itself somewhat with improvements to the existing supply chain and greater stability in construction costs in the year ahead.

The city’s malls continue to fare well, with few vacancies despite higher lease rates. Retailers are reducing their footprints in area malls, given robust on-line shopping sales while management is looking to enhance the shopping experience by adding more restaurants, gyms, and in some cases, higher-end grocery stores. Some landlords have revamped large parking lots, adding office towers and a residential element to complement existing retail. Big box retail power centres are having difficulty leasing larger stores ranging from 5,000 to 10,000 square feet or larger in today’s retail climate, as evidenced by the 30 to 40 per cent vacancy rate at Dartmouth Crossing. Proposed residential development in the area may help bolster activity at the centre in the future. Bayers Lake is adapting to new market realities by interspersing smaller stores, restaurants and a movie theatre into the mix. Their location, conveniently situated within Clayton Park, has also contributed to their success. In the downtown core, there have been a number of new rental buildings constructed on Spring Garden, with each housing a vibrant retail component on the main floor.

Inventory in the city’s industrial parks remains tight, with availability levels falling to four per cent in the first quarter of 2023, according to data from the Altus Group. Halifax was one of two markets in the country that experienced further decline this year. Warehousing, distribution and flexspace is most sought-after, although there is some demand for manufacturing facilities. The shipyards have experienced tremendous growth over the past decade, with more than $350 million spent by the Irvings to modernize their operations in anticipation of building 15 warships for the federal government, a contract now valued at close to $85 billion. Construction is scheduled to begin in 2024.

With growth in Halifax and the surrounding areas on an upward trajectory, the outlook for commercial real estate is bright. Last year alone, interprovincial migration accounted for 40 per cent of the surge in population growth, while international migration accounted for the remainder of growth. According to Statistics Canada, more than 10,000 business were in operation in Halifax in January of 2022 – a figure higher than pre-pandemic –with the 15-per-cent increase over 2020 numbers providing a clear indication as to what the future holds for the HRM.

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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.

Sources:

  • 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

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