The commercial real estate industry has experienced a remarkable transformation over the past three years in the wake of the Covid-19 pandemic. Despite the associated uncertainty and volatility on real estate fundamentals across markets, certain asset classes have proven to be particularly resilient. These include multi-family and industrial assets, self-storage facilities, and retail properties with an essential-service tenant base such as grocers or pharmacies. Other asset types including office and enclosed malls are currently undergoing a transition in response to changing employee and consumer preferences.

Investment activity in Canada remained elevated throughout the pandemic, owing to a low interest rate environment and a steady supply of investor capital, as well as increased value-add and distressed opportunities. Emerging concerns related to inflation, rising interest rates and the threat of a looming recession have tempered commercial real estate investment volumes throughout the first quarter of 2023 – whether this deceleration represents a short-term blip or a sustained event remains to be seen.

Industrial Expansion 

Prior to the onset of the pandemic, Canada had considerably lagged its global peers in terms of overall e-commerce adoption. Today, the e-commerce penetration rate in Canada has accelerated to over 20%, more than doubling its pre-pandemic levels and bringing Canada on par with U.S. adoption rates(1). The impact of this rapid acceleration was evidenced by third-party logistics and e-commerce occupiers leading total new industrial leasing activity since 2019(2). Investment in automation and robotics is expected to accelerate over the coming years as occupiers take advantage of the build-to-suit trend in industrial development. 

Occupiers are placing an increased premium on location given difficulties surrounding labour shortages and high transportation costs. With many employers reporting challenges in hiring workers to meet increased demand, the ability to locate facilities near pools of labour will represent a major competitive advantage in hiring and retaining employees. Transportation costs for goods have also surged throughout the pandemic, driving up both domestic and international freight prices. Given the macroeconomic and geopolitical environment, many occupiers are expected to place increased focus on locating near dense population centres.

Market conditions remain extremely tight across the country, with the national availability rate currently reported at 1.6%. The Canadian industrial market recorded 10.4 million square feet (“SF”) of positive net absorption in Q4 2022, bringing the annual total to 35.8 million SF (the second highest level on record). As availability rates remain at all-time lows, net rental rates have continued to rise. The national rental growth rate of 30.9% in 2022 represented a record-setting year and lifted the five-year compound annual growth rate to 14.5%(2)

All major industrial markets set new historical highs for net rental rates in the final quarter of 2022. The Vancouver market currently commands the highest rents in Canada, averaging $20.21 per SF, followed by Toronto and Ottawa at $17.81 per SF and $13.67 per SF, respectively. Year-over-year rental rate growth was led by the Toronto (26.5%), Vancouver (21.2%), and Montreal (19.6%) markets(3).

Major Market Rental Rates and Availability Rates

Rental Rates per SF

Graph of Major Market Rental Rates and Availability

Source: Altus Group

The tremendous demand for industrial space in recent years has driven market fundamentals to record levels. Most major markets have limited available space remaining, leaving a significant amount of demand unfulfilled. For occupiers in need of space over the near term, there will be few options, and where opportunities exist, competition will remain high. Until the supply-demand imbalance is alleviated, tight market conditions are projected to continue driving up rental rates, sales pricing, and land values across Canada.

Office vs. WFH

According to Statistics Canada, the number of Canadians working exclusively from home increased threefold between 2016 to 2021, demonstrating how companies and employees adapted to the pandemic-mandated restrictions on congregation and mobility. Although many experts predicted that employees would return to their workplaces as restrictions were eased, most employers continue to embrace fully remote or hybrid work structures.

The resulting reduction in office space demand has driven the national office vacancy rate up 790 basis points since Q1 2020 to a reported 17.1% in Q4 2022. Closing out the year, the national office market experienced its weakest quarter of 2022, reporting 2.1 million SF of negative net absorption and notable increases in vacancy in most major markets(4). While developers have largely wound down plans for new office development, carry-over from the most recent development cycle has left an estimated four million SF of office product to be delivered in the next 2 – 3 years in Toronto alone, potentially further exacerbating the current condition.

Major Market Office Supply vs. Demand

Net Absorption and New Supply Figures in Millions of SF

Graph of Major Market Office Supply vs. Demand

Source: Altus Group

Despite remote and hybrid work remaining part of the operating structure for many companies for the foreseeable future, over 57% of Canadians were already back to the office in 2022(5). To help entice employees to return, landlords and employers are designing new ways to activate office buildings and common spaces to create collaborative environments which more readily integrate with evolving business and communications practices. Demand has increased for office spaces that enhance human, digital, and physical amenities and implement the latest technology and smart building innovations in an aim to improve the overall workplace experience. Firms are hopeful that these features will increase in-office presence to help improve the training process for new employees, facilitate collaboration and cohesion, and enhance company culture over the longer term.

Residential Demand 

Driven in large part by the resumption of elevated immigration levels, demand for rental housing in urban centres is projected to accelerate in most major markets in 2023(6). Immigration totals have accelerated from 184,500 in 2020 to a new national record of 437,000 in 2022(7). This trend appears well-insulated going forward: international travel restrictions have relaxed, $85 million of funding has been pledged to help eliminate an immigration backlog that has reached nearly 2 million, and the federal government has renewed its commitment to increasing immigrations levels, targeting nearly 1.5 million new permanent residents from 2022 to 2024(7).

With nearly 60% of immigrants expected to be admitted through economic programs, most of these new Canadians are projected to settle in urban centres near employment opportunities(7). Urban housing demand is expected to be further bolstered by the return of students to in-class learning at post-secondary institutions and the return of office workers who had migrated to suburban or lower cost markets during in the pandemic.

Canada’s apartment vacancy rate dropped to 1.9% in 2022, the lowest level in more than two decades, as an influx of new residents placed further pressure on inventory levels and elevated home values priced many Canadians out of residential ownership opportunities. As the rental market tightened, the national average annual rental rate increased by 18.2% for units on turnover (compared with an average increase of 2.8% for renewals). In Vancouver, Halifax, Toronto, and several secondary Ontario markets, the average annual rental price increased by over 20.0% upon tenant turnover(6).

Significant and sustained upward pressure on housing costs has led to what many experts are calling a housing affordability crisis in the country. The last time housing was affordable in Canada (meaning it costs less than 30% of a household’s before-tax income) was in 2004. In 2022, the proportion of pre-tax household income allocated to housing reached record-high territory equal to 62.7% on a national basis, with many major markets far exceeding this level, including Vancouver (95.8%), Toronto (85.2%), and Victoria (71.7%)(8).

The following table highlights the supply gap at a provincial level:


Target Level of Affordability in 2030

Additional Housing Supply Required







British Columbia









Newfoundland & Labrador



Nova Scotia






New Brunswick



Prince Edward Island






Source: CMHC

The decline in affordability can be primarily attributed to a housing stock that has not kept pace with growing demand in most of Canada’s large urban areas over the last 20 years. Construction cost inflation, rising land prices and lengthy entitlement timelines have made purpose-built rental construction more challenging and less financially attractive to many Canadian developers, limiting the supply of new product. Current national construction for rental apartments represents only 5.2% of existing inventory, a rate insufficient to meet the expected increase in demand. At current rates for new construction, the housing stock is projected to increase by 2.3 million units by 2030, bringing Canada’s total housing stock to 19 million; however, to restore affordability, 3.5 million incremental housing units will need to be constructed in addition to the units already projected to be built(6).

Scotiabank’s Property Brokerage Group 

Scotiabank’s Property Brokerage Group (“PBG”) advises on the acquisition and disposition of commercial real estate assets on behalf of its clients. PBG has expertise spanning all major asset classes – Office, Retail, Multi-Family, Industrial and Development Land, as well as alternative assets classes including Data Centres and Film Studios. PBG has longstanding relationships with many of the most prominent institutional, public, and private commercial real estate investors and, in addition to asset sales, offers advisory services related to valuation, joint venture structuring and private capital placements / fund raises. For more information on PBG’s services, contact:

Peter Zorbas
Managing Director & Head, Property Brokerage, Scotiabank