West Island Real Estate in the Current Canadian Economy

A brief by John Burrascano, Industrial Commissioner, September, 2016

Introduction

As forecast in our report of January, 2016, overall, the Canadian and Québec economies are still in a slump. There are, however, encouraging signs for the Province of Québec. With particular reference to West Island industrial real estate market performance, it defies overall economic trends as Q2, 2016 showed fantastic results in the absorption of industrial space for lease. In fact, the West Island recorded the highest amount of positive net absorption in the Greater Montreal Area.

The Canadian and Québec Economies

In a National Post article dated August 2nd, 2016, journalist Theophilos Argitis (of Bloomberg News) states that Canada’s economic growth is presently at its slowest in 60-years. Since May 2014, the Canadian economy has grown by only 1.2%. In addition, over the last 10-months, Canada’s economy has shown zero growth (mostly accountable to the Alberta wildfires in May 2016 causing a shut-down of oil production). Manufacturing, in general, has performed poorly recently. A sector that has posted positive gains since oil prices began to decrease is the real estate housing sector; this part of the economy grew by 6.8% from May 2014 says Argitis. Thus, the housing sector, mainly that of Vancouver and Toronto, has been holding-up the Canadian economy. Closely associated with this is the boom in mortgage financing and insurance industries.

Indications from the literature essentially concludes that the first half of 2016 has shown disappointing Canadian economic performance. The second half of 2016 should be better.

Reasons Why the Canadian Economy May Do Better In the Second Half of 2016

1. Alberta’s oil production will resume;
2. business investment is expected to be better;
3. continued consumer spending;
4. more export is expected;
5. positive impact from the Federal government child benefit program;
6. Federal government new infrastructure program;
7. low interest rates.

Threats to Better Canadian Economic Performance in the Second Half of 2016

1. Uncontrollable international factors such as Brexit;
2. possible negative fallout of US election of Donald Trump;
3. plausible decrease in consumer spending;
4. weakened demand from emerging countries, especially China.

Current Economic Trends in Canada

RBC Economics Research report for August 19, 2016, says that the Canadian economy lost 31,200 jobs in July and 12,800 persons left the labour force. The unemployment rate increased to 6.9%. Retail sales in June decreased by 0.3% following a drop of 0.2% in May. The trade deficit widened to a record $3.6 Billion shortfall in June. Canadian housing starts fell to 198,000 units in July, better than the expected 190,000 units.

General Economic Situation in the Province of Québec

Recent concerns for Québec have been low exports and low business investment, nonetheless, RBC’s Provincial Outlook report states that Québec is on-the-road to modest growth levels because it is one of the Provinces that is expected to benefit from the lower Canadian dollar and strengthening American market conditions. The report also says that Québec essentially had a decent start to 2016 and that notable gains in manufacturing occurred in the foods sector, fabricated metal products, paper, and furniture. RBC expects real GDP growth to increase from 1.1% in 2015 to 1.5% in 2016 and 1.7% in 2017. CBRE’s Marketview Montreal Industrial report concurs and headlines that “manufacturing is alive and well in Montréal". Page 2 of the said report concludes that the Conference Board of Canada’s manufacturing outlook for the GMA is positive in terms of GDP growth in manufacturing for upcoming years, highlighting a 2.6% growth in manufacturing GDP for the GMA over the next 18-month period. This, connected to lower oil prices in 2015 and lower Canadian dollar. By extension, both these factors allow for better performance for industry located in Eastern Canada and correlated improvement in export. Worthy of mention is that as of July of the present year, the Province has a budgetary surplus. Chances are that half the surplus will be used to lower taxes and the other half to lower public debt (Jasmin Guénette, July 19, 2016).

West Island Industrial Real Estate

Despite a weaker general Canadian economy and rather lacklustre overall Québec economy, the Greater Montréal area performed well in terms of industrial leasing activity during the second Quarter of 2016. According to Jones-Lang-LaSalle’s Industrial Insight report (Q2, 2016, Pg. 7), excluding Lachine and Ville St-Laurent, the West Island had the highest net absorption in the Greater Montréal area and was the only market on the Island of Montreal with positive net absorption of 560,000 square feet since the first Quarter of 2016. In fact, in their Industrial Market report for Q2, 2016, Colliers International statistics show that the overall vacancy rate (excluding Lachine and Ville St-Laurent) in the West Island fell to 5.5% from 6.4% in Q1, 2016.

Conclusion

I was amid the first, if not the first to have declared the big 10-year recession of the 1990’s as over because I was close to the economy and felt the Recession lift. Simply because the West Island had a great second Quarter this year provides insufficient reason for me to declare that Canada and Québec are “out of the woods" economically. We still have a lot of road to travel. I need to see more such Quarters, consistently. It’s been so long that we’ve witnessed peaks and drops in economic vibrancy. To declare we are doing better, we need to see higher levels of growth and of a consistent kind.

I feel there are still too many “and’s", “if’s, or “but’s" associated with the economy to safely say our recessionary-like economy has lifted. I do have to admit, however, that the West Island of Montréal is very fortunate to have recorded a strong second Quarter of 2016 in industrial real estate leasing in these, still harsh and uncertain, economic times.

Bibliography

Argitis, Theophilos : “Canada’s economy is growing at the slowest pace in 60 years and the only thing holding up is housing" National Post, August 2, 2016 (retrieved online August 9, 2016).

CBRE : “Manufacturing is alive and well in Montreal" Marketview-Montreal Industrial. By CBRE. Q2, 2016.

Colliers International : Industrial Market Report. By Colliers International, Q2, 2016.

Guénette, Jasmin : “Québec Budget Surplus: Time to Lower Taxes, Not Spend More" Huffpost Business. July 19, 2016 (retrieved online August 30, 2016).

Jones-Lang LaSalle : Industrial Insight Report—Greater Montreal Area. By Jones-Lang-LaSalle, Q2, 2016.

RBC Economics-Research : “Bringing it up a notch" Provincial Outlook report. By RBC Economic-Research, pg. 7, June, 2016.

RBC Economics-Research : Current Trends Update—Canada. By RBC Economics-Research. August 19, 2016.