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Research Brief

Canada Employment

April 2024


CRE Investment to Benefit as Drop in
Employment Sets Up Mid-Year Rate Cut

Labour market loosens further. Canada’s economy shed 2,200 jobs in March, the first drop in eight months. Combined with a large rise in the labour force, the unemployment rate jumped 30 basis points monthly and hit 6.1 per cent. Not only was this the largest increase since August 2022, but the jobless rate reached its highest level since late 2021 as elevated interest rates continued to be absorbed by the broader economy. The labour market has transitioned from a period of extreme tightness to a more balanced supply and demand dynamic. March’s jobs report was much weaker than the consensus estimate, which expected a 25,000 position gain and an unemployment rate of 5.9 per cent. With total hours worked also falling, this suggests that strong GDP growth to begin 2024 was not sustained in March, indicating economic growth could soften over the second quarter. While the Bank of Canada will take note of the acceleration in annual wage growth, March’s labour market trends support a mid-year interest rate cut.   

Money markets raise bets for June rate cut.
Immediately following March’s jobs report, bond yields fell, the Canadian dollar depreciated and money markets put further weight on a June interest rate cut, with the probability rising from roughly 60 per cent to 65 per cent. With job vacancies down nearly 30 per cent year-over-year as of January, coupled with Canada’s population growing by 3.2 per cent annually in 2023, more balance is returning to the labour market. This indicates that wage growth is likely to moderate over the coming months, putting further downward pressure on inflation. As a result, the stars are aligning for a June interest rate cut.

Commercial Real Estate Outlook

Labour force characteristics lend support to CRE demand. Annual wage growth sat at 5.1 per cent as of March, well above the long-term average of 3.1 per cent. Canada’s population also expanded by 3.2 per cent year-over-year. While income gains and record population growth have been widely cited by the BoC as main drivers of sticky inflation, they have fueled commercial real estate space demand. Inflation-adjusted retail sales rose 2.4 per cent annually in 2023, driving retail leasing activity. In addition, strong wage and population growth have also benefited the apartment rental sector as newcomers tend to rent. These strong demand drivers, along with limited supply across both asset types, caused retail and multifamily vacancy rates to fall to all-time lows in 2023. Retail, specifically grocery-anchored neighbourhood retail, and multifamily continue to hold as preferred options among CRE investors.

Investor confidence slowly builds.
With the labour market easing and inflation showing promising signs, bond yields have been trending down since October. CRE financing is becoming more attainable — especially for preferred assets like industrial, grocery-anchored retail and multifamily — causing price expectation gaps between many buyers and sellers to slowly mitigate. Some investors are even returning from the sidelines as optimism grows. Total dollar volume sold for major commercial property types rose 5.2 per cent quarterly in the final three months of 2023, translating into a 10 per cent year-over-year gain. With the BoC widely believed to begin cutting interest rates by mid-year, this trend is likely to gain further momentum over the coming quarters.          


* Through March
Sources: Marcus & Millichap Research Services; Altus Data Solutions; Bank of Canada;
Canada Mortgage and Housing Corporation; Capital Economics; CoStar Group, Inc.; Statistics Canada

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