Lethbridge investment market report

3 key trends

 

01 – Cap rate vs. psf value 

In response to higher interest rates and increasing cap rates, investor sentiment has begun to evaluate properties based on per-square-foot (psf) value compared to the cost of new builds. When evaluating an investment property, factors such as steady rent growth, inflation, and local economic growth will determine profitability over time. 
 

02 – New development

After a slowdown in new builds, we are anticipating demand to drive new development in 2024 despite inflated construction costs. With a lag in new builds coming to market in 2023 and continued low vacancy, we are expecting industrial space to fall short of demand in the next 18-24 months. There is also very little retail vacancy, which positions Lethbridge for a significant increase in new retail development in 2024. Multifamily  properties have also had sustained demand and Lethbridge is expecting a shortage of approximately 1,400 new multifamily units over the next three years. Demand for class A office space remains strong, while class B and class C office space is being absorbed by non-traditional tenants who can use the partial build-out to keep costs down.
 

03 – National headwinds

Economists are anticipating a challenging first half of 2024. Although CPI inflation continues to trend down, overall costs remain high and debt spending is down. Banks are also continuing to tighten lending parameters for investment sales. In its December 6th, 2023, announcement, the BoC opted to hold interest rates at 5.0% into the new year, likely due to the reported contraction of the Canadian GDP from Q3 2023. Some analysts are predicting that GDP growth will continue to cool in 2024, and we may see the BoC begin to lower interest rates in response as early as the Q3 2024.