High interest rates takes some steam out of Windsor commercial real estate market in first half of 2023

The volume of local commercial real estate deals and their value both declined in the first half of 2023 when compared to the first six months of 2022, but the Windsor area is still on track for its second-best year on record.

There were 33 deals of $2 million or more completed, down 46.8 per cent, with a total value of $247 million, a decline of 24.8 per cent.

“It’s obviously been a cautious first half of the year largely interest rate driven,” said CRBE Windsor associate president Brad Collins. “Not surprisingly we’re down from the highs of 2022.”

Collins said the market is splitting along the lines of higher and lower quality assets and classes. Higher quality assets are still performing relatively well. However, without the benefit of low interest rates, action involving lower quality assets has ‘become more difficult to transact.’

“The other division we see is between classes,” Collins said.

“Office space is not a large part of our market at the best of times, but those assets are facing challenges in terms of finding liquidity. You haven’t seen a pullback in industrial property.”

CRBE Windsor is forecasting year-end totals of 60 deals and $485 million, which would be second only to last year’s number of 112 deals and $727 million. That would represent an overall decline of 33 per cent.

The biggest deal of the first six months was the sale of LaSalle’s Town Centre Plaza, which is anchored by a FreshCo outlet, for $23.5 million.

The other two sales in excess of $20 million involved the former Lowe’s store turned RONA+ for $23 million and an apartment building at 8675 McHugh Street near the WFCU Centre for $21.4 million.

CRBE Windsor senior vice president Brook Handysides sees a continuation of caution in the market until there’s a clearer direction on the future of interest rate policy.

“The biggest factor driving the investment market is always interest rates,” Handysides said. “The rate of return is adjusted by the cost of financing.

“The impact on the volume of transactions is a pullback to 2021 levels.”

However, Handysides said he expects the Windsor commercial real estate market to ride out higher interest rates comfortably. Handysides pointed out London and the GTA are experiencing a much more noticeable slowdown currently and more volatility in land prices.

Handysides added local retail and land purchases for future residential and industrial development performed solidly in the first half of the year and accounted for 60 per cent of all transactions. Industrial properties accounted for just under 18 per cent of deals, but demand is outstripping supply and limiting the number of transactions.

“Regardless of the headwinds we’ve faced, there are such strong economic tailwinds for Windsor we see our region outperforming other markets across Canada,” Handysides said.

Collins said the portion of the market that is toughest to figure going forward is office space. Like other communities, the changing nature of work and whether it’s fully back to the office, hybrid or from home, is still not settled.

“The scary part of the market is office assets,” Collins said.

“There are few transactions downtown. The vacancy rate is 43.4 per cent of listed space, including sub-leased space active in the market.

“There’s action in the suburbs where it’s a little tighter.”

Collins said the downtown core is defined as the area north of Wyandotte and bounded by Dougall Avenue to the west and McDougall Avenue to the east.

Dwaddell@postmedia.com

Twitter.com/winstarwaddell