"The end of the commodities super cycle, uneven employment growth, disruptive technologies, e-commerce and workplace strategies – to name a few – are testing Canada's otherwise stable commercial real estate sector," comments Bill Argeropoulos, a research executive, (Canada) for Avison Young. "After entering and exiting a technical recession in 2015, Canada's economy will endure another volatile year in 2016, leading to disparities in regional performance.

"On the industrial front, an established and expanding distribution and logistics-driven industry and a sustained US recovery will provide upside, and a low Canadian dollar will fuel exports and boost a smaller, but more productive manufacturing sector.

"Finally, on the investment front, Canada – in fact, the world – is awash in capital. Despite Canada's finite investable marketplace, it is very much on the investment radar screen, with domestic players increasingly facing off with foreign buyers who are raising their real estate investment allocations."

Notable Canadian report highlights include:

Office

• A burgeoning development pipeline, along with varying absorption levels, increased Canada's overall office vacancy rate 110 basis points (bps) from year-end 2014 to close 2015 at 10.6%. Vacancy rose in 12 of 13 markets surveyed, with six markets recording rates above the national average. Vacancy is forecast to rise to 12.2% by year-end 2016.

• Weighed down by the collapse in oil prices, the West-East divide has narrowed. Canada's Western markets collectively witnessed a 210-bps jump in office vacancy, averaging 10.7% by year-end 2015, compared with a 70-bps increase in Eastern markets, which finished 2015 at 10.6%. By year-end 2016, vacancy levels are expected to rise further, climbing to 12.9% and 11.8% for the West and East, respectively.

• Despite a modest decline from year-end 2014, almost 20 million square feet (msf) of office space (54% preleased and representing 3.6% of existing stock) was under construction across Canada at the close of 2015 – with 60% of the total in Toronto and Calgary. Calgary and Toronto are among the 10 most active office development markets in North America, ranked fifth and seventh, respectively.

• Scarcity of urban land will shift developers' focus from single-purpose towards mixed-use, transit-oriented projects, spurring joint-ventures, while LEED is joined by the WELL

Building Standard, and optimizing and future-proofing premises will remain paramount.

Retail

"The retail sector is something of a chameleon, constantly adapting and transforming as a result of market forces," Argeropoulos continues. "Omni-channel retail is growing exponentially, with retailers streamlining and providing better deals as pricing trumps brand loyalty and fickle customers comparison-shop instantly using apps. Meanwhile, brick-and-mortar stakeholders are leveraging their geographical reach to remain competitive."

The retail sector saw new entrants operating alongside closures and downsizings. Traditional high-street retailers are bringing luxury to Canada's regional malls: Nordstrom, Saks Fifth Avenue and Simons are all new anchors. On the other hand, Canadian Tire, Walmart and Lowe's acquired strategic locations following Target's retreat. According to the report:

• Positives in 2016 will include: A low dollar (which should discourage Canadian consumers from U.S. cross-border shopping, ultimately boosting domestic sales), relatively low vacancy, controlled new supply, solid population growth and strong mall performance.

• Negatives in 2016 will include: Uneven retail sales and GDP growth, record-high consumer debt and Canadian-U.S. exchange rates that could lead to higher wholesale costs and squeeze profits.

Industrial

• Canada's industrial vacancy rate remains tight. Despite a healthy supply-demand balance, vacancy will rise to 4.6% by year-end 2016 from 4.1% in late 2015, based on current trends. With the exception of Halifax, single-digit vacancy rates persist, with five of the 12 Canadian markets surveyed displaying rates below the national average.

• Canada's stable industrial markets claimed five of the 10 lowest vacancy rates in North American markets in 2015, with four of those markets expected to maintain their top-10 rankings by year-end 2016.

• Eastern markets saw a modest 10-bps year-over-year rise in vacancy, averaging 4.1% at the end of 2015. Coincidentally, the Western markets combined for 4.1% vacancy in 2015, having increased 70 bps from year-end 2014. As a result of new supply, the West-East spread will widen to 50 bps in 2016, as vacancy is forecast to rise to 5% and 4.5%, respectively.

• Construction is ongoing, with more than 19 msf (40% preleased) underway across the country at the close of 2015. This total is up from 16 msf at the end of 2014.

• Toronto, Canada's largest and North America's third-largest industrial market, remains the biggest Canadian development market with 6.6 msf (34% of the national total) underway, followed by Vancouver (5.6 msf, 29%).

Investment

According to the report, investment capital continues to flow – constrained mainly by a lack of available quality product. Approximately $24 billion worth of property was sold through mid-December 2015, down from the 2014 total of $26 billion.

In 2016, prime assets will be contested, with greater emphasis on urban land and development potential. More partial-interest sales are anticipated as owners reduce risk and take profits, attracting reluctant buyers back into the market. Competition may encourage more off-market activity while emerging CRE crowdfunding platforms are set to revolutionize online investment offerings.