A Scarborough site that is home to low-rise commercial could see new life if a redevelopment proposal is approved by Toronto City Council.Ā In late 2020,Ā Wintrup DevelopmentsĀ submitted an application to amend the Zoning By-law to allow an 11-storey mixed-use building with retail atĀ 4415 Sheppard Avenue East, at the intersection with Brimley Road.
Rendering ā North West corner at Sheppard East and Brimley Road.
The L-shaped subject site, at the crossing of two major arterial streets, is comprised of two parcels municipally known as 4415-4419 and 4421 Sheppard Avenue East. The lot contains a single storey commercial building, a two-storey detached dwelling converted for commercial use, and associated surface parking.
Arial photo of the subject site: frontages of 60m along Sheppard Avenue East, 22m along Brimley Road, and 77m along Fulham Street.
The developer is seeking approval to redevelop the site with an 11-storey mid-rise building, 32.5 metres high, with street-related retail uses fronting Sheppard Avenue East and Brimley Road and townhouse units fronting on quieter Fulham Street on its west side, with additional dwellings above.
Photo of the existing site. Image by GoogleMaps.
The proposal, designed byĀ IBI Group, calls for a total gross floor area of 19,642 mĀ², including 18,932Ā mĀ²Ā of residential and 710Ā mĀ² of retail, resulting in an overall density (FSI) of 5.7. A total of 243 residential units are proposed.
According to the PlanningĀ Rationale report submitted to the City for review, theĀ new building responds to the current and evolving built form context of Sheppardāa commercial corridor characterized by low-rise commercial, industrial and retail usesāas anĀ AvenueĀ in Toronto planning parlance, and seeks to create an appropriate pedestrian realm. It also transitions down to the neighbourhoods to the southācomposed of single-detached dwellingsāand its design comprises numerous step backs to achieve this.
Site Plan. Various step backs ābuilding terracingā are illustrated on the south. Image by Strybos Barron King Landscape Architecture
At the northeast corner is a retail unit and, and, at the northwest corner, the indoor amenity space and the residential lobby and lounge. The balance of the ground floor is comprised of enclosed service areas, an internalized loading area, at-grade parking areas, bicycle storage, and waste collection areas.
The design of the north elevation attempts to mitigate potential visual impacts on the public realm along Sheppard Avenue East. At Level 7 the building steps back 1.5 metres from the building face, and another 2.3 metres at Level 10.
East Elevation. Image by IBI Group.
The south faƧade has been designed to provide a transition to the low-rise neighbourhoods to the south through incremental stepping of the buildingās profile. At Level 3, the building begins to terrace upwards and away from the neighbourhood.
Of the 243 units proposed, the breakdown includes 156 one-bedroom and one bedroom plus den units (64%), 85 two-bedroom and two-bedroom plus den units (35%), and 2 three-bedroom units (1%). Included within the mix are six 2-storey grade-related townhouse units fronting Fulham Street.
Indoor amenity areas located throughout the building include a gym at grade, meeting rooms and work-from-home spaces on Levels 2, 4, 5 and 6, and additional amenity space at Level 10, connecting to an outdoor amenity terrace. The mechanical penthouse level will also provide additional outdoor amenity space.
South Elevation. Image by IBI Group.
Parking needs will be served by two levels of underground and two levels of above-grade parking located internal to the building. The above-grade parking levels will be treated with a creative and sculptural approach that will complement the architectural expression of the base building. The development will provide a total of 183 bicycle parking spaces.
Plaza PartnersĀ have submitted a building proposal to the City of Toronto for a site atĀ 6035 Bathurst StreetĀ south of Steeles Avenue. The neighbourhood could see a new 14-storey infill apartment building bringing 220 residential units, if the Zoning By-law Amendment (ZBA) is approved.
Looking east across the street to 6035 Bathurst, residential entrance, designed by BDP Quadrangle Limited for Plaza
The site is located on the east side of Bathurst Street, approximately two blocks south of the intersection with Steeles. It is currently occupied by a single-storey Canada Post distribution centre that is being decommissioned. The greater context is the Westminster-Branson neighbourhood, which is predominantly residential and is comprised of low-, mid- and high-rise apartment towers, many of the 1960s and 1970s ‘Tower-in-the-Park’ typology along the arterial corridors, with low-rise dwellings within the interior of the neighbourhood. To the south and west is the western branch of the Don Valley River and its associated ravine parks.
Site of proposed building in its immediate context, image by Goldberg Group
The proposed redevelopment consists of a 14-storey residential building, designed byĀ BDP Quadrangle. The proposed buildingās height is 45.05m, excluding the mechanical penthouse.
The proposal contains a total of 220 dwelling units and 15,269 mĀ² of residential gross floor area at a Floor Space Index (FSI) of 7.04.
Typical floor 3-9 plan, designed by BDP Quadrangle for Plaza Partners
The residential lobby entrance is oriented to Bathurst Street. Adjacent to it are the indoor amenity rooms, mail room and elevators.
The building is setback 3.0 metres from the front property line along Bathurst. It has a 9-storey podium, the upper residential levels at floors 10-14 set back 5.5 metres from the north and south side lot lines. The front streetwall is stepped back 6.3 metres above the 9th level and a further 6.0 metres above the 12th level. This enables a 45-degree angular plane above the height of 80% of the width of the right-of-way (29.2 metres), as informed by Toronto’s mid-rise angular plane standards. The mechanical penthouse is centrally located on the roof.
Building longitudinal section, designed by BDP Quadrangle for Plaza Partners
A total of 300 mĀ² of residential indoor amenity space is proposed on the ground floor, contiguous to outdoor amenity, and another 181 mĀ² is provided on the 2nd level (with 85 mĀ² of outdoor amenity). Four levels of underground parking are proposed with spaces for 150 vehicles, and 160 bicycles.
Looking west to the building from Bathurst Lawn Memorial Park, designed by BDP Quadrangle for Plaza Partners
Nexus REITĀ (NXR.UN-X) says it has either acquired or has agreements to acquire, a total of nine industrial assets in Ontario and Alberta for a total purchase price of $146 million.
Together, the acquisitions will add about 1.8 million square feet to the Nexus portfolio, including a new building to be constructed at a site in Ajax in the Greater Toronto Area.
The properties are:
ā a portfolio of six properties in London, Ont., which total almost 1.2 million square feet, for $103.5 million;
ā two industrial buildings in Edmonton with 108,156 square feet of GLA for $14 million; and
ā a previously announced sale which closed on Dec. 31 for a 50 per cent interest in a 500,000 square foot industrial property in Ajax for $28.5 million.
The two portfolio sales remain conditional, but are expected to close in March and April.
ā2021 is looking to be a breakout year for the REIT. Weāre very excited about announcing these acquisitions and the prospects for the REITās near-term growth,ā said Nexus CEO Kelly Hanczyk in the announcement. āWe continue to have a strong pipeline of potential acquisitions and expect 2021 will be a solid year of growth for the REIT.
āWe are also still very much committed to graduating to the TSX, combined with a 4-to-1-unit consolidation, and hope to provide an update on that front very shortly.ā
The London portfolio
Nexus says in its announcement the six London properties are āwell-tenanted and well-maintainedā.
The price represents a going-in six per cent capitalization rate, with $65,600,150 to be satisfied by issuing Class B limited partnership units at $1.91 per unit. The REIT anticipates assuming existing debt and placing new financing on some of the properties to fund the remainder of the purchase price.
āWeāve been in discussions with the vendors of the London portfolio and building a relationship with them for several years now, culminating in this sizeable off-market deal,ā Hanczyk said in the release. āThe vendors have demonstrated their faith in the REIT, contracting to take back a significant portion of the purchase price in units. We look forward to a continued strong relationship with this vendor which will hopefully lead to additional acquisition opportunities in the future.ā
The vendor, which Nexus says has long-standing relationships with many of the tenants of the properties and excellent knowledge of the London market, will continue to manage the properties. Nexus expects leasing income to increase as current leases expire and are renewed at market rates.
The Edmonton and Ajax properties
One of the two buildings under contract in Edmonton is single-tenanted, while the other is multi-tenanted. The buildings are fully leased to tenants not engaged in the oil and gas industry.
Nexus plans to satisfy $7 million of the purchase price by issuing Class B limited partnership units at $2.05 per unit.
At the Ajax property, which is located just east of Toronto, a new 95,000 square foot building is planned to bring the site up to the 500,000 square feet of leasable space. It will accommodate expansion for the propertyās major tenant, with that firm taking responsibility for costs and construction management. The REIT will receive a share of income from the closing date.
āWe are also quite pleased to have completed the acquisition of our 50 per cent interest in a well-tenanted Ajax, Ontario industrial property, which we now co-own with the vendor, who weāve also developed an excellent relationship with over the years,ā Hanczyk said in the release.
About Nexus REIT
Nexus is a growth-oriented real estate investment trust involved in the acquisition, ownership and management of industrial, office and retail properties in primary and secondary markets in North America.
It owns a portfolio of 75 properties comprising approximately 4.4 million square feet of rentable area.
Extension of the moratorium on commercial tenancy evictions: Ontario. Reg. 763/20
In December,Ā we wrote aboutĀ Bill 229, Protect, Support and Recover from COVID-19 Act (Budget Measures), 2020Ā (āBill 229ā) which replaced theĀ Canada Emergency Commercial Rent AssistanceĀ program (CECRA) with theĀ Canada Emergency Rent SubsidyĀ program (CERS) program.
Coupled with the rent assistance under the CECRA program, the Government saw a need for a moratorium on landlords obtaining an order for possession or exercising the right of re-entry or distraint for rent arrears (the Moratorium).
The Moratorium was first enacted under the Protected Small Business Act, 2020 and subsequently extended under the Helping Tenants and Small Businesses Act, 2020 but there was no fixed expiry date set for the Moratorium (seeĀ https://www.ontario.ca/page/renting-commercial-property-ontarioĀ for details on the Moratorium).
Regulation extending the Moratorium
On December 17, 2020, the Ontario government enacted Ontario Reg. 763/20 to Bill 229, (the āRegulationā) providing as follows:
1. With respect to the CECRA program, the Regulation extended the Moratorium to January 31, 2021 provided that the tenant:
a. was eligible (or would be eligible) to receive assistance under CECRA;
b. is receiving or has received assistance under CECRA;
c. would be eligible to receive assistance under CECRA if the landlord entered into a rent reduction agreement with its tenant containing an eviction moratorium; or
d. would have been eligible to receive assistance under CECRA if applications under the program were still being accepted. Bill 229 also extended protections to āprescribed tenanciesā (though prescribed tenancies were not defined in the legislation).
(referred to in this article as a āCECRA Tenantā)
2. With respect to the CERS program, the Regulation establishes a Moratorium from December 17, 2020 to April 22, 2022 for commercial tenancies provided that:
ā the tenant has been approved to receive CERS (see article link above);
ā the tenant has provided proof of its CERS approval to its landlord; and
ā not more than 12 weeks have passed since the day the tenant was approved for CERS;
(referred to in this article as a āCERS Tenantā)
What does this mean for commercial landlords and tenants?
ā CECRA Tenants ā the Moratorium applies to and including January 31, 2021. Afterwards, such a tenant will not be protected (subject to any further governmental extension(s) for CECRA Tenants) unless it also qualifies as a CERS Tenant.
ā CERS Tenants
* have the benefit of the Moratorium until April 30, 2022 (subject to any further governmental extension(s)).
* must meet the eligibility requirements for a CERS Tenant for each specific claim periodĀ (currently, 27-day periods) and the Moratorium runs for up to 12 weeks following approval, That means there than can be gaps in the Moratorium depending on whetherĀ a tenant is a CERS Tenant in a qualifying period.
ā The Moratorium only apples to rent arrears and not other lease defaults (e.g. failure to repair or insure). For non-rent defaults, landlords can exercise remedies in accordance with the applicable lease and the law.
ā If a tenant fails to provide proof of its CERS approval to its landlord, the Moratorium does not apply.
ā Although the Moratorium for CERS Tenants began December 17, 2020, the first qualifying period for CERS began September 27, 2020 and a tenant has 180 days to apply for CERS for such period. Currently, the last qualifying period for CERS ended December 19, 2020 which means a tenant can apply for CERS for 180 days thereafter and if the tenant is a CERS Tenant then the Moratorium applies.
ā While not law as at the date of this article, the Federal government has indicated there may be more qualifying periods to and including March 13, 2021 (with the corresponding 180 period following the end of that last period).
Disclaimer: This article is for general information purposes only and not intended as or to be relied upon for legal advice. Consult with a lawyer for your unique situation.
If there is a general real estate or leasing related question you would like to see addressed in a future article in āThe Legal Cornerā, please contact me directly by e-mail atĀ dgold@robapp.comĀ with your suggestion. Not all requests can be accommodated.
Owing to the economic lockdown to contain COVID-19 in the Greater Toronto Area (GTA) last spring, itās not surprising the regionās 10 largest commercial real estate transactions of 2020 occurred in the first two and final three months of the year.
Ray Wong, vice-president of data operations forĀ Altus Groupās Data Solutions division, spoke with RENX about last yearās GTA market and its prospects for 2021. Altus also compiled a list of the Top-10 transactions of 2020.
āThereās an appetite in the marketplace, but investors are looking at properties that they can reposition or expand, especially if thereās excess land on it for higher returns,ā said Wong. āThe challenge in the market was the availability of the product and how it fits into overall portfolios.ā
While year-end numbers arenāt yet available for 2020, there were 1,432 commercial real estate transactions valued at $11.31 billion in the GTA through the first three quarters of the year. That compares to 1,647 deals valued at $14.81 billion through the same period a year earlier.
2020 transactions through three quarters
The 2020 numbers through three quarters looked like this:
ā 323 industrial transactions valued at $3.14 billion;
ā 278 residential land transactions valued at $2.86 billion;
ā 134 apartment transactions valued at $1.48 billion;
ā 213 industrial, commercial and investment (ICI) land transactions valued at $1.43 billion;
ā 368 retail transactions valued at $1.31 billion;
ā 114 office transactions valued at $1.07 billion;
ā and two hotel transactions valued at $27.46 million.
Industrial volume was up 5.5 per cent through three quarters compared to 2019, though the number of transactions was down by 15.4 per cent. There has been increased demand for warehouse and logistics space due to more e-commerce activity and industrial rental rates have continued to rise.
āIndustrial interest is from a combination of investors and occupiers,ā said Wong, who noted data centres and cold-storage facilities are also attracting more attention.
Residential land transaction activity has traditionally placed among the top three asset classes and that was no different through three quarters of 2020.
āThat bodes well for the GTA because it shows confidence in the future with respect to development and future growth,ā said Wong.
Wong said there was increased activity in October and November compared to the second and third quarters, and he expects Q4 totals to be strong, though falling short of those from 2019.
Forecast for 2021
Looking forward to the rest of this year, Wong said thereās āa lot of capital available for acquisitions in the marketplace,ā but the gap between what sellers are looking for and what buyers are willing to pay may delay some transactions.
He expects increased activity as investors see markets stabilizing and returning to a ānew normalā as pandemic concerns ease with the increasing availability of COVID-19 vaccines.
āAny type of certainty in the marketplace will create increased activity on the investment side. We saw that last year, when you compare March to June to November.ā
Top-10 transactions for 2020
Wong said the Top-10 commercial real estate transactions in the GTA last year were āpretty indicativeā of overall market demand. He provided the following overview.
1)Ā The highest price transaction was for $171.93 million and took place on Oct. 9. It involved a distress sale for a 0.453-acre parcel of residential land at 480 Yonge St. in Toronto.Ā QuadRealĀ acquired it from theĀ Ontario Superior Court of JusticeĀ afterĀ Cresford DevelopmentsĀ had purchased it in November 2016 for $67 million. Cresford had plans to develop the 39-storey, 425-unit Halo Residences condominium, but the project went into receivership while it was under construction. Work is continuing on the building.
2)Ā Parkview Apartments, at 500 Duplex Ave. in Toronto, was sold by Soudan Investments GP Inc. toĀ Q ResidentialĀ for $157.98 million on Dec. 17. The 2.5-acre property near Yonge Street and Eglinton Avenue is occupied by a 34-storey, 321-unit apartment building and nine townhomes, but it has intensification potential.
3)Ā A 400,000-square-foot data centre atĀ 1895 Williams ParkwayĀ in Brampton was sold byĀ Bell CanadaĀ toĀ EquinixĀ for $118.99 million on Oct. 1. It marked the largest of three data centres that sold last year and is the second acquired by Equinix (the first was atĀ 45 Parliament St., which sold for $223 million in December 2019).
4)Ā The Concorde Corporate Centre in North York was sold byĀ Artis REITĀ toĀ Fengate Asset ManagementĀ on behalf ofĀ LiUNA Pension Fund of Central and Eastern CanadaĀ for $114 million on Nov. 17. The 7.7-acre site is home to three office towers comprising 567,619 square feet.
5)Ā A 5.42-acre site at 175 Wynford Dr., just south of Concorde Corporate Centre, currently occupied byĀ Toronto Don Valley Hotel.Ā It was sold byĀ Allied Hotel Properties Inc.Ā to Fengate, in a joint venture withĀ Freed Developments, for $102 million on Jan. 6.
6)Ā 1.248 acres of residential land at 200 Queens Quay W. in Toronto, currently occupied by an eight-storey parkade, was sold byĀ Canada Lands CompanyĀ toĀ Lifetime DevelopmentsĀ andĀ DiamondCorpĀ for $100 million on Feb. 27. A rezoning application was submitted in June proposing 41- and 71-storey towers atop a 12-storey podium that would include 1,372 condo units and 110 affordable rental units.
7)Ā 0.651 acres of ICI land at 229 Richmond St. W. in Toronto was sold by Pamlimar Investments & Enterprises Limited to theĀ City of TorontoĀ for $100 million on Jan. 15. Itās currently occupied by a parking lot, but is zoned for mixed-use and was acquired for market value. While there could be a development play down the road, current plans designate the property for a park.
8)Ā The 688,904-square-footĀ One SteelcaseĀ industrial property at 1 Steelcase Rd. W. in Markham was sold byĀ Liberty Development CorporationĀ to QuadReal for $93 million on Nov. 16. The site, nearly 30 acres located near Steeles Avenue East and Highway 404, is a potential long-term redevelopment play.
9)Ā The 18-storey, 325-unitĀ Kipling HeightsĀ apartment building at 2777 Kipling Ave. in north Etobicoke was sold byĀ MintoĀ to Q Residential for $93 million on Jan. 27. The site had been acquired by Minto in June 2017 for $55 million.
10)Ā The 342,606-square-foot Erindale Corporate Centre in Mississauga was sold by The Redbourne Group toĀ Montez CorporationĀ andĀ Adgar Investments & Development Ltd.Ā for $90.6 million on Feb. 28. It was originally acquired by Redbourne in March 2013 for $71.1 million. The complex consists of three office buildings from four to 11 storeys and was approximately 93 per cent occupied at the time of the sale.
A newĀ Thorold Multimodal HubĀ in Southern Ontario offers more than 500,000 square feet of indoor warehouse and 200 acres of outdoor storage and material handling space that can be configured to suit diverse industrial operations.
The hub, located on the Welland Canal in Ontarioās Niagara Region just 30 minutes from the American border, is comprised of space owned byĀ HOPA PortsĀ and a 155-acre former paper mill owned by Bioveld Canada Inc. The facility will be managed by HOPA Ports, through its Great Lakes Port Management subsidiary, which also offers development services.
āOur goals are to increase cargo volumes and attract more investment into Niagara,ā HOPA Ports commercial vice-president Jeremy Dunn told RENX. āWeāve had a ton of support from the economic development people and local businesses and local governments.ā
Creation of the hub is the first concrete step in the āNiagara Portsā plan to create a corridor of multimodal industrial hubs along the Welland Canal. The plan was launched by HOPA Ports and Niagara civic stakeholders in September.
Other hubs, in nearby Port Colborne and Welland, are also attracting interest while still only in the conceptual stages.
HOPA Ports and Niagara Trade Corridor
āWeāre trying to develop the Niagara Trade Corridor, which is something that various levels of government have gotten behind and are working on,ā said Dunn. āThese are major investments, so itās important to get them right and make sure we understand them and are designing them for the right user groups.ā
HOPA Ports already operates integrated port facilities in Hamilton and Oshawa.
Dunn said the company has invested more than $350 million in the Hamilton site over the past 10 years and is willing to use its experience and knowledge from that undertaking to work with tenants that commit to Thorold.
That includes building-out space and investing along with them to better their businesses.
āWhen weāre building grain terminals in Hamilton, customers arenāt comfortable making those investments on land thatās not theirs,ā said Dunn. āSo we can offer leases of up to 60 years in duration and we can put skin into the game, which often helps assuage their concerns.ā
Some parts of the hub are already operating, while more leases are being finalized and HOPA Ports is making its way through a number of letters of intent from interested businesses.
āWhat weāre trying to do is offer marine and transportation-served assets in Hamilton, Niagara and Oshawa,ā said Dunn. āWhat weāre doing is creating multimodal spaces across these areas to facilitate trade and to help support Ontario industries.ā
What Thorold Multimodal Hub offers
Available spaces at the Thorold hub range from 2,000 square feet to 50 acres and include a central warehouse, several other warehousing sites, a truck dock and bays, a train shed, manufacturing shops, a wood shop, an auto shop and offices. Leases will include indoor, outdoor, turnkey and develop-to-suit options.
āOne space has eight truck-loading docks and a couple of overhead doors adjacent with direct access to indoor trans-loading,ā said Dunn, āand there are quite a number of dividing walls in there with other spaces.
āWe have another section with 50-foot ceilings that would allow for high racking and warehousing. We have some other spaces with rail and truck lines coming in adjacent to open spaces.ā
Dunn thinks the hub is appropriate for any company that ships or receives goods. He said itās garnering much attention from companies that ship to the Northeastern United States and Canada.
Canadian National Railway’Ā has a rail yard just south of the hub and its lines serve the site, which allows for marine loading and unloading. Thereās significant outdoor storage space for rail cars and one line goes directly into a heated warehouse with capacity to hold eight rail cars.
āThat really lends itself to the trans-loading of paper or steel or any other type of product or consumer good that would need to be kept dry for direct rail to warehousing purposes,ā said Dunn.
The hub also features easy truck access via Hwy. 58, and itās one traffic light away from Ontarioās 400 series of highways.
Different parties working together
In addition to HOPA Ports and Bioveld, which specializes in the productive repurposing of brownfield and industrial sites,Ā Transport CanadaĀ also owns land along the canal.
āAll of these parties are working together to develop this terminal,ā said Dunn. āOur strategy is to align different partners along common objectives to grow industry.ā
Due to this alignment of goals and the scarcity of marine-served industrial properties, Dunn said HOPA Ports has a ābuy, hold and developā strategy and no intention of selling any of the hubās land or assets.
Despite the recent arrival of the vaccine for the COVID-19 pandemic,Ā HRC Retail AdvisoryĀ in a report expects the first half of 2021 to be a continuation of 2020ās acceleration toward digital and omni-channel, as most shoppers remain at home.
āDespite that, we anticipate pent-up demand to be unleashed in late 2021, bringing relief to some of the retail sectors that have struggled since the industry was thrown into turmoil last spring,ā saidĀ Antony KarabusĀ andĀ Farla Efros, CEO and President respectively of Toronto and Chicago-based strategic advisory firm HRC Retail Advisory.
Karabus said, ā2020 was a year of mass chaos, which descended upon retailers with virtually zero warning. This brought significant opportunity for those in all facetsĀ of home, home improvement, backyard, pet, food, exercise, and other sectors that previously had only experienced modest growth rates. Retailers in these sectors that invested in robust store fulfillment of digital orders and digital capabilities ended 2020 with decent results, despite the pandemic.ā
Farla Efros & Anthony Karabus
ā2021 is likely to be a good year for retail, with increased consumer spending in the back half of the year due to pent-up demand in categories that suffered the biggest declines in 2020. Spending will also likely see an increase as many consumers will have additional savings, due to a lack of spending on discretionary items in 2020.ā
Here are the top five predictions for retail in 2021 from the team at HRC Retail Advisory:
Retail Will Experience Two Different Calendar Halves
While the first half of 2021 will see a continuation of 2020ās spending patterns on home and backyard categories, exercise equipment, food, and comfort and active apparel, we expect that the second half of 2021 will see the unleashing of pent-up demand for entertainment, eating out, travel, work and dressy apparel for special occasions, and other discretionary categories that have been hardest hit by the pandemic in 2020.
āBecause the lockdowns are being driven to a large extent by the hospitals being overwhelmed across the country ā as the higher risk populations get vaccinated, that slowly but surely will reduce pressure on the hospitals and their ICUās,ā said Karabus and Efros. āAt some point theyāre going to loosen the reins on lockdowns and an increasing percent of the population is going to be vaccinated.
āWeāre assuming that gradually, starting in the second quarter, weāll have less restrictions on society which means people will be able to shop in retail again the way they did in late 2020 with some restrictions. By the third quarter and the fourth quarter, especially by the fourth quarter, we believe that it will be a lot closer to business as usual and normal life.ā
Karabus and Efros say that many sectors of retail have really suffered through the pandemic such as apparel, department stores, and luxury. Those will see the benefit of pent-up demand in the second half of 2021.
Digital Will Continue to Dominate as Consumersā New Shopping Habits Are Reinforced
The shift from stores to e-commerce will continue to accelerate in 2021. The decline in store traffic will also continue, but begin to reverse by Q3 of 2021. Over the past year, digital and omni-channel grew to become 50 percent or more of some retailersā sales, and the need to create and enhance these capabilities ā whether it means investing in processes, tools, or talent ā will remain a critical priority in 2021.
āEven though we see a slow and gradual return back to normal life, we believe that habits have been developed and people are now accustomed to shopping online,ā said the HRC Advisoryās leaders. āOver the last 10 years, online has been incrementally growing year over year as a percentage of total retail sales. And it has had a massive acceleration because of the pandemic. We do not see the same upward acceleration but rather a continuation of the shift from physical stores to online but not at the accelerated pace we saw last year.ā
Karabus and Efros added that omnichannel is going to be a more critical part as well of that online experience.
āA lot of people are down on retail. Weāre not down on retail. Weāre down on retail done poorly,ā they said.
Retailers Will Need to Strategically Build on Their Category Strengths
By expanding into relevant, adjacent categories, retailers can increase share of consumersā wallets. The success of pharmacy and dollar sectorsā expansion into food and consumables is a great example of capitalizing on traffic and consumer brand trust. Other potential opportunities for success include categories such as household cleaners and other replenishable categories that are considered āessentialā.
āThe epitome of who has done it really well is Walmart, Costco, Indigo and Canadian Tire. They sell a lot of adjacent categories and succeed at it based on the trust of the consumer in their brands,ā said Karabus.
Additional Bankruptcies Are Likely in Discretionary Sectors That Have Suffered in 2020
Retailers with weak balance sheets and declining sales will remain at risk. As such, HRC expects that landlords may make additional acquisitions of troubled retailers to avoid loss of tenant income, as evidenced with their purchases of JCPenney, Forever 21, and Aeropostale.
āI donāt think it will accelerate but we think tons of small mom and pop retailers will go away because they donāt have the access to financing that the bigger, more sophisticated retailers have. But if you consider the bigger retailers that have filed for bankruptcy in the last 12 months ā Aldo, Reitmanās, Laura, Le Chateau, Henryās, MEC and a few others, at the end of the day, few of the CCAA filings were really surprising,ā said Karabus and Efros.
āMany of the retailers that filed had not invested most effectively to transform their business to the right place given the new world. They used bankruptcy as an opportunity to close hundreds of stores that should have been closed earlier.ā
The Store Role, Processes, and Customer Experience Must Be Redefined
Given the continued reduction in store traffic and growing customer expectations for more seamless in-store experiences, retailers must focus on improving the shopping experience. Doing so will help increase conversion rates and transaction value, and enable them to capitalize on their foot traffic. To effectively compete, retailers must find the right balance in their stores of serving walk-in traffic and fulfilling digital orders in stores.
āRetailers need to think about their business over the next five years and not over the next month and they need to say where is the consumer going and if the consumer is going to continue buying online at a greater rate year after year they need to ask themselves how they are going to service their consumer in the best possible way,ā said the HRC leaders.
āYouāve got to find the right combination of closing stores where the mall doesnāt have a future, where the market doesnāt have a future, and keeping stores open while repurposing them as dual purposes where they serve the customer coming in the door and they also serve as micro fulfillment centres.ā
When Naz Ali was sitting at home in March, under lockdown along with the rest of Vancouver, she had the idea of using her specialized skills to track data on peopleās movements owing to the COVID-19 pandemic.
Ms. Ali is a geographic information systems (GIS) manager, location intelligence, for commercial real estate services company CBRE Canada. Her work tracking traffic ā as well as other data such as demographics ā helps developers, retailers and other clients determine the best locations for their investments.
She created a heat map comparing foot traffic in the downtowns of three of Canadaās largest cities before and after the lockdown. A stark picture emerged from her analysis of the data, using third-party mobile-device tracking data from Yonge-Dundas Square in Toronto, Robson Street in Vancouver and Sainte-Catherine Street in Montreal between January 1 and May 31, 2020.
Compared with 2019 patterns, the red in the heat maps rapidly cooled to blue. Foot traffic in Vancouver decreased by 74 per cent, by 84 per cent in Toronto and by 88 per cent in Montreal.
Toronto’s Yonge-Dundas Square in early 2019, above, and the first months of the lockdown in 2020.
Vancouver’s Robson Stree in early 2019, above, and the first months of the lockdown in 2020.
Areas outside downtown cores have also been affected by lockdowns, and building owners and managers, business and retail tenants and investors and developers are not only looking to respond in the short term but are looking at what trends may continue long term.
āEverything right now is shaped by COVID,ā says Carl Gomez, chief economist and head of market analytics Canada for commercial real-estate data provider CoStar Group Inc.
āChanges in the way we are doing things ā whether itās online shopping or working from home ā have had a material impact on a number of industries.ā
As a result, the hardest-hit segments in the industry have been office and retail.
āWe will likely see a snapback in growth in 2021 into 2022, but even at that point ā¦ behaviours have changed, scarring has occurred and the new normal ā¦ is going to be different,ā Mr. Gomez says.
REITS AND HEADWINDS
As people look for signs of what will happen in the commercial real estate industry, one indicator is the performance of real estate investment trusts (REITs).
āThere has been a recovery in the public equity markets ā¦ but one sector that has lagged is the REIT sector,ā Mr. Gomez says.
āRetail REITs have really taken it on the chin, and the office REITs as well. ā¦ I think what is happening is that investors are looking at future earnings in that space and discounting it heavily because of the perceived changes that theyāre seeing.ā
Another indicator is sublease vacancies.
āI think the only reason we havenāt seen vacancy rates rise higher ā¦ is the long lease rates companies have,ā says John Andrew, a professor, and director of Queenās Universityās Executive Seminars on Corporate and Investment Real Estate.
But as businesses see their office space sitting empty, some are starting to put up space for sublease, which is a leading indicator for demand, Mr. Gomez says.
On the other hand, many of the institutional investors, such as pension funds, have a much longer-term outlook.
āThese longer horizons from pension funds ā theyāve got a lot of capital behind them, they can ride out short-term storms,ā Mr. Gomez says.
EMPTY OFFICES
A lot of office space is owned by institutional investors, Prof. Andrew says. Especially the highest-quality Class A buildings, which are typically occupied by blue-chip companies.
āThere always will still be some tenants who will value having office space, but they are going to value the newest, the best, type of office space out there with great HVACs, great flexibility in terms of amenities,ā he says. The real estate arms of pension funds have the capital to develop the most desirable properties as the number of potential tenants interested in large chunks of office space in downtown locations may shrink, he adds.
āSome of the smaller office owners are probably going to be in trouble,ā Prof. Andrew says. āFalling prices ā¦ asset values could decline significantly ā¦ rent levels could fall.ā Class B and C buildings may be hit harder, he says.
In the meantime, building owners and managers have had to keep near-empty buildings running, says Benjamin Shinewald, president and chief executive officer of the Building Owners and Managers Association (BOMA) Canada.
āThe big question is the whole return to work ā¦ what is that going to look like?ā Prof. Andrew says.
āI think the future [of office space] is hybrid,ā Mr. Shinewald says. Health considerations will likely mean businesses will need more space per employee, but fewer employees will likely be in offices on a daily basis, he adds.
REGIONAL DIFFERENCES
Experts note a few regional differences.
Toronto and Vancouver had the tightest vacancy rates, Mr. Gomez says, and are most likely to have the room to adjust to a post-COVID situation. āI donāt think they will see a significant rent [reduction].ā
āCalgary is an extreme example of what can go wrong,ā he adds. The pandemic exacerbated a city already hit by a drop in oil prices.
A sluggish Montreal market had taken off in the past couple of years, especially from a growth in the tech sector and financial fields. But, he adds, suburban office supply in the region may not bounce back.
One longer-term trend in higher-density cities globally is the high rents in downtown offices. Combined with the movement of millennials, especially, to living in the suburbs, this may boost suburban office markets, Mr. Gomez says.
RETAIL AND REPURPOSING
Because of the rise of e-commerce, āretail was in trouble before COVID,ā Prof. Andrew says.
This trend has affected not only malls but street-level retail because of empty office buildings, Mr. Shinewald says.
Some developers with long horizons are looking at redeveloping sites to multiuse spaces, including residential, retail and service, creating a live-work space. This is a trend predating COVID, especially where there is public transit to support it, Mr. Gomez says.
Some retail space may be repurposed to distribution centres, which are increasingly needed as more people buy online, Mr. Gomez says. This may especially be the fate of smaller businesses in small-bay industrial spaces, such as manufacturers or dance studios. These are often in prime locations near large populations and can work as locations for ālast mileā distribution needs.
Landlords in some street-level retail locations may look for short-term leases, such as pop-up stores, Mr. Gomez suggests.
As for Ms. Ali, she is hoping to do another study combining demographic data with the mobility data from devices to show trends related to continuing COVID effects on commercial real estate.
āThe pandemic gave me an opportunity to look at data in a different way.ā
Brookfield has valued the north tower of its Bay Adelaide Centre office complex at about $650 million.
Brookfield Asset Management Inc. is looking to sell a 50 per cent stake in an office tower itās developing in Torontoās financial district, according to people familiar with the matter.
Brookfield has valued the north tower of its Bay Adelaide Centre office complex at about $650 million (US$508 million) and has received a number of bids for a half ownership interest in it, one of the people said. The tower, which was announced in 2018, will have Bank of Nova Scotia as an anchor tenant.
The potential sale comes at a time when the adoption of work-from-home policies has many analysts questioning the future of office buildings. Tech companies including Facebook Inc. and Canadaās Shopify Inc. have said that at least some employees will be able to work from home indefinitely.
SMARTCENTRES HAS PROPOSED FOUR BUILDINGS RANGING IN HEIGHT FROM 25 TO 46 STOREYS NEAR THE WATERFRONT
A proposed development in the area of Barrieās waterfront featuring four highrises from 25 to 46 storeys took a giant step forward on Monday night when the cityās planning committee approved zoning bylaw and official plan amendments.
The SmartCentres project includes 1,700 residential units, a hotel and commercial space. Some councillors expressed disappointment a conference centre is not part of the package.
Residents opposed to the development have listed concerns such as building height, increased traffic and shadows created by the highrises.
The property is located near the waterfront, in the area of Bradford and Checkley Streets.
Councillor Keenan Aylwin, whose ward includes the downtown, said he recognizes not everyone is happy with this proposal.
āThe reality is that Barrie is changing and growing whether we like it or not,ā explained Aylwin. āThe province dictates that weāll be growing to a population of 210,000 by 2031 and up to more than 250,000 by 2041, and that a substantial amount of that growth will be taking place within our urban growth centre, our downtown and waterfront.ā
The city stands to collect more than $14 million in cash-in-lieu of parkland and in the building permit application.
Mayor Jeff Lehman did not shy away from the fact that councilās decision about the development might run opposite to what most residents want.
āThis may not be popular for us to approve it. That may not necessarily make it wrong, in the sense of our decisions around what is best for the city.ā
The decision made by committee must still be approved at council meeting.
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