Chartwell Retirement To Acquire Two Senior Housing Portfolios

Toronto-Area REIT To Spent $511 Million for Quebec Properties

Chartwell Retirement Real Estate Investment Trust has entered into agreements to increase its holdings by 3,233 senior housing suites as part of a major expansion of its Quebec portfolio.

The Toronto-area REIT said it has agreed to separate deals to purchase a 100% ownership interest in a portfolio of five retirement complexes with 1,428 suites in greater Montreal, Gatineau, and Sherbrooke for $297 million and a 50% ownership interest in a five-property portfolio with 1,805 suites in the Quebec City area and Shawinigan for $214 million.

The aggregate purchase price for the two portfolios is $511 million, Chartwell said.

Chartwell, with its head office in Mississauga, just outside Toronto, did not name the sellers on the deals, both of which are expected to close in the third quarter.

“The acquired properties are expected to enhance the quality of Chartwell’s portfolio and fit strategically with Chartwell’s growth objectives, increasing its presence in key cities in Quebec,” said the REIT.

The REIT also said it has closed on the purchase of an 85% ownership interest in residences with 685 suites from EMD-Batimo for $166 million. The units are in complexes known as Chartwell Le Prescott and Chartwell Trait-Carré.

On a combined basis, the deals for the two portfolios and the Batimo acquisition are expected to result in Chartwell acquiring 12 properties containing a total of 3,918 suites. The average age of the suites is five years, and their current occupancy level is 95%, excluding two assets in lease-up, Chartwell said.

Chartwell said the purchase price per suite for all properties to be acquired is approximately $230,000, 30% below current replacement costs.

The acquired properties will reduce Chartwell’s weighted average portfolio age by approximately three years on a pro forma basis, Chartwell said. Since they are relatively newer, the properties should have lower capital expenditure requirements than Chartwell’s existing portfolio, the REIT said

The acquisitions are being funded through proceeds from previously announced dispositions, the assumption of in-place debt and net proceeds from a $300 million offering.

Chartwell has agreed with a syndicate of underwriters led by TD Securities Inc., Scotiabank, and RBC Capital Markets to issue to the public, on a bought-deal basis, 24,600,000 trust units.

Source CoStar. Click here to read a full story.

First Capital REIT To Issue $300 Million in Debentures

Retail Landlord To Use Proceeds To Pay Down More Expensive Floating-Rate Debt

One of Canada’s largest retail real estate investment trusts is issuing $300 million in unsecured debentures and plans to use the proceeds to pay down costlier debt.

First Capital REIT said the debentures are being offered on an agency basis by a syndicate of agents co‐led by RBC Capital Markets, Desjardins Capital Markets and TD Securities. The debentures, which will be issued at par, are at a rate of 5.455% per year and will mature on June 12, 2032, the company said.

The debentures would be direct unsecured obligations of the REIT and will rank equally with all other present and future unsecured and unsubordinated indebtedness. The offering is set to close on June 12.

First Capital, based in Toronto, also issued debentures last quarter to pay down more of its expensive floating-rate debt.

As of March 31, the REIT owned retail property interests in 139 neighbourhoods with 22.2 million square feet of gross leasable area worth $9.2 billion.

Mark Rothschild, an analyst with Canaccord Genuity, said last month the REIT could incur greater interest expenses as it refinances mortgages.

“The rise in long-term interest rates will partially offset organic growth, and in 2024, the REIT has $435 million of debt maturities comprising $134.8 million of mortgages (cost of 3.7%) and $300 million of unsecured debentures (4.7%), representing 13% of total debt (excluding credit facilities),” said Rothschild, in a note on the company.

Source CoStar. Click here to read a full story.

Patience, Communication Needed As GTA Works To Trim Construction Red Tape

It is a tale of two headlines in the greater Toronto area, where a follower of the city’s commercial real estate scene might experience a slight case of cognitive whiplash if they read the news regularly.

One day, they might see a headline like this one from April, attesting to the city’s long-running building boom: Toronto Continues to Lead Crane Index.

“The study cited in that article counted just over 220 construction cranes on the Toronto skyline, compared to five in New York,” said Diana Hoang, managing director of brokerage Spear Realty. A longtime player in the GTA CRE scene, Hoang has had an up-close view of the city’s growing commercial and industrial real estate scene.

Opening the news on another day, however, a reader might encounter a very different headline, such as Toronto Red Tape Adds Tens of Thousands to Building Costs, New Study Suggests.

What’s going on in Canada’s biggest city? While construction sites rival the number of Tim Hortons restaurants in town, builders still complain that a tedious and costly approval process is holding back construction, particularly of much-needed affordable housing.

It is partly a factor of the area’s own success. Prior to the pandemic, provincial and local government officials were trying to keep up with a large volume of construction permit applications. And, of course, there is always a disconnect between how quickly a developer wants to take a project vertical versus how fast the local bureaucracy can move, Hoang said.

Then came 2020, when the uncertainties of the coronavirus “threw a big wrench” in the process, said Sandy Minuk, vice president of Minuk Development Corp., a GTA developer and property manager that works with Spear Realty.

“I’m certainly not blaming local officials for all the delays in the system,” Minuk said. “But it’s become a very time-consuming process, which adds cost to these projects.”

Local governments are taking steps to improve the process, and Hoang and Minuk said there are simple measures CRE professionals can take to help keep projects on schedule and minimize stress.

“Everybody has to be patient,” Hoang said. “Local governments at the provincial, regional and municipal levels are working to minimize the steps involved in the permitting process, but that takes time.”

Government officials have pledged to address bureaucratic bottlenecks through zoning reforms and other measures, and they say the situation is improving.

In a statement released after the local Building Industry and Land Development Association said that approval delays can increase construction-related costs by 8% to 14%, Toronto’s planning division acknowledged that long waits to get a hearing before the city’s committee of adjustment, which reviews zoning change requests, “have impacted many residents and builders.”

However, the city said the situation has “improved significantly in the past two years,” with more applications getting a hearing rather than sitting in limbo.

The Ontario provincial government has also pledged to continue making improvements, recently introducing the Cutting Red Tape to Build More Homes Act of 2024. It contains several measures meant to expedite project approvals and calls for the creation of service standards so that businesses understand how long they can expect to wait for a permit decision.

“These proposed measures would get more homes built faster by ending needless delays and cutting red tape to get shovels in the ground sooner,” Rob Flack, then the Ontario associate minister of housing, said in a statement.

As those and other reforms work through the system, Hoang and Minuk urged developers, contractors and others to remain patient and vigilant. Minuk pointed out that the relationship between builders and regulators is “codependent” to a degree, which means both parties need to demonstrate trust and respect.

“As long as they are aware that you’re working in good faith and doing exactly what you said as far as your drawings are concerned, they’ll work with you,” he said. “These officials are trying to push projects forward, too, and they’re reachable if you get stuck in the mud of the planning approval or building permit process.”

Hoang, who said she still foresees “upward momentum” in GTA’s construction and development scene by the third quarter, said she expected that some of the reforms will help in CRE’s recovery as more projects get the go-ahead. That would be good news for the region’s developers and property owners.

“We’re getting mixed messages from different clients, with some saying we’re going further down the hole and others who are optimistic,” she said. “We are already starting to see interest rates go down, which, combined with other factors like the current efforts at reforming the approval process, will help the market to improve.”

This article was produced in collaboration between Spear Realty and Studio B. Bisnow news staff was not involved in the production of this content. Click here to read a full story.

Toronto Commercial Real Estate Market Update – Q1 2024

Altus quarterly update of Toronto’s commercial real estate market, including overall cap rates and notable property transactions across asset classes.

The Greater Toronto Area market is off to a sluggish start in 2024, with investment volume down by 21% year-over-year

The Greater Toronto Area (GTA) market reported $3.8 billion in dollar volume transacted for the first quarter of 2024, down 21% year-over-year (YoY). The lingering effects of elevated interest rates and inflationary pressures of 2023 have contributed to a sluggish start to the new year. As interest rates have remained higher for longer, investment activity will likely be slow for the first half of 2024, until we see some relief in lower rates. 

Figure 1 – Property transactions – All sectors by year

In the short term, the industrial sector has returned to moderation after the record-breaking delivery of industrial completions in the fourth quarter of 2023, with $1.07 billion in dollar volume transacted, a 26% increase YoY, but a 53% decrease from the previous quarter. Rental rates are expected to be flat in 2024, based on increasing availability rates. According to Altus Group’s most recent Canadian industrial market update, Toronto’s industrial availability rate increased by 0.8 percentage points to 5.1%. Moreover, the market has added 6.4 million square feet of new supply, with nearly half pre-leased. In addition, 28 million square feet of new supply is under construction with over a third of the space already committed.

Leasing activity in the office sector has continued at a languid pace, with $217 million in dollar volume transacted, a 60% decrease YoY. According to Altus Group’s latest Canadian office market update, with hybrid work here to stay, the flight-to-quality trend, and the delivery of new supply, Toronto’s availability rate has flattened at 17.5%. The market saw approximately 1.5 million square feet of new office supply in the first quarter of 2024, with 96% pre-leased, with Cadillac Fairview’s 160 Front Street West building representing 1.2 million of the supply. In addition, 8.1 million square feet of office space is under construction, with over half pre-leased.

The multi-family sector reported $278 million in dollar volume transacted, a 20% decrease YoY. While interest rates have stabilized, most investors have been holding off in the hopes that the cost of borrowing will improve. The anticipated interest rate cuts in the second half of 2024 and pent-up demand are expected to lift housing market activity. In the meantime, the pace of new construction starts slowed down in the first quarter based on continued high-interest rates.

Retail leasing activity in the GTA continued to be concentrated on neighbourhood centres and regional shopping centres, primarily centres with grocery anchors or redevelopment opportunities. The retail sector reported $582 million in dollar volume transacted, a 13% decrease YoY. While the GTA’s retail sector weakened in response to reduced spending on retail goods and services, the long-term demographic and economic fundamentals remain strong with the influx of immigrants and employment growth.

The hotel sector reported $490 million in dollar volume in the first quarter of 2024, a dramatic increase compared to the $19.6 million recorded in the same period last year. This spike was primarily due to three large transactions. InnVest Hotels acquired a hotel portfolio from Morguard in January 2024 and sold two of the properties to Manga Hotels shortly after.

The land (residential and ICI land) sector recorded $793 million in dollar volume transacted, a 51% drop compared to a year ago and the lowest since Q2 2020 as challenges with securing financing for transactions persisted.

 

Figure 2 – Property transactions by asset class

Notable transactions for Q1 2024

3385 Dundas Street West, Toronto – Apartment

3385 Dundas Street West was the largest apartment transaction of the first quarter, representing 32% of the overall apartment sales in the GTA. Privately owned Realstar Group purchased it for $88,000,000 and a price per unit of $671,756. The property is a seven-storey apartment building containing 131 units with retail at grade. This acquisition adds to the five rental properties Realstar has acquired in the GTA and GGH markets since 2022, amounting to nearly $366 million in investments. With a portfolio of 162 properties nationwide, Realstar ranks among Canada’s largest owners of rental properties.

Lawrence Plaza, North York – Retail

RioCan REIT acquired a 50% stake in Lawrence Plaza from Lawrence Plaza Equities for $100 million. RioCan REIT will continue to manage the property. This represents the GTA’s largest retail transaction of Q1, 2024, accounting for 16% of overall retail transaction volume. Containing a gross floor area of approximately 270,724 square feet, this grocery-anchored shopping centre was purchased for an adjusted price per square foot of $739.

297 Rutherford Road South, Brampton – Industrial

JM Motors acquired this 34,500-square-foot trucking terminal from BentallGreenOak for their operations for $72.5 million. There are approximately 17 acres of excess land included in this transaction. To our understanding, the investment rationale for JM Motors included the future use of the excess land and the existing building. The purchaser is a leader in the transportation industry and services in Canada, the United States and Mexico.

7700 Bathurst Street, Vaughan – Residential Land

This 8.26-acre residential land transaction, purchased for $136 million, represented the most significant land transaction in the GTA during Q1. The land was acquired by Liberty Developments and is currently improved with the Promenade Village Shoppes. Currently, there is no development application on the subject site, however, it is adjacent to Liberty Developments’ current development site for Promenade Park Towers, which consists of two towers with a total of 761 residential units with retail at grade.

Figure 3 – OCR trends across four benchmark asset classes

Investment activity is expected to remain slow in 2024. However, with inflation on a downward trend as interest rates hold steady, a rebound is slowly taking shape. The GTA market remained a prime location for multi-family, industrial and food-anchored retail strip assets as the property types are supported by strong underlying fundamentals.

Source Altus Group. Click here to read a full story.

Altus: Canadian Real Estate Pros Split On Market

Canadian real estate professionals are divided on the state of the market, Altus Group found in a second-quarter survey.

Half of the 333 respondents expect to continue managing their existing portfolios over the next six months, roughly even with last quarter, while the percentage of those aiming to deploy capital ticked up 3 pps to 18%. Seventeen percent will either pause or sell assets. Survey participants include developers, brokers, asset managers and banks.

Some 32% of respondents have higher expectations for their firm’s revenue growth compared with 12 months ago, while 30% have downgraded their revenue forecasts. Similarly, about 30% of respondents have lower expectations for capitalization rates versus a year earlier, while another 30% believe in the opposite. For both metrics, about 40% have unchanged expectations.

The findings indicate a pronounced gap in sentiment among real estate practitioners, Omar Eltorai, director of research for Altus, said.

Developer Proposes Demolition Of Former Toronto Star Office Building At 1 Yonge St

The developer behind the tallest tower in Canada currently under construction along Toronto’s waterfront has circulated a proposal to replace the former Toronto Star headquarters, a 25-storey office building on the same site, with two more 90-storey residential towers.

The proposal from Vancouver-based Pinnacle International Realty Group would involve the demolition of the 53-year-old Toronto Star building at 1 Yonge St. and seeks to add two more towers of 90 and 95 storeys.

No formal application has been made with the city to put the plan into motion and the company says the proposal isn’t final. But the idea of replacing the Star building with housing comes as Toronto planners appear to be relaxing a long-standing policy protecting office space from redevelopment and as the city has been approving or considering other super-tall skyscrapers that exceed 90 storeys.

The Globe and Mail obtained documents and renderings of the proposal that was circulated by Pinnacle at an in-camera meeting on April 24 with the City of Toronto and Waterfront Toronto’s design review panels, which are made up of some of the province’s prominent architects and planners. There was no public agenda posted for that meeting, and Waterfront Toronto declined to make minutes from the meeting available.

“We haven’t made any final decisions on our plans,” said Anson Kwok, vice-president of sales and marketing at Pinnacle International Realty Group, who said the new proposal was circulated as a pre-application consultation. “This is just the first go-around.”

Pinnacle purchased the land for a reported $250-million in 2012, and has already completed a 65-storey building on the site with planning permission to build another 92-storey tower in its next phase; the new plan would see four towers on the site taller than 90 storeys.

Pinnacle is currently constructing the SkyTower at Pinnacle One Yonge, a 105-storey mix of hotel and condominium apartments that will top out at 345 metres and would become the tallest tower in the country. It would be nearly 50 metres higher than the current tallest tower, First Canadian Place in Toronto, which is 298 metres tall and 72 storeys.

Initially slated to be completed in 2024, Pinnacle received permission to extend the building from 95 to 105 stories, and the completion date is now scheduled for 2026, said Mr. Kwok.

Toronto currently has planning bylaws that require the replacement of existing office space when doing demolition and new construction, and the Pinnacle site currently has zoning for 1.5 million square feet of office and hotel. The Pinnacle plan could remove much of the office space on the site as Toronto’s planning department is nearing completion of a review of its replacement policies with a report expected in July.

“Any pre-application discussions on any files are confidential in nature, so we’re not able to comment,” said City of Toronto spokesperson Deborah Blackstone in response to questions about the Pinnacle plan.

Toronto’s downtown core has seen its office vacancy rate increase significantly since the start of the COVID-19 pandemic. Toronto has seen new office space come online in recent years while also experiencing a slower-than-expected return to the office. The high vacancy rates have been linked to perceived lack of vibrancy and street life downtown.

Mr. Kwok said the company recognizes the need to foster a more vibrant downtown, though he added that it only makes sense for the company to explore getting rid of the office component at the 1 Yonge site.

“I think that’s the diligent thing of any commercial or office property owner at this moment … just figuring out what the options are,” he said.

Source The Globe And Mail. Click here to read a full story.

Kingsett To Transform Scotia Plaza’s 68th Storey Into Events Space

Toronto office tower owner to invest ‘a few million’ to reimagine 20,000-sq.-ft. area; signs Oliver & Bonacini as manager

KingSett Capital will invest “a few million dollars” to create a 20,000-square-foot meeting and events space and tenant amenity area atop Scotia Plaza at 40 King St. W. in downtown Toronto. The 68th-floor event space is set to open by next June.

“We’re constantly looking for ways to improve the asset,” William Logar, chief asset management officer at KingSett Capital, told RENX. “The more and more we talked to our tenants, the more and more we heard about meeting spaces, event spaces (and) ‘How do we host not only our own internal meetings, but larger meetings?’ ”

The goal is to create a top-notch amenity space in a unique setting.

“If we’re going to create a tenant amenity space, let’s make it great,” he said. “Let’s not jam it into a basement somewhere. Let’s make it something that’s compelling, that tenants want to use and that tenants will see as value.”

Scotia Plaza’s 68th floor formerly housed the Bank of Nova Scotia’s trading floor, which is now at Bay Adelaide Centre North Tower.

68th floor to contain public and tenant areas

The new space will include a 10,000-square-foot meeting and events space available to both tenants and outside parties, a 10,000-square-foot exclusive tenant amenity area, and a full kitchen.

The northern portion of the floor will accommodate various events, from conferences to weddings for up to 250 guests.  The southern portion, exclusive to tenants, will offer a café and bar that will play host to everything from morning coffee to late afternoon drinks and light bites.

Tenants will be able to work or hold meetings in the lounge space, Logar said. The space will also host events that are currently held throughout the building, from lunch-and-learn meetings to wellness seminars.

Restaurant and event group and caterer Oliver & Bonacini Hospitality (O&B) has been chosen to manage and operate the space because of its reputation and history of quality service, Logar said. “We felt that they could execute the program well and thought that they would provide a great customer experience.”

O&B, which already runs the Rabbit Hole pub in Scotia Plaza, has a portfolio that includes restaurants, event venues, full-service catering arms, and several strategic partnerships in Toronto, Montreal, Calgary, Edmonton and Halifax.

Logar said there is a demand for a new events space in downtown Toronto.

“To be at the top of the city, 68th floor, it’s going to be spectacular. Other than going to the CN Tower, there’s nothing higher in terms of a public space to hold an event at. So, I think it’s going to be fabulous and will draw a lot of people.”

According to its website, Scotia Plaza is Canada’s second-tallest office building.

Office sees a “flight to experience”

The 68th floor space “builds on what we’ve been doing” in Scotia Plaza, Logar said. “We want to make sure that it’s positioned to keep its leading position and provide a value proposition for tenants.”

Logar said the “flight to quality” that has dominated office searches in recent years is evolving to “flight to experience”, with tenants putting the priority on spaces that offer in-building amenities.

“People want exciting places to work (where) they know they can have something more in there than just coming to their cubicle or their desk.” The goal is to create a community for tenants and give them a reason to come to the office.

In recent years, KingSett has spent $50 million on new elevators in the building and $24 million on a new food court. It has also created new dropdown spaces on the concourse and lobby, improved the outdoor podiums and added a concierge service.

Scotia Plaza was also named the first major Zero Carbon – Performance Standard-certified commercial building in Canada.

Scotia Plaza 96 per cent leased

Scotia Plaza, which is comprised of three integrated buildings with more than 2.2 million square feet of space, is currently 96 per cent leased.

Aside from Scotiabank, one of the building’s major tenants is the law firm Miller Thomson LLP, which cited the 68th floor addition as an important reason for its renewal of 85,000 square feet in four of the top floors in the building.

“We’re excited about the new, high-quality amenities and the benefits they will bring to our lawyers, support services, clients and prospective clients,” Miller Thomson managing partner Kenneth R. Rubinstein said in a statement.

Logar notes law firms in the building told KingSett that many of their clients are looking for meeting rooms, because they do not have their own.

Other major tenants include the law firm Fogler Rubinoff, which is going to be entering the building, Northleaf Capital and Pacific Life Insurance.

“We have about 40,000 square feet that we’re trying to lease right now.”

Toronto-based KingSett Capital manages $18 billion in assets across its growth, income, urban, mortgage, residential development and affordable housing strategies.

Source Renx.ca. Click here to read a full story.

The Future Of Commercial Real Estate In Canada: A Brighter Horizon

Commercial real estate has long been a cornerstone of Canada’s economy.

Spanning from urban centres to suburban hubs, commercial real estate contributes to economic expansion, job creation and community revitalization. As we progress further into the 21st Century, our industry appears to hold great promise – driven by innovation, sustainability and changing market dynamics.

Before exploring its future, we must understand its present state.

Commercial real estate in Canada is comprised mainly of office buildings, retail spaces, industrial warehouses and multifamily residential. Over recent years, the market has undergone significant changes due to technological innovations, interest rates and shifts in consumer behaviour.

Technology has profoundly transformed operations, from artificial intelligence (AI), big data analytics and Internet of Things (IoT) solutions revolutionizing property management, to improving tenant experiences and investment strategies.

AI-powered predictive analytics allow investors to make more informed decisions. Pandemic outbreaks caused rapid shifts in consumer behaviour within retail. E-commerce’s rapid expansion put enormous strain on logistics centres, while remote working practices emerged to alter office usage and design.

COVID, remote work and co-working

There has been a dramatic impact on business operations due to the COVID-19 pandemic forcing businesses to reconsider traditional work models: remote work became an industry trend which still prevails.

As a result, office space demand has dramatically changed, especially among smaller tenants which have shifted to remote working.

Before remote work became widespread among progressive companies, it was often seen as an added benefit or flexible arrangement offered to employees. Its rapid expansion as an effective means for maintaining social distancing and meeting lockdown requirements increased adoption rates.

Many businesses across different sectors have realized they can operate effectively outside the traditional office environment, leading to an irreversible shift in workplace culture toward hybrid models that combine remote collaboration with in-office work. Remote work significantly altered office demand with reduced physical workspace requirements and companies reassessing their needs for office space.

Small office spaces under 3,000 square feet have been particularly hard hit.

Small businesses, startups and professional services firms that typically occupy these spaces have taken to working remotely. This shift has led to an increase in lease cancellations and a reduction in new leasing, as these firms reduce expenses while redirecting resources toward key areas like technology or employee wellbeing.

Companies with offices that continue to employ hybrid work models are decreasing their physical footprint and creating workspaces designed for collaboration rather than daily employee usage. Demand has shifted from traditional office layouts to adaptable spaces to accommodate diverse work styles.

Permanent small office space occupancy levels have fallen, yet this can be partially compensated for through coworking spaces, which provide flexible lease options and are perfect for companies needing occasional office use without long-term lease commitments.

WeWork, Regus and others have taken notice and offer customizable solutions designed to accommodate specific business requirements – a popular feature for freelancers, small businesses and even larger organizations in search of satellite office locations.

Suburban office, and the class-B and -C sector

Another trend is an increasing interest in suburban and rural office spaces, given how remote work reduces the necessity to remain within city centres. Due to less expensive office options outside urban centres, some companies are exploring these as viable solutions. This also serves the needs of employees who prefer working closer to home and avoiding long commutes.

Office demand will depend heavily on the continued adoption of remote and hybrid work models. As businesses adapt, real estate markets could experience further evolution; it is imperative for developers and property managers to remain agile, offering flexible lease terms while creating spaces which can easily be reconfigured or renovated as needs shift.

Class-B and -C buildings are increasingly viewed as potential multifamily conversions, where they can be repurposed to address urban housing shortages. Converting lower-class office buildings into residential mitigates the excess supply of office space, revitalizes older properties and supports the trend toward mixed-use developments.

This strategy ensures these properties remain valuable and contribute to creating vibrant, liveable urban communities.

Sustainability essential to your business

Other emerging trends could further reshape commercial real estate, reflecting adaptation to new realities as well as proactive approaches.

Sustainability has emerged as an imperative, with green building practices designed to mitigate environmental impact through energy and water conservation and the use of sustainable materials.

Canada is at the forefront of this movement, spearheading initiatives such as LEED certification that promote environmentally responsible construction and operations. Green buildings provide several advantages including lower operating costs, improved indoor air quality and greater tenant satisfaction.

Furthermore, eco-conscious tenants and investors are drawn to green properties, which increases their marketability.

The Canadian government encourages sustainable building practices through incentives and regulations, with initiatives such as the Canada Green Building Strategy aiming at lowering greenhouse gas emissions from buildings by encouraging energy-saving designs and retrofits.

Technological integration is revolutionizing commercial real estate into an efficient, user-friendly sector.

Smart buildings are also efficient

Smart buildings equipped with Internet of Things devices and automation systems optimize energy consumption while improving security and increasing tenant comfort. Smart buildings utilize sensors and data analytics to track, control and monitor systems such as lighting, HVAC (heating, ventilation, air conditioning), security and surveillance.

Motion detectors may even adjust lighting depending on occupancy levels to reduce energy waste and maximize savings.

Predictive maintenance systems help identify issues before they turn into expensive problems, while technology enhances tenant experiences: mobile apps allow tenants to control building systems, access amenities and communicate directly with property management. This provides increased convenience and personalization, which contributes to greater tenant retention and satisfaction.

Urbanization remains at the core of Canadian commercial real estate demand. Yet its nature is evolving: mixed-use developments combining residential, commercial and recreational spaces are increasingly sought-after by developers.

Mixed-use developments create vibrant and walkable communities where residents can live, work and play in harmony. Such developments reduce commute times significantly while benefitting local businesses and improving quality of life. Toronto and Vancouver both feature mixed-use districts, such as Canary District and Oakridge Centre, which integrate residential, retail and public amenities into one complex.

Transit-oriented development (TOD), on the other hand, involves creating dense mixed-use communities near public transit hubs. TOD projects aim to reduce car dependence while mitigating congestion and supporting sustainable urban growth.

A new distribution landscape

E-commerce has spurred significant demand for industrial real estate, especially logistics and distribution centres. As online shopping becomes more commonplace, retailers need efficient supply chains as well as strategically situated warehouses to meet consumer expectations for speedy deliveries. Last-mile delivery is also an integral component of e-commerce logistics.

Industrial properties near customers are highly sought-after to facilitate quicker and cost-efficient deliveries; innovations like automated warehouses, drone deliveries and autonomous vehicles are revolutionizing logistics. Companies invest heavily in advanced technologies to streamline operations and enhance efficiency.

Commercial real estate in Canada may hold promise, yet its future faces a variety of obstacles that must be met head-on to expand and innovate. Overcoming these difficulties offers ample opportunity for growth.

While elevated interest rates and financing constraints might raise eyebrows, savvy investors can navigate these challenges.

The first key is to target industries leading the charge in high-growth sectors like healthcare, technology and logistics. These industries boast tenants with unwavering resilience and income streams that remain stable, acting as a shield against economic disruptions.

Prime location is still the cornerstone of any sound investment. Prioritize properties in areas with robust economic fundamentals. This not only safeguards property values but also attracts top-tier tenants, further solidifying your investment.

Think beyond the traditional loan when it comes to financing. Explore alternative funding avenues like joint ventures, private equity funds, or REITs. These options provide access to the capital you need while distributing the risk across multiple investors.

Embrace the environmental movement. Implementing energy-efficient and sustainable building practices creates a win-win scenario: reduced operational costs while attracting environmentally conscious tenants who value properties with a sustainable footprint.

Innovation key to future success

Finally, innovation is key.

Leverage smart building technologies to streamline property management. Automated systems and data-driven insights enhance tenant satisfaction, leading to higher occupancy and increased rental yields.

Regulation changes at federal, provincial, or municipal levels can have significant ramifications for development and operations. Staying up-to-date on regulatory trends while engaging policymakers is vital in successfully navigating this incredibly complicated landscape.

Industry associations like REALPAC play a pivotal role in advocating policies that support growth and sustainability. By taking part in advocacy initiatives, stakeholders can shape regulations serving the industry at large.

Innovation and collaboration are central elements to the future of commercial real estate in Canada. Adopting cutting-edge technologies and sustainable practices while building relationships within the industry are effective strategies to employ to navigate this unique set of hurdles.

Cooperation among developers, technology suppliers, government agencies and community groups can result in comprehensive solutions that benefit all.

Public-private partnerships offer an efficient method for constructing affordable housing and community infrastructure while investing in research and development (R&D), which drives innovation in construction, materials and property management practices.

Research and development initiatives may uncover innovative techniques for increasing energy efficiency, strengthening resilience and optimizing space usage. As the commercial real estate landscape shifts and professionals adapt, continuing education and training have become even more essential.

Programs designed around current trends, technological innovations and eco-friendly practices equip professionals with the skills needed to thrive in an ever-evolving landscape.

Source Renx.ca. Click here to read a full story.

There’s Big Demand In Canada’s Retail Shopping Centre Market

In a commercial real estate environment largely devoid of major transactions, one sector continues to surprise: retail. In the wake of media reports that Quebec City’s massive Galeries de la Capitale mall is for sale, another major transaction could be in the offing.

About $2 billion in enclosed shopping centres changed hands in Canada during the past year, according to CBRE vice-chairman Hillel Abergel, a member of the firm’s national investment team. CBRE was involved in approximately $1.3 billion of that activity, he said.

Despite higher interest rates, reluctant lenders and other concerns, there are several reasons large retail transactions continue.

”Retail has effectively proven exceptional resilience through Black Swan moments in a way that it has effectively established this asset class as being among the more stable predictors of cash flow and overall return,” Abergel told RENX.

Having come through so much, including the departures of Sears, Target, Nordstrom and others, COVID and seemingly never-ending predictions of doom, retail has been a resilient CRE survivor – if not always perhaps a favoured sector for banks and other lenders.

Major institutions shifting investments

“Retail had a moment where the proverbial leaves were shaken from the trees, the weak tenancies have fallen,” Abergel said. “Retail is much more lean, much more efficient.

“So you’ve got leasing spreads moving in the right direction, you’ve got mid-bay space that is being leased up with velocity, you’ve got expansion of grocery-anchored retail, the grocers are taking in more space.

“It’s a growing asset class and as a result you’ve got more interest because relative to industrial, relative to some of the other asset classes, on a risk-adjusted returns basis, the returns are very attractive to all segments of the buyers’ market.”

Many large institutional investors are also reallocating funds and looking to divest a few strong grocery and needs-based retail assets to reinvest proceeds as part of their overall thesis.

“There was a heavy investment in enclosed shopping centres and enclosed shopping centres take a lot of capital,” Abergel said.

“The major pension funds are now selling away from the asset class not because the asset class isn’t performing but because they need to take those big tranches of capital that are tied up in enclosed malls and diversify either into alternatives or into (other) geographic locations.

“Generational opportunity” for private investors

“That has given a generational opportunity to private capital and syndicators to get access to enclosed shopping centres, that are exceptional shopping centres within their markets, that were never available to them because pension funds never made them available . . . because they cash-flowed well, because they were just dominant in their markets.”

Over the past 18 months, transactions included Vaughan Mills, Erin Mills Town Centre and Pickering Town Centre in the Toronto area, Conestoga Mall in Waterloo, Ont., Halifax Shopping Centre and Strawberry Hill Shopping Centre in Surrey, among others.

Just last week, an Anthem Properties joint venture acquired Carlingwood mall in Ottawa, a 632,700-sq.-ft. centre just outside the downtown anchored by Canada’s largest Canadian Tire store and a Loblaw grocery store.

Will Galeries de la Capitale be next? Reports cited $300 million as the price range to acquire the 1.3-million-square-foot property owned by Oxford Properties Group. Oxford declined to comment for this article.

Galeries also includes parking for 5,800 vehicles: leaving room for a lot of potential intensification.

Anchored by Hudson Bay, Simons, Sports Experts, Toys ‘R’ Us, Best Buy, RONA and others, it would provide steady holding income for a buyer. Galeries offers over 225 stores and services, including the Mega Parc indoor amusement park and an IMAX 3D theatre.

“Conestoga Mall in Waterloo I think is a pretty good analogy,” said Adam Jacobs, Colliers’ Canada head of research. “Good asset, (to be) sold by an institution, secondary market, priced in about the same range, $250 to $300 (million).

“I don’t think something like Capitale will be sold to be torn down and redeveloped. It has had a lot of money put in: gourmet food hall, celebrity chef restaurant . . . I look at it more as an in-place asset where you still have good tenants, good covenants; you’ve got some interest in the market.”

No new enclosed shopping centre development

Another attraction is that companies are not building major new enclosed shopping centres.

“If you own the best mall in Waterloo, Ont., that’s it,” Jacobs said. “It is not like someone is going to build another one down the road. You can look at this long-term and say ‘I own the best asset, or the second-best asset in the market, and I see a 10- to 20-year horizon where that is not going to change.’ ”

With institutional investors largely on the sidelines in terms of acquisitions, private capital has stepped in to fill the gap although Primaris REIT did make two of the largest shopping centre acquisitions in 2023 – Conestoga Mall and Halifax Shopping Centre for a combined $640 million.

Abergel said “foreign capital” is also interested, and Primaris CEO Alex Avery told RENX recently his firm is also still in the market.

“From a grocery-anchored shopping centre perspective I have not seen a demand-supply imbalance in 20 years like I am seeing right now,” Abergel said, considering the “scarcity of supply both on the individual-asset level and with portfolios of scale.”

Standing returns, plus future potential

Jacobs noted the interest involves more than just the standing retail assets – a well-situated, 30- to 50-acre parcel of land offers great future potential.

“Where else are you going to be able to buy that? How else are you ever going to be able to get a loan to purchase that? Yes, now it is locked into this asset but in the future who knows?”

In terms of financing, Abergel and Jacobs agree lenders see the flexibility of return options shopping centres offer – in-place revenue, intensification and potential future redevelopment among them.

“When you are buying any shopping centre . . . when you’ve got a running income return, it buys you the flexibility of time,” Abergel explained. “When you have a running carry on the land, you are able to make these decisions in a way that isn’t forced.

“It allows you to pipeline for development at the time when the cycle might be best for you.”

Abergel and Jacobs both expect more retail transactions. As Canada continues to experience “crazy record-high population growth,” Jacobs said the equation is simple: more people need more goods and services.

“For the balance of the year you’d love to see more grocery-anchored product trade because the demand is there,” Abergel said. “I think you are going to see some bigger assets continue to move throughout the balance of the year.”

Source Renx.ca. Click here to read a full story.

Allied Sees ‘Inflection Point’ in Office Market As Space Tours Increase

Some Analysts Take Wait-and-See Approach Despite REIT’s Leasing Optimism

Allied Properties Real Estate Investment Trust is seeing signs that could lead to a pickup in leasing activity in its portfolio, but even with that, one analyst following the REIT thinks Allied might be forced to cut its distribution next year.

The increase in touring activity at Allied’s nearly 15 million-square-foot office portfolio has been encouraging recently, Allied President and CEO Cecilia Williams said during an earnings conference call this week.

“Renewals were at healthy spreads to in-place rents,” said Williams. “I believe we are at an inflection point, and leasing momentum will continue through 2024.”

Allied said it conducted 300 lease tours in its rental portfolio in the first quarter and that its occupied and leased area at the end of the quarter was 85.9% and 87%, respectively. It would be difficult to pinpoint when the jump in interest in its office space would lead to increased occupancy, Williams said.

Allied, one of the country’s largest office landlords, reported its first-quarter earnings on Tuesday. The REIT said its operating income from continuing operations totaled $78 million in the first quarter, up 2% from the same quarter last year.

The REIT’s net loss during the quarter was approximately $19 million, primarily due to a fair value loss on investment properties from $31 million in declines in development property valuations in Toronto, Edmonton and Montreal and an $88 million decline in rental-property valuations in Toronto.

Moving forward, Allied said it has plans to sell less-strategic properties in its portfolio at international financial reporting standards, or IFRS value, for aggregate proceeds of up to $200 million.

Management has initiated the sale of properties in Montreal and Toronto in response to unsolicited offers, the REIT said.

Three properties in Montreal are expected to be sold early in the third quarter for aggregate closing proceeds of approximately $64 million, plus a potential residential density bonus of up to $16 million on the final rezoning of one of the properties.

Mark Rothschild, an analyst with Canaccord Genuity, said it was difficult to see any material improvement in occupancy in the near term despite management’s comments on increased tenant tours of vacant space.

“As we progress through 2024, the REIT is heading into two years that have significant debt maturities, which could put additional pressure on a payout ratio that is above 100% when considering the true cost of signing leases in the current environment,” the analyst said in a note. “In particular, the REIT has $1.5 billion of debt maturing through 2026 at an average rate of 3.2%, while the current market rate is likely closer to, if not above, 6%.”

Even as management remains committed to its distribution, Rothschild said that could prove too optimistic.

Brad Sturges, an analyst at Raymond James, also had doubts about the REIT’s optimism on leasing.

“Office lease negotiation timelines remain long,” Sturges said in a note. “We maintain our wait-and-see stance as it relates to how much of Allied’s positive leasing indicators will ultimately translate into stabilization and recovery in Allied’s average occupancy rates.”

Jonathan Kelcher of TD Securities noted that only 5% of the REIT’s leases are maturing in 2024, with another 10% in 2025. “We believe Allied is well positioned to ride out current weaker market fundamentals,” Kelcher said in a note.

Allied’s position on the office market comes after CBRE issued a report last month stating that office construction across Canada had dropped to its lowest level since 2011 in the first quarter, with no new projects breaking ground. This should give the market a chance to stabilize, the brokerage said.

“Canadian office markets had a promising start to the year, recording a total 439,000 square feet of positive net absorption of space in the first quarter,” CBRE said. “This represented the first quarter of positive net office leasing activity at the national level since the third quarter of 2022.”

Nevertheless, the national vacancy rate climbed to 18.4% in the first quarter, a 10 basis point jump from the previous quarter, CBRE said.

Source CoStar. Click here to read a full story.