Canadian Commercial Real Estate Investment Could Reach High Of $59B In 2023

TORONTO – The outlook for commercial real estate looks “bumpy” in the near term, but CBRE’s 2023 forecast predicts a soft landing could still be in the cards.

The Canada Real Estate Market Outlook report, released Tuesday, predicts challenges such as tougher financing conditions and a potential economic slowdown will weigh on investment.

The commercial real estate company said it expects one to two quarters of slowed investment before activity rebounds in the spring.

Over the longer term, CBRE said large investors are targeting real estate and that more certainty for interest rates should be a boon for the industry.

That interest means commercial real estate investment in Canada could reach an all-time high of $59.3 billion this year, spurred by greater merger and acquisitions activity.

The better visibility about interest rates, which the Bank of Canada has paused at 4.5 per cent while it weighs their effect on the economy, should allow pricing expectations to recalibrate in 2023, according to the organization.

CBRE Canada president and CEO Jon Ramscar called 2023 “the correction year” following periods of high inflation and interest rate hikes.

“There is some optimism because we have a huge amount of learnings when we look back on when we were going through the early stages of the pandemic,” said Ramscar.

“The optimism is really around the fact that the Bank of Canada is communicating to us all that inflation is starting to taper back, they’re done with interest rate rises and that we’re expecting kind of halfway through this year that we’ll settle with inflation at three per cent and in 2024 that will come down to two per cent.”

Office vacancy continues to increase, with demand for older space being replaced by interest in more modern locations. As companies balance their hybrid working arrangements for employees, the report said spaces that help attract workers back to the office will be a priority in 2023.

“Many forward-thinking tenants will use the coming year to relocate to properties with the best amenities, commute times and sustainability profiles,” the report said.

While some property owners have considered converting their real estate to residential, office spaces are more likely to be retrofitted or demolished.

“We’ve been through the pendulum swinging from initial headlines of ‘the office is dead’ and I think there’s now a realization that it’s really an evolution of the office,” said Ramscar. “Some of these things were happening before the pandemic, it’s just COVID has really accelerated, I’d say, some of these changes in the office sector. It really is a flight to quality.”

Efforts to boost office attendance has also led to rising demand for urban rental real estate as workers seek to minimize commute times.

The report noted a growing demand for multi-family rental real estate, with Canada’s overall vacancy rate falling to a 20-year low of two per cent in 2022. It predicted high demand will continue this year, led by higher immigration targets, driving vacancy even lower in 2023.

Commercial real estate investment totalled $58.5 billion in 2022, which nearly matched the record volume set in 2021.

This report by The Canadian Press was first published Feb. 28, 2023.

Source Toronto Star. Click here to read a full story

An Outlook On Specialized Sectors That Will Define CRE In 2023

The year kicked off with a unique landscape for commercial real estate.

The market transitioned from the comfort of record-low interest rates to 14-year highs while stronger-than-expected employment data from Statistics Canada in January left central bankers uncertain of their next steps to slow inflation.

The reaction of the market adjusting to central bank fiscal policy has led to investors taking a closer look at specialized sectors.

By diversifying their commercial real estate portfolios, they are setting plans in motion for their best assessments on potential short- and long-term returns.

I sat down with Colliers’ national practice group leaders in brokerage to get their outlooks on their respective sectors, which are garnering significant attention from our clients and the market.

Warren Wilkinson, national alternative asset practice group leader

The best way for investors to mitigate investment risk is to diversify. In this current economic climate, we are seeing traditional commercial real estate assets command less attention and alternative assets begin to gain significant traction.

These assets include self-storage, medical and life sciences, retirement and long-term care facilities, student housing, data and call centres, manufactured housing and RV parks.

As interest from clients and the market continues to grow in this segment, sector experts across Canada are seeing a rise in inquiries to share best practices, research, access to available properties and knowledge to advise decision-makers on an alternative asset commercial real estate investment.

Tyler Dolan, national debt advisory practice group leader

Debt advisory is an important commercial real estate solution for 2023 given the frequent changes in the risk tolerance and appetite of lenders due to rising interest rates, along with ever-changing regulatory and economic conditions.

This makes it more important to engage experts with strategic relationships with the lending community to matchmake quality borrowers and projects with the right source of capital. That expertise can assist in putting together comprehensive loan applications tailored to the target audience, whether it be a pension fund, insurance company, bank, credit union, trust, non-bank lender or private lender.

The recent upward movement of interest rates has caused challenges for many looking to finance new construction or refinance existing properties – the result being that borrowers must inject additional cash equity into their projects or bring additional mezzanine debt.

We are also seeing complications in replacing construction debt with term debt upon completion of new developments, with shifting metrics from when deals were written versus when they are closing.

As a result, the old saying “time is money” is critical and it has become paramount for debt advisory teams to deliver a strategy that aligns with clients based on the economic factors of the year, so only viable lending partners will be approached.

Peter Garrigan, national industrial practice group leader

Our industrial advisors across Canada continue to observe a sustained demand for industrial real estate, accompanied by a shortage of new supply.

This trend has fuelled growth in the sector, particularly in our three major markets of Toronto, Vancouver and Montreal.

Since Q1 2021, these markets have experienced exponential growth with an availability rate of approximately one per cent. Notably, over 90 per cent of the new supply that entered the market was already pre-leased, indicating persistent demand.

In response to supply-chain issues that have impacted construction in recent years, many organizations have turned to technology to overcome these challenges and innovate industrial supply.

Despite the limited availability of space, with only one to three per cent of the total inventory for each market currently under construction, we anticipate further rental growth throughout 2023 and beyond.

However, tenants with flexibility in their lease terms are expected to delay major decisions as they assess the economic outlook throughout the year.

Robert Frost, national multifamily practice group leader

The multifamily sector is projected to perform well in 2023 and continues to be one of the most sought-after asset classes for both private and institutional investors.

While the current economic environment has slowed investment volume, there are early signs of the market stabilizing, which should result in a marked increase in activity for the latter half of the year.

This will largely be driven by inflation continuing to ease and interest rates holding, which should bring confidence back to the investment community.

Rental demand remains very strong in an undersupplied market and the big question will be whether new supply can keep up with the projected Canadian immigration targets set at approximately 1.5 million people over the next three years.

With high interest rates and cost to borrow, many newcomers are likely to rent for some time, fuelling rental demand and rising rents.

With the market stabilizing and strong long-term fundamentals, we should see a resurgence of capital flowing back into the multifamily sector this year, leading to cap rate compression despite elevated interest rates.

Madeleine Nicholls, national retail practice group leader

The long-term outlook for the retail sector in Canada for 2023 is positive, with anticipation of one to two years of heightened openings and closures.

Canadian retail sales outpaced inflation and climbed to an all-time high of $735 billion at the end of 2022 and are expected to continue growing throughout this year.

Additionally, retail rents have generally held steady for the second half of 2022 after significant increases in the first half of 2022. They appear to look stable into the first half of 2023, with some upward pressure on inducements.

In 2023, we expect to see new business concepts emerge, especially those with a focus on the consumer experience both in-store and online, which will continue to evolve the retail landscape.

Bobby MacDonald, national technology practice group leader

Our tech advisory team has observed the pivotal role of tech occupiers in pre-leasing new developments in major Canadian cities over the past few years.

Landlords in Canada’s three largest cities continue to consider tech tenants as downtown anchors and support the incubation of the next major tech startups.

In Vancouver, significant leasing commitments from Amazon and Microsoft demonstrate the enduring significance of the tech sector to the city’s economy, given the city’s proximity to the major global tech hub in Seattle.

In Ontario, Waterloo has earned the title Silicon Valley of the North due to its thriving tech industry which boasts the highest density of tech startups in all of Canada and ranks second in the world behind San Francisco.

In Montreal, the city’s lively culture of food, music and arts, coupled with affordable living, has created an optimal talent pool for creative and technology-focused organizations.

Despite the recent news cycle highlighting layoffs in the tech sector, many companies are simply right-sizing their employee bases and divesting from moonshot programs to reduce expensive capital.

Throughout 2023, practical programs will continue to stabilize the tech industry and demonstrate its longevity, thereby confirming the necessity of real estate requirements.

This stability is further enhanced by government funding commitments to digital technology and scale AI.

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

‘Huge Rise’ In Toronto-Area CRE Salaries In 2022: Hays

Salaries for executives in top commercial real estate positions in the Greater Toronto Area increased an average of 15 per cent last year as the “candidate-driven market” continues, says Dan McLeod, senior director, property and facilities management recruitment at Hays in Toronto.

In commercial real estate “we’ve seen a huge rise,” in salaries as employers must pay more than expected to find the top people they want.

The highest percentage increase in salaries was for high-end commercial real estate lease administrators in the GTA – up 33.3 per cent from $75,000 in 2021 to $100,000 in 2022.

The numbers are from the 2023 Hays Salary Guide, which was released recently. It was based on a survey of 5,490 employees and employers in several industries in Canada, including real estate, conducted from Sept. 22 to Oct. 16, 2022.

Hays’ real estate clients include Allied, Colliers, Brookfield, Morguard, Fitzrovia, Rhapsody Property Management and Tricon.

Some key salary survey findings

Among the study’s findings were that 58 per cent of respondents across the board intend to ask for a pay raise in the next 12 months and 37 per cent are expecting a raise of more than five per cent.

However, only 20 per cent of employers plan to offer an increase of this amount.

The survey also found 62 per cent of employers are having difficulty filling open roles.

“It looks like it will be another challenging year when it comes to the recruitment front,” McLeod notes.

The effects of COVID-19, not inflation, are the biggest driver of salary increases, he says. However, he doesn’t expect salaries to continue to increase at the same torrid pace as in 2022: “I expect there to be some sort of levelling out.”

There are fewer candidates for some positions than there were six to 12 months ago, he says. As a result, companies are paying more to find the right people or to retain existing staff.

“If you can pay a little bit more, you can be equitable within the market (and) you’re probably going to do a better job keeping your staff,” he says.

Motivators for seeking new employment

The study found the main motivators for considering a new job are higher compensation (51 per cent), opportunities for promotion (28 per cent) and new challenges (21 per cent).

Just under one-third of employees (33 per cent) would leave their current job if the economic situation was better. Similarly, almost a third (32 per cent) of employees are nervous they could lose their job because of the current economic situation.

While property managers, maintenance workers and other on-site staff cannot work from home or remotely, real estate employees in administrative and corporate roles that do not need to be in the office or on-site “are very much looking for remote work or hybrid,” McLeod says.

Overall, the study found 82 per cent of employees want either fully remote or hybrid work. However, 32 per cent of employers are planning to increase the amount of time people are required to be in the office.

“That makes for a very interesting year moving into 2023,” he says, noting conflicts may arise between employers pushing to have people back in the office full-time or nearly full-time and employees who refuse – and look for remote or hybrid opportunities with other companies.

McLeod adds that for companies which require a full-time presence in office, “we are finding it tough now to find a really great pool of candidates.”

Vacation times can vary

The study also found increased vacation time is the top benefit candidates are seeking, followed by support for professional study, retirement contributions and mental, physical and well-being programs.

Three-week vacations have become the norm across the board in real estate, but junior staffers may only get two weeks. Four weeks of vacation time is a minimum for top-level executives, McLeod says.

The study shows salaries on the commercial real estate side are almost always higher than on the residential real estate side.

For example, for commercial real estate, high-end salaries for a director of property management increased to $180,000 in 2022, up 20 per cent from $150,000 in 2021. On the residential  side the same job paid an average $160,000 in 2022, up 14.29 per cent from $140,000 in 2021.

High-end salaries for senior property managers on the commercial real estate side were up 16.67 per cent from $120,000 in 2021 to $140,000 in 2022. By comparison, on the residential side salaries for the same position were up 15.79 per cent from $95,000 to $110,000.

Strangely enough, “commercial clients don’t like anyone from residential and residential clients don’t like anyone from commercial,” McLeod says, and there is not a big cross-over between the two asset classes. “It’s weird – they’re very similar jobs.”

Much of the hiring will be on the residential side for everything from maintenance to management roles, given the large amount of residential development in the GTA, he notes.

“So many new buildings and high-class luxury rentals will be on the market for 2023 that will want top people,” McLeod says. “If they’re paying top money, people will be interested in moving from where they are.”

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

New Toronto Development Points To A Shift In Land And Consumer Car Use

A proposed mixed-use development in Toronto, currently the site of a flourishing car dealership, may be a harbinger of the city’s postcar future.

The project at 1075 Leslie St., near Eglinton Avenue East, features five towers, ranging from 13 to 49 storeys, with 1,846 housing units and commercial and retail space wrapped around a green, pedestrian-oriented public courtyard.

It’s still early days for the 278,000-square-foot site; a community meeting is being held on Feb. 15 and the developers expect it will be years before city planning and zoning officials finish going through the details. But the ideas for the plan are significant – the development would alter the property’s past and present dependency on cars.

“The view for a while has been that you can transform areas in dense, downtown urban areas into less car-dependent developments, but the reality is that you can do it here, too,” says Sami Kazemi, principal at BDP Quadrangle, the Leslie Street project’s architect. Though the site is in Toronto, it’s 13.5 kilometres – and many traffic jams – from the central intersection of Yonge and Bloor streets.

The proposed project also points to changes coming to the car dealership business, raising the question of whether dealers will continue to occupy large properties in cities where land values keep rising and sites are in demand for commercial development and housing.

While a 2021 automotive consumer study, conducted by Deloitte, showed that eight out of 10 customers in Ontario still prefer to buy cars in person from one of the province’s 1,606 dealers, traditional dealerships face challenges from online marketing and the growing popularity of electric vehicles, which don’t need the same servicing that dealers’ garages offer.

“The whole business model for dealers needs to be rethought,” says Wes Neichenbauer, co-president of Rowntree Enterprises, the Leslie Street site’s lead developer, which has built its business on establishing sites for car dealerships.

“It comes down to land values. A dealership is really several services – new car sales, used cars, service, parts, body shop and leasing,” he explains. “The inventory of cars on the lot, the service centres and the showrooms take up a lot of space.״

The realization that all this space isn’t needed anymore to sell and fix cars points to a shift in land use. ״People already can go to a shopping mall and buy an electric vehicle that can be serviced without having to bring it in and put it on a hoist,” Mr. Neichenbauer says.

“We’re thinking about how you build for peoples’ mobility using all forms of transportation, not just car ownership.

— Sami Kazemi, principal at BDP Quadrangle

For now, the site, at the crossroads of two major arterial roads and near the Don Valley Parkway, is still home to a Toyota and Lexus dealership, its history steeped in car lore.

Earlier, the site was home to Inn on the Park, a flagship Four Seasons Hotel built in 1963 as a getaway within the city, which hosted world leaders, royalty and celebrities. Though there were bus stops nearby, it’s safe to say that most guests and visitors got there by car.

The original Inn was demolished in 2006, and since around then the site has housed the dealership – making it even more car-centric. Mr. Neichenbauer and Mr. Kazemi say the property is ideal for housing and some commercial retail development because it’s across the street from some 400 acres of parkland (Serena Gundy, Ernest Thompson Seton, Sunnybrook and Wilket Creek parks) and will eventually be served by high-speed transit.

The city’s new Eglinton-Crosstown LRT line will have a major stop at the foot of the hilltop property (though the line’s builder, provincial agency Metolinx, has delayed completion several times with no word on a completion date). Mr. Kazemi says the development plans will include walkways and sheltered areas to make it easy for people to come and go to the new Sunnybrook Park LRT station. There will be less emphasis on catering to cars.

“We’re not predicting the end of people using cars, just less dependency on them,” Mr. Kazemi says. “We’re thinking about how you build for peoples’ mobility using all forms of transportation, not just car ownership.”

The shift toward a less car-dependent society shows up in design decisions such as forgoing huge parking areas or underground garages, Mr. Kazemi says. In 2021, the City of Toronto got rid of rules that required developers to provide a minimum number of parking spaces for each housing unit they built (requirements remain the same for the number of visitor and accessible spaces and for spaces with electric-charging stations).

This not only helps new projects and communities orient away from cars, it’s also good for the environment, Mr. Kazemi says.

“When you build underground parking, the concrete produces embodied carbon,” he explains.

Embodied carbon refers to emissions released primarily during the relatively short construction period and, to some extent, during a building’s life cycle, producing at least 10 percent of all global energy-related emissions.

The controversial proposal for Ontario Place on Toronto’s lakeshore calls for a taxpayer-funded $450-million underground garage that would serve a private development and accommodate more than 2,000 cars.

It will take time to wean cities off cars and for dealers to rethink their locations and marketing, but Mr. Neichenbauer believes it will happen.

“If you look at larger cities, you see intensification and people walking, cycling and taking transit to get their groceries,” he says. “Toronto has fought that and stayed in love with the car, but getting away from that is a natural progression.”

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

Flexible Office Spaces On The Rise With Canadian Companies Still Deciding How To Work

Some managers are trying to lure people back to the office with quality amenities

A New Report Says The Average Listed Rent For All Property Types In Canada Jumped By 10.7 Per Cent Year-over-year In January

The report from Rentals.ca and Urbanation calculated the average listed rent to be $1,996 in January, down 0.5 per cent from December.

When compared with the pre-pandemic average rent in January 2020 of $1,823, rents in Canada increased 9.5 per cent, which amounts to an average annual increase of 3.2 per cent during the three-year period.

Shaun Hildebrand, Urbanation’s president, says the numbers indicate that Canada’s rental market started 2023 in line with the end of 2022 but saw sharp annual rent growth, low supply and quickly rising demand.

Vancouver and Calgary had the highest increases in average rent for condos and apartments in January, with annual growth of 22.9 per cent and 22.7 per cent, respectively.

Meanwhile, Toronto condo and apartment rents increased 20.8 per cent annually in January.

This report by The Canadian Press was first published Feb. 15, 2023.

Source The Star. Click here to read a full story

The Commercial Real Estate Landscape Changed Significantly In 2022

The commercial real estate landscape changed significantly in 2022, so it’s not surprising executives have a whole new set of problems to worry about, according to the ULI/PwC Emerging Trends in Real Estate 2023 report.

“Unsurprisingly, if we look at our predictions for 2022, things have changed a lot,” David Neale, assurance partner for PwC Vancouver, told a gathering of the Urban Land Institute as the report was unveiled in the Western Canadian city. “We’ve had a year of political uncertainty, the highest inflation since the 1980s and an overall tougher climate to operate in.

“Interestingly, when we asked people what’s keeping them up at night, the answers were pretty much identical between Canada and the United States. Most of these interviews and the data contained took place in the summer and fall, and sentiment is likely more bearish now than it was even six months ago.”

Held at the venerable Terminal City Club, the Feb. 7 event was the first in-person gathering for the ULI’s Vancouver chapter since COVID restrictions were put in place in 2020.

The gathering coincided with the public release of the Emerging Trends report. Jointly produced by the ULI and PwC, the annual report provides an outlook on real estate investment and development trends throughout the United States and Canada.

Interviewees and survey participants represent a wide range of industry experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers and consultants.

ULI and PwC staff personally interviewed 617 individuals and survey responses were received from more than 1,450 individuals.

The highly regarded report is now in its 44th year.

The key concerns for CRE executives

In expanding on the findings, Neale noted: “Price discovery remains a key issue, with buyers, sellers and the lending markets hitting the pause button since the middle of last year.

“In 2022, there was an oversupply of capital. One year later, some respondents see an undersupply.”

The report also notes “sellers and buyers find themselves at odds over pricing expectations and valuations as some real estate assets come under pressure. Respondents identified interest rates and costs of capital as the top economic issue for real estate in 2023 and . . . both equity capital and debt capital are undersupplied.”

No. 2 on PwC’s list are impacts arising from ESG (Environmental, Social and Governance) factors which, Neale admits, “used to get huge eye rolls, but are now a concern since investors, lenders and private equity all need to report their own ESG numbers, and this results in a capital constraint.”

The report notes the Canadian real estate industry is a laggard when it comes to climate change strategy.

“In other areas of the world, investors are increasingly looking beyond whether a company has an ESG strategy to ask about plans to reach net-zero greenhouse gas emissions. And if a company does not have a net-zero strategy, they won’t invest.

“But while Canadian real estate players can expect to start seeing similar requirements from their own investors, our interviews showed that some companies have yet to fully embrace the net-zero imperative.

“According to PwC’s 2022 global CEO survey, just 19 per cent of real estate executives said that their organization had made a commitment to net-zero greenhouse gas emissions.”

ESG a key concern for millennial workers

One noteworthy aspect of the ESG conversation is its popularity with millennial workers.

“There’s still a war for talent and labour shortages in many professions,” Neale said. “Younger employees are communicating that they want to work with companies whose values line up with their own.”

Finally, conversations around housing affordability remain a key concern not just in the real estate industry, but throughout Canadian society generally.

“We’re told that we might get towards housing affordability if we build 5.8 million new homes by 2030. Well, right now we’re on track to build 2.3 million homes — roughly 300,000 housing starts per year — and that’s actually pretty good,” Neale said.

Add in high interest rates and the cost of owning a home gets even more prohibitive for many would-be homeowners, which in turn drives up apartment rental rates as well.

This is one reason why some people are exiting larger urban centres, but uncertainty over return-to-office requirements remains a factor for many.

“Canadians have been chasing affordability to smaller towns and cities, but we’re not quite sure how the work-from-home trend will end.”

Neale also offered a brief overview of the four main commercial and residential real estate sectors.

“The industrial category is a very safe sector, valuations are good, vacancies are low,” he observed.

“Office space and retail leasing will be unpredictable until we see how many workers return to the office.

“For instance, the Government of Canada controls 42 million square feet of office space and is facing resistance from workers, who want to continue to work from home.

“If even 20 per cent of this space was to hit the market, that would create a huge opportunity.”

Strong growth in 2023 for Vancouver

Specific to Vancouver, the report notes the city “continues to be (Canada’s) top market to watch for both its investment and development prospects,

The Conference Board of Canada is predicting healthy economic growth of 3.3 per cent in 2023.

“Rental demand is strong, while CMHC’s 2022 spring housing market outlook suggests that construction activity will not be enough to increase vacancy rates or reduce rents.

“And amid rising interest rates and slowing migration from other provinces, housing starts are declined by 15.8 per cent in 2022. The Conference Board predicts a further decline in housing starts of 6.4 per cent next year.

“The office market is seeing declining vacancy and climbing rents with new developments in the works; the majority of which are already pre-leased.

“The all-class downtown vacancy rate dropped to 7.2 per cent in the second quarter of 2022, down from 7.7 per cent at the start of the year, according to CBRE.

“Among the factors buoying the office market are a vibrant technology sector as well as a higher propensity for employees to return to the workplace in Vancouver and other cities in Western Canada.”

Vancouver’s industrial vacancy rate of 0.1 per cent is the lowest in Canada, while a Colliers report noted a 22.5 per cent year-over-year rise in the asking net rent.

The ULI/PwC report states while “some interviewees are watching for signs of a slowdown in Vancouver’s industrial market and the impacts of rising interest rates, others emphasize that land scarcity makes this asset class a best bet.”

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

All Asset Classes Trended Downwards

The roller-coaster ride continues for the MSCI/Real Property Association of Canada (REALPAC) Canadian Property Index. After plunging due to COVID-19 in 2020 and making a solid recovery in 2021, the 2022 results showed only a small overall return.

“We had the 2020 depths, a rebound in ’21, but then another drop in ’22 because the other shoe to drop was interest rates going up,” REALPAC chief executive officer Michael Brooks told RENX.

The total return on all assets, including developments, was 2.33 per cent in 2022. That compares to 7.9 per cent in 2021 and negative 4.1 per cent in 2020.

The total return on standing assets, which covers existing buildings, was 1.35 per cent. That figure was arrived at via a 4.35-per cent income return and capital growth of negative 2.9 per cent.

To put that in context, Brooks said the Toronto Stock Exchange (TSX) Composite Index was down 8.7 per cent, the S&P/TSX Capped REIT Index was down 20.5 per cent and the Total REIT Index was down 17 per cent in 2022.

What the MSCI/REALPAC Property Index measures

The MSCI/REALPAC Canadian Property Index measures unlevered total returns of directly held property investments.

Its goal is to enhance transparency, enable comparisons of real estate relative to other asset classes and facilitate comparisons of Canadian real estate performance to other private real estate markets globally.

The index started in 1985. It includes buying, selling, development and redevelopment activity data provided by major pension funds, insurance companies and large real estate owners in Canada.

The 2022 index encompassed 48 portfolios with 2,370 assets totalling 489.5 million square feet and a gross capital value of $172.8 billion.

The index has averaged an annual total return of 8.5 per cent since inception and 5.7 per cent over the past 10 years.

All asset classes trended downwards

All asset classes trended downwards in 2022. While industrial had a total return of 17.1 per cent, it was 31.6 per cent in 2021. The 2022 residential total return was 4.8 per cent, followed by retail at negative 3.9 per cent and office at negative 5.8 per cent.

Industrial capital growth was 13.1 per cent, followed by residential at 1.5 per cent, retail at negative 8.4 per cent and office at negative 10.2 per cent.

Office and retail returns were negative in most of the eight major Canadian cities included in the index.

The downtown office return was negative six per cent, compared to negative 6.2 per cent for suburban office. The corresponding 2021 return numbers were 2.4 per cent for downtown office and 4.3 per cent for suburban office.

Halifax had an 8.3 per cent total return, followed by Edmonton at 2.4 per cent, Montreal at 1.9 per cent, Calgary at 1.5 per cent, Vancouver at 1.1 per cent, Toronto at 0.7 per cent, Ottawa at negative two per cent and Winnipeg at negative 4.1 per cent.

Capital growth was negative in every city except Halifax, where it was 2.5 per cent. It was negative 2.1 per cent in Montreal, negative 2.8 per cent in Vancouver, negative 2.9 per cent in Edmonton, negative 3.1 per cent in Toronto, negative 4.6 per cent in Calgary, negative 6.1 per cent in Ottawa and negative 9.2 per cent in Winnipeg.

Brooks believes Halifax was the top performer because it has plenty of multiresidential, which performed relatively well, in its portfolio. He’s unsure why Winnipeg trailed the other seven cities in both total return and capital growth.

The U.S. had a total return of 5.7 per cent in 2022, which was about 2.5 times higher than Canada.

Brooks said the U.S. MSCI Property Index is heavily weighted towards multiresidential and doesn’t include much office, so it’s “difficult to make a true apples-to-apples comparison” of the performances of the two neighbouring countries.

2023 forecast

Brooks said it’s difficult to predict where the 2023 MSCI/REALPAC Canadian Property Index results will end up as it remains to be seen where interest and inflation rates will go.

“These macro issues are going to bear on the potential returns. If there’s a recession, do we have some more business failures in office?

“Do we have more tenants reducing their footprints in office buildings and that cutting into office rent revenues? There is still a lot of uncertainty.”

Brooks said Q4 2022 was the second during which there were property valuation write-downs and he wouldn’t be surprised if there are more this year.

“I attribute that to the fact that the valuers will have more transactional data to rely on and there will be more comparables,” he said. “All it will take is one distress sale to set a benchmark and pull values down a bit more.

“So we’ll see how we fare in Q1 in terms of capital growth, but the income return should continue to be there for all of the asset classes as their tenants are still in there paying rent so far.

“I’ve heard of no material defaults, although we’re certainly watching a few retailers like Bed Bath & Beyond, which is apparently struggling a bit, and there may be a few others that had too much debt — particularly if it’s floating rate debt.”

MSCI and REALPAC

MSCI provides decision-support tools and services for the global investment community. It has more than 50 years of expertise in research, data and technology to power better investment decisions by enabling clients to understand and analyze key drivers of risk and return when building portfolios.

REALPAC was founded in 1970 and is the national leadership association dedicated to advancing the long-term vitality of Canada’s real property sector.

Its 130-plus member companies include publicly traded real estate companies, real estate investment trusts, pension funds, private companies, fund managers, asset managers, developers, government real estate agencies, lenders, banks, life insurance companies, investment dealers, brokerages, consultants, data providers, large general contractors and international members.

REALPAC members have $1 trillion in assets under management and represent office, retail, industrial, apartment, hotel and seniors residential properties across Canada.

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

Iwg Pushes Growth, To Open 9 New Canadian Flex Work Offices

Flexible workspace and office provider IWG had a successful 2022 and will open nine new Canadian sites in the first part of this year as it looks to grow by 100 locations – to 250 sites – during the next three years.

IWG experienced major growth in Canada from 2014 to 2019, but offices in the country reopened more slowly from COVID-19 restrictions than in some other territories.

IWG Americas chief executive officer Wayne Berger told RENX that — while recovering more slowly in Toronto, Montreal and Ottawa — the overall business rebounded so well last year demand for flexible workspace has increased by about 30 per cent from pre-pandemic levels.

IWG opened nine Canadian sites in 2022 and is focusing on expansion in secondary, tertiary and suburban markets in which it had no, or minimal, presence.

“People are working in a more geographically disparate way than ever before and only coming into a company’s corporate headquarters when it’s necessary,” said Berger. “So the accelerated demand that we’re seeing is due to the changing nature of how people are able to live and work differently today.

“People are able to live in cities like Cambridge, Truro and Saskatoon and work for companies based in Toronto and Vancouver.”

Alternative for companies reducing real estate

The company, which is headquartered in Switzerland, works with 83 per cent of Fortune 500 companies, many of which are rationalizing their real estate portfolios.

It doesn’t make sense, according to Berger, for some of these firms to lock into a 10-year lease for a single large office footprint and spend millions of dollars on renting, furnishing and managing it.

“They’re now giving their team members access to 20, 30 or 50 locations that make sense for them,” Berger said.

“That ability to be untethered from one location and use technology to work from whatever physical location they need to has become a real game-changer for these companies.

“It’s shifting how people in companies are using space.”

IWG has approximately 3,500 locations in 120 countries, with 1,000 new centres due to be added over the next year.

It’s aiming to attract a variety of landlords — including real estate investment trusts, investors, property management companies, banks and asset managers — as part of its ambitious growth plans.

Berger said 90 per cent of the new sites IWG is launching for its flexible workspace brands — including Regus, Spaces, HQ, No18, Signature and The Wing — are in partnership with building owners and institutional developers.

When deciding what brand to open in a particular location, Berger said it looks at factors including: the type of building and size of space; the market and what IWG already offers there; the local competition; the capital investment the building owner is willing to put into the space; and the price point that would be the best driver for success.

Canada’s first four HQ locations

IWG will open its first four HQ locations in Canada this year:

  • Queens Realty Limited is the landlord partner in the 7,500-square-foot HQ Truro facility at The Common Works complex at 1 Commercial St. in the Nova Scotia town. It’s set to open in February.
  • Huntington Properties is the landlord partner in the 7,200-square-foot HQ Ottawa location at 396 Cooper St. that’s set to open in March.
  • Multivesco is the landlord partner in the 5,000-square-foot HQ Gatineau location at 200 Montcalm St., Tower 1 in the city across the Ottawa River from the nation’s capital. It’s set to open in March.
  • ELM Developments is the landlord partner in the 19,800-square-foot HQ South Edmonton location set to open in the ELM Business Park at 9426 51st Ave. in May.

“HQ is a brand that has a lower cost to build, but it’s very beautiful, very productive and provides all the design aesthetics and amenities that a company would want for its clients and for its team members,” said Berger.

“I think HQ has a tremendous brand equity and a significant amount of growth opportunity in Canada.”

Other IWG locations opening in Canada this year

Here are the other IWG locations confirmed to open in Canada in the next six months:

  • Markland Property Management is the landlord partner in the 17,266-square-foot Regus Cambridge at 73 Water St. in the Southwestern Ontario city. It’s set to open in February.
  • IMC Management is the landlord partner in the 10,600-square-foot Regus Sherbrooke location at 455 King St. W. in the Eastern Quebec city. It’s set to open in April.
  • Deerfoot Atria Partners Ltd. is the landlord partner in the 15,000-square-foot Regus Calgary location at 6815 8th St. N.E. Calgary’s 15th Regus site is set to open in June.
  • Memnon Management Inc. is the landlord partner in the 22,077-square-foot Spaces Leslieville location in The Wrigley Building at 235 Carlaw Ave. Toronto’s 14th Spaces site is set to open in May.
  • Lighthouse Hospitality Management is the landlord partner in the 17,000-square-foot Spaces Edmonton in the 28-storey Peak Tower (formerly Enbridge Tower) at 10054 102 St. It’s set to open in July.

Berger said IWG is also  in negotiations with building owners to open its first upscale Signature locations in Toronto, Montreal, Vancouver and Ottawa.

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

Mattamy Breaks Ground On 3 GTA Condo Developments

Mattamy Homes’ Greater Toronto Area (GTA) Urban Division officially broke ground on three condominium developments in late January: Westbend on Bloor Street West in Toronto; Mile & Creek in Milton; and Martha James in Burlington.

It’s a reflection of Mattamy’s belief there’s still demand for new condos despite slowing sales over the past several months said Alison O’Neill, vice-president of sales, marketing and design studio for Mattamy’s GTA Urban Division.

“I think people have been a little bit gun-shy on actually pulling the trigger on a purchase,” she told RENX. “I think everyone’s waiting for the mortgage rate announcements to settle down and waiting to see what’s happening with pricing. And I think we’re hopefully coming around the other side of that.”

O’Neill said Mattamy offered a more attractive deposit structure to purchasers for its two most recent launches than it may have during times when units were moving faster, and it seemed to help.

Launching three projects simultaneously, at a time when construction projects have experienced rising costs and delays due to labour and materials shortages, may seem risky. However, O’Neill said these possibilities have been factored into their scheduling and budgeting.

Westbend

The 13-storey, 174-unit Westbend is at 1660 Bloor St. W., between the Keele and Dundas West subway stations and northeast of High Park.

Unit sizes will range from studios of 425 square feet up to approximately 1,100-square-foot three-bedroom suites. Prices started in the low $600,000s and about 70 per cent of the units have been sold since the November launch.

Amenities at the BDP Quadrangle-designed building will include a co-working space, a fitness centre, a meditation deck and a rooftop lounge.

Work on a geothermal heating and cooling system is to begin soon, and occupancy is scheduled for July 2025.