Developer pivots Wicksteed Ave., site from its original plan to build office space
A proposed mass timber-constructed office development in Torontoās Leaside area has shifted focus; Beeches Development is now seeking to add much-needed biomedical laboratory space with its new building.
āWe originally designed a project that was going to be a really exciting, modern and iconic-looking flatiron building filled with mass timber that was going to be quite wonderful,ā Beeches president Charles Goldsmith told RENX. āBut absolutely nothing happened after COVID, so we shut it right down.
āI started looking for what was in demand and what we could do with the site. And having worked with Toronto Economic Development, it became apparent that the one thing that the city desperately needed was wet labs.ā
The proposed building, on a property at 154 Wicksteed Ave. which is currently occupied byĀ The Floor Shop, was radically redesigned because lab requirements are much different than those for conventional office space.
Goldsmith said a nearby future location for The Floor Shop has been secured and it can move quickly once the time arrives for demolition. Itās still providing rental income for site owner Peter Schultz in the meantime.
Goldsmithās long Toronto development career includes involvement with infill housing, apartment buildings, commercial properties and the 1984 acquisition and redevelopment of downtownāsĀ Hotel Victoria, which he sold toĀ Silver Hotel GroupĀ in 1997.
Goldsmith sees 154 Wicksteed as his latest urban revitalization endeavour.
Leaside Innovation Campus
What will be known as the Leaside Innovation Campus will offer plenty of windows to provide abundant natural light, 2.5-inch thick concrete floors with a live load of 100 pounds per square foot and 14-foot ceiling heights to allow for ease of design and layout and ensure maximum utility.
Specifications can be customized to meet tenant needs.
Along with two passenger elevators, a 3,500-pound capacity freight elevator will service each floor, including a shipping and receiving area and below-grade storage and/or data centre space.
The eight-storey, concrete-framed, brick building should be in the neighbourhood of 90,000 square feet.
Itās also proposed to have underground parking for more than 30 cars, storage for 30 bicycles, showers and change rooms on the ground floor, as well as rooftop amenities.
Good location for life sciences facility
Goldsmith estimates Leaside Innovation Campus could employ up to 300 and its location is advantageous as itās minutes from one of Canadaās largest research centres, theĀ Sunnybrook Research Institute, and its teaching hospital with theĀ University of Toronto.
North York General Hospital,Ā Michael Garron Hospital,Ā AlphaLabsĀ and pharmaceutical companiesĀ Johnson & Johnson Innovative Medicine, Alveda Pharma,Ā POINT Biopharma,Ā Wellesley Therapeutics Inc.,Ā CrassulaĀ and Vien Pharma are also in the area.
The neighbourhood has also seen a recent multifamily residential development boom to take advantage of theĀ Eglinton CrosstownĀ light rail transit line thatās under construction three blocks north of the Wicksteed Avenue site.
Itās also in close proximity to the Don Valley Parkway and Highways 404 and 401.
Approvals are in place
Goldsmith would like to begin construction on theĀ StudioCANOO-designed building before the end of the year.
Goldsmith estimates it will take about two years to complete. Heās willing to build on spec if necessary because heās confident tenants will come on board as construction progresses and occupancy timelines shorten.
The plan is for the development to be financed with 50 per cent equity and 50 per cent debt, though Goldsmith said he and Schultz will consider adding investment partners.
CBREĀ is seeking tenants to pre-lease space in the building as well as potential co-investors in the project.
Banks are generally reluctant to finance developments that arenāt pre-leased in todayās economic environment and, since the life sciences asset class is relatively new in Canada, there isnāt a lot of available historical data that may be able to convince them otherwise.
CBRE associate vice-president Daniel Lacey, who authored aĀ reportĀ on Torontoās need for more lab space last fall and is representing Leaside Innovation Campus, told RENX 90 per cent of the potential tenants heās spoken with donāt have flexible timelines and want to be in new space within 18 months.
Existing and proposed Toronto lab space
Downtown TorontoāsĀ MaRS Discovery DistrictĀ is the primary purpose-built, multi-tenant lab facility in the city. Other smaller buildings are occupied by owner-users or single tenants, according to Lacey.
KingSett CapitalĀ has proposed a four-storey, 187,000-square-foot life sciences research space addition to the top of its existing 20-storey, 1.22-million-square-foot building atĀ 700 University Ave., a block west of MaRS.
There are also plans in the two-square-kilometre downtownĀ Discovery DistrictĀ for theĀ second phase of the University of Torontoās Schwartz-Reisman Innovation Campus, which would add approximately 400,000 square feet of wet lab space and supportive programming to foster life science development and bioscience, regenerative medicine, and related research.
The closest-term future lab and life sciences option at the moment in Toronto isĀ Catalyst.
The seven-storey, 155,000-square-foot life sciences and research building at 77 Wade Ave. in the Junction Triangle neighbourhood is being developed byĀ Seeker LabsĀ and its capital partner,Ā Alberta Investment Management CorporationĀ (AIMCo).
It had a groundbreaking ceremony in October.
Need for more lab and life sciences space
Perhaps the greatest need is for accelerator or graduation space where small or startup firms in spaces of less than 5,000 square feet are seeking to upsize.
Lacey said early-stage companies generally donāt have capital allocations to improve existing spaces and are also reluctant to sign long-term leases in case they outgrow spaces.
āCompanies in our marketplace get big bags of money from private equity firms and then they move to the U.S. because thatās the only place where they get the lab space so they can hire people to advance their research quickly,ā said Lacey.
Some companies that have remained in Canada have seen their growth stunted because they have nowhere to expand, Lacey added.
Some office building owners had been contemplating conversions to lab space, but Lacey said none of them have moved forward in a meaningful way to this point as conversions can be very expensive and may still not provide an ideal solution.
Source Renx.ca. Click here to read a full story
Montreal developer says it also has 4.3M sq. ft. of development under way, or set to begin
Montreal-based developerĀ RosefellowĀ says it is set to build its first industrial development on spec in the Greater Toronto Area.
Rosefellow co-CEO Mike Jager says the developer will finalize its acquisition this quarter of a site in Mississauga near Pearson International Airport that will be redeveloped into a distribution centre. Construction at the yet-to-be-named site is slated to begin by Q3 of this year, says co-CEO Sam Tsoumas.
The developer is also on the verge of acquiring another industrial site close to Pearson airport, but not in Mississauga.
Jager says the two sites āare the first of many to comeā in the GTA. Rosefellow will continue to develop in Quebec but āwe just think because the market is so large in Ontario, much larger than Quebec, weāre going to see significant growth in the Ontario market.”
Jager says he and Tsoumas are also exploring the U.S. market and intend to begin Rosefellowās first development south of the border in 2025 or 2026. The two have traveled to markets such as Florida, New Jersey and Chicago.
“Huge opportunities” for industrial growth
āWe just see huge opportunities. The potential for us to grow in the U.S. is there and we want to take advantage of it.ā
The co-CEOs have been meeting with brokerage firms and property owners to learn more about the various markets and sub-markets in the U.S.
āWe need to understand the data well. Once we understand those markets, like we do Quebec and Ontario, weāll make a move,ā Jager says.
He says Rosefellow has a mix of private and public investors āinterested to grow with us in Ontario and others on the sidelines ready to deploy capital in the U.S.ā
Back in Quebec, Rosefellow will be notarizing this quarter on a 3.5-million-square-foot site on the South Shore of Montreal near Brossard that will be slated for a distribution centre.
It comes on the heels of Rosefellowās acquisition in December of 2.4 million square feet of the Le Versant golf course in Terrebonne, northeast of Montreal. The land is zoned industrial.
Golf course land to be redeveloped
Rosefellow plans to build on spec two net-zero distribution centre buildings of 350,000 and 400,000 square feet with 40 feet clearances at a cost of $160 million, including the land acquisition.
Construction of the 400,000-square-foot building is scheduled to begin in the fall for completion in 2025. The second building is to be completed in 2026.
Jager says some potential multinational tenants have reached out ābecause of the location (and) how limited the availability is for pure distribution sitesā in Greater Montreal.
The initial plan had been to build the largest spec building in Quebec, a cross-docking facility of just under a million square feet.
The site, bordering Highway 640 and close to Metro, Sobeys and Rona distribution centres, is the last industrial-zoned piece of land in Terrebonne that will be granted distribution centre status by the city, Tsoumas says.
Future industrial development in Terrebonne will be limited to manufacturing and R&D.
Until Rosefellow acquired nine holes of Le Versant, the golf course was the largest in Canada.
4.3M sq. ft. of construction underway, set to begin
Tsoumas says Rosefellow has 4.3 million square feet of industrial construction underway or set to begin in the next three months, not including its latest acquisitions.
Sites include Beauharnois, Candiac, Coteau-du-Lac south of Montreal, Kirkland on the West Island of Montreal, Laval and in the west Ottawa community of Kanata.
The developer has also completed construction of its second multifamily apartment building, the 200-unit Le Novella in the Montreal borough of Anjou.
Itās now 50 per cent leased ābut we know weāre going to be fully leased by June,ā Jager says, since many Quebec leases start on July 1.
Rosefellow previously built the 412,000-square-foot Le 111 apartment building in the borough of Saint Laurent, which is fully leased.
However, āwe have not actively pursued any new (residential) sites for development,ā Jager says. āThe rental rates are not where we would expect them to be or hope them to be, so weāre going to wait a little bit.ā
Rentals are still strong on the industrial front, Tsoumas says, although rent growth wonāt match the growth seen in recent years.
The number of calls from potential tenants has declined recently, he notes, but all are from serious renters.
āWhile everybody is pushing the brakes, we feel that the (industrial) market within the next 12 to 18 months is going to start going back to where it was just pre-COVID in 2019, which was on an upswing, just not at the rate that it was in the last two years,ā Tsoumas says.
āWe feel that if we get our properties ready in 24 months or so, we will be the only developers with actual class-A, brand-new product.ā
Source Renx.ca. Click here to read a full story
UPDATED WITH SALE CLOSING:Ā Morguard Corp.Ā has sold a portfolio of 14 hotels in eastern Canada for $410 million.
Morguard stated the move aligns with its ācommitment to optimize its real estate portfolio, focusing on core real estate investments, including office, industrial, retail, and multi-suite residential properties.ā
Morguard did not originally divulge the buyer, but InnVest Hotels of Toronto has acquired 10 of the properties.
The hotels Morguard sold are located in Halifax, Ottawa, four communities in the Greater Toronto Area and Sudbury and comprise a total of 2,248 rooms (see complete list below).
“It is an opportune moment to divest these properties given the current market demand for a hotel portfolio of this size and quality, as well as their enhanced market value,” K. Rai Sahi, Morguardās chairman and chief executive officer, said in the release.Ā “Morguard has strategically divested our hotel portfolio to align with our objectives of strengthening the company’s balance sheet while owning a high-quality portfolio of income producing real estate.”
In a separate release, InnVest said it acquired 10 properties in the Greater Toronto Area, Sudbury and Halifax. It acquired a total of 1,737 guest rooms with the portfolio, and 40,000 square feet of convention and meeting spaces.
InnVest plans to initiate a “multi-faceted renovation over the coming years to elevate the guest experience” the release states.
“We are delighted to announce our largest acquisition since 2007 which demonstrates confidence in our vertically integrated hospitality organization and the Canadian hotel market. Ā We welcome the 766 new team members that have joined our organization.” Lydia Chen, president and CEO of InnVest, said in its release.
The 14-hotel portfolio being sold
The portfolio is encumbered with first-mortgage debt totalling $48.7 million, which will be repaid through proceeds of the sale, according to the release. This will result in net proceeds of $361.3 million for Morguard, before customary adjustments and closing costs.
The portfolio includes Marriott, Hilton, IHG and independently-branded hotels.
The GTA-area hotels are located in Toronto, Mississauga, Markham and Vaughan.
Morguard has retained ownership of two hotels: a dual-brand Hilton Garden Inn and Homewood Suites in Ottawa; and the Inn at the Quay in New Westminster, B.C..
“The heightened level of financial flexibility provided by this transaction will empower us to strategically deleverage, which is important given the current interest rate environment, Paul Miatello, Morguardās chief financial officer, said in the announcement.
Hotels involved in the portfolio sale are:
- Courtyard Marriott – Markham, Ont,, 144 rooms;
- Residence Inn Marriott – Markham,Ā 100 rooms;
- Courtyard Marriott – Mississauga, 144 rooms;
- Hilton Garden Inn Toronto Airport West – Mississauga, 152 rooms;
- Cambridge Suites – Mississauga, 100 rooms;
- Holiday Inn Express – Ottawa, 115 rooms;
- Towne Place Suites by Marriott – Sudbury, 105 rooms;
- Courtyard by Marriott Toronto Airport – Toronto, 168 rooms;
- Hotel Carlingview Toronto Airport – Toronto, 112 rooms;
- Residence Inn by Marriott Toronto Airport – Toronto, 137 rooms;
- Toronto Airport Marriott – Toronto, 424 rooms;
- Courtyard Marriott Vaughan – Vaughan, 144 rooms;
- Cambridge Suites Hotel – Halifax, 200 rooms;
- The Prince George Hotel – Halifax, 203 rooms.
Hotels acquired by Innvest are: the Marriott Toronto Airport, Courtyard Toronto Airport, Residence Inn Toronto Airport, Hotel Carlingview, Courtyard Vaughan, Courtyard Markham, Residence Inn Markham, Townplace Suites Sudbury, Cambridge Suites Halifax and The Prince George Halifax.
Aside from the Marriott Toronto Airport, which will continue to be managed by Marriott Hotels, the hotels will be managed by iHotels. The acquisition will grow InnVest’s Marriott branded franchise and managed portfolio to 14 hotels making us one of the largest owners of the brand in Canada.
About Morguard and InnVest
InnVest’s portfolio consists of more than 90 hotels, encompassing a number of hotel brands. Its management team oversees the daily operations of 85 owned and third-party owned hotels, making InnVest the largest owner and operator of hotels in Canada.
Morguard’s holdings, including its owned and managed properties, stood at approximately $18.6 billionĀ as of the end of Q3 2023. This included $10.8 billion of owned real estate, approximately $4.1 billion of managed real estate and $3.7 billion of managed equities and fixed income investments.
The Mississauga-based real estate firm’s assets have been focused on the multiresidential, commercial and hotel sectors, though it has been reducing its hotel portfolio for the past couple of years.
At the end of 2021 Morguard owned 32 hotel properties, by the end of 2022 that was down to 17.
As of Sept. 30 2022 the firm reported a debt-to-total assets ratio of 47.8 per cent (total assets of $12.4 billion). As of Sept. 30, 2023 the ratio had risen to 49.5 per cent with total assets of $11.7 billion.
Morguard reported a $9.4 million loss in Q3, and a profit of $55.1 million through the first nine months of 2023.
Source Renx.ca. Click here to read a full story
Cooper ConstructionĀ and its partners have completed the construction, development and lease-up of Phase 2 of the Hanlon Creek Business Park (HCBP) in the south end of Guelph, Ont.
This second phase of Hanlon Creek encompasses 1.9 million square feet of class-A industrial and corporate office buildings on a 140-acre site adjacent to the Hanlon Expressway. Its uses include manufacturing, warehousing, logistics, vertical farming and corporate offices.
HCBPās second phase features state-of-the-art and environmentally sustainable facilities, green spaces, electric vehicle charging stations, solar energy initiatives, aquifer regeneration infrastructure, a large natural water feature and a recreational trail system in support of achievingĀ LEEDĀ Silver andĀ WELLĀ certifications, as well as net-zero carbon-ready status.
The HCBP site is a five-minute drive from Highway 401 and close to Toronto, Hamilton and Kitchener-Waterloo. Members of the local labour market can access it by public transit.
Hanlon Creek Business Park history
TheĀ City of GuelphĀ did all of the infrastructure work, including the creation of a road system and development blocks, and then sold the serviced sites for Phase 1 at Hanlon Creek.
The city master-planned the roads for Phase 2, but didnāt do the work. It didnāt own all of the land for this phase either, as there was a family-owned farm that needed to be developed in concert with the municipally owned lands.
The same concept holds true for the forthcoming Hanlon Creek Phase 3, which Cooper is interested in being a part of, president Don Gordon told RENX.
Cooper and financial partnerĀ Montez CorporationĀ purchased land for Phase 2 from the Phelan family in 2007 and the municipality in 2010. Approvals were granted, the site was serviced and development lots were created before the construction of buildings began in 2016.
Cooper and Montez developed four buildings before Montez sold its interest to Summit Industrial Income REIT. The new partners were developing their fourth building on the site when Summit was acquired last February byĀ GICĀ andĀ Dream Industrial REITĀ for $5.9 billion.
Smaller Phase 2 sites were sold
āAlong the way, we sold off a couple of small sites that didn’t really lend themselves to the types of buildings that Summit and/or Montez were building,ā Gordon explained. āSo we parsed those small, irregular sites off and we also sold about 19 acres toĀ Co-operatorsĀ for their new corporate head office.ā
The Co-operators office building is under construction and will be completed this year.
Phase 2 of HCBP is now fully leased to tenants includingĀ Lynden Logistics,Ā GoodLeaf Farms,Ā OxiCP,Ā PiVAL,Ā Omni Packaging,Ā GoPlus,Ā Fraser Direct,Ā Lane Sales,Ā Brewers Supply Group,Ā Jet Tools,Ā Denso Manufacturing CanadaĀ and theĀ College of Veterinarians of Ontario.
Cooper is providing property management services to some of buildings while others are managed by new owners.
Forthcoming Cooper developments
Oakville-based Cooper is a 118-year-old, family-owned company that provides southern Ontario markets with design/build construction, construction management and industrial, office, institutional and self-storage real estate development services.
Cooper is also nearing completion ofĀ Grand River Business Park West, a new Kitchener industrial development targeting a LEED Silver certification with a net zero carbon-ready design. The speculatively built 363,108-square-foot building on 20 acres at 355 Shirley Dr. features a 40-foot clear interior ceiling height, 50×56-foot bays and a 60-foot staging bay.
āWe’re waiting for a swift lease-up,ā Cooper vice-president of development and real estate Domenic Natale told RENX.
The Grand River Business Park East in Kitchener is also under development. The 26-acre site will feature two buildings totalling up to 440,000 square feet with 40- and 28-foot clear heights, 50×56-foot bays and a 60-foot staging bay. Both are to be built on spec.
Cooper is targeting a LEED Silver certification and to be net-zero carbon-ready by completion in late 2025 or early 2026.
Cooper is developing a 40-acre site at 7475 McLean Rd. in Puslinch, a Wellington County township surrounding the south end of Guelph.
The spec-built project will feature two 419,250-square-foot buildings with 40-foot clear heights, 41×56-foot bays, a 60-foot staging bay and parking for 73 truck trailers.
A LEED Silver certification and net zero carbon-ready status are being targeted, along with a late 2024 completion date.
Source Renx.ca. Click here to read a full story
While the Canadian industrial real estate market has slowed a bit after several years of remarkable growth, it remains a favoured asset class for investors.
ColliersĀ vice-chairman Gord Cook moderated a four-person panel that considered the state of the market and where itās going during the recentĀ Real Estate ForumĀ at theĀ Metro Toronto Convention Centre.
āIndustrial has obviously been the darling asset class, probably since 2015,ā said Cook in his introduction, pointing out the substantial growth in industrial rents since then ā including high single-digit growth in 2023.
Cook also acknowledged industrial transaction volume had been strong during the year, exceeding $8 billion by the end of Q3. While institutional investors have stepped back and real estate investment trusts have been relatively quiet despite strong market fundamentals, private investors picked up the slack.
A number of new developments were delivered and thereās a strong pipeline for 2024, he noted.
So, while vacancy rates remain very low, many in the industry are wondering if we might be getting closer to a balanced market with supply catching up to demand as listings numbers grow and sublet space increases.
āE-commerce spending is slow, which has been a big driver of our industrial base,ā Cook said. āAnd what I think is really interesting is there’s generally a surplus capacity in the global supply chain.ā
Oxford Properties Group
Oxford Properties GroupĀ has ownership stakes in warehouse, manufacturing and distribution facilities across North America, Europe and Asia-Pacific.
Its Canadian industrial portfolio is heavily weighted in the Greater Toronto Area, but it also owns buildings in Alberta and British Columbia.
While demand for industrial product exploded during the pandemic, Oxford vice-president of industrial Alistair Pickering believes the market has entered a more normalized period.
āThere will be a subset of companies who probably overreached and have a little too much space where they were just grabbing whatever they could and if they couldn’t get size-appropriate space they had to take more,ā Pickering observed.
āThen we’ve got the effect of safety stock and re-shoring, which I think is a longer-term structural benefit for the industrial market.
“I think the shocks that the supply chain collapse caused have resulted in companies looking at keeping more stock on hand nearby, but also diversifying their supply chains.ā
While Pickering said the United States has done a better job of encouraging the re-shoring of manufacturing, Oxford is seeing some manufacturing coming into its portfolio.
āWe’re seeing demand be very muted at the moment and I think some of that is just the level of uncertainty,ā Pickering said. āI think anyone who can avoid making a decision is avoiding making a decision.
āI don’t think we need to panic about that yet. I think once we start to see some stabilization and people have a reasonable view of what the future looks like, then I think those decisions will flow.ā
E-commerce adoption in Canada is behind the U.S., and even further behind other parts of the world, so Pickering thinks thereās still room for growth there that will benefit industrial real estate.
āDemand is going to be tied to consumption,ā he noted.
āAs GDP starts growing, then people will be consuming goods and they’ve got to be manufactured, stored and distributed from somewhere. So I think the fundamentals are still very good for our industrial business.ā
Even if per capita consumption is slightly suppressed, Pickering said that should be offset by Canadaās growing population.
Dream Summit Industrial LP
Dream Summit Industrial LPĀ is owned by a joint venture betweenĀ GICĀ andĀ Dream Industrial REITĀ created through Februaryās $5.9-billion acquisition of Summit Industrial Income REIT.Ā Singapore-based GIC owns 90 per cent of the venture.
Dream Summit senior VP of asset management Kimberley Hill said tenants are becoming more cautious, taking longer to make leasing decisions, pushing back on annual rent escalators and enjoying a growing number of options on where to lease.
Hill said Dream Summit can still get annual rent escalations of more than five per cent for small-bay buildings.
For larger buildings with leases of 10 years or more theyāre trying to get four to five per cent early and taking it down to three per cent at the back end.
Dream Summit has significantly overshot its pro formas in Guelph and itās seeing increasing interest in its developments from companies that service electric vehicle manufacturers, according to Hill.
Due to the rapid rent escalations of recent years, older buildings are now getting rents just a dollar per square foot less than new, speculatively constructed facilities.
Hill doesnāt think that quality relative to price is being fairly factored in todayās market.
Hill remains bullish on new development, however, because new buildings have a long track record of attracting higher rents and she believes that will continue.
BGO
BGOĀ serves over 750 institutional clients with approximately US$81 billion of office, industrial, multiresidential, retail and hospitality property assets under management in 13 countries.
Managing partner Keith Major said most of 2023ās Canadian industrial rent growth took place in Q1, but tenants looking to renew after coming off of long-term leases are still experiencing āsticker shock.ā
There are still good opportunities to get healthy annual rent escalators for small-bay buildings, according to Major, who doesnāt see annual increases ending for any size of facility.
āWe need a way to hedge against inflation and we need a way to match up better to long-term yields on bonds and some of the other instruments,ā Major said.
New entrants to the market have increased demand for food and food-processing facilities, and Major said some older buildings are being modernized to accommodate this sector.
āWe love those tenants because they make a huge investment in the real estate and theyāre really committed long-term,ā said Major. āThey’re very stable from a business perspective.ā
Most sublet space is available in large buildings at the moment, but Major expects some tenants that needed 50,000 square feet two years ago, but took 75,000 because thatās what was available, may pull back when their leases expire.
Pure Industrial
Pure IndustrialĀ acquires, develops, leases and manages industrial real estate across Canada, including approximately 18 million square feet in the Greater Toronto Area, 17 million square feet in the Greater Montreal Area, four million square feet in the Greater Vancouver Area and four million square feet in Edmonton and Calgary.
President and COO David Owen said tenants are being hit with higher costs across the board and rents remain a relatively small portion of their overall expenses.
Larger buildings generally have longer leases of 10 to 15 years, particularly for new developments, while leases for smaller buildings generally range from three to five years.
Owen said thereās more pushback on annual rent escalators for the longer leases, while theyāre still getting north of five per cent for some properties with shorter leases.
While Pure doesnāt have much sublet space in its portfolio, Owen said landlords have become more willing to offer incentives, including free rent and tenant improvements.
Owen doesnāt expect much new industrial product to enter the Canadian market from 2025 to 2028.
Source Renx.ca. Click here to read a full story
International buyers accounted for over half the largest commercial real estate sales: Altus Group
Overall commercial real estate investment in Canada was down by 35 per cent in 2023 versus 2022, the most significant percentage drop since the first year of the pandemic, according to data fromĀ Altus Group.
Canadian transactions declined from $79 billion in 2022 to $50.8 billion in 2023, according to Altusā most recent figures.
The slowdown in activity was largely due to higher interest rates, uncertainty about the economy and a growing bid-ask separation between buyers and sellers, says Raymond Wong, vice-president, data solutions at Altus.
However, the attractiveness of the Canadian market grew to foreign buyers, with foreign investments by dollar value representing just over 50 per cent of the Top-30 Canadian transactions in 2023. Indeed, the top three transactions in 2023 by dollar volume all involved foreign buyers.
āCanada has always been seen as a safe haven for foreign dollars, especially with our population growth based on immigration over the last few years,ā Wong says.
Retail prominent in major transactions
Given the reduced number of buyers in the market, it was a good opportunity for some investors to make a move, he adds.
While industrial and multiresidential real estate remains strong with investors because rents in the asset classes continue to rise, several of the Top-15 transactions in Canada in 2023 involved retail properties.
Most of 2023ās Top-15 transactions are in the GTA and in Ontarioās Greater Golden Horseshoe area.
As for a 2024 forecast, Wong expects a slow start in the number of transactions until interest rates begin to drop.
Activity should increase by mid-year as long as rates start to come down, but āI donāt think weāre going to reach the $79 billion we reached in 2022.ā
The Canadian Top-15 list
Here are the 15 largest (by dollar value) commercial real estate transactions in Canada in 2023, according to Altus:
1.Ā Allied Properties REITĀ sold its Toronto-based Canadian data centre portfolio to Japanese telecom firmĀ KDDI CorporationĀ for $1.35 billion. The transaction included freehold interests in 151 Front St. W. and 905 King St. W. and a leasehold interest in 250 Front St. W. KDDI owns and operates data centres in Asia, Europe and the U.S. through its subsidiary Telehouse.
2. Global alternative assetĀ management firmĀ TPGĀ acquired a 75 per cent interest in twoĀ Oxford Properties GroupĀ industrial business parks in the GTA for $990 million. Oxford has retained a 25 per cent interest in the Brampton Business Park and Vaughan Business Park and will continue to manage the 5.1-million-square-foot, fully leased portfolio. Itās the first JV between TPG and Oxford. Tenants include Mondelez, Best Buy and Campbells, and there are several long-term leases.
3. Ohio-basedĀ WelltowerĀ expanded its relationship withĀ Cogir Real EstateĀ after spending $885 million to purchase from Desjardins 12 seniorsā residences with 4,173 units in the Montreal and Quebec City areas. Cogir is managing the properties as part of its five per cent stake in the JV deal. Welltower said the buildings have margins of more than 40 per cent and a low need for capital expenditure improvements.
4. U.S.-based REITĀ W.P. CareyĀ spent $638.3 million to acquire four pharmaceutical R&D and manufacturing campuses in the GTA operated by Canadian global generic drug giant Apotex Pharmaceutical Holdings. The portfolio of 10 properties in the GTA and one in the Golden Horseshoe represents the majority of Apotexās global operations, comprising 11 properties which cover about 2.3 million square feet of space. Apotex remains as a top tenant.
5.Ā IvanhoĆ© CambridgeĀ soldĀ a 49 per cent stake of the 1.5-million-square-foot Vaughan Mills regional outlet mall toĀ LaSalle Investment ManagementĀ as part of a $470.2 million syndication deal. Under the syndication, IvanhoĆ© Cambridge and LaSalle will serve as co-owners of the more than 20-year-old centre, while IvanhoĆ© will continue to act as asset manager. IvanhoĆ© called the retail transaction one of the largest it has made over the past few years. Located at Highway 400 and Rutherford Road in Vaughan, the 250-tenant mall is 97 per cent leased.
6.Ā Pinewood GroupĀ investedĀ $425 million to acquire 33.5 acres of land and a 570,000-square-foot building that Pinewood operates as a movie studio at 101 Commissioners St. in Toronto.Ā Build Toronto Inc. was the seller. The Pinewood Toronto Studios facility is the largest of its kind in Canada.
7.Ā Axium InfrastructureĀ andĀ AgeCare Health ServicesĀ invested $378.7 million to acquire theĀ Chartwell RetirementĀ portfolio in Toronto and Hamilton. The deal, a combination of a share sale and market transaction, included 16 long-term care homes, two of which include retirement residences, with 2,418 beds. AgeCare also operates retirement residences in Alberta and B.C. Axium is an independent portfolio management firm.
8.Ā Primaris REITĀ purchasedĀ the Halifax Shopping Centre for $370 million in an investment the REIT called an attractive one due to the city’s recent population growth. Located in the cityās west end, the Halifax Shopping Centre was operated byĀ Cushman & Wakefield Asset Services Inc., on behalf of OPB Realty Inc., the real estate arm of theĀ Ontario Pension Board. Built in 1962 at 7001 Mumford Rd., the 170-store mall is scheduled for a renovation this year.
9. Montreal-basedĀ Groupe MachĀ andĀ Sarees InvestmentsĀ acquired ONE60 at 160 Elgin St. in Ottawa for $277 million. The million-square-foot downtown complex appealed to Mach for several reasons, including long-awaited average lease terms of just over eight years, credit-worthy large tenants, a vacancy rate of only three per cent, recent renovations that brought it up to par and a selling price that was well below replacement value.
10. The Ontario Pension BoardĀ sold the Erin Mills Town Centre in Mississauga for $272 million to theĀ Pemberton Group,Ā Metrus Properties,Ā HBNG Holborn Group,Ā The Remington GroupĀ andĀ Condor Properties. Built in 1989, the 850,000-square-foot centre sits on 84 acres of land.
11.Ā Primaris REITĀ boughtĀ the Conestoga Mall in Waterloo from IvanhoĆ© Cambridge for $270 million. The 585,000-square-foot enclosed mall is located on 49.8 acres of land and has 94.4 per cent in-place occupancy.
12.Ā Dream Unlimited Corp.Ā andĀ Great Gulf GroupĀ invested $259 million to buy 259-291 Lake Shore Blvd. E. in Toronto from theĀ Toronto Waterfront Revitalization Corp. The site, covering about 4.6 acres, is zoned for high-density residential. Dream Unlimited is developing the Waterfront Toronto property on Lake Ontario.
13. Swedish lithium-ironĀ battery manufacturerĀ NorthvoltĀ spent $240 million to acquire from Quartier MC2 Inc. a 420-acre site in Saint-Basile-le-Grand and McMasterville, Que. Northvolt will build a new multibillion-dollar electric vehicle battery plant about 30 kilometres east of Montreal. The projectās first phase is valued at $7 billion.
14.Ā Walia Group of CompaniesĀ acquired eight retail properties ā four in Calgary and four in Winnipeg – fromĀ Artis REITĀ for $222 million. The four Calgary shopping centres include Crowfoot Corner, Crowfoot Village, Sunridge Pointe and Sunridge Spectrum, totalling 293,660 square feet. The Winnipeg properties are Linden Ridge Shopping Centre, Linden Ridge Shopping Centre II, McGillivray Boulevard and the Shoppes of St. Vital.
15.Ā CentreCourt DevelopmentsĀ purchasedĀ the 830,000-square-foot Pickering Town Centre from theĀ Investment Management Corporation of OntarioĀ (IMCO) for $203 million. CentreCourt has announced plans to build 10 high-rise condominium buildings around the mall that will include more than 6,000 residences.
Source Renx.ca. Click here to read a full story
Overall commercial real estate dollar values drop from pre-pandemic highs, buyer trend shifts
Commercial real estate investment volume fell to a combined $28.5 billion in the Greater Toronto and Greater Golden Horseshoe regions from a historic high of $41.2 billion in 2022, according toĀ Altus GroupĀ data. There was also a significant geographic shift in companies which completed major acquisitions in the regions.
In the individual markets, transactions fell: to $21.5 billion last year from $30.7 billion in 2022 in the Greater Toronto Area (GTA); and to $7 billion from $10.5 billion in the adjoining Greater Golden Horseshoe (GGH) area. Those numbers are perhaps not as low as they may initially appear, however.
Last yearās GTA figure, for example, was in a similar range to the 2017 to 2019 period, before the COVID-19 pandemic dropped volume to about $17 billion in 2020. The rebound from that low pushed record-breaking totals past $30 billion in the next two years, according to data provided byĀ Altus Group.
The Top-10 GTA and GGH transactions represented approximately $5.9 billion in volume and foreign investors were responsible for the Top-5 acquisitions and six of the Top 10.
Altus Group vice-president of data solutions client delivery Ray Wong told RENX the foreign investment trend could continue into 2024 if large, high-quality assets ā which is what those types of investors are seeking ā are available.
Canadian private investors lead the way
Canadian private investors still accounted for the highest share of acquisition volume, however, at close to 40 per cent with $8.12 billion.
Developers were responsible for $3.84 billion, foreign public investors for $2.08 billion, users for $1.81 billion, foreign private investors for $759 million, institutions for $691.5 million, governments for $574.4 million, builders for $323 million and Canadian public investors for $233.3 million.
Sector-wise, industrial had the highest total at $5.75 billion. It was followed by:
- residential land at $3.6 billion;
- office at $2.92 billion;
- industrial, commercial and investment land at $2.7 billion;
- retail at $1.74 billion;
- apartments at $1.28 billion;
- residential lots at $314.3 million;
- and hotels at $163.3 million.
Wong said retail has remained consistent as purchasers are acquiring properties both for immediate income generation and future intensification through residential or other development.
Office properties have continued to trade and the 2023 dollar amount exceeded the 2021 total despite high vacancy rates.
Some of those transactions have also involved future intensification or redevelopment plans, according to Wong.
2024 transaction forecast
While there are buyers in the marketplace, there are fewer than in 2021 and 2022 as theyāre often having difficulty finding the right asset that meets their return expectations and obtaining financing can be difficult ā especially for non-income-producing land sites.
āI think there are some opportunities in the marketplace provided you have access to capital,ā said Wong.
āThere are still some challenges with high interest rates to be able to secure financing for certain properties, but, as interest rates start to come down later this year, weāll see a little bit more activity.ā
MorguardĀ has already sold 14 hotels in the GTA, Halifax, Ottawa and Sudbury, Ont., for $410 million to an unidentified buyer this year.
Wong believes this could be an early indicator of more hotel transaction activity in 2024 as more people are travelling again and room rates have been increasing.
While there werenāt many distress sales in 2023, Wong thinks mortgage renewals at higher interest rates could potentially bring more this year.
The Top 10 transactions
These were the 10 largest (dollar value) commercial real estate transactions of 2023 in the GTA and GGH, according to Altus Group data:
- Japanese telecommunications firmĀ KDDI CorporationĀ acquired three downtown Toronto data centres totalling 1.84 million square feet for $1.35 billion fromĀ Allied Properties REITĀ on Aug. 16.
- San Francisco-based alternative asset managerĀ TPGĀ acquired a 75 per cent interest inĀ Brampton Business ParkĀ and Vaughan Business Park, which combine to include 10 buildings totalling 5.11 million square feet on 223 acres, for $990 million fromĀ Oxford Properties GroupĀ on Dec. 18. Oxford retained a 25 per cent interest in the portfolio and will continue to manage it.
- New York City-based REITĀ W.P. CareyĀ acquired 10 properties in the GTA and one in the GGH, encompassing 2.3 million square feet on 26.7 acres over four pharmaceutical research and development and manufacturing campuses, for $638.28 million fromĀ Apotex Pharmaceutical Holdings Inc.Ā in a sale-leaseback deal on April 3. Apotex signed a triple-net master lease with fixed rent escalations over a 20-year term to remain at the properties.
- Chicago-headquarteredĀ LaSalle Investment ManagementĀ acquired a 49 per cent interest in theĀ Vaughan MillsĀ shopping centre in Vaughan for $470.16 million fromĀ IvanhoĆ© CambridgeĀ on Dec. 20. IvanhoĆ© Cambridge will continue to act as asset manager.
- London, U.K.-basedĀ Pinewood GroupĀ acquiredĀ Pinewood Toronto Studios, an 11-stage film and television studio encompassing 570,000 square feet on 33.5 acres in Toronto, for $425 million fromĀ Build TorontoĀ on May 3.
- Axium Infrastructure Inc.Ā and its affiliates andĀ AgeCare Health Services Inc.Ā and its affiliates acquired 16 long-term care homes with 2,418 beds in the GTA and GGH for $378.7 million fromĀ Chartwell Retirement ResidencesĀ on Sept. 6.
- Pemberton Group,Ā Metrus Properties,Ā HBNG Holborn Group,Ā The Remington GroupĀ andĀ Condor PropertiesĀ acquired MississaugaāsĀ Erin Mills Town Centre, a mall encompassing 898,578 square feet on 85.2 acres, for $272 million from theĀ Ontario Pension BoardĀ on Jan. 31.
- Dream Unlimited Corp.Ā andĀ Great Gulf GroupĀ acquired 4.6 acres of residential land at 259-291 Lake Shore Blvd. E., 200 Queens Quay E. and 2 Small St. in Toronto for $259.04 million fromĀ Toronto Waterfront Revitalization CorporationĀ on March 1.
- CentreCourtĀ acquired the 700,000-square-footĀ Pickering Town CentreĀ mall and a 130,000-square-foot office building on 55 acres at 1355 Kingston Rd. in Pickering for the future master-plannedĀ Pickering City CentreĀ residential and mixed-use development for $203 million fromĀ Investment Management Corporation of OntarioĀ (IMCO) on Dec. 15.
- Pontegadea Group, the family office of Spanish billionaire Amancio Ortega, acquired a 422,433-square-foot industrial building on 59.7 acres atĀ 45 Di Poce WayĀ in Vaughan for $198.2 million fromĀ Pure IndustrialĀ on June 15.
Source Renx.ca. Click here to read a full story
Vacancy has surged in downtown office markets across the country as more new buildings are completed and companies deal with cost cuts as well as combinations of at-home and in-office work.
The real estate company said Toronto offices drove the national downtown vacancy rate to a record high of 19.4% in the fourth quarter, according to a report by CBRE. The downtown vacancy rate in Canada’s largest city rose to 17.4% in the year’s final quarter, up from 15.8% a quarter earlier.
Additional new supply helped to drive downtown Toronto’s vacancy rate, with 624,550 square feet of new office space completed in the fourth quarter. The 1.1 million square feet of new supply in downtown Toronto’s office market in 2023 led to negative absorption, or change in the amount of space occupied, of 2.7 million square feet, the worst result since 2020.
“The office market continues to face challenges, but Toronto’s are particularly acute right now,” said Paul Morassutti, chairman of CBRE Canada, in the report. “Based on global trends, office utilization and demand are picking up. That is helping improve office fundamentals in most Canadian cities. Toronto will also benefit from the overall trends once new construction comes to an end since it is new supply that’s had the biggest impact on the city’s vacancy.”
Once Toronto’s office market performance is factored out, Canada would have had a positive net absorption in the fourth quarter, CBRE said.
The real estate company also said office-to-residential conversion programsĀ such as this one in CalgaryĀ have helped the office market and credited those programs with Calgary’s third straight quarter of positive absorption. The oil patch still has a downtown vacancy rate of 30.2%, but that was close to 33% a year ago.
In the capital, CBRE said office-to-residential conversions have helped to reduce the vacancy rate in downtown Ottawa to 14.2%. The downtown vacancy rate peaked above 15% in the second quarter of 2023.
More than 2.5 million square feet of office space, or 0.5% of the total national inventory, was converted to primarily residential use in 2023. CBRE said the number of feasible conversions is limited because of physical requirements, zoning and financial viability.
The rising vacancy rate continues to impact Canada’s office development pipeline, with only 10.9 million square feet of space under construction nationally. That is equal to 2.2% of inventory, with 54.4% of that space preleased.
Construction of new office space is now at its lowest level since the third quarter of 2017. CBRE said only 784,000 square feet of office projects started construction in 2023.
Sam Damiani, an analyst with TD Cowan, said the CBRE report points to signs of stabilization in the office market, with only Toronto’s new towers masking what would have been a positive quarter for demand.
“We believe the report will likely ease some investor concerns over office fundamentals as reflected by the heavily discounted valuation of Canadian Office REITs,” said Damiani in a note that suggests a capitalization rate for offices of an implied annual 8.3% yield with average prices of $305 per square foot. “We do remain cautious on the near-term outlook given the about 7.6 million square feet of deliveries slated for 2024 [versus 2.5 million square feet in 2023] along with a challenging leasing environment.”
Source CoStar. Click here to read a full story
Rexallās American owner is shopping the pharmacy chain to prospective buyers, according to sources, as McKesson Corp. reconsiders its Canadian footprint after a 15-year expansion.
Texas-based McKesson Corp. is a distribution giant for the pharmaceutical industry, and the company took a particular interest in Canada starting around 2008. Initially, McKesson Corp. expanded by acquiring independently owned pharmacies, but it made a major splash in 2016 with theĀ acquisition of RexallĀ from the Katz Group Canada Ltd. for $2.9-billion.
Eight years and a pandemic later, McKesson Corp. is looking to unload Rexall and has been in contact with prospective buyers, according to two sources familiar with the sale process. Rexall operates roughly 400 pharmacies and employs around 8,000 people. In an email to The Globe, McKesson said it does not comment on rumours or speculation.
The Globe and Mail is not identifying the sources because they are not authorized to speak publicly about the matter.
Although McKesson Corp. is exploring a sale, there is no guarantee a deal will be completed. The pool of potential buyers includes rival chains who want to expand their footprints as well as private equity firms, many of whom are flush with cash. If a sale is completed, McKesson Corp. could remain a Rexall partner by supplying the chain through its pharmaceutical distribution arm.
The pharmacy business is a challenging one in Canada because governments regulate drug prices, particularly generic versions of medicines that have lost their patents. Operational costs have also jumped because ofĀ inflation, and a pharmacist shortage in some parts of the country has created logistical challenges.
McKesson Corp. struggled with Rexallās profit margins early in its ownership. Shortly after the acquisition closed, CanadaĀ implemented new rules that slashed pricesĀ on generic drugs, and provinces such as Ontario and Alberta hiked their minimum wages.
In response, Rexall shut nearly 10 per cent of its 450 pharmacies in 2018. The same year, McKesson Corp. warned investors it would take an after-tax asset-impairment charge of between US$600-million and US$1.98-billion, tied partly to the Rexall business.
Because profit margins in the pharmacy business can be so slim, one of Rexallās best opportunities for growth is in retail. The chain sells everything from cleaning products to cold and pain medications to baby products, and some rivals have found ways to make their retail divisions quite profitable. Chains such as Shoppers Drug Mart Corp., which is owned by Loblaw Cos. Ltd., and Metro Inc.ās Jean Coutu Group (PJC) Inc. have reported strong margins on āfront-of storeā items such as cosmetics.
McKesson Corp. has tried to retool and beef up Rexallās retail division over the past few years. In 2019, Rexall partnered with frozen-fare specialist M&M Food Market to put M&M products into freezers. At the time, pharmacy retailers were keen on adding more food offerings in a bid to attract customers who purchase food more than other products, particularly younger demographics. Shoppers, for instance, also added more Loblaw Cos. Ltd. and No Frills products to its shelves.
A year later, in 2020, RexallĀ launched its own loyalty program, known as Be Well. Until that point, the retailer had partnered with the Air Miles loyalty program, but retailers of all stripes have been launching their own in-house programs, such as Optimum at Loblaw and Triangle at Canadian Tire Corp. Ltd., to get more data on their shoppers and to develop more personalized marketing offers.
Because so many retailers were launching their own programs, Air Miles became a less desirable loyalty program over time, and in 2023 its parent company filedĀ for creditor protection. Bank of Montreal, a long-time credit card partner for Air Miles, now owns the company.
Rexall also tried to retool by emphasizing health products, something it paired with McKessonās purchase of the Well.ca online drugstore in 2017. Rexall tried to integrate the site, which is popular with women, with its bricks-and-mortar stores, cross-stocking their merchandise and allowing customers to pick up their online orders at Rexall locations. The retailer also dropped its historic Pharma Plus in-house brand, to create a consistent look across the chain.
As McKesson Corp. retooled Rexall, its Canadian leadership faced multiple rounds of upheaval. Domenic Pilla, the former head of Shoppers Drug Mart, was hired to run McKesson Corp. Canada in 2017, but he retired in 2020. The company named Rebecca McKillican, who was previously president of Well.ca, as his successor, but she was replaced last year by Joan Eliasek, who previously held other executive roles within the company.
McKesson Corp. has reconfigured its global footprint in recent years. In 2021, the company sold its European businesses in France, Italy, Ireland, Portugal, Belgium and Slovenia, and also sold its British business, which included LloydsPharmacy.
Source The Globe And Mail. Click here to read a full story
Canadian office tenants have the upper hand when it comes to negotiating with their landlords heading into 2024 after a year in which availability rates stabilized at elevated levels.
According to a new report fromĀ Altus Group Ltd., Canadaās national office availability rate remained steady at 17.6 per cent in the fourth quarter of 2023, with sublet space dropping to 17.4 per cent of total available office space.
While the supply of available sublet space declined slightly, Ray Wong, vice-president of data solutions at Altus, said tenants still have an advantage overall because of choices in the market.
Only 11 office buildings were completed across the country in 2023, with Toronto topping the list at four completions totalling 786,135 sq. ft., followed by Vancouver and Montreal. Montreal added the most office space, at 1.32 million sq. ft. However, the pace of new office construction has significantly declined in the last two years.
According to Altus, companies are still determining the optimal amount of space needed for employees based on new hybrid models.
āWhen you look at the numbers with respect to Toronto, it has an availability rate at 18.1 per cent,ā Wong said. āClass-A space, which is the most in demand, tenants still have the upper hand at 15.7 per cent.ā
Sublet spaces, where tenants can avoid additional costs such as carpeting, painting, and in some instances, even furniture, which departing companies are leaving behind, are one of those options.
āFrom a cost advantage standpoint, it makes sense,ā he said.
Wong said that rather than puttingĀ office spaceĀ up for sublet, some companies are renegotiating their leases in such a way as to occupy less space while extending their lease terms. That is leading to the decline in available sublet space, but reveals another option available to tenants.
The availability rate, which indicates the amount of space in a market available for immediate or short-term deals, differed across the country to end the year, with Vancouver the lowest at 12.2 per cent, Quebec City at 12.3 per cent and Ottawa at 13.4 per cent. Calgary, with the highest rate at 23.8 per cent, experienced a decline in availability due to the Downtown Calgary Development Incentive Program. The program incentivized the conversion of office spaces into residences, thereby reducing vacant spaces and gradually lowering availability. By October 2023, the program, overwhelmed by demand, halted new applications, the report indicated. It currently has 13 approved and four pending projects.
Remote work arrangements dropped to 12.6 per cent in November 2023 from 24.3 per cent in January 2022, whileĀ hybrid work setups tripled, rising to 11.7 per cent from 3.6 per cent during the same period.
Wong said the current market remains somewhat unpredictable because companies are still adjusting their space requirements.
āThe challenge with the market right now is a combination of companies sort of right sizing or downsizing or keeping their space and thatās causing the market to be fluid to a certain extent,ā he said.
Source Financial Post. Click here to read a full story
