Properties span over 362,000 square feet in Brampton, Burlington in GTA region
BMO Life Assurance has acquired a three-building industrial portfolio in Brampton and Burlington from Morguard, its latest move into acquiring real estate assets which it will wholly own.
Winton Realty Advisors president Keith Jameson advised BMO on the transaction, which was brokered by TD Cornerstone Commercial Realty Inc. The price of the all-cash transaction wasnāt disclosed.
āBMO has numerous investments through joint ventures and has . . . now made direct acquisitions, which includes an industrial asset in Quebec and now the Morguard portfolio,ā Jameson told RENX.
Toronto-based Winton is a subsidiary of Winton Holdings.
The private investment and realty advisory business provides property acquisition, due diligence, strategic advisory, and asset and portfolio management services, as well as debt and equity strategies, to institutional and private high-net-worth clients across all commercial property asset classes.
Jameson said Winton sourced the Morguard portfolio ā which went to market in March ā underwrote it and bid on it on behalf of BMO. The company then brought in Kipling Group to complete the underwriting.
Winton is the new portfolioās asset manager on behalf of its client, while Kipling Group was also engaged as the property manager.
The portfolioās elements
The 7.47-acre Burlington property at 1205 Corporate Dr. has a 200,342-square-foot warehouse and light manufacturing facility fully occupied by cosmetic and personal care product manufacturer Hunter Amenities.
It has a weighted average lease term of 7.6 years and estimated 88 per cent gap to market rents.
The 10.45-acre property at 200 Westcreek Blvd. in Brampton has an 86,026-square-foot cross-dock facility fully occupied by transportation, warehousing and logistics company Simard.
It has a weighted average lease term of 13.1 years and estimated 8.8 per cent gap to market rents. Its recently negotiated lease has annual two per cent escalations.
āCross-docks are very hard to replicate and (are) expensive,ā Jameson said. āThey definitely require a large piece of land so that there’s sufficient room to move trucks in and out from both sides.
āThe coverage is smaller and therefore the overall cost is more, which means there’s upside both in the building and also in the land.ā
The 4.87-acre property at 55 Walker Dr. in Brampton has a 75,949-square-foot warehouse and light manufacturing facility fully occupied by Jones Healthcare Group, which provides packaging and medication dispensing solutions.
It has a weighted average lease term of 4.6 years and estimated 110 per cent gap to market rents.
āTheyāre good, quality assets with good, stable tenants and a good mix of lease terms,ā Jameson said of the three properties.
Morguard had spent more than $1.7 million on improvements to the portfolio since 2015, including to the roofing and heating, ventilation and air conditioning systems.
The buildings have been well-maintained and will require minimal capital expenditures for the foreseeable future.
Each of the three properties are within a one-kilometre radius of major 400-series highway access, while both Brampton properties are also in close proximity to Toronto Pearson Airport and a CN intermodal yard.
BMOās past and future real estate acquisitions
1205 Corporate Dr. in Burlington, Ont. (Courtesy Winton Realty Advisors)
Winton and Kipling Group played similar roles in BMOās $120-million acquisition of a new 512,070-square-foot warehouse and distribution facility on 20.6 acres at 4145 St-Elzear Blvd. W. in Laval, Que.
The class-A building, which has a 39-foot clear height, was under construction when it was acquired fromĀ Pure IndustrialĀ last October, but has since been completed.
DollaramaĀ signed a 20-year lease for the entire facility, which is in close proximity to major traffic routes, rail hubs, sea ports and airports.
āWe’re happy with what we’ve acquired and they fit the profile of our investment strategy,ā Jameson said on behalf of BMO.
āBut having said that, we’re going to take a bit of a breather and watch the market for the next while. I think pricing is reasonable but I also realize that, with debt where it is, most groups in the market cannot rationalize deals where financing has become expensive.ā
Winton, meanwhile, has also been involved with:
acquiring and asset-managing three industrial buildings in Phoenix totalling 335,000 square feet on behalf of a high net worth investor;
acquiring a 492,363-square-foot single-tenant industrial property in Cornwall, Ont., in a sale-leaseback deal on behalf of an institutional investor; and
owning and asset-managing a portfolio of high street retail properties in Dublin, Ireland.
Joint venture with Harlo Capital is Toronto developer’s fourth project in neighbourhood
Gairloch DevelopmentsĀ just unveiled its fourth condominium project in Leaside, a Toronto neighbourhood the company’s founder and president told RENX is the cityās next real estate hotspot.
The lynchpin is the coming Leaside LRT Station, part of an under-construction light rail transit corridor that connects to the cityās subway system.
āThe new LRT opens up a new realm for us with a mass transit option 300 yards to our north,ā Bill Gairdner said of the stationās proximity to Gairlochās new project, 1802 Bayview.
āItās so encouraging for equity partners and condo investors, and everyone else involved in a project, when you have all three levels of government investing in rapid transit all outside your front door.
āLeaside is awesome with its nice tree-lined streets, nice schools, easy access to the Don Valley Expressway to get you downtown or to Midtown and the LRT has added a whole other dimension.
“Itās not up and running yet, but when it is the option to live in Leaside without owning a car will be a game-changer.ā
Still undecided if project will be rentals or condos
Gairloch hasnāt yet decided if the planned 46-storey, 419-unit tower at Bayview and Roehampton Avenues will remain a condo as originally envisioned or if it will become a rental building.
The building, designed byĀ architects-Alliance, will offer a range of suite options ranging up to four bedrooms to attract families. Its podium is wrapped in alternating glass ribbons and recessed terra cotta panels.
A rendering of Gairloch’s planned multiresidential tower at 1802 Bayview Ave. in Toronto. (Courtesy Gairloch Developments)
1802 Bayview also marks the third partnership between Gairloch andĀ Harlo Capital, a Toronto-based private equity firm that identifies and invests in real estate developments Canada-wide. The other two,Ā Leaside CommonĀ and 29-39 Pleasant Blvd., arenāt far from this latest venture
The partnership can be traced back toĀ Freed Developments, where Gairdner and Andrew Lepper, Freed’s then-CFO, worked alongside each other. Lepper now serves as the CFO at Harlo.
Even with lenders and investors tightening their purse strings amid persistent headwinds, Gairdner said capital hasnāt been especially difficult to syndicate āas long as itās a good site with a strong business plan and thereās a robust track record.ā
The Gairloch-Harlo duo has yielded two successes and theyāre betting on a third.
āWe kept bumping into each other,ā Gairdner recalled of the partnershipās genesis.
āHarlo are specialists in fundraising on the capital side, so itās great to have them have our back. They bring a wealth of experience and back office, and theyāre a great team, so itās always great to have more smart people with eyes on each individual project.ā
Leaside is an emergent neighbourhood
Leaside is an affluent area code, its makeup composed primarily of single-family homes, but the recent run of new condo development has introduced entry-level housing and made one of Torontoās most established neighbourhoods accessible.
According to Henry Byres, coordinator of theĀ Bayview Leaside BIA, the array of housing options has already diversified the neighbourhood demographically.
The 33-year Leaside resident recalled his daughter being one of the few children in their neighbourhood in the 1990s, a stark contrast to the droves of young families who now window shop on Bayview Avenue on any given day.
āThe average age in the area has gone down quite a bit and we see a lot of families with kids, a lot of young children,ā Byres said, adding that Bayview Avenue was sleepy 20 years ago.
āIn terms of the streetās overall vitality, itās increased and improved,ā he said. āItās a street where you can get everything you need for daily life.ā
Today, Bayview Avenue is lined with boutique retail stores, restaurants serving a range of international foods, cafes and other āvery unique, very one-offā and independently owned, stores.
The neighbourhood isnāt a nightlife destination, Byres, added, a seeming reflection of Leasideās residential character.
āWeāve been able to maintain this independent streak we have here, but the fact that weāre not part of a larger commercial strip gives people in the area more ownership,ā Byres said.
āI think, more than anything else, thatās what keeps people coming back.ā
Investors set sights on Leaside
That investors who typically favour downtown and midtown condos have begun scooping up units in Leaside is a telltale sign itās an emergent submarket.
Gairdner took notice in the fall of 2021 when Gairloch launchedĀ Leaside Common, a nine-storey, 198-unit mid-rise just south of 1802 Bayview, and investors and brokers became regular fixtures at its sales centre.
āIt helped us sell about $160 million worth of condos in 60 days,ā Gairdner said.
āThe investor community realized it wasnāt a downtown condo or that it wasnāt Yonge and Eglinton, but there was a unique angle to get a better return and better value from a more end user-friendly investment.
“That was a bit of an eye-opener for the city and savvy, early condo investors showed up in droves for that particular launch.ā
Toronto’s 33 Yonge St., home to firm’s head office, to get new lobby, add 5 new restaurants
Torontoās downtown office vacancy rate exceeds 15 per cent for the first time since 1995, which is pushing building owners to come up with fresh ideas and concepts to retain existing tenants and attract new ones.
GWL Realty Advisors Inc. (GWLRA) is one such landlord thatās being proactive with its buildings, including the one thatās home to its head office at 33 Yonge St.
āWe need to invest in our A-class office product to stay relevant and attract tenants,ā GWLRA leasing vice-president Devan Sloan told RENX. āSo we’re doing that across the portfolio.ā
Landlords have to earn commutes from their tenants ā and their employees ā Sloan added, which is why GWLRA is trying to provide more amenities.
The company is investing in new lobbies at 151 Yonge St., 1 Adelaide St. E. and 33 Yonge, which recently saw its office vacancy rate rise to almost 40 per cent after CIBC moved its operations out of the building. Commercial real estate services firm Altus Group remains a key tenant in the property.
33 Yonge
Five new restaurants will open over the next 18 months in 33 Yonge, a LEED Platinum-certified 13-storey building sitting on about two acres that was built in 1982 and acquired by GWLRA in 2003.
It includes 481,024 square feet of office space, 34,212 square feet of retail space, a 307-stall underground parking garage and an atrium that provides natural light to every floor.
The building hasnāt been significantly renovated since opening, so GWLRA has also added an end-of-trip facility at the P1 level that offers bicycle storage, lockers and showers. Itās also working on adding fitness and conference facilities.
āAmenitizing buildings has never been more important,ā Sloan said.
āThis includes activating lobbies, spending capital, investing in assets, adding items that people are interested in like end-of-trip facilities, fitness and those sorts of box checks, and of course a heavy focus on environmental sustainability.ā
Filling street-level retail space
The additions that should have the biggest impact, not just at 33 Yonge but also for the surrounding area, are the restaurants.
The building had four restaurants heading into 2020 (prior to the pandemic), including two on the south side which Sloan said had reached their ābest-before dateā and space on the north side that was vacated by Pick 6ix after its lease was terminated for unpaid rent.
Looking to start fresh, GWLRA considered a variety of options to fill its street-level retail space.
āWe looked at everything from a golf use to a pet store to clothing retail to a pharmacy,ā Sloan said.
Since 33 Yonge straddles the financial district to the west and the St. Lawrence Market neighbourhood to the east, it was decided new food options would offer the most appeal.
Itās believed that providing each operator with patios ā on Yonge, Wellington, Front and Scott streets ā should further entice customers to check them out.
New restaurant details
Deals were finalized with the restaurant operators over the past couple of months to take up approximately 28,000 square feet of the street-front retail space.
The owners of Giulietta on College Street and the Michelin-starred Osteria Giulia on Avenue Road, including chef Rob Rossi, will open a uniquely branded Italian steakhouse in the current location of Biffās Bistro on Front Street just east of Yonge.
The balance of that Oliver & Bonacini-occupied space will become a still unnamed new Latin-themed restaurant.
The northwest corner of the building, fronting Yonge and Wellington, will become a yet-to-be-named Oliver & Bonacini-operated mid-century modern American-themed restaurant.
Casual restaurant Green Box and Tim Hortons will continue to occupy smaller locations in the building, while GWLRA is looking to fill other small street-front spaces on Wellington Street and facing Berczy Park.
āI really think that 33 Yonge will become a destination retail location for food,ā said Sloan.
āWe think it will service the neighbourhood and we think it will be a tremendous driver of traffic to the building for not only our own tenants but for office tenants in the neighbourhood.ā
Belief that more traffic will return to core
After office occupancy levels fell to less than 10 per cent through the first 18 months of the COVID-19 pandemic, the Strategic Regional Research Alliance downtown Toronto office occupancy index was up to 51 per cent on June 15.
Thereās optimism it will continue to rise.
āThe traffic downtown versus pre-COVID, from an office occupancy perspective, is down,ā Sloan conceded. āBut we’re seeing a lot of people coming back for more than just office.
āItās entertainment uses, itās before a sports game, itās before a concert. It’s all the rest of it.ā
Sloan added thereās more certainty among employers regarding their return-to-office strategies and how often each week they expect people to be there, which should also benefit the downtown core.
āIf you know you’re bringing your people back three days a week, then you can execute on that plan,ā Sloan said. āBut until you know, you do nothing.
“Doing nothing is the worst in our business because it leads to people making decisions at the last minute and short-term deals.ā
Groupe Mach and Sarees Investments have acquired the 922,000-square-foot Atria Complex in North York, at a purchase price that is a fraction of its replacement value, says Mach president Vincent Chiara.
āItās a great asset and great location in North York,ā he told RENX, of the buildings at 2225, 2235 and 2255 Sheppard Ave. E. in North York. The property has ālong- and medium- term leases with strong credit tenants.ā
Citing confidentiality agreements, Chiara would not divulge the purchase price, but he noted that Atriaās replacement cost would be about $700 to $800 per square foot āand I can assure you we paid less than 25 per cent of that. Itās a huge comfort level for us to pay a fraction of the replacement value.ā
Built in 1989 and renovated last year, Atria was owned by AIMCo (Alberta Investment Management Corporation), Dorsay Development Corp. and Ontari Holdings. JLL handled the sale.
Atria’s key tenants, and Mach’s strategy
Major tenants Rogers, American Express, Sun Life, Sony, Belair Insurance and GoodLife Fitness represent almost 50 per cent of the space in the three buildings that comprise Atria.
Atria has a vacancy rate of around 15 per cent, which is ārelatively strongā for the area, Chiara said. Average lease terms are five to six years and leases run as long as until 2032.
Chiara says Mach continues to believe in its acquisition strategy: that office work from home is not going to have a long life.
The consequences of working from home are being seen with a decline in the quality of work, he said. āWeāre starting to see that employers are trying to get employees back to the office. We definitely believe that office is not disappearing.ā
However, Chiara noted āweāre not investing on hope. Hope is not a strategy.ā
Despite being bullish on office, Chiara says Machās strategy is to also have a Plan B, in which the land value of the assets is greater than the purchase price. āIf we canāt check that box on potential land value, then we wonāt do the acquisition.ā
Residential zoning is permitted on part of the Atria site. If the office market collapsed, the strategy would be to eliminate one of the three Atria buildings in phases, move the tenants to one of the remaining buildings and redevelop the initial site, he told RENX.
āOur investment strategy is based on the fact that our Plan B is as good or better than our Plan A,ā he said. Ā āThis is not a contrarian play. Ours is basically a land-bank play.ā
Atria “best in class” in North York area
However, Chiara believes the status quo of Plan A will work for Atria. He noted there were many renewals and new leases signed during the several months of due diligence on the property.
āItās probably best in class in that neighbourhood of North York. I think it will get a lot of traction. Part of whatās going on in the office world is a flight to quality, so people in that neighbourhood will move from their C buildings and D buildings and come into the class-A buildings.ā
Groupe Mach touts Atria as one of the largest office complexes on the outskirts of downtown Toronto.
The Atria Complex office buildings in Toronto. (Courtesy Groupe Mach)
It comprises: the four-storey Atria I at 2255 Sheppard Ave. with 250,292 square feet of space; the 18-storey Atria II at 2235 Sheppard Ave. E., with 342,781 square feet of space; and the 18-storey Atria lll at 2225 Sheppard Ave. E. with 328,761 square feet of space.
Certified as LEED Gold, the complex includes 45,000 square feet of retail space and 2,050 parking spaces.
āThe guts of the building is first-class,ā Chiara said. The site has a campus feel but āthe landscaping deserves some upgrading. We intend to give that a facelift.ā
Atria will be managed by Machās Toronto office. It was previously managed byĀ Epic Investment Services.
Mach and Sarees Investments have partnered 50-50 to acquire Atria. Based originally in the Middle East but with an office in Montreal, family-run Sarees has partnered with Mach in several transactions over the last 10 years, Chiara said.
āTheyāre real estate investors globally. Weāre proud to be alongside them.ā
Groupe Mach still seeking Toronto acquisitions
In addition to Atria, Mach owns three other properties in the GTA: the 577,214-square-foot Allstate Corporate Centre in Markham, the 113,274-square-foot 175 Commerce Valley in Markham and the 52,000-square-foot 5875 Explorer Drive in Mississauga.
āWeād like to increase our footprint in Toronto,ā he said, noting the company is looking at several other potential transactions in the city.
Toronto āpreviously had a barrier to entry because of pricing,ā but the real estate ownership landscape has shifted. Institutional owners, such as REITs and pension funds, have decided to move away from office and retail ownership to multi-res and industrial, he said.
They āhave exited office in a big way,ā Chiara said, and āwhen you eliminate the institutional investors, it doesnāt leave many players.ā
Since the beginning of the year, Montreal-based Mach has concluded 12 major acquisitions totalling four million square feet, ranging from the Intercontinental Hotel in Old Montreal to 1801 Hollis Street in Halifax.
Amenities once considered luxuries are now commonplace
“Right-sizing” office space is a trend that shows no sign of abating, especially on the heels of the pandemic and a major shift in employee work habits, a new report from JLL says.
Examining more than 700 of its clientsā 3,800 office projects across 58 markets, JLLās report, 2023 U.S. and Canada office fit out guide, demonstrated the majority of tenants have opted to reduce square footage. In the last two years, JLLās average office fit-out declined by 11 per cent, which the report attributed to shrinking square footage per employee and, thanks to hybrid work configurations, fewer daily in-office attendees.
However, shrinking square footage has implications for economies of scale ā densifying technology, furniture, fixtures and equipment have put upward pressure on per-square-foot costs.
JLL does, however, anticipate some economies of scale will return and notes cost increases have been more aggressive in smaller projects. Moreover, smaller spaces require more programming compromises as a consequence of both elevated costs and having less space to work with.
Rob Ramsay, JLL Canadaās executive vice-president of project and development services, told RENX having employees return to their offices will be of greater necessity in certain industries than others, but time will tell which ones.
Trending toward office amenities
There is an unmistakable trend toward setting up offices with amenities that abet greater collaboration between colleagues. Ramsay cites JLLās own downtown Toronto space as an example of what the modern office looks like.
āOur reception area has waiting spaces and meeting spaces available for employees and clients where they can be comfortable, work or have private phone calls,ā he said. āOur cafe is a place for employees to unwind and relax, but also conduct face-to-face meetings or private meetings.ā
The cafe has a ping-pong table, but itās also a place where employees can conduct face-to-face or virtual meetings.
Other amenities that are proving popular in todayās office sector focus on wellness, including fitness or yoga spaces, although Ramsay said the latter isn’t commonplace among JLL projects.
The report even noted wellness amenities have gone from high-spend luxury additions to baseline expectations for companies and employees.
Still, the costs can be significant if they require mechanical, electrical and plumbing servicing or additional supportive technology, especially in smaller footprint offices.
The report cites two of the most common requests, which it prices as additional finishes and requirements that exceed some identified build-out costs.
A wellness/motherās room comes in at $11,000-$15,000, while gender-neutral bathrooms cost $18,000-$22,000.
Ramsay said, however, such amenities can play significant roles in a companyās ability to successfully recruit talent.
āEmployees will appreciate companies having a thought-out holistic view that has intelligence put into the design and intention to create effective spaces that include resources and amenities for the betterment of their employees,ā Ramsay said.
ESG now a major factor
Environmental, social and governance (ESG) has become a major factor in determining where companies decide to conduct business.
Companies now take their ESG scores seriously ā JLLās previous fit-out guide noted organizations representing 90 per cent of the global economy have attached themselves to a net-zero carbon goal ā and green leasing is gaining in popularity.
Dubbed Green Leasing 2.0, JLL describes a collaboration between owners, occupiers and third-party stakeholders to deliver on ESG goals through the duration of a lease, which transcends typical contractual lease clauses.
According to JLL, 34 per cent of global occupiers have adopted green leases and another 40 per cent are slated to follow suit within two years. Forty-two per cent of investors also have green leases in place while 37 per cent will have them by 2025.
JLLās own green strategy ā which it has deployed at 381 sites in 52 countries comprising 4.6 million square feet of leased space ā has resulted in 15 per cent less energy used than the standard code, with savings estimated at US$2 million per year.
Office fit-outs also have 25 per cent less embodied carbon than their equivalent standard designs, the report said.
But with the carbon tax becoming more punitive as 2030 draws nearer, building operators who donāt act quickly will be left scrambling.
āTenants ultimately will drive landlords towards the need to green,ā Ramsay said. āThere are some asset owners that have already made moves to implement a net-zero carbon strategy and I would say at this point, in 2023, theyāre ahead of significant tenant demand. Tenant demand is there but itās not as significant as it will become.
āA tidal wave is coming. Weāre trying to figure out a way to help our investor and asset manager clients make a move on greening their buildings sooner than later. I think generally real estate owners are going to have to make a move.
“Once the asset owners figure out the right formula, thereās going to be a flight to resources because there arenāt unlimited resources to perform the retrofits.ā
President and CEO Yashar Fatehi cites economy, market conditions for timing of sale
After making Canadaās largest self-storage portfolio sale thus far in 2023, the CEO of NYX Capital Corp. says his company is not completely exiting the sector.
NYX, a Toronto-based private equity real estate investment firm with over $1 billion assets under management, sold its $310-million self-storage portfolio last month. The income-producing properties were sold to Ladera Ranch, Calif.-based SmartStop Self Storage REIT ā a $300-million acquisition of eight Ontario properties.
Toronto-headquartered Bluebird Self Storage and Calgary-based StoreWest Developments acquired other properties in the portfolio which are still under development.
āWe decided to sell our portfolio because, basically, we executed our business plan and it was time to sell,” Yashar Fatehi, NYXās president, CEO and founder, told RENX. “We felt it was the right time in the market potentially, because increasing interest rates will eventually increase the cap rates and increase costs.”
āA niche asset classā
Fatehi said NYX remains interested in self-storage because it is a āniche asset class.ā
The main commercial real estate asset classes ā industrial, commercial, retail and multiresidential ā are mature in almost every North American market, he continued, meaning returns and cap rates tend to be tight unless there are efficiencies in a submarket.
The niche asset classes ā such as self-storage, student housing and health-care facilities ā offer the potential to make high returns for investors.
NYX conducted research and found good returns potential on self-storage properties, which led it to forge strategic partnerships in the sector five years ago.
NYX became the co-developer and asset manager of the portfolio and oversaw 1.4 million square feet of planned and developed self-storage.
It concentrated on class-A facilities in dense residential and retail neighbourhoods with high demand for self-storage.
NYX got the lay of the land and recognized it is a āfragmentedā business in Canada, unlike the U.S. which has big players with multi-billion-dollar REITs in self-storage.
āDuring the past five years, our strategy was to buy and build and convert and increase our portfolio size as fast as we can. And by doing so, we became one of the top-10 self-storage owners in Canada.ā
However, Fatehi said the market presented challenges.
The GTA market is especially active, which makes it difficult to find a property to build a new class-A self-storage facility that checks all the boxes for conditions such as demand and population.
There is also the lengthy and costly process of finding the right spot, building and leasing, which is why transactions of this scale are uncommon, Fatehi said.
NYXās efforts created a self-storage portfolio āthat is difficult to come by,ā which helped net a good premium from the transaction.
Making the sale
The intent for the self-storage portfolio from the beginning, Fatehi said, was to increase its size and exit under the optimal time and market conditions. NYX began talks with potential buyers last year and deemed SmartStop the most suitable candidate for the operating portfolio.
Debt was not an issue for NYX in this sale. Fatehi said NYX’s portfolio was not highly leveraged and most were stabilized with āvery healthy cash flows.ā
NYX expected interest rates to continue to increase ā which means cap rates follow behind with some lag ā so it made the decision last year to sell the self-storage properties due to inflationary pressure.
āWe just felt it was the right time and the peak of the market,ā Fatehi said.
Staying in self-storage
Despite the sale, Fatehi noted NYX is not exiting the business ā it is hoping to continue developing new assets.
āWe are actively chasing self-storage sites and we have one on contract right now that we will hopefully start building in the next year or two.ā
NYX also remains actively involved in residential real estate such as condos and apartments, as well as industrial real estate and self-storage, which together comprise 90 per cent of its assets, Fatehi said.
Rapid interest rate increases make it a good time for cash-rich businesses to buy because some highly-leveraged landowners might need to dispose of properties at lower prices.
Also, building purchases and adding value in the GTA takes at least three to five years, according to Fatehi.
This time period can outlive the ebb and flow of the economy, so Fatehi said a longer-term view is needed for such a strategy.
āWhat is the future of the office?ā is a question dominating conversations within commercial real estate and in workplaces across the country. Every company is making decisions on the extent to which their office strategy will evolve with the rise of hybrid work.
Among these possible evolutions is the adoption of flex space.
Lisa Blacklock, senior vice-president,Ā ColliersĀ Real Estate Management Services (REMS), sat down with Nick DeMarinis, vice-president and head of sales, Atlantic Territory,Ā WeWork; Wayne Berger, CEO, The Americas,Ā IWG; and Sarah Bramley, vice-president, Colliers Workplace Advisory, to offer an inside look at the possibilities, misconceptions, and trends in flex space adoption, along with factors companies should take into account when considering it as part of their future space strategy.
How we define flex space:
Co-working space operated by a third party.
Space in an existing building that has been designated as flex space, accessible to all tenants, and operated by the property manager.
Something in between ā perhaps a short-term lease dedicated to a tenant and operated by the property manager or a third party.
Key takeaways from the conversation:
Flex space isnāt new, and demand is rising
Demand for flex space was rising before the pandemic and has only accelerated in the last few years.
Berger outlines how the number of people and companies looking to him for flex space has increased 40 per cent, while DeMarinis cites how WeWorkās occupancy in the Toronto market was at 84 per cent at the end of 2022, with the demand for all-access facility passes up 112 per cent year-over-year.
The visit to the workplace must be worth the commute
The workplace experience has three key elements, accordingly to Bramley: āMake it easy. Make it work. Make it worth it.ā
As most companies adopt a hybrid work strategy, there is a lot that can be done with existing space to meet those criteria.
Furthermore, DeMarinis reminds us that āhybridā does not simply mean home or office. Thereās a āthird workplaceā ā a flex workplace possibly located closer to home ā that has the potential to strengthen productivity and culture, while reducing the major deterrent to the office: the commute.
Flex space can be a āplaygroundā for companies before committing to a long-term strategy
Flex space can be a playground to try new layouts, locations, interactions within existing space before committing capital into a long-term strategy, according to Bramley.
This may be advantageous when managers consider an uneven economic situation and as companies continue to assess how hybrid work impacts different divisions of their business, including their ability to recruit and retain talent.
Flex space can be customized to a companyās needs
Thereās a lot of thought that goes into the design, delivery, and construction of flex space, according to Berger, and then into the day-to-day experience of making sure you can attract new people to the space.
Berger cites examples from a third-party perspective and Blacklock explains how property managers such as Colliers REMS has put these into practice at sites across the country.
Partnerships are emerging between flex space providers, building owners, and property managers
The availability of capital and level of risk tolerance are often raised when discussing flex space.
With office vacancies rising, Berger and DeMarinis cite partnerships with building owners as one way they are seeking to activate vacant space and develop revenue-sharing models that spur responsible growth.
For more on the evolution of flex space, give this podcast a listen.
Record-breaking years of growth in Canadaās life-sciences sector has turbocharged the demand for laboratory real estate in an acutely undersupplied market.
These market fundamentals have attracted the attention of investors, who, prior to 2020, had no real presence in a class of real estate traditionally owned by universities and hospitals.
āItās definitely the hot asset to be chasing right now,ā says Robin Buntain, a principal at Avison Youngās Vancouver office, specializing in sales and leasing.
āThe investor community wants to diversify away from the softening office market,ā he says. Lab and medical manufacturing real estate ā national vacancy for which āis basically zeroā ā is the new āsweet spot for investors. Itās fascinating how quickly this has happened.ā
Now, nearly 5.4 million square feet of purpose-built lab space is proposed or expected to be delivered across three Canadian cities by 2027, according to a newĀ reportĀ by commercial real estate firm JLL.
While Toronto dominates the life-sciences market in Canada in terms of existing building inventory, āVancouver leads in future supply ā with more than double the amount of new space in the works compared to Toronto,ā says Scott Figler, JLLās national research manager for capital markets in Canada.
Driven by technological leaps in areas such as personalized health care, regenerative medicine, genomics and synthetic biology, not to mention a global pandemic that ushered in historic levels of funding for some companies, āVancouver has seen the most life-sciences job growth in Canada,ā says Mr. Figler. āThe city has seen more than 7,000 new jobs in the past 10 years, compared to Toronto, which has added around 3,000.ā
Vancouverās planned 2.9 million square feet of lab space nearly equals its entire existing market.
About 80 per cent of this development ā spearheaded by some of the most prominent names in the industry, including Beedie, PC Urban and Westbank ā will be located in the burgeoning Innovation District, just south of the downtown core.
Mr. Figler says optimism about the wave of new supply in Vancouver as well as across the country comes with caveats.
It is currently āfar more expensiveā for developers to lock in financing and build than it was a year ago, owing to rising interest rates and lofty construction costs, he says.
Lab space, he adds, can be the most costly of all real estate classes to construct because buildings typically require at least double the structural frame strength, compared to offices, in order to support lab equipment weight and to eliminate vibrations which could ruin sensitive experiments.
Ceilings must be at least 14.6 feet high (compared with the office industry standard of 10 feet) to accommodate large equipment, such as autoclaves and cold storage, and its ventilation ā and more power is required to run it. (Standard research facilities can draw triple the watts per square foot compared to computer-filled office space, according to Stanford UniversityāsĀ Laboratory Standards and Design Guidelines.) In addition, backup generators are essential in case of power outage.
āA lot of times you can tell by looking at satellite images and the HVAC [heating, ventilation and air conditioning] system on top of a building ā if it looks really souped up, thatās a good indication that itās a lab building,ā says Mr. Figler.
Elevated development costs and a tenant pool comprised in part by unproven biotech startups, can make investment risky, he says.
To thrive, investors and developers āhave to think like scientists,ā he adds.
āDevelopers who are successful arenāt just projecting costs and revenues,ā he explains. āThey have in-house scientific understanding; they understand what the tenants are working on and are able to assess the probability of, say, a certain gene therapy getting clinical trial approval or another round of venture capital funding.ā
In the centre of Montrealās university and life sciences ecosystem, Jadco Corporationās upcoming Inspire Bio Innovations aims to accommodate pharmaceutical and biotech companies.JADCO CORPORATION
For Montreal developer Jadco Corporationās first life-sciences complex in the cityās downtown core, called Inspire Bio Innovations, the 35-year-old company partnered with anchor tenant, global clinical research firm CellCarta, for phase one of the project. Then it hired CellCartaās senior vice-president to manage the next two phases of the $350-million, 450,000-square-foot state-of-the-art laboratory.
āAt CellCarta, I became an expert in facility systems,ā while supervising lab development in many countries, says Normand Rivard, managing partner of life sciences and innovation at Jadco.
āThereās nothing more precious than a blood sample from a patient with a rare disease,ā he says. The building and the mechanicals to protect it are crucial and āJadco takes that very seriously.
āWe want to build the best facility with everything that a biotech or pharma company needs to perform their delicate and critical operations.ā
With completion for the centre set for late 2027, no tenants have yet signed on.
āBut thereās already very high level of interest,ā says Mr. Rivard. āWeāre confident weāre going to fill the building in a flash.ā
In Vancouver, Low Tide Properties, which already operates five life-sciences buildings, calls itself the cityās largest landlord in the life-sciences space. The company, which also owns multifamily properties, is set to add another eight-storey, 218,000-square-foot life-sciences building, Lab 29, in the Innovation District.
Vancouverās Low Tide Properties bills Lab 29 as a ācutting-edge laboratory and office buildingā that will add to its collection of bio sciences facilities.LOW TIDE PROPERTIES
Low Tide views itself as āa partnerā for tenants, says Adam Mitchell, vice-president of asset management and development.
Itās critical that the infrastructure at those buildings is working flawlessly so tenants donāt have an interruption during a major experiment, says Mr. Mitchell.
āOur building operators have specialty training in running a life sciences building,ā he says. āWeāve also had good staff continuity, so theyāve been able to hone those skills and make sure that theyāre adding a value to the property.ā
Architecture and design firm BDP Quadrangle committed to move to a new office in downtown Toronto in 2019, just a few months before the pandemic lockdown introduced everyone to the alternative universe of working remotely.
The timing could have been better, but it proved to be an opportunity.
Before the firm moved in last fall, it was already clear that, with many employees working remotely, the company could get by with less space than planned and has since subleased half of one of its two 20,000-square-foot floors in the Well at Front and Spadina.
Caroline Robbie, principal at BDP Quadrangle, says the upheaval provided an opportunity to experiment with strategies aimed at managing the companyās 232 employees toward what is likely to be a hybrid future.
Furnishings and technology were designed to be moveable to adapt to changing needs; employees are free to work in any area that suits their preferences. On a typical day, between 75 per cent and 80 per cent of the office is fully occupied.
Even pre-pandemic what weāve always said isāÆdonāt let a crisis go to waste. The pandemic provided an opportunity to re-examine everything we took for granted about workplace design.
āĀ Andrea McCann, associate and lead interior designer at BDP Quadrangle
That attendance is significantly higher than in many offices across Canada, and after a year of wait-and-see in the aftermath of the pandemic, companies are experimenting with what is being called āmicro-architecture,ā adding furnishings and amenities that make coming into the office worth the commute, says Lisa Fulford-Roy, senior vice-president of client strategy for CBRE in Toronto.
āWithout changing anything in the work environment, it will be very difficult for employers to signal that the purpose of office has shifted to engagement and is not necessarily for activities that employees could do at home,ā she says.
Itās also the landlords who need to be concerned that if a building doesnāt offer amenities companies are going to need going forward, tenants will be looking to move.
CBREāsĀ Canada Real Estate Market Outlook 2023Ā highlighted re-evaluations of space requirements in the tech industry and financial sectors that have seen sublet space rise nationally for three consecutive quarters, to equal 3.4 per cent of existing office inventory.
According to the report, the overall national office vacancy rate increased to 17.7 per cent in Q1 of 2023, with vacancies rising in both downtown and suburban segments.
āEven prepandemic, what weāve always said isāÆdonāt let a crisis go to waste,ā says Andrea McCann, associate and lead interior designer at BDP Quadrangle. āThe pandemic provided an opportunity to re-examine everything we took for granted about workplace design.ā
The company is continually consulting with its teams toāÆunderstand their needs and the evolving ways they use office space, she says. āWe want to learn where people tend to congregate and whether we need more meeting spaces, casual spaces or something entirely different that we havenāt figured out yet.ā
Flexibility has become a key feature. While there are traditional work areas with unassigned desks, many of the work areas are flexible to do double or triple duty.
Video monitors are on stands with wheels to allow for easy relocation. Workspaces that have good city views and natural light can be enclosed with curtains for soundproofing and privacy during meetings. Even a podcast room is set up with broadcast-quality sound and lighting for presentations.
Tech additions include a booking system to reserve and track workstation and meeting-room use. BDP Quadrangle went a step further and created a calendar of every event that is happening in the days ahead.
An area dubbed the Back Alley has become one of the more popular spaces in the office for impromptu discussions. āIn a traditional office design, this would have been the big boardroom area that everybody would dread going into because itās in the centre of the floor and doesnāt have windows, but people now use it for group meetings and critiques and break-room sessions and celebrations,ā Ms. McCann says.
For concentration and focused discussion, another interior space, the Black Box, is devoid of colour or any distraction. āWe intentionally designed this space to be simple,ā Ms. McCann explains. āAnd while other parts of the office are full of natural light, with windows and views, we kept the Black Box as a visually quiet space to allow high-profile meetings to feel focused and purposeful.ā
The Oasis, a quiet zone designed to inspire and reinvigorate, has lounge furnishings, abundant plant life and some of the best views of city, while a break room and kitchen area ā the Community Hub ā was deliberately left unfinished with mobile tables and chairs that can be easily rearranged.
The plant life that extends from the Oasis throughout the office is proving to be an incentive for attendance. About 20 employees who may not have the space at home to grow plants have volunteered to tend them and it has become one of the reasons they like to come in regularly, Ms. Robbie says.
āThe amount of press around what the workplace of the future will look like was so overwhelming that weāve seen business leaders just frozen with fear because these can be huge investments,ā Ms. Robbie says.
āItās going to be a couple of years before we really see how this cycle that started in 2020 is resolved,ā she adds, āso, I think everybody needs to calm down and not expect to have all the right answers but continue to test and try new things. The experiment needs to continue.ā
Allied Properties is selling its urban data centre portfolio in downtown Toronto to a Japanese telecommunications company for more than $1B.
Allied Properties Real Estate Investment TrustĀ announced on WednesdayĀ that it has entered into an agreement to sell its network-dense, carrier-neutral urban data centre portfolio toĀ KDDI CorporationĀ for $1.35B, $118M above International Financial Reporting Standards (IFRS) net asset value.
The portfolio consists of freehold buildings at 151 Front Street West and 905 King Street West, as well as a leasehold at 250 Front Street West. The properties are connected thorough high-count, diverse fibre, which, according toĀ Allied, enables them to āsupport more telecommunication, cloud, and content networks than any other data centre portfolio in Canada.ā
The sale, which is subject to Competition Act approval, is expected to close before Q4 2023. Allied plans to use roughly $1B of the proceeds to retire debt, while the remaining funds will be directed towards upgrade and development activity through early 2024.
āThe sale proceeds will enable us to fund near-term growth, primarily in the form of upgrade and development completions, while maintaining unprecedented levels of liquidity and targeted debt-metrics,ā said Michael Emory, Alliedās Founder and Executive Chair.
āIn the longer-term, we plan to take advantage of a broader range of funding opportunities than we have in the past. Regardless of how we fund growth going forward, weāll remain fully committed to our distribution program.ā
After exploring a āvariety of monetization alternativesā for the urban data centre portfolio in the second half of 2022, Allied determined the best course of action, both financially and operationally, was to sell it in its entirety.
A comprehensive sale process began in January 2023, with Scotiabank and CBRE as exclusive agents. The companies contacted 97 potential buyers across the world, which culminated in final bids on June 2.
KDDI is a Fortune 500 company that owns and operates data centres in more than 60 cities across the United States, Europe, and Asia through its subsidiary, Telehouse.Ā The data centre companyĀ hosts more than 1,000 connectivity partners, including major mobile and content providers.
The companyās global data centre operating capabilities make KDDI āan ideal successor owner-operatorā for Alliedās urban data centre portfolio, noted Emory.
ā[This is] an exciting investment which will enhance connectivity capabilities for Canadian businesses,ā said Yasuaki Kuwahara, Member of the Board, Senior Managing Executive Officer, and Head of Business Solution at KDDI.
āWith many North American organizations accelerating their digital transformation and innovation initiatives, weāre delighted to be able to play a part in their success, offering reliable, scalable, flexible, and secure services to modernize and future-proof IT environments.ā
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