Dream Office Looks to Maintain Capital as Downtown Vacancy Rate Hits Record High
Dream Office REIT, a major player in Canada’s largest city with 28 investment properties, is cutting its dividend in half in a reduction that it said will save $19 million annually.
Dream Office CEO Michael Cooper described a challenging environment for office leasing even as the Toronto-based REIT is seeing slight increases in occupancy.
“Over the last four years, it has been very tough in the office sector,” Cooper said on a call with analysts. “Everything shut down because of COVID, and there was an immediate halt to the use of office space. It’s been two years since public health was an issue, but it’s been a slow recovery.”
Cooper said the board decided that retaining cash was valuable during the very uncertain environment for office landlords.
“This just gives us more shock absorbers,” said Cooper. “It’s not that things have changed, but maintaining capital creates more flexibility.”
For the period that ended Dec. 31, the REIT’s downtown Toronto in-place occupancy rate fell to 82.7% from 85.4% a year ago, while in-place and committed occupancy improved from 87.7% to 89% for the same period. Dream Office owned 3.155 million square feet in the downtown Toronto office market as of Dec. 31. The market’s vacancy hit a record high in the fourth quarter, according to a report from CBRE.
Distribution Cuts Expected
Mark Rothschild, an analyst with Canaccord Genuity, said the risk of Dream Office cutting its distribution was already factored into the unit price.
“With no signs of improvement in fundamentals and the likelihood that it will take longer than expected to improve net operating income, reducing risk and preserving liquidity is of greater importance. This is magnified by the more difficult lending market towards office properties, compounded by the impact of higher interest rates,” Rothschild said in a note.
Dream Office is reportedly looking to sell some of its assets and has hired CBRE and Toronto Dominion Bank to find a buyer for 438 University Ave. Dream has yet to comment. The company sold a building at 720 Bay St. in early 2023.
Dream Office is the latest office REIT to slash its dividend. Toronto-based Slate Office, a landlord in Canada and the U.S., cut its distribution last year and amended its declaration of trust to remove the leverage restrictions.
“We believe we are starting to see green shoots in the office sector and accelerating demand from emerging and established companies looking for high-quality office space,” said Brady Welch, interim chief executive of Slate Office, during a conference call with analysts Thursday.
The REIT said for the period ending Dec. 31, occupancy was 78.6%, down from 79.1% a quarter earlier.
Slate Office announced a 15-year, 107,000-square-foot lease agreement with a top Canadian financial technology company at the West Metro Corporate Centre in the Toronto suburb of Etobicoke. The REIT did not name the tenant.
“In a challenging office market, we have been able to increase occupancy at the property by nearly 20% while extending the average lease term by two years and significantly improving net operating income,” said Welch.
CBRE noted this month that vacancy in downtown Toronto’s office market hit another new high of 16.7% in the fourth quarter of 2023.
“When analyzing climbing vacancy, it is unfair to look at the office sector as one homogenous sector,” said CBRE in its report.
“There is a tranche of inventory that because it is old, it is dated, it is commodity office and more importantly, because it has no pathway to decarbonization, that portion of the market may never recover, at least not in a meaningful way,” said CBRE.
OleaDev’s LinkSix Project Comes After Firm Completed Biggest On-Spec Warehouse in Quebec
Building industrial property in the province of Ontario while doing the same in Quebec might lead a developer to compare the degree of difficulty in each region.
So which of Ontario and Quebec offers developers a faster runway to getting an industrial structure built? Montreal developer Terry Tsatas has gained recent perspective on the question now that his OleaDev Real Estate Group has moved forward with its first project in Ontario: a 415,000-square-foot building with 40-foot ceilings straddling the border of Hamilton and Burlington.
OleaDev completed Quebec’s largest on-spec warehouse earlier this year. (Olivier Gariépy/CoStar)
Earlier this year OleaDev launched Quebec’s largest-ever on-spec industrial structure with a 420,000-square-foot warehouse it created along with construction partner Frare & Gallant in Beauharnois, Quebec. That project is now occupied by Keurig Dr Pepper Canada, according to OleaDev’s LinkedIn page.
Tsatas told CoStar News that Canada’s two biggest provinces approach the planning and permitting process with different philosophies.
The Ontario authorities might be slower and more demanding, but there’s a reason for that, according to Tsatas.
“Ontario is more business-oriented and proactive. In Quebec, it’s simpler. You go to your city but then there’s a lot more guesswork,” Tsatas said. “In Ontario, there are multiple authorities that you have to go see but the municipalities and province know what’s going to happen there three years down the road with the services and zoning.”
OleaDev is building its LinkSix project at 566 Highway 6 with financing from BMO Private Equity and expects to complete it in the first quarter of 2025.
Another Project Pending
It will be joined by another major project in Ontario to be announced within the coming weeks, Tsatas said.
LinkSix is being built on speculation without any pre-arranged deal with a tenant, a practice that has only recently become popular in Quebec.
“In Toronto there has always been the spec marketplace. Montreal has always been a much more conservative market,” Tsatas said.
Canada’s industrial property market has attracted much attention over the last few years, as high demand led to better profits and lower vacancy rates, notably in Quebec.
Tsatas does not believe that the Canadian industrial bonanza will continue indefinitely.
“The reality is the market has softened significantly over the last few months and 2024 won’t be an easy year for industrial development,” said Tsatas, who notes that OleaDev has factored this into its plans for LinkSix. “Our philosophy is that this asset won’t be ready in 2024 but rather in 2025 when rates will have stabilized.”
Pret A Manger Opens First Permanent Location in Toronto
United Kingdom sandwich and organic coffee chain Pret A Manger is opening its first location in Canada in downtown Toronto.
The chain, which began in London in 1986 and now has 600 shops worldwide in 16 international markets, opened its doors on Jan. 23 but is scheduling a formal grand opening at 90 Adelaide St. W. for Feb. 5. The nine-storey building at the corner of Adelaide St. West and Sheppard St. is owned by Colonia Treuhand, a family run real estate investment, asset and property management company based in Toronto.
“This expansion into Canada is a natural next step for Pret globally. We are committed to bringing the Pret brand to more people, wherever they are,” said Jorrie Bruffett, president of Pret A Manger for North America, in a statement.
The company had experimented with pop-up stores in Vancouver and Toronto in 2022 and said the success led them to open a permanent location and pursue Canadian expansion plans.
Pret a Manger has locations in the United Kingdom, Ireland, United States, Hong Kong, France, Dubai, Kuwait, India, Luxembourg, Switzerland, Belgium, Singapore, Germany, Italy and Spain.
Megadeal Saw Retirement Home Giants Divide Canadian Portfolio
Canada’s largest owner of retirement homes has a new look after Chartwell Retirement Residences’ Chief Executive Officer Vlad Volodarski engineered a deal with Toledo, Ohio-based Welltower that involves 40 retirement homes across Canada.
Chartwell’s CEO sat down with U.S.-based retirement home giant Welltower last year to take on the daunting task of dividing the portfolio that comprises 8,476 units the companies have co-owned together since 2012.
“Some time last year [Welltower] asked us to split the partnership, to determine the terms of the separation and negotiate all other terms,” Volodarski told CoStar News in an interview.
The deal, announced in early November, resulted from a detailed negotiation process that saw both sides pick their properties and then haggle over the details.
“They had a list of their desired properties and we had ours. There was some overlap, so it was a negotiation,” said Volodarski, who says that the main aim of his publicly traded company was to keep control of retirement homes located closer to its existing operations.
The final deal, which is expected to close in the second quarter, saw Welltower emerge with 23 properties and Chartwell with 16, with one retirement home to remain shared. Welltower also compensated Chartwell with a cash payment of CA$97.2 million. “You never achieve 100% of your goals in these types of negotiations but we are happy with the outcome,” said Volodarski.
Chartwell, which is Canada’s largest retirement home chain and oversees 25,000 residents in four provinces, will remain focused on its ongoing occupancy recovery initiative and is aiming to reduce labour costs, notably through increased use of technology, Volodarski said. But the company is also not ruling out opening new homes. “We are well positioned, whether it’s through new development or acquisitions, to add to our portfolio, alone or with partners,” Volodarski said.
Focused on Underserved Markets
Chartwell would like to increase its portfolio in Western Canada, specifically British Columbia, where it considers the retirement home market to be underserved. Volodarski, like many other commercial real estate executives, feels that current economic conditions remain unfavourable to new builds due to high construction costs and other associated financial challenges. “The numbers don’t quite pan out but I expect in the next year or two we will have more opportunities to do more developments ourselves or with partners. When the time is opportune we will definitely move forward.”
Since 2014, Chartwell has maintained a development partnership with EMD-Batimo, a 25-year-old Quebec-based company led by Marc Dubuc and Francis Charron. EMD Batimo finds land to develop and Chartwell provides financing or Batimo develops a property on its own and Chartwell purchases the operation once it has attained a 90% stabilized occupancy level.
Welltower, which has been led since 2020 by CEO Shankh Mitratake, takes over 13 of the 20 co-owned retirement homes in Quebec and 10 of the 19 homes in Ontario, British Columbia and Alberta. Welltower, like Chartwell, has also partnered with a company based in Quebec, which is a lucrative market for retirement homes, as Montreal-based Cogir will manage some of Welltower’s 23 properties under its Jazz brand. The deal cost Welltower real estate investment trust a total of CA$113.3 million. The 23 properties have a “lower average age, higher occupancy and margins, and feature core locations across strategic Canadian markets,” according to Welltower’s latest earnings update.
Retirement homes totaling 3,511 units are now owned solely by Chartwell:
Whispering Pines, 140 Letitia St. in Barrie, Ontario, 108 units;
Tranquility Place, 436 Powerline Road in Brantford, Ontario, 218 units;
McConnell Retirement Residence, 801 Fourth St. E in Cornwall, Ontario, 210 units;
Developer pivots Wicksteed Ave., site from its original plan to build office space
A proposed mass timber-constructed office development in Toronto’s Leaside area has shifted focus; Beeches Development is now seeking to add much-needed biomedical laboratory space with its new building.
“We 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,” Beeches president Charles Goldsmith told RENX. “But absolutely nothing happened after COVID, so we shut it right down.
“I 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.”
The proposed building, on a property at 154 Wicksteed Ave. which is currently occupied by 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. It’s still providing rental income for site owner Peter Schultz in the meantime.
Goldsmith’s long Toronto development career includes involvement with infill housing, apartment buildings, commercial properties and the 1984 acquisition and redevelopment of downtown’s Hotel Victoria, which he sold to Silver Hotel Group 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.
It’s 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 it’s minutes from one of Canada’s largest research centres, the Sunnybrook Research Institute, and its teaching hospital with the University of Toronto.
North York General Hospital, Michael Garron Hospital, AlphaLabs and pharmaceutical companies Johnson & Johnson Innovative Medicine, Alveda Pharma, POINT Biopharma, Wellesley Therapeutics Inc., Crassula and Vien Pharma are also in the area.
The neighbourhood has also seen a recent multifamily residential development boom to take advantage of the Eglinton Crosstown light rail transit line that’s under construction three blocks north of the Wicksteed Avenue site.
It’s 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 the StudioCANOO-designed building before the end of the year.
Goldsmith estimates it will take about two years to complete. He’s willing to build on spec if necessary because he’s 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.
CBRE 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 aren’t pre-leased in today’s economic environment and, since the life sciences asset class is relatively new in Canada, there isn’t a lot of available historical data that may be able to convince them otherwise.
CBRE associate vice-president Daniel Lacey, who authored a report on Toronto’s need for more lab space last fall and is representing Leaside Innovation Campus, told RENX 90 per cent of the potential tenants he’s spoken with don’t have flexible timelines and want to be in new space within 18 months.
Existing and proposed Toronto lab space
Downtown Toronto’s MaRS Discovery District 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 Capital 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 at 700 University Ave., a block west of MaRS.
There are also plans in the two-square-kilometre downtown Discovery District for the second phase of the University of Toronto’s 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 is 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 by Seeker Labs and its capital partner, Alberta Investment Management Corporation (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 don’t have capital allocations to improve existing spaces and are also reluctant to sign long-term leases in case they outgrow spaces.
“Companies in our marketplace get big bags of money from private equity firms and then they move to the U.S. because that’s the only place where they get the lab space so they can hire people to advance their research quickly,” 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.
Montreal developer says it also has 4.3M sq. ft. of development under way, or set to begin
Montreal-based developer Rosefellow 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 “are the first of many to come” in the GTA. Rosefellow will continue to develop in Quebec but “we just think because the market is so large in Ontario, much larger than Quebec, we’re 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 Rosefellow’s 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
“We just see huge opportunities. The potential for us to grow in the U.S. is there and we want to take advantage of it.”
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.
“We need to understand the data well. Once we understand those markets, like we do Quebec and Ontario, we’ll make a move,” Jager says.
He says Rosefellow has a mix of private and public investors “interested to grow with us in Ontario and others on the sidelines ready to deploy capital in the U.S.”
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 Rosefellow’s 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 “because of the location (and) how limited the availability is for pure distribution sites” 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.
It’s now 50 per cent leased “but we know we’re going to be fully leased by June,” 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, “we have not actively pursued any new (residential) sites for development,” Jager says. “The rental rates are not where we would expect them to be or hope them to be, so we’re going to wait a little bit.”
Rentals are still strong on the industrial front, Tsoumas says, although rent growth won’t 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.
“While 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,” Tsoumas says.
“We 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.”
UPDATED WITH SALE CLOSING: Morguard Corp. has sold a portfolio of 14 hotels in eastern Canada for $410 million.
Morguard stated the move aligns with its “commitment to optimize its real estate portfolio, focusing on core real estate investments, including office, industrial, retail, and multi-suite residential properties.”
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, Morguard’s chairman and chief executive officer, said in the release. “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. 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, Morguard’s chief financial officer, said in the announcement.
Hotels involved in the portfolio sale are:
Courtyard Marriott – Markham, Ont,, 144 rooms;
Residence Inn Marriott – Markham, 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 billion 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.
Cooper Construction 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.
HCBP’s 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 achieving LEED Silver and WELL 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
The City of Guelph 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 didn’t do the work. It didn’t 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 partner Montez Corporation 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 by GIC and Dream Industrial REIT for $5.9 billion.
Smaller Phase 2 sites were sold
“Along 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,” Gordon explained. “So we parsed those small, irregular sites off and we also sold about 19 acres to Co-operators for their new corporate head office.”
The Co-operators office building is under construction and will be completed this year.
Phase 2 of HCBP is now fully leased to tenants including Lynden Logistics, GoodLeaf Farms, OxiCP, PiVAL, Omni Packaging, GoPlus, Fraser Direct, Lane Sales, Brewers Supply Group, Jet Tools, Denso Manufacturing Canada and the 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 of 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.
“We’re waiting for a swift lease-up,” 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.
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.
Colliers vice-chairman Gord Cook moderated a four-person panel that considered the state of the market and where it’s going during the recent Real Estate Forum at the Metro Toronto Convention Centre.
“Industrial has obviously been the darling asset class, probably since 2015,” said Cook in his introduction, pointing out the substantial growth in industrial rents since then — 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 there’s 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.
“E-commerce spending is slow, which has been a big driver of our industrial base,” Cook said. “And what I think is really interesting is there’s generally a surplus capacity in the global supply chain.”
Oxford Properties Group
Oxford Properties Group 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.
“There 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,” Pickering observed.
“Then 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.”
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.
“We’re seeing demand be very muted at the moment and I think some of that is just the level of uncertainty,” Pickering said. “I think anyone who can avoid making a decision is avoiding making a decision.
“I 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.”
E-commerce adoption in Canada is behind the U.S., and even further behind other parts of the world, so Pickering thinks there’s still room for growth there that will benefit industrial real estate.
“Demand is going to be tied to consumption,” he noted.
“As 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.”
Even if per capita consumption is slightly suppressed, Pickering said that should be offset by Canada’s growing population.
Dream Summit Industrial LP
Dream Summit Industrial LP is owned by a joint venture between GIC and Dream Industrial REIT created through February’s $5.9-billion acquisition of Summit Industrial Income REIT. 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 they’re 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 it’s 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 doesn’t think that quality relative to price is being fairly factored in today’s 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
BGO 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 2023’s Canadian industrial rent growth took place in Q1, but tenants looking to renew after coming off of long-term leases are still experiencing “sticker shock.”
There are still good opportunities to get healthy annual rent escalators for small-bay buildings, according to Major, who doesn’t see annual increases ending for any size of facility.
“We 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,” 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.
“We love those tenants because they make a huge investment in the real estate and they’re really committed long-term,” said Major. “They’re very stable from a business perspective.”
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 that’s what was available, may pull back when their leases expire.
Pure Industrial
Pure Industrial 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 there’s more pushback on annual rent escalators for the longer leases, while they’re still getting north of five per cent for some properties with shorter leases.
While Pure doesn’t have much sublet space in its portfolio, Owen said landlords have become more willing to offer incentives, including free rent and tenant improvements.
Owen doesn’t expect much new industrial product to enter the Canadian market from 2025 to 2028.
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 from Altus Group.
Canadian transactions declined from $79 billion in 2022 to $50.8 billion in 2023, according to Altus’ 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.
“Canada has always been seen as a safe haven for foreign dollars, especially with our population growth based on immigration over the last few years,” 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 2023’s Top-15 transactions are in the GTA and in Ontario’s 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 “I don’t think we’re going to reach the $79 billion we reached in 2022.”
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. Allied Properties REIT sold its Toronto-based Canadian data centre portfolio to Japanese telecom firm KDDI Corporation 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 asset management firm TPG acquired a 75 per cent interest in two Oxford Properties Group 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. It’s the first JV between TPG and Oxford. Tenants include Mondelez, Best Buy and Campbells, and there are several long-term leases.
3. Ohio-based Welltower expanded its relationship with Cogir Real Estate after spending $885 million to purchase from Desjardins 12 seniors’ 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 REIT W.P. Carey 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 Apotex’s global operations, comprising 11 properties which cover about 2.3 million square feet of space. Apotex remains as a top tenant.
5. Ivanhoé Cambridge sold a 49 per cent stake of the 1.5-million-square-foot Vaughan Mills regional outlet mall to LaSalle Investment Management as part of a $470.2 million syndication deal. Under the syndication, Ivanhoé Cambridge and LaSalle will serve as co-owners of the more than 20-year-old centre, while Ivanhoé will continue to act as asset manager. Ivanhoé 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. Pinewood Group invested $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. Build Toronto Inc. was the seller. The Pinewood Toronto Studios facility is the largest of its kind in Canada.
7. Axium Infrastructure and AgeCare Health Services invested $378.7 million to acquire the Chartwell Retirement 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. Primaris REIT purchased 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 city’s west end, the Halifax Shopping Centre was operated by Cushman & Wakefield Asset Services Inc., on behalf of OPB Realty Inc., the real estate arm of the Ontario Pension Board. Built in 1962 at 7001 Mumford Rd., the 170-store mall is scheduled for a renovation this year.
9. Montreal-based Groupe Mach and Sarees Investments 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 Board sold the Erin Mills Town Centre in Mississauga for $272 million to the Pemberton Group, Metrus Properties, HBNG Holborn Group, The Remington Group and Condor Properties. Built in 1989, the 850,000-square-foot centre sits on 84 acres of land.
11. Primaris REIT bought the Conestoga Mall in Waterloo from Ivanhoé 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. Dream Unlimited Corp. and Great Gulf Group invested $259 million to buy 259-291 Lake Shore Blvd. E. in Toronto from the 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-iron battery manufacturer Northvolt 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 project’s first phase is valued at $7 billion.
14. Walia Group of Companies acquired eight retail properties – four in Calgary and four in Winnipeg – from Artis REIT 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. CentreCourt Developments purchased the 830,000-square-foot Pickering Town Centre from the Investment Management Corporation of Ontario (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.
