Despite a Rocky Road Ahead, There’s Positive News for Canada’s Commercial Investors

Canada’s commercial investors can’t catch a break in recent years: if it’s not pandemic restrictions, it’s tougher financing conditions and a potential economic slowdown.

A new report from commercial real estate services firm CBRE, however, suggests that there’s room for optimism on Canada’s commercial real estate front.

CBRE’s just-released Canadian Real Estate Market Outlook doesn’t deny that investors are in store for a bumpy road. But, given the immense amount of global capital targeting real estate, and the greater certainty expected with respect to interest rates, the report forecasts an active 2023 of mergers, acquisitions, and high-profile deals that could push investment volumes to an all-time high of $59.3B.

“We are fundamentally very positive about Canadian commercial real estate but it also undeniable that the short term is going to be very bumpy,” says CBRE Canada Chairman Paul Morassutti. “However, with better visibility around where interest rates are settling, we expect that pricing expectations will re-calibrate in 2023, deal flow will pick up, and by Q3 and Q4 we should see much more robust investment activity.”

It’s no secret that office space across the country took a major hit in the thick of the pandemic and — thanks to a new-found remote work culture — they’re still not where they were pre-pandemic. The report highlights how office utilization and the space needed per worker will evolve to a new equilibrium as companies fine tune their optimal remote-office balance.

The report also discusses how spaces that help attract workers back to the office will be a priority, with many of Canada’s forward-thinking tenants using the coming year to relocate to properties with the best amenities (which have increasingly gone from nice-to-have to expected), commute times, and sustainability profiles that are aligned with their own ESG priorities.

“Tenants are demanding more from their spaces and prioritizing high-quality offices that support new ways of working,” reads the report. “Not all buildings are created equal, and the bifurcation of office space will widen in 2023.”

In a climate of increasing vacancy, the prospects for older office space becomes more challenging with their loss of appeal.

With Canada’s relentless housing supply issues, there has been talk of converting aging and vacant office spaces to residential units, however, feasible opportunities are limited. According to CBRE, office properties are more likely to be retrofitted to attract new tenants or demolished for better uses.

Unlike the uncertain office market, the industrial sector is very much alive and well. According to CBRE, the national average industrial rental rate surged 30.9% year-over-year to hit $13.71 per sq. ft. at the end of 2022. CBRE expects rents to continue to be driven up by strong levels of demand as well as from the influx of new builds that command higher asking rents due to increased construction costs. The big box segment remains a hot commodity, with very limited available space that inevitably comes at a premium.

Despite a record 46.4M sq. ft of new supply expected to be delivered in 2023, the industrial market will remain undersupplied relative to demand. Robust pre-leasing activity and a conservative approach to construction in Canada means the national availability rate is forecast to only rise modestly by 40 bps to 2.0% in 2023.

Industrial construction starts are expected to ease in 2023 as markets across Canada work through their existing development pipelines. CBRE says that speculative construction may also become less viable amid elevated financing and construction costs, in addition to rising capitalization rates. Third-party logistics firms accounted for over 26.1M sq. ft. of new leasing activity in Canada over the last two years, and this trend is expected to continue into 2023 as more companies look to outsource their supply chain processes.

CBRE highlights how growing demand for multifamily rentals compressed the overall vacancy rate in Canada to a 20-year low of 2% in 2022. The outlook expects elevated demand levels to continue to persist and drive vacancy rates even lower in 2023 — something that will be driven by Canada’s record-breaking immigration targets. A return to the office is also driving the increased demand for urban rental product, as workers returning to the office look to minimize commute times. According to CBRE, a continued supply-demand balance is expected to push multifamily rents higher in 2023, with the rent growth forecast to remain largely in line with 2022’s record pace.

The report highlights a growing trend in the retail space of adding a residential component to shopping malls — something reflected everywhere from Toronto’s Yorkdale Shopping Centre, to Ottawa’s famed CF Rideau Centre. In fact, according to CBRE, more than half of the 30 top performing regional shopping malls in Canada are undergoing redevelopment, which will add thousands of residential units to these properties in the coming years.

CBRE says that revenge shopping — a desire to shop to make up for the time shutdowns prevented doing so — has started to cool, and is anticipated to slow further in the year ahead thanks to elevated interest rates and inflation. “Changing behaviours will redefine new growth opportunities for retailers, especially among the value category, as consumers become more cost-conscious,” reads the report. “Brands will need to differentiate their products or provide a higher quality of service in the year ahead to capture consumer attention and dollars.”

Refreshingly, retail foot traffic levels have largely returned to pre-pandemic levels, with consumers eager to engage in more lively, personalized shopping experiences that can’t be offered online.

“While it is widely assumed that younger consumers are highly engaged with e-commerce, Gen Zers are less likely to shop online than millennials, CBRE research shows,” says Morassutti. “This indicates that despite being digital natives, even the youngest consumers are choosing to shop in-store. So much for the death of retail.”

At least there’s that pleasant surprise.

Source Storeys. Click here to read a full story

Redevelopment of Hamilton Heritage School Proposes Nearly 1000 New Units

New Horizon Development Group has kicked off 2023 with an ambitious redevelopment proposal on the east side of Hamilton that would see the residential conversion of the historic Delta Collegiate Institute (DCI) building, coupled with a site-wide intensification effort. Designed by Graziani + Corazza Architects, the proposal contemplates the construction of three separate mid-rise buildings of 14 storeys, with four blocks of townhouses at three or four storeys surrounding the site’s perimeter. All together, the redevelopment would offer 975 new dwelling units with a significant rental component in an area with emerging transit infrastructure.

Addressed to 1284 Main Street East, the DCI building occupies a substantial area of nearly 25,000m², a significant plot within mature low-rise residential community on the edge of a broader mixed-use context. More active commercial corridors are located in the immediate vicinity, on Main Street, Kenilworth Avenue, and Ottawa Street, with the latter streets also slated to be stops on the coming Hamilton LRT, giving the DCI redevelopment proposal a transit oriented scope.

Map view of site and surrounding area, image from submission to City of Hamilton

The existing building is designated heritage property in the City of Hamilton with layers of history as an institution of cultural significance and a well preserved example of design excellence. Opened in 1924, the school was just the second collegiate institute in Wentworth Country (now Hamilton), offering the highest level of secondary education at that time. As a piece of built history, the building represents an exceptional display of modern gothic architecture, while the landscape draws on the symmetry and order of the beaux-arts tradition, creating picturesque vistas at an impressive scale.

Historical photograph of the 1920’s-built Delta CI building, image from submission to City of Hamilton

Digging into the extent of the proposed redevelopment, the new buildings are all situated to frame the existing building and activate what would be considered the back portion of the site to the south. Referring to the site plan below, we can see that the mid-rise buildings (labeled A, B, and C) are rectangular in their footprint, and together form a U-shaped arrangement extending from the school building, creating a large central courtyard.

Meanwhile, blocks D, E represent the four-storey townhouses, with blocks F and G representing the three-storey townhouses. The placement of the townhouse structures around the edges of the site is purposeful, working as a buffer in scale between the mid-rise volumes and the surrounding low-rise neighbourhood on all sides.

Site plan shows massing and height of all proposed buildings, image from submission to City of Hamilton

Managing both the heritage value and the impacts of development on the surrounding context are the primary considerations in the proposed massing and expression of the new-build structures. The mid-rise buildings all fit within the boundaries of prescribed angular planes from Graham Street to the west, Maple Avenue to the south, and Wexford Avenue South to the east, with the placement of the townhouses providing an appropriate setback to facilitate that passage of light.

Setback of mid-rises behind townhouses allows for pedestrian friendly scaling, image from submission to City of Hamilton

The pedestrian scaled townhouse volumes across the development rely on a material palette that aims to complement the heritage building. The extensive use of brick maintains a consistent materiality among all the low-rise structures, while the mid-rise buildings provide the necessary visual distinction to add variety to the exterior condition.

An offset rectangular framing pattern is expressed on the facades of the mid-rise buildings, appearing above where the higher volumes separate from the brick volume below, with a single storey glass reveal. The pattern is created by precast concrete panels, and works in concert with vision glass and aluminum mullions to deliver a motif that aims to translate the formal rhythms of the heritage building into a contemporary expression.

The low-rise volumes of the development would be finished in brick to reflect the heritage building, image from submission to City of Hamilton

Grade level landscaping is meant to create a network of symmetrical circulation routes for pedestrians and vehicles as well as open garden style spaces at the north and south borders of the site, making direct reference to the existing beaux-arts style layout of the site. Parking would be accommodated in three underground levels, offering a total of 1,136 vehicle spaces and 539 bicycle spaces. Of the 975 total units, 715 are proposed to be made available as rentals.

Landscape plan shows symmetrical approach, image from submission to City of Hamilton

New Horizon submitted applications for both Zoning Bylaw Amendment and Official Plan Amendment to the City of Hamilton in January, and will seek approval based on the proposal’s ability to activate a transit oriented site with a built form that seeks to minimize its impact on the surrounding low-rise community.

UrbanToronto will continue to follow progress on this development, but in the meantime, you can learn more about it from our Database file, linked below. If you’d like, you can join in on the conversation in the associated Project Forum thread or leave a comment in the space provided on this page.

Source Urban Toronto. Click here to read a full story

2022 Non-Residential Construction Saw Highest Cost Increase in More Than 40 Years

As inflation grew and interest rates rose in 2022, compounding with the supply chain issues and labour shortages that resulted from the pandemic, the cost of construction grew accordingly, forcing many developers and builders to pause and reassess.

Last week, Statistics Canada published new data that quantifies those construction cost increases, and puts what we saw in 2022 in context.

According to Statistics Canada’s composite price index that includes 11 key census metropolitan areas (CMAs) across Canada — Vancouver, Edmonton, Calgary, Saskatoon, Winnipeg, Toronto, Ottawa, Montréal, Moncton, Halifax, and St. John’s — non-residential construction saw a cost increase of 12.5% from 2021 to 2022, which was the highest year-over-year increase since 1981, when the Non-Residential Building Construction Price Index was first introduced.

Non-residential buildings include commercial buildings such as offices and warehouses, as well as industrial buildings including factories and bus depots with maintenance facilities, and Statistics Canada attributes the cost increases to the rising costs of wood, plastic, structural steel framing, and metal fabrications required for these buildings.

By building type, factories and bus depots with maintenance facilities saw the highest construction cost increases in 2022, with costs increasing 14.7% and 14.9%, respectively.

By region, non-residential construction costs increased the most in Toronto (16.2%), followed by Ottawa (13.6%), then Montréal (12.9%). Each of the 11 CMAs saw their highest annual construction cost increase since the Index’s inception in 1981, except for Calgary, Edmonton, and Vancouver, which saw a significant increase in 2007.

Construction costs increased significantly in the first half of 2022, but increased at a slower pace in the latter half of the year.

However, all of this does not seem to have made a significant dent on non-residential construction investment, according to data Statistics Canada published today.

According to that data, while overall investment in building construction decreased by 1.3% to $20.2B in December and investment in residential construction declined 2.1% to $14.6B, investment in non-residential construction saw an increase of 0.8%, to $5.6B.

Furthermore, that increase in non-residential construction investment was the seventh consecutive month investment had increased, indicating that investment saw an uptick again after the cost increases slowed down in the second half of the year.

In December, Ontario accounted for most of the growth (by dollars), seeing a 2.7% increase in non-residential construction investment. By building type, investment in industrial construction saw an increase of $2.1B, an increase for the 13th consecutive month, evidence that the demand for industrial space has been strong enough to outweigh rising construction costs.

Like non-residential construction, residential construction saw cost increases as well in 2022, with the 11-CMA composite price index rising 19.1%, the highest year-over-year increase since the index was introduced in 2017, with double-digit cost increases in all 11 CMAs except for Moncton, and costs rising the most for single-detached homes (20.9%).

“A combination of increasing demand for construction and supply challenges due to labour shortages resulted in limited availability and higher prices for materials and labour in the construction industry in 2022,” Statistics Canada said.

Fuel prices were also a factor, as were construction industry job vacancy rates, which hit a high of 8.3% in April before starting to decline, and also added upward pressure on labour wages that raised overall construction costs once again.

The amount of building permits and permit values for residential construction were down in 2022 compared to 2021, but were — yet again — higher for non-residential construction, further evidence that despite all the changing variables, the demand for non-residential space may continue to win out.

Source Storeys. Click here to read a full story

Canada Computers To Open New HQ And Expand Operations With Stores Across Canada

Canada Computers & Electronics has plans to open a new headquarters in Richmond Hill and is planning to open stores throughout Canada within the next five years.

The new headquarters is going to be over 150,000 square feet and will have everything under one roof.

“We have outgrown the location we are in now many years ago, so our sales team is actually working from a different location. Now with the new office, we can place everyone under the same roof and it will give us room to grow and provide a more relaxing space for the staff. We will offer a 24 hour gym, a badminton court, and it will give the space we need in the warehouse,” says Gordon Chan, the CEO of Canada Computers & Electronics.

The opening of the warehouse was supposed to be for the end of this year; however, Chan said because of delays it will most likely be opening in the first quarter of 2024.

Canada Computers & Electronics was founded in 1991 and focuses on computers, IT, accessories, and electronics from phones to drones. Since the company has been open, Chan said its goal has always been to provide the best customer service, the best products for consumers, and all at the best value compared to other electronic retailers in Canada.

Remodeling Online and Physical Stores

Instead of opening any new stores this year, Chan said he will be focusing on improving stores that he currently operates and improving its e-commerce platform to better serve consumers.

“I believe that 2023 will be challenging, but we have a lot of plans so we can grow. This year, we will not be reopening any new stores but I believe this will allow us to grow faster in the future. We will be remodeling a lot of our stores to improve the design and customer service.”

Chan said the plan is to remodel the whole store and will be “reinventing how they are going to merchandise” to improve consumers’ shopping experience. Chan said the renovations will make it easier for consumers to see features of the product, there will be more lighting, a sitting area for staff to sit and talk with consumers, and the space will provide a friendlier environment for consumers.

In addition to renovating existing stores, Chan said he is also going to improve the e-commerce platform and mobile app.

“We will be making the e-commerce platform more accessible. With the new warehouse, we are looking at ways to make our online website easier to use and also provide faster shipping. The new platform will be more informative, easier for consumers to order, and we will shorten the delivery time.”

Chan said the team is working on providing a one hour delivery time with consumers who place orders 5km from a store. In addition, Chan said he is investing into a service team that can go to consumers homes or commercial locations to install or fix products. These two services, along with the new e-commerce platform, will be available this year.

Canada Computers & Electronics will also be improving its mobile app where customers can browse products with ease, get information about products, and make an inquiry.

“We are trying to make these things happen this year, but a lot of planning has to be done as we want to do this perfectly. We have continued to expand our service and there is a lot of room to improve. We are going to be working on those to make the company more efficient, to provide better service, and also better communication. These are things we are going to be working on, and it is going to be a busy and exciting year for us.”

Five Year Plan

Canada Computers & Electronics currently has 40 locations spread across British Columbia, Quebec, Ontario, and in Halifax. Chan said within the next five years, he is looking to expand the company to have a store in every province and has the goal to open 20 new stores within the next five years.

“With the new warehouse, it would allow us to grow and expand. The goal would be to open across Canada so Canada Computers is available to everyone. And we are going to be setting up the new designs so any new stores that we open in the future, we are going to be using the new format.”

Source Retail Insider. Click here to read a full story

Canadian Сommercial Real Estate Investment Could Reach High Of $59 Billion In 2023: CBRE

Expects one to two quarters of slowed investment before activity rebounds in the spring

What Will Happen to All the Prime Retail Space Nordstrom Leaves Behind?

Last week, loyal Nordstrom — and Nordstrom Rack — shoppers in Canada were informed that the retailer would cease operations in the country.

The news seemingly came as a collective shock to consumers in Canada’s largest cities (we’re still not okay).

On Thursday, the American luxury department store chain announced it would close all 13 of its Canadian locations — six Nordstrom stores and seven off-price Nordstrom Rack locations — and halt its online e-commerce operations. All 2500 of the brand’s employees will be laid off.

“This will enable us to simplify our operations and further increase our focus on driving long-term profitable growth in our core US business,” said Nordstrom CEO Erik Nordstrom in a press release.

Nordstrom opened its first Canadian location in 2014 and its first Nordstrom Rack location in 2018. It now plans to close all of the country’s stores by June.

Breaking their lease, Nordstrom obtained an Initial Order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act to move closures along quickly and will rely on a third-party liquidator. The breaking of the lease is legal after a company files for creditor protection. Nordstrom said that the company had invested $775M in Canadian stores but never managed to turn a profit here. In fact, it lost money each year, according to court filings.

What Went Wrong?

Perhaps the Canadian market can only handle so many high-end department stores? We already had Canadian luxury department store Holt Renfrew. Then, Saks Fifth Avenue arrived not long after Nordstrom in 2016. “Nordstrom was a very specific tenant who was targeting the upper income Canadians in certain marketplaces,” says Jane Domenico, Colliers’ Senior Vice President & National Lead, Retail Services for REMS in Canada. “That category space [is] very competitive today. If you go back ten years, there were not a lot of people operating in that space. Then, suddenly, we had both Nordstrom and Saks come to Canada. And we also have strong Canadian retailers like Holt Renfrew, Simons, and The Bay. These are in the same marketplaces and going after the same dollars. So, it was a very competitive field.”

Domenico says that Canada is a geographically tricky area with an incredibly dispersed population, which makes it a challenge for American retailers.

“We have some fantastic US retailers who have over-performed in Canada — notably, the T.J. Maxx group — and been successful because they’ve been able to adapt to our logistics,” says Domenico.

“When you think of Nordstrom operationally, it was in Vancouver, Calgary, and the GTA and that’s a very dispersed inventory and operations. You don’t get the synergy you do when you have many locations. We thought they’d open more of their off-price locations in Canada, and that never happened. We are so geographically dispersed in Canada and that provides many challenges for our operations and makes it more expensive to operate here. Supply chain is such an integral part for retailers to be profitable. They need to supply in a cost effective way. I think it became more of a challenge than they ever thought — and Nordstrom is a strong retailer.”

CBRE retail specialist Kate Camenzuli says Nordstrom’s closure doesn’t necessarily reflect the reality of retail in Canada. “I don’t believe this has anything to do with the size or health of a specific space, or about the health of retail in Canada,” says Camenzuli. “This is a specific situation that has nothing to do with either.”

Whatever the cause, the reality remains that the departure of Nordstrom on Canadian soil will result in the loss of anchor tenants in the massive retail spaces in some of Canada’s largest malls in its major urban centres. This includes Toronto’s CF Eaton Centre, Yorkdale Shopping Centre, and Sherway Gardens, along with Ottawa’s CF Rideau Centre, Calgary’s Chinook Centre, and Vancouver’s Pacific Centre.

“In terms of a major anchor leaving, this has happened a few times in our history,” highlights Domenico. “It reflects consumer demand and tenant business decisions. We last went through this with Target and — before that in the late 1990s — Kmart and then Eatons. It’s part and parcel of retail real estate development. What’s different today, with the Nordstrom example specifically, is these spaces are located in the best malls in Canada — hands down. These are fantastic shopping centres across the country. The people who own, manage, and develop these shopping centres have a long history of success.”

When STOREYS reached out to commercial real estate giant CF Fairview to inquire about the fate of the massive anchor retail spaces — like the one in the CF Eaton Centre — reps referred us directly to Nordstrom for comment.

When we asked Nordstrom reps about breaking a lease of this scale, they said that, as part of the Initial Order from the Court, Nordstrom has received “the authorization for the Nordstrom Canada Entities, in consultation with the Monitor and with the assistance of any real estate advisor or other assistants as may be desirable, to pursue all avenues and offers for the sale, transfer or assignment of the Leases to third parties, in whole or in part, subject to Court approval of any such sale, transfer or assignment.”

What’s Next for the Retail Space?

In terms of next moves, Camenzuli says the departure of Nordstrom opens possibilities for retailers. “We are super excited, as the Canadian retail real estate market is very tight and this gives the landlords, brokers, and retailers the chance to have fun and get creative and look and super interesting opportunities,” says Camenzuli. “Canada continues to grow on the world stage as a great retail market and I’m sure we will continue to see that with brands entering the market, small, medium, and large format.”

Camenzuli says that the fate of the former Nordstrom locations involves continuing to top grade the sites with best-in-case new or creative solutions. “We are in the customer service business; it’s about delivering the best experience for the customer,” she says.

The sprawling retail spaces could get divided up or they could see the entrance of non-retail companies, like gyms or entertainment complexes.

“There are quite a few choices that developers can make,” says Domenico. “The first is to re-lease it to another large format use. Will it be a Simons? A Holt Renfrew? Those are the questions that are out there. Another option that has been very successful in our industry over the last 25 to 30 years is actually breaking up the anchor space into a combination of small retail (CRU) in combination with larger format tenants like a Winners or Sportchek. They could also be grocery or pharmacy, with a bunch of smaller CRU. Again, we’re dealing with the best malls in Canada.”

Like Camenzuli, Domenico says that the departure of Nordstrom offers a chance for developers to get creative and reimagine their sites and utilize the space differently.

“The third option involves developers asking what is my highest and best use that I think I’ll want in five, 10, and 15 years,” says Domenico. “These assets that have been impacted have been around since the 70s and it doesn’t look anything like the 70s [anymore]. So, this gives them an opportunity to say, ‘do I want to put a condo tower here? Do I want to put a hotel? Do I want to put an entertainment facility?’”

The vacant retail spaces left in Nordstrom’s absence inspires a re-evaluation for the future of the shopping mall in general. While many worried about the fate of the physical shopping mall during the COVID-19 pandemic, according to new figures released last week from CBRE, in-person retail shopping is very much alive and well.

Refreshingly, retail foot traffic levels have largely returned to pre-pandemic levels, according to CBRE, with consumers eager to engage in more lively, personalized shopping experiences that can’t be offered online.

“While it is widely assumed that younger consumers are highly engaged with e-commerce, Gen Zers are less likely to shop online than millennials, CBRE research shows,” says CBRE Canada Chairman Paul Morassutti in the report. “This indicates that despite being digital natives, even the youngest consumers are choosing to shop in-store. So much for the death of retail.”

Even so, mall space is inevitably being reimagined right now, with the new reality involving everything from pop-up spaces for local brands (as opposed to long-term leases), to the addition of condo units on their sprawling real estate.

Source Storeys. Click here to read a full story

Nordstrom Canada Began Liquidation Sales On March 21

Nordstrom Canada began liquidation sales on Tuesday March 21, less than three weeks after the company announced it would close all locations across the country.

A media spokesperson for the retailer confirmed the date to STOREYS on Monday. According to court documents filed with the Ontario Superior Court of Justice by the monitor, Alvarez & Marsal Canada, the sale will conclude no later than June 30.

The extended sale period was deemed “necessary and appropriate” to help the retailer’s respective landlords deal with the effects of the wind-down of Nordstrom’s operations. It will also allow the department store chain the “breathing space and time” required to complete the sale.

According to the documents, the liquidation will be carried out by a joint venture comprised of Hilco Merchant Retail Solutions ULC and Gordon Brothers Canada, which were previously involved in the liquidation of Target Canada, Sears Canada, and Forever 21, and are currently undertaking the liquidation of Bed Bath & Beyond’s Canadian retail stores.

Nordstrom is winding down operations in Canada under the Companies’ Creditors Arrangement Act (CCAA), which allows insolvent corporations to restructure their businesses and financial affairs. Under the CCAA, court approval is required to begin liquidation.

All gift cards, gift certificates, and Nordstrom Notes issued prior to March 21, 2023, will be honoured, and all merchandise sold during the liquidation period will be final sale.

In addition to merchandise, the liquidation sale will include certain furniture, fixtures, and equipment located in Nordstrom Canada’s stores and distribution centres.

The retailer operates six Nordstrom stores across Canada, including within the CF Toronto Eaton Centre, Yorkdale Shopping Centre, and Vancouver’s CF Pacific Centre, as well as seven discount Nordstrom Rack locations.

All stores will shutter, and Nordstrom’s 2,500 Canadian employees are expected to be laid off. Nordstrom.ca is no longer operational.

“We entered Canada in 2014 with a plan to build and sustain a long-term business there,” Nordstrom CEO Erik Nordstrom said earlier this month. “Despite our best efforts, we do not see a realistic path to profitability for the Canadian business.”

Source Storeys. Click here to read a full story

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source Toronto Star. Click here to read a full story

An Outlook On Specialized Sectors That Will Define CRE In 2023

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

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

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

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

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

Warren Wilkinson, national alternative asset practice group leader

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

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

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

Tyler Dolan, national debt advisory practice group leader

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

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

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

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

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

Peter Garrigan, national industrial practice group leader

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

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

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

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

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

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

Robert Frost, national multifamily practice group leader

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

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

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

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

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

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

Madeleine Nicholls, national retail practice group leader

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

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

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

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

Bobby MacDonald, national technology practice group leader

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Some key salary survey findings

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

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

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

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

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

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

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

Motivators for seeking new employment

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

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

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

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

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

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

Vacation times can vary

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

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

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

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

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

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

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

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

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