Despite an Unprecedented Amount of Ongoing Industrial Facility Development, Continued Strong Demand has Kept Vacancy Rates Across Canada Below Two per Cent.

A session at Sept. 8’s RealREITconference at the Metro Toronto Convention Centre, moderated by RBC Capital Markets Real Estate Group managing director David Tweedie, featured four executives discussing how recent events have impacted the asset class and their expectations for the future.

Tweedie opened the session with a presentation outlining the state of the market.

“From a fundamentals perspective, we’re sitting at record national-low availability, double-digit rental rate growth continues in most major markets and (there are) record tenant absorption levels,” Tweedie said. “But on the headwind side, we’re facing moderating GDP, elevated inflation, the potential risk of recession in 2023 and continuing rising interest rates.”

Canadian industrial market snapshot

Canada’s nine largest markets have an industrial availability rate of 1.6 per cent, which is down 70 basis points year-over-year and some markets have an availability rate of below one per cent.

Asking rents in the second quarter were 34 per cent higher than a year earlier and have doubled over the past five years.

The price per square foot for industrial space has risen by more than 30 per cent.

There were 37 million square feet of new industrial space delivered in the past year, while there were 44 million square feet of net absorption. An additional 41.6 million square feet is under construction and due to be delivered this year and in 2023 — and about 60 per cent of it is already leased.

There will be about 14 million square feet of industrial space delivered in the Greater Toronto Area (GTA) this year, but the vacancy rate will remain below one per cent.

There was also a record high in industrial transaction value last year and, while there’s been a slowdown in Q3 this year, it’s expected the 2022 total will be close to that of 2021.

Investors and lenders like industrial sector

National Bank Financial director of real estate equity research Matt Kornack, who covers the multiresidential and industrial asset classes, said investors are looking at industrial as the asset class with the most growth and smallest capital expenditures.

However, Kornack said investors are also looking at returns on a one-year basis even though real estate is a long-term business. That has hurt many REITs and caused them to trade at a discount to net asset value.

Kornack expects more targeted lending, with lenders gravitating toward industrial because of its strong fundamentals.

He noted Canada has lagged the U.S. in industrial rent growth trajectory, but he’s bullish about rents continuing to increase and capital continuing to flow into the asset class.

In light of rent growth, Kornack said tenants will need to come up with ways to use their space more efficiently.

Skyline Industrial REIT

Guelph-based and privately held Skyline Industrial REIT owns 57 properties totalling 8.75 million square feet in 33 communities in five provinces valued at $1.25 billion.

Skyline Industrial REIT was previously focused on smaller properties in secondary markets, but moved midway through last year to sell virtually all of its small-bay industrial properties.

It has sold about $450 million worth and is redeploying the capital into newer properties, including a recently announced 16-building, two-million-square-foot, $309.25-million portfolio in Calgary and Edmonton.

Skyline Industrial REIT president Mike Bonneveld said there are just two vacancies in his entire portfolio and the REIT has offers on both.

Bonneveld noted tenants have become more educated and aware of rising rents. Some of the sticker shock has evaporated when they’re faced with doubled or tripled rents upon renewal and there’s nowhere else to go due to a supply shortage.

Skyline Industrial REIT is partnering with other developers, including on a 20-acre parcel of land in Halifax that marks its first foray into the Maritimes, as well as a deal with Montreal-based Rosefellow.

That second partnership includes a 325,777-square-foot, state-of-the-art facility at 151 Reverchon Ave. in the Montreal suburb of Pointe-Claire.

“We’ve just, as of last week, closed on our second fund with them,” Bonneveld said of Rosefellow. “We’ve got about 11 projects underway, with the majority in the GMA (Greater Montreal Area), that will deliver about three million square feet by the time we’re done.”

Some of Skyline Industrial REIT’s developments have been completely pre-leased before construction has started and tenants are committing to buildings that won’t be ready until Q3 or Q4 2023.

“The reason we’re in development is to get the pipeline of assets,” said Bonneveld. “We’re not doing it to build and flip. We’re in it to get very good product in the core markets we want to be in.”

One area of concern is getting product out of industrial properties, as more truck drivers and trucking facilities are needed.

Bonneveld said Skyline Industrial REIT bought a trucking facility as a land development play a year-and-a-half ago and saw its rents triple and its value significantly increase, so it no longer plans to redevelop the site.

PROREIT

Industrial space comprises about 80 per cent of Montreal-based PROREIT’s (PRV-UN-T) gross leasable area.

It owns about seven million square feet across Canada valued at approximately $1 billion. Its stock price is trading at about 28 per cent below net asset value, according to Mark O’Brien, PROREIT’s senior vice-president of leasing, operations and sustainability.

PROREIT was very active on the industrial acquisition front late in 2021.

It created a joint venture with Crestpoint Real Estate Investments Ltd. involving $455 million of mainly industrial properties, including a $228-million portfolio in Halifax’s Burnside Industrial Park, in June.

PROREIT and Crestpoint jointly own a portfolio of 42 properties, 41 in Halifax and one in Moncton, N.B., comprising nearly 3.1 million square feet of gross leasable area. O’Brien said they’ve taken rents from $8 to $12 and potentially $16 in Halifax.

O’Brien said there’s been no slowdown in leasing in any of the markets PROREIT is in and leasing spreads have been accelerating.

While PROREIT is looking at development opportunities as they come along, O’Brien said it’s primarily focused on earning good yields from stabilized assets in secondary markets as development yields compress.

Dream Industrial REIT

Dream Industrial REIT (DIR-UN-T) has about $6.5 billion in assets under management in Canada, Europe and the U.S. It has about three million square feet of space in its development pipeline.

Chief operating officer Alexander Sannikov said Dream Industrial’s priority is to grow the portfolio across geographies and it’s increasingly focused on speculative development. It prefers mid-sized projects over mega-projects.

Dream Industrial continues to sign lease deals in Canada and demand remains high. The REIT is pursuing acquisitions and is interested in strategic joint ventures.

Demand is also strong in Europe, where Dream Industrial signed two large-lease deals in the traditionally very slow month of August. It also had five tenants competing for an industrial development in Germany.

Sannikov said the European industrial market is dominated by merchant developers, whereas there are more build-to-hold developers in Canada.

He thinks returns are currently strongest in development and Dream Industrial can receive significant yield premiums.

Source Real Estate News EXchange. Click here to read a full story

“The Office is Not Dead”: How the Pandemic Forced an Evolution of Workspace

At the height of the pandemic, strolling through Toronto’s Financial District made for an eerie experience; taking in the silent intersections and shuttered businesses of the underground PATH hit home just how much COVID had impacted the workforce, and our lives.

However, while work-from-home mandates led to an initial hollowing out of downtown cores and ended daily commutes for many, today, the office isn’t obsolete — far from it. Instead, the last two years have spurred an evolution in the concept of the workplace, says John Duda, President of Real Estate Management Services Canada at Colliers.

“The office is not dead, not by a long shot,” he tells STOREYS. “I think that’s going to remain true going forward, but how it gets used is going to be a little bit different.”

Recent polling research compiled by Colliers has found organizations seem to be stabilizing in their “return to office” approach, whether that be fully in-person, remote, or a combination of the two. Office tenants are now less likely to reduce the size of their space, with only 24% of those surveyed indicating they wished to, while 7% of companies said they actually required more square footage.

What is clear is that more people are returning to the office full-time; polling finds employees at 61% of surveyed companies are working hybrid, down 5% from their previous report, while 37% have employees coming in full time, an increase of 4%.

With so much in transition, flex space has become increasingly important; Colliers reports that of those companies considering flex space — roughly half  — intend for it to encompass more of their portfolio, at an average of 47% of their total square footage. As well, the impact of the changing desire for flex space has nearly doubled to 13%, up from 6% and 7% in previous surveys.

The challenge for companies, says Duda, is understanding how the needs of those physically present have changed since pre-pandemic; determining a “new normal” is proving to be elusive, and is requiring plenty of trial and error as employers identify friction points.

“The types of things that are getting talked about are, ‘I’m going into the office now to do different types of things. I’m going in to meet, I’m going in to train, I’m going in to talk to somebody; maybe it’s less of a formal meeting but I need to see some people and have some casual conversations,’” he says.

“There’s a lot of simple things that no one’s really figured out yet, and you’d think it would be simple, but for some reason, it’s not. You go into companies and they have monthly parking spaces for staff in these buildings – well, why don’t you just take a group of monthly parking spaces and share them? But, how do you do that? Nobody has an answer.”

As well, demand is booming for agile workspace, Duda says, such as varying types of meeting rooms, increased privacy, and fewer cubicles. Upgraded technology, such as teams-based meeting setups with pivot cameras and instant computer connections, will become the new standard.

“Let’s say I have a meeting, and I have staff right across the country, but there’s a number of people in the office,” poses Duda. “Do I get a room? I don’t know. Who’s here? I don’t know! But the technology should be able to say, ‘There’s three of you sitting in the office together, ok, get a room,’ and do that really easily. I don’t have to walk around, I don’t have to knock on doors, I don’t have to call anyone — but right now it’s actually hard.”

Duda believes these pain points will remain for another year or two and that — though it’s impossible to predict how COVID will evolve — the need for collaboration is too great for some types of workers to remain remote indefinitely.

“The tech companies that we deal with are all saying the same things, ‘I can’t develop product easily with everybody scattered and at home,’” he says. “I’ve dealt with some of the banks and they’re saying their product development teams are a mess — it’s just not going well. There are certain things that just don’t work well.”

Source Storeys. Click here to read a full story

Land Prices for High Density GTA Properties Drops in Q2

The latest stats are in for high density land prices in the Greater Toronto Area (GTA). 

Real estate advisory firm Bullpen Research and Consulting Inc. and land use planning and project management firm Batory Management have teamed up to review and provide projections on GTA high-density land sales on a quarterly basis. 

In general — not unlike the single-family home market — prices were down for pieces of GTA real estate that will one day house towering structures packed with residents. 

A total of 46 transactions in the GTA were reviewed for the report. It revealed that the properties sold for $95 per buildable square foot (pbsf) on average, down from last quarter ($112 pbsf). The average property sold for $27.8M for 1.8 acres. 

In Q2-2022, the average land-to-revenue ratio was 7.2%, compared to 8.8% in Q1-2022.

In Q2-2022, the land-to-revenue ratio in the ‘416’ area lands was 8.1%, with ‘905’ area lands had an average land-to-revenue ratio of 4.9%. These are down from the longer-run average of 11.8% and 6.5%, respectively.

High-density lands sold for $135 pbsf in the former City of Toronto in Q2-2022 (pre-amalgamation boundaries), with North York at $103 pbsf, and Scarborough at $50 psf. 

Over the past 4.5 years, the average land sold pre-application had a land-to-revenue ratio of 12% in the ‘416 area’ compared to 13% for zoning approved lands. In the ‘905’ or suburban markets, those numbers at 6% and 7% respectively. 

As the report highlights, the drop in land prices comes at a time when developers face a looming nearly 50% increase in development charges and a potential hike in construction costs of 7 to 10% in the next 12 months. “There is worry that developers can no longer shrink unit sizes to further boost revenue-per-square-foot without moving forward with 30-40% more studio apartments, which then puts absorption in jeopardy,” reads the report. 

A the same time, sky high interest rates and a softening of the resale market has impacted demand. 

The report suggests the developers and vendors will take a “wait and see” approach, resulting in fewer transactions in the second half of the year and a flattening of land prices.

Source Storeys. Click here to read a full story

Golfour Proposes High Density Near Finch Station

The MBTW Group have recently submitted Official Plan Amendment, Zoning By-law Amendment and Site Plan Approval applications to the City of Toronto for a 25- and 35-storey pair of mixed-use condominium towers at 5576 Yonge Street. Designed by Graziani + Corazza Architects on behalf of developers Golfour Property Services Inc, the development is located on the northwest corner of Yonge and Tolman streets, just a block south of Finch Avenue in North York City Centre.

Measuring 3,618m² in area, the subject lands are currently comprised of a one-storey commercial building adjacent to Yonge and Tolman intersection and an unaffiliated surface parking lot towards the site’s western perimeter. Being positioned adjacent to two major arterial roads, Yonge Street and Finch Avenue, 5576 Yonge Street benefits from the Finch Subway Station, 400m to the north. This station is served by Yonge Line 1, resultantly designating the plot as a Major Transit Station Area per the Ontario government’s “A Place to Grow” initiative. The site also falls within the North York Centre North zoning as defined by the North York Centre Secondary Plan Area, which sees an abundance of high-rise mixed-use buildings along these arterial corridors.

Graziani + Corazza Architects propose two towers represented by a series of grey massing models. Tower A is situated at the subject site’s western perimeter, and Tower B fronts Yonge Street at the plot’s eastern extent. The proposed development consists of 608 residential units comprising 32 studio units (5%), 366 one-bedroom units (60%), 154 two-bedroom units (25%), and 56 three-bedroom units (9%), which meets the City of Toronto’s requirements for percentages of family-sized unit types. A proposed Gross Floor Area of 41,414m² would give the site a density of 11.5 FSI. 

Tower A is 25 storeys (80m) in height and is the smaller of the two buildings; its 3-storey podium abuts the Southern perimeter fronting Tolman Street. A considerate setback of 10m to the northern property line where a municipally owned surface parking lot lies, 9.7m to the western elevation of Tower B’s podium and 3m to the western property line gives adequate space for pedestrianized hard and soft landscaping, prepared by MBTW|WAI. The rectilinear tower isn’t centrally aligned on the podium. Instead, it sits skewed towards the southwestern corner to maintain a 25m separation between Towers A and B.

Tower B is 35 storeys (113m) and again is comprised of a 3-storey podium. It has been designed with a 4.5m setback on Yonge Street. An irregular curved property line fronting Tolman Street means the setback here ranges from 0m to 4m. The podium will adjoin the existing commercial building to the north to create a cohesive street façade strengthened by 507m² of proposed ground floor retail space fronting Yonge Street. 

The Planning Rationale documentation makes reference to a conceptual block plan that showcases two future towers in a plot abutting the site to the north. Graziani + Corazza Architects have accounted for a 25m tower separation from the indicative scheme by off-centring the towers towards the south, which provides a rationale for the landscaping towards the northern property line.

Although materiality is unclear on the greyscale massing models, elevations provided as part of this application showcase a series of grey metal cladding, exposed precast concrete columns, light grey spandrel panels, aluminium louvres and clear glass windows and balcony balustrading in an orthodox arrangement.

The proposal features two levels of underground parking that span the entirety of the subject site. This is accessed via a private driveway leading from Tolman Street, serving a dedicated ramp within the single-storey component of Tower A abutting the northern property line. The development will provide 101 vehicle spaces (55 for residents, 40 for visitors, and 6 retail spaces) along with 498 bicycle parking spaces. The Towers will collectively provide 1,260m² of indoor and outdoor amenity space, which exceeds the City of Toronto’s requirements.

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.

* * *

UrbanToronto’s new data research service, UrbanToronto Pro, offers comprehensive information on construction projects in the Greater Toronto Area—from proposal right through to completion stages. In addition, our subscription newsletter, New Development Insider, drops in your mailbox daily to help you track projects through the planning process.

Source Real Estate Urban Toronto. Click here to read a full story

28 Storeys Planned on Spadina North of Wellington

Official Plan Amendment, Zoning By-law Amendment, and Site Plan Approval applications submitted to the City by Bousfields Inc.will facilitate the redevelopment of two late 19th / early 20th Century warehouse buildings at 40 through 62 Spadina Avenue and 378 Wellington Street West in Downtown Toronto. The 28-storey mixed-use condominium proposal is designed by Wallman Architects with ERA Architects handling heritage aspects. Developers Forty-Six Spadina Ave Limited and Capitol Buildings Properties Inc. are looking to sympathetically incorporate the existing 4.5-storey structure known as ‘The Systems Building’ into the site’s redevelopment, providing 38,693m² of residential, retail, and office space to the King-Spadina area.

Located on the west side of Spadina Avenue, mid-block between King Street West to the north and Wellington Street West to the south, the 3721m² plot is occupied by two warehouse buildings at 58-62 and 40-46 Spadina Avenue ranging in height from 2 to 4.5 storeys respectively. The site is served by the 510 Spadina streetcar that operates north-south, and the 504 King streetcar that runs east-west. The streetcar stop for these transit services is less than 100m from the site at the intersection of these major arterial roadways. St Andrew station on the University Line 1 subway is also 900m east of the site.

The southern portion of the site contains the 4.5-storey red brick office building constructed in phases from 1908 through 1947. Listed on the City of Toronto’s Heritage Registrar in March, 2016, it is the more notable of the two buildings. As a result, its eastern and southern façades are be retained and incorporated into the proposed development.

The smaller 2 to 3-storey office building fronting Spadina Avenue is towards the site’s northern portion. Constructed in the 1880s, this has also undergone several extensions and renovations but lacks the architectural prowess of its counterpart. A 2.8m driveway between 376 and 380 Wellington Street provides access to a surface parking lot at the rear of the plot, west of the aforementioned buildings.

In most instances, the proposal utilizes the full extent of the site boundary. Noticeable setbacks occur along Spadina Avenue, just north of the conserved heritage façade of 40-46 Spadina Avenue, where a 4.8m recess provides relief from the neighbouring 3-storey building. A second landscaped 6m setback along the western plot perimeter allows for a mid-block pedestrian connection that runs north-south from King Street West to Wellington Street.

The 99.1 metre-tall mixed-use proposal is comprised of 4 distinctive massing components. A 4-storey podium incorporates the east, south, and partial west return of the existing heritage façade of 40-46 Spadina; it will provide covered vehicular access to the north for three levels of underground parking, providing 145 vehicle and 569 bicycle parking spaces, a dedicated residential lobby inclusive of all ancillary spaces, 647m² of ground floor retail space, 5,908m² of office space ,and a majority of the 1,769m² of indoor/outdoor amenity space. The centrally aligned 24-storey tower sited atop the podium will be flanked by two mid-rise elements ranging from 9 to 14 storeys to the north and south, providing 521 dwelling units and additional outdoor amenity space for residents.

Wallman Architects’ sympathetic approach is inspired by the prevalent warehouse vernacular within the King-Spadina district. The existing heritage façade has first and foremost been enhanced by a series of colour-matched brick veneers arranged in horizontal bands that wrap the entire development. These are complemented by a series of light-coloured stone caps, pre-cast colour panels and clear Crittall-style windows with deeply inset balconies which aim to allow the proposal to integrate into the neighbourhood seamlessly.

The proposed development consists of 521 residential units comprising 26 studios (5%), 322 one-bedrooms (62%), 123 two-bedrooms (24%), and 50 three-bedrooms (10%), which meets the City of Toronto’s requirements for percentages of family-size unit types. A proposed Gross Floor Area of 38,692.8m² gives the site a density of 10.37 FSI.

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.

* * *

UrbanToronto’s new data research service, UrbanToronto Pro, offers comprehensive information on construction projects in the Greater Toronto Area—from proposal right through to completion stages. In addition, our subscription newsletter, New Development Insider, drops in your mailbox daily to help you track projects through the planning process.

Source Real Estate Urban Toronto. Click here to read a full story

It’s Slowing Down The Demand For B- and C-Class Product and Increasing The Demand For A- and AAA-Class Product

Canadian class-AAA office product is doing well, industrial remains hot and retail has rebounded, according to JLL Canada chief executive officer Alan MacKenzie and a new national outlook report.

The national office vacancy rate rose 40 basis points to 14.7 per cent in the second quarter, but MacKenzie told RENX that’s comparatively low from a global perspective.

Vancouver’s office vacancy rate of 7.3 per cent is the lowest in North America while Calgary’s 26.8 per cent rate is the highest. However, Alberta’s largest city is showing signs of a bounce-back due to a rebound in the oil and gas industries that has resulted in some companies taking sublet space off the market.

JLL expects the office vacancy rate to continue to rise across Canada, given the current economic uncertainty, which will bring balance to markets that have favoured building owners for several years.

Return to office has spinoff benefits

Several major institutional office occupiers have started mandating employees back to the office two to three days a week.

“As occupiers bring their people back for more days of the week in the downtown areas of Canada, we’re predicting a really positive impact on the surrounding retail, with people buying coffees and lunches and socializing after work with cocktails and dinners,” said MacKenzie.

Office occupiers are also trying to determine how much space they’ll need over the next 10 to 15 years and how to design it to attract and retain employees and enhance productivity.

Environmental, social and governance, air and light quality, design and accessibility are all top of mind as the flight to quality by office occupiers which picked up in earlier waves of the pandemic has continued.

High demand for class-A and -AAA office space

“It’s slowing down the demand for B- and C-class product and increasing the demand for A- and AAA-class product,” said MacKenzie.

Owners of class-C office space on the periphery of downtown Calgary need to be more aggressive with inducements and pricing to attract tenants, while owners of AAA space in downtown Toronto don’t have to offer incentives because there’s ample demand and scarce availability, MacKenzie added.

There’s an increasingly high demand for built-out space, as tenants don’t want to spend the time or money to improve their real estate unless it’s absolutely necessary.

The flight to the suburbs that occurred with some office occupiers during earlier stages of the pandemic is being reversed and many are looking to return downtown, according to MacKenzie.

Net rental rates fell from a historically high $20.52 per square foot in the first quarter to $20.22. Montreal was the only major market with an increase as office rents rose by 5.4 per cent.

Industrial vacancy very low

After five consecutive quarters of declines, the national industrial vacancy rate remained steady at 1.5 per cent in Q2. Vancouver’s vacancy rate was 0.8 per cent, Toronto’s was 0.9 per cent and Montreal’s was 1.7 per cent, while Calgary’s rate dropped by 290 basis points year-over-year to 1.7 per cent.

“Because of the length of time it takes to entitle land and develop industrial product, and the limitation of available land, we can’t build it fast enough in order to meet the demand,” said MacKenzie.

“Notwithstanding that there are some headwinds with the economy and interest rates and the potential for a recession to be coming up that could put a little pressure on the demand side from occupiers, the scarcity of product is so rampant that we don’t see it as a risky place at this stage of the game.

“It’s still a very healthy market and it’s healthy to be an investor in that space right now.”

Industrial vacancies are expected to rise modestly but will remain landlord-favourable over the next few years, the report states.

Industrial rents continued to rise at an exponential rate across the country. Average asking net rents hit $12.11, a 17 per cent increase year-over-year, after expanding 14.4 per cent in Q1. While Canada’s three largest markets continued to expand 20 per cent and more year-over-year, Calgary and Winnipeg entered double-digit territory with rents increasing 11.6 and 10.4 per cent, respectively.

Southwestern Ontario had a surprisingly large and unanticipated 41.2 per cent year-over-year industrial rent increase.

“Land is less expensive in Southwestern Ontario so the overall production costs of building there are less than it would be in the Greater Toronto Area and developers are able to pass along those cost savings with slightly lower rental rates than the GTA,” said MacKenzie.

“We’re also seeing more and more Toronto-based investors and developers buying land in Southwestern Ontario and developing industrial product to try and take advantage of that demand and opportunity.”

MacKenzie expects rents to continue to increase for the next couple of years as supply trails demand.

Industrial transactions reached $4.1 billion in Q2 – a 58 per cent increase over the five-year quarterly average – though not quite as high as the all-time high of $5.3 billion in Q1. Pricing was at an all-time high with an average of over $242 per square foot.

More than 11 million square feet of industrial projects were started in the second quarter. Total space under construction was almost 48.4 million square feet, a five-million-plus-square-foot increase quarter-over-quarter.

Retail has rebounded

Canada had harsher and longer COVID-19 lockdowns than many other countries, which created wealth as people saved more money since there were fewer places to spend it.

Now that lockdowns are over, people are spending money on restaurants, entertainment and experiential retail, as well as clothing and shoes as more workers return to offices.

Accelerating wage growth and record lows in unemployment suggest people will keep spending, but high inflation and rising interest rates may curb discretionary purchases.

In-store purchases continue to trend up while e-commerce has trended down in the short term. The long-term outlook remains positive for e-commerce, however, because shoppers still like the convenience.

“Notwithstanding the disruption in retail as an industry during COVID, there has been a resurgence of investor demand in purchasing retail — specifically grocery-anchored retail in strong trade areas,” said MacKenzie, who noted pricing for class-A grocery-anchored retail in strong trade areas is higher than before the pandemic and the number of bids for it is high.

Transaction activity has been strong

There was $17.6 billion in multiresidential, industrial, land, office, hotel, retail and alternative asset class investment transaction volume in seven large Canadian markets during Q2, the JLL report states.

Toronto led the way with $8.2 billion, followed by Montreal with $2.9 billion, Southwestern Ontario (Hamilton, Kitchener, Waterloo, Cambridge, Guelph, Stratford, Woodstock and Brantford) with $1.7 billion, Vancouver with $1.3 billion, Ottawa with $900 million, Calgary with $614 million and Edmonton with $426 million.

Transaction activity was very strong in the first half of the year and private buyers and sellers were the dominant players.

Institutional investors have focused on the asset management of existing portfolios, trying to mitigate risks and drive value through leasing, redevelopment and capital expenditures over the past two years.

“They’re all internally looking at their portfolio allocations very carefully and how much exposure they have in office, retail, multifamily and industrial, and the exposure geographically, in order to set strategies for the future and take advantage of future trends of growth,” said MacKenzie.

“They’ve become portfolio analysts of their own portfolios much more heavily than they were five years ago.”

Shrinking buyer pool for some office product

There’s a shrinking pool of buyers for class-B and -C office product and even for class-A product in weaker markets such as Calgary and Edmonton, MacKenzie said.

“Now we’re going through a period of price discovery for some of the asset classes and markets because interest rates have gone up and the cost of carrying debt has put downward pressure on the ability of some buyers to have appropriate spreads over their debt costs.”

Vancouver, Toronto and Montreal class-AAA office product is in high demand and MacKenzie said there’s ample institutional and private capital waiting for trophy assets to become available.

Ivanhoe Cambridge outsourced property management and leasing for its 16-million-square-foot shopping centre portfolio to JLL last October and other investment management companies and institutional investors are evaluating that model.

“Maybe there’s an opportunity to move faster and become more efficient at growing their assets under management if they outsource the property management and leasing functions of their business,” said MacKenzie. “We anticipate this outsourcing trend to accelerate, not just in Canada but globally over the next several years.

“They’ll focus on their investment management activities in trying to grow their assets under management.”

Source Real Estate News EXchange. Click here to read a full story

Canadian Net REIT Has Completed All 2022 Leasing Renewals, With No Tenant Turnover, At Rent Hikes Ranging From Five To 25 Per Cent.

Canadian Net Real Estate Investment Trust reported year-over-year gains in funds from operations (FFO), FFO per unit and net operating income (NOI) in its second quarter ended June 30.

Quarterly FFO jumped 27 per cent to $3.29 million from a year earlier, while FFO per unit rose by seven per cent to 16 cents per unit. The FFO increase was primarily due to the impact of newly acquired properties, which was partially offset by interest on mortgages associated with those properties.

NOI was 32 per cent higher, at $4.51 million, than during the same quarter a year earlier. The NOI increase was also attributable to the impact of newly acquired properties.

Canadian Net REIT (NET-UN-X) is an open-ended trust that acquires and owns triple-net and management-free commercial real estate properties. It owned 99 properties in Eastern Canada valued at $285 million at the end of the second quarter.

Insiders own 14 per cent of the units of the Montreal-headquartered REIT.

99 per cent occupancy rate

Much of the portfolio is leased to retailers, national service station and convenience store chains, and quick-service restaurants. It had a 99 per cent occupancy rate at the end of Q2.

“Our business, which is focused on owning and acquiring properties on a triple-net-lease basis, allows us to be somewhat immune to inflation, as higher operating costs are borne by our tenants,” president and chief executive officer Jason Parravano said during the REIT’s Aug. 25 second-quarter results conference call.

“The REIT’s operating costs for our properties are almost exclusively charged back to our tenants under the structure of our leases, with a few exceptions.

“With respect to interest rates, we have been able to take advantage of mortgage assumptions at pre-heightened levels, which has allowed us to take advantage of meaningful spreads between interest rates and going-in cap rates on newly acquired acquisitions.”

Acquisitions and developments

Canadian Net REIT made four property acquisitions during the second quarter:

• a 30,500-square-foot Giant Tiger store in Truro, N.S.;
• a 35,991-square-foot Metro grocery store-anchored retail strip in St-André-Avellin, Que.;
• a 29,698-square-foot Metro store in Chénéville, Que.;
• and a 3,500-square-foot Couche-Tard service station and convenience store in St-Jérôme, Que.

“We continue to add properties to the portfolio that diversify our tenant mix as well as the geographies we are exposed to,” Parravano said.

Subsequent to the quarter, Canadian Net REIT purchased its first New Brunswick property: a 4,400-square-foot Midas auto service centre in Fredericton acquired for $975,000. It also bought a 53,151-square-foot RONA hardware store in Chateauguay, Que. for $8.3 million.

“These properties are positioned in irreplaceable locations in high-traffic retail nodes and leased to strong covenant retailers, similar to the composition of the existing portfolio,” said Parravano.

Parravano said pricing seems similar to that seen before the recent interest-rate hikes, but not a lot of product has come to the market. Interest-rate volatility may be scaring off some private investors and reducing competition for some assets, he added.

“We’re looking at a lot of deals that are being presented to us,” Parravano said.

Canadian Net REIT will complete the development of a quick-service restaurant in Terrebonne, Que. in the coming weeks and recently began the redevelopment of a Burger King location in Jonquiere, Que.

The REIT has a 40 per cent interest, in collaboration with Benny & Co. and Odacité Immobilier, in the development of three new Benny & Co. restaurants which will launch in the coming quarters.

Canadian Net REIT leasing

Canadian Net REIT has completed all 2022 leasing renewals, with no tenant turnover, at rent hikes ranging from five to 25 per cent.

The REIT has 10 leases expiring in 2023, representing approximately $800,000 in NOI, of which half have already been renewed.

Rent bumps have ranged from 2.5 to six per cent, while some leases include consumer price index-based increases. The remainder of the 2023 renewals should be completed by the end of this year.

The weighted average lease term for the portfolio is 7.2 years.

Debt and mortgages

“We continue to maintain a conservative approach with respect to our leverage and our payout ratio,” chief financial officer Ben Gazith said during the call.

Canadian Net REIT reduced its debt-to-asset ratio to 56 per cent from 57 per cent for the same period a year earlier, while the FFO payout ratio increased to 55 per cent from 52 per cent during the same time frame.

Parravano said he would be willing to go up to a 60 per cent debt-to-asset ratio if the right acquisition opportunities present themselves.

Canadian Net REIT’s preference over the years has been to take the longest available term for mortgages in order to mitigate rate reset risk. It has three mortgage renewals remaining in 2022, with a maturity value of less than $4 million.

The trust has $10 million in mortgages rolling over in 2023, including in joint ventures, but the bulk of its renewals won’t occur before 2027. The current average term to mortgage renewal is 5.5 years.

Source Real Estate News EXchange. Click here to read a full story

Tenant Demand Is 141 Times More Than What Is Available in the Toronto-Hamilton Area

There is virtually no lab space available in the Greater Toronto and Hamilton Area, according to a new report that suggests tenant demand is 141 times higher than what’s available on the market.

Real estate company CBRE said in its inaugural lab report on Canada’s largest market that “ballooning demand” for space is attracting growing investor interest.

“In the past, a lack of investor participation in the GTHA lab real estate market had forced most tenants to use their own capital in order to expand their footprints in the region. This has resulted in an undersupplied market that is facing growing demand from both tenants and investors,” said CBRE in a 23-page report that identifies the lab vacancy rate in GTHA at 0.2% with 12.3 million square feet.

The real estate company said outside of the MaRS Discovery District in downtown Toronto and the McMaster Innovation Park campus in Hamilton, multitenant lab properties are scarce and account for only 2.3% of total inventory.

The real estate company said lab inventory in the GTHA is concentrated in smaller facilities, which limits the ability for tenants to expand.

“Most of the lab spaces in the GTHA are single-tenant properties, totalling 9.1 million square feet and representing 73.7% of the total inventory,” said CBRE, noting the MaRS site is 2.3 million square feet and McMaster is 700,000 square feet.

“The predominance of single tenant lab inventory in the GTHA is the result of a lack of investor participation in the lab real estate market in Ontario,” CBRE said.

CBRE said occupiers have been forced to buy or build their facilities but lack the upfront capital and are not willing to wait for years before occupying the space. Therefore, they are compelled to look at U.S. markets for available space.

The real estate company said that as of the first half of 2022, there was 3.5 million square feet of demand for lab space in the GTHA, with 1.9 million square feet for research and development and 1.4 million square feet for what is called good manufacturing practices or biomanufacturing facilities.

CBRE said the construction costs vary based on facilities’ demands, but interior fit-out costs can range from between $100 and $600 per square foot for the core and shell and between $100 and $850 per square foot for the interior fit-out.

The real estate company said there are three notable lab buildings in GTHA that are expected to be completed in 2023: the 120,000-square-foot OmniaBio B project at McMaster Innovation Park, the 160,000-square-foot Sheridan Innovation Centre in Mississauga and a confidential 119,000-square-foot facility in downtown Toronto.

“Combined with the success and growth of the lab sector seen in the U.S., investor demand has also grown as they come to better understand the nuances and associated costs with building and leasing highly sophisticated lab space,” said CBRE in the report.

Source CoStar. Click here to read a full story

Famous Canadian Discount Retailer With Leases Once Sold to Target Corp. To Open Stores Next Year

Zellers, the discount Canadian retail chain that once had 220 leases acquired by Target Corp. as part of the U.S. company’s failed Canadian expansion, is being resurrected by HBC.

HBC, the parent company that counts The Bay and Saks Fifth Avenue among its holdings, said shoppers will have something to “zelebrate” by early 2023 when Zellers returns to Canada with a new e-commerce site and Bay locations across the country.

Zellers is planning a “digital-first shopping journey that taps into the nostalgia of the brand” as it expands its footprint in major cities across the country at prime brick-and-mortar Hudson’s Bay locations, according to a statement from HBC.

At launch, Zellers will sell housewares and home decor, furniture, small appliances, toys, pet accessories and a value-driven private brand. Apparel will be introduced later in the year.

“We know how special Zellers is in the hearts and minds of people in Canada,” Adam Powell, chief business officer of Zellers, said in the statement. “Zellers is a brand deeply rooted in the Canadian experience. Spanning generations, people hold distinct connections to Zellers through shared experiences with family and friends, and we look forward to building on that in the future.”

Founded in 1931 in London, Zellers became famous in Canada with a campaign that touted Zellers was “where the lowest price is the law.” The company was acquired by HBC in 1978. Then, after dealing with declining fortunes, some of Zellers lease agreements were sold to Minneapolis-based Target Corp. for $1.825 billion in 2011.

HBC kept 64 locations but eventually liquidated those stores in 2013. Target itself left Canada and closed 133 stores starting in 2015 after recording a nearly $7 billion loss, which many blamed on supply chain issues that kept the company’s shelves bare across the border.

HBC said Zellers locations would open in select Hudson’s Bay stores early next year, but exact locations were not disclosed. Zellers had introduced a pop-up location in Burlington, Ontario, in 2020.

Source CoStar. Click here to read a full story

Construction Supplier Signs Full-Building Distribution Centre Lease in Caledon

Lindstrom Fastener Expanding to 410 Gateway Business Park

A master distributor and manufacturer of specialty construction fasteners is expanding its Canadian distribution centre after leasing a new building nearing completion in the 410 Gateway Business Park at 34 Speirs Giffen Ave. in Caledon.

Lindstrom Fastener (Canada) Ltd., which also operates in several U.S. states, leased the entire 105,014-square-foot building with 28’ clear heights. As a master distributor, the firm supplies other distributors with a wide range of metric fasteners, socket products, nuts, washers, pins, retaining rings, flange bolts, screws and assemblies.

Located near the interchange of Mayfield Road and Ontario Highway 410, the new facility is owned by Toronto-based H&R REIT and is expected to be completed next month.

Scot Steele, Chris Bournakas, Sarah McNamara and Deman Dulat arranged the lease on behalf of H&R REIT and are currently marketing space for lease in an adjoining building at 140 Speirs Giffen Ave.

Source CoStar. Click here to read a full story