Can Residential And Industrial Land Uses Co-exist?

The Greater Toronto and Hamilton Area’s (GTHA) residential construction boom is increasingly pushing into historic industrial and employment lands, and a recent online Urban Land Institute Toronto panel looked at some of the issues and strategies which have arisen from the situation.

Stikeman Elliott partner Calvin Lantz provided an overview to kick off the event and observed that residential and industrial land uses aren’t always compatible. He said this can depend on: the type of industry involved; the industry’s emissions, including noise, vibrations, dust and odours; and the built form and intensity of the proposed residential land use.

Stikeman Elliott partner Calvin Lantz provided an overview to kick off the event and observed that residential and industrial land uses aren’t always compatible. He said this can depend on: the type of industry involved; the industry’s emissions, including noise, vibrations, dust and odours; and the built form and intensity of the proposed residential land use.

“Is it a single detached home that’s being introduced or is it a tall tower next to an industrial operation with overlook and exposure to the emissions?” Lantz asked.

“We’re dealing with infill development. We’ve got under-utilized sites that have no hope of ever attracting industrial development. And we have under-utilized sites that are adjacent to, or are in proximity to, active industrial operations.

“We clearly have a need for more housing. And we have a need to protect employment lands and jobs and make use of the infrastructure that’s existing. And we want to protect employment opportunities and attract more employment opportunities in the future.”

The Greater Toronto and Hamilton Area has a limited supply of land due to Lake Ontario and the Greenbelt that limits expansion into farmland and natural areas.

Within these boundaries are historic land designations and existing infrastructure with roads and public transit lines that dictate site usage. A growing population has increased the potential for conflict.

Lantz stressed the importance of compatibility being considered through comprehensive municipal planning processes, and with each development approval sought.

Hamilton-Oshawa Port Authority

City of Hamilton Municipal Land Development Office manager Chris Phillips, who facilitated the discussion, then introduced three other panelists who joined Lantz.

Hamilton-Oshawa Port Authority president and CEO Ian Hamilton said he oversees 650 acres that contains 135 tenants. More than $4 billion worth of goods travel through the port annually, supporting 28,000 jobs in Ontario.

Hamilton said there are 17 port authorities in Canada, and all face compatibility challenges balancing their mandates with the residential and recreational aspirations of their home cities.

“In most cases cities were built because of access to water and then, in a lot of cases, the city is outgrowing itself and surrounded the ports and made it sometimes awkward to be compatible and work together,” said Hamilton.

“But I certainly believe that it is possible, and it requires a fair amount of transparency and open communication and recognition of what the two parties’ specific needs are.”

Housing crisis could change policies

While Bousfields Inc. partner David Huynh said government policies protecting industrial and other employment lands are probably the strongest they’ve ever been, things may change somewhat due to the growing housing crisis in the GTHA.

“But at least there’s a realization and acknowledgement that I think staff have to consider more than the protection of employment, and that means thinking more about housing and thinking more about the different types of employment that they’ll accept or they can consider.”

“Industries need to step up on their own to defend their own territory,” said Lantz. “It’s not enough for them to stand up and say ‘We were here first.’ That works in a sandbox, but that doesn’t work here when you’re dealing with politics and limited rights of appeal.”

Truck routing and transportation

Phillips raised the issue of truck routing in neighbourhoods where there are both industrial and residential uses. Products need to be transported from one location to another, but safety concerns must also be considered.

“It’s one thing to protect the land and transition to these large warehouses along our highways,” said Huynh. “But as logistic networks kind of permeate into our communities, companies are looking at smaller satellite facilities with smaller trucks.

“The negative thinking is to worry about the noise and pollution that the smaller facilities will add to our communities, but an optimist might see this as an opportunity to properly plan for them and mitigate them and perhaps there’s a way we can co-exist or harmonize with these uses.”

Marlin Spring land development director Andrea Oppedisano was asked about the mitigation strategies she’s employed when residential developments are located close to existing industrial facilities.

Oppedisano emphasized the importance of early and frequent communication between a residential developer, an industrial land owner and other neighbours so everyone is aware of what’s happening now and what’s anticipated in the future.

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

PROREIT, Crestpoint Form $455M Industrial JV

PROREIT (PRV-UN-T) and Crestpoint Real Estate Investments Ltd. have created a joint venture involving $455 million of mainly industrial properties, including a $228-million portfolio which they are acquiring in the Halifax Burnside Industrial Park.

On closing of the transactions, Montreal-based PROREIT and Toronto-headquartered Crestpoint will jointly own a portfolio of 42 properties, 41 in Halifax and one in Moncton. They will comprise nearly 3.1 million square feet of gross leasable area.

“This joint venture is a unique opportunity for PROREIT to increase its footprint in Halifax’s Burnside Industrial Park, one of Canada’s strongest industrial nodes,” said James W. Beckerleg, president and chief executive officer of PROREIT, in the announcement Tuesday morning.

“By joining forces with Crestpoint, a high-profile institutional real estate investor, collectively we will have an opportunity to achieve meaningful operational and leasing synergies in addition to diversifying our robust industrial tenant base.”

PROREIT and Crestpoint will each acquire 50 per cent interests in the 21-asset Burnside portfolio, which is currently owned by a third party, for $228 million.

Transactions add scale to PROREIT holdings

In conjunction with that transaction, PROREIT will sell a 50 per cent interest in 21 of its currently owned properties to Crestpoint for $113.5 million (valuing that portfolio at $227 million).

“Crestpoint is excited to take a significant presence in the Halifax industrial market with an ideal partner, PROREIT,” said Kevin Leon, president and CEO of Crestpoint, in the announcement.

“The City of Halifax has been such a strong beneficiary of population and economic growth in the last several years and we believe going forward it will continue to demonstrate these growth patterns as the dominant commercial centre for Eastern Canada.

“Combining Crestpoint’s national industrial expertise alongside PROREIT’s local industrial knowledge will result in a leading East Coast industrial platform. Crestpoint, with this acquisition, will have a significant presence from coast to coast which will contribute to Crestpoint’s leading position as one of Canada’s top investment managers.”

PROREIT, through its property management business Compass Commercial Realty, will act as the property manager for the portfolio.

PROREIT’s acquisition of the 50 per cent interest in the Burnside properties, which total 1.6 million square feet, will be financed via a 50 per cent interest in approximately $148 million of new mortgages. The $40-million balance will be paid in cash, including the proceeds of the sale of the existing properties to Crestpoint.

Crestpoint’s share in the PROREIT assets

The sale of the interest in the 21 currently owned properties will result in approximately $49 million in cash to Crestpoint, which also assumes a 50 per cent interest in approximately $129 million of mortgages currently held by PROREIT.

The balance of the proceeds to PROREIT, net of the acquisition payment, will be used to reduce the REIT’s credit facility.

The transaction is expected to close in the coming weeks and remains subject to customary closing conditions.

“We are pleased to manage and operate this highly desirable portfolio,” Beckerleg noted in the announcement.

“Given Halifax’s solid economy and tight industrial real estate market, we look forward to unlocking the significant market leasing upside embedded in these properties and to further benefit from the accretive effect that should result from the scale of this joint venture.”

When the transactions close, PROREIT will own interests in 42 properties in the Burnside Industrial Park. Burnside is the largest industrial node east of Montréal and north of Boston.

It benefits from strong market fundamentals with an all-time low vacancy of 2.5 per cent and “consistent growth in net rental rates,” according to PROREIT and Colliers’ 2022 Q1 industrial report for Halifax.

The 42-asset portfolio is comprised of warehouse, light industrial and flex office spaces. The properties are approximately 95 per cent leased to a diverse mix of tenants with a weighted average lease term of three years.

Many of the in-place leases contain contracted rent step escalations and/or are below current market rents, presenting substantial future rental upside upon turnover, PROREIT says.

About PROREIT and Crestpoint

PROREIT is an unincorporated open-ended REIT established under the laws of the Province of Ontario.

Founded in 2013, PROREIT owns a portfolio of Canadian commercial real estate properties with a strong industrial focus in robust secondary markets.

Crestpoint Real Estate Investments Ltd. is a commercial real estate and mortgage investment manager holding a diversified portfolio of commercial real estate assets.

Crestpoint’s current portfolio has a market value in excess of $8.5 billion and is comprised of over 31 million square feet of commercial properties.

Crestpoint is part of the Connor, Clark & Lunn Financial Group, a multi-boutique asset management company that provides investment management products and services to institutional and high-net-worth clients.

With offices across Canada and in Chicago, London, and Gurugram, India, Connor, Clark & Lunn Financial Group and its affiliates manage $104 billion in assets.

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

The Well, One Of Toronto’s Largest Ongoing Downtown Developments, Has Now Leased 98 Per Cent Of Its 1.17 Million Square Feet Of Office Space, Its Developers Say.

Allied Properties REIT (AP-UN-T) and RioCan REIT (REI-UN-T), which each own a 50 per cent stake in the commercial component of The Well, reported Wednesday they have signed an unnamed “leading technology organization” to a 89,964-square-foot lease for a term of 12 years. The lease is to commence Nov. 1, 2023, and leaves one floor (29,886 square feet) remaining to be leased.

Office tenants at The Well comprise 15 knowledge-based organizations, the release states.

“This is an important milestone in completing the premiere mixed-use urban development in Toronto,” said Michael Emory, Allied’s president and CEO, in the announcement.

“The Well has become a large-scale success for all concerned, one that’s reshaping Toronto’s downtown core and propelling the King and Spadina neighbourhood to even greater ascendency.”

Two-thirds of The Well’s retail space leased

Allied and RioCan also announced the retail component of The Well is 66 per cent leased to 41 retail users. The REITs consider that to be well on track, with the retail segments of the development expected to be available for grand opening in mid-2023.

Efforts to lease the remaining commercial space are underway.

The commercial component at The Well comprises:

– 1,168,000 square feet of office GLA;

– 320,000 square feet of retail GLA;

– 677 underground commercial parking spaces;

– significant third-party digital signage on the northwest corner of Front & Spadina; and

– an energy-storage facility to extend Enwave’s heating and cooling network to Toronto’s Downtown West.

The Well’s office component is targeting a LEED Platinum certification, slated to include operational, environmental, life-safety, and health and wellness systems.

Residential components of the development

The overall project includes seven towers and mid-rise buildings on the 7.8-acre site.

RioCan Living and Woodbourne’s 46-storey FourFifty The Well will have 592 residential rental suites.

During an earlier update at The Well in May, the developers said 90 per cent of the condo component, representing more than 650 units, had been sold by Tridel.

Tridel at The Well – Signature Series is a luxury 14-storey, 98-unit building fronting Wellington Street. Tridel at The Well – Classic Series I is a 38-storey condo with limited suite availability, while Classic Series II had 258 suites of up to 1,800 square feet.

About RioCan and Allied

RioCan is one of Canada’s largest real estate investment trusts. It owns, manages and develops retail-focused, increasingly mixed-use properties located in high-density transit-oriented areas.

As of March 31, 2022, RioCan’s portfolio was comprised of 204 properties with an aggregate net leasable area of approximately 36.2 million square feet (at RioCan’s interest) including office, residential rental and 13 development properties.

Allied is a developer, owner and operator of urban workspace in Canada’s major cities and network-dense UDC space in Toronto.

Allied’s mission is to provide knowledge-based organizations with workspace and UDC space that is sustainable and conducive to human wellness, creativity, connectivity and diversity.

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

Canadian Industrial To Continue Delivering Historic Returns

Canada’s industrial real estate market was performing well for owners and managers before COVID-19 hit, and it’s been cranked up to another level since the onset of the pandemic.

Panattoni Development Companyresearch manager for strategy and market intelligence John Scioli moderated a four-person panel on how the industrial market has outperformed all other sectors and what to expect in the future at the June 7 Land & Development conference at the Metro Toronto Convention Centre.

The session was led off by a short presentation by MSCI executive director Bryan Reid.

The rolling 12-month total return on the MSCI/REALPAC Canada Annual Property Index was well over 30 per cent in December 2021, which Reid said eclipses anything historically seen in institutional investment markets — and the gap between industrial performance and other asset classes is widening.

MSCI tracks approximately 90 global metropolitan areas and Toronto’s 22.7 per cent, five-year annualized total return for industrial properties (as of December 2021) ranked second only to Riverside, Calif.’s 23.7 per cent. Edmonton’s four per cent return during that same period was among the weakest in the world, but was still positive.

Due to this strong performance, investment allocations are shifting and industrial’s share is increasing domestically and around the world. From December 2011 to December 2021, industrial’s allocation rose from 10.3 per cent to 20.7 per cent in Canada.

“Some of that is the organic component that values are rising faster for industrial,” said Reid. “So what’s in the portfolio is increasing proportionally, but then also we are just seeing a huge amount of net inflows into the asset class.”

The share of industrial transaction volumes in Canada has also increased and is now at more than 30 per cent.

Industrial rents are increasing by eight to 10 per cent year-over-year, according to Reid, but recent transaction activity suggests potential 20 per cent-plus increases in some markets.

Industrial development moving farther out of GTA

Fengate senior vice-president of development Andrew Konev said his company will look at land outside the core Greater Toronto Area (GTA) market based on its performance projections and benefits such as access to labour and transportation, sensible development approval timelines and reasonable construction costs.

When looking for spaces of 100,000 to 300,000 square feet, there are often few options so National Logistics Services director of supply chain solutions and engineering Nick Gaganiaras said his company might be forced to look elsewhere.

He said this might only offer a short-term solution of less than five years because another market might be sub-optimal from labour and transportation perspectives. However, if it meets immediate needs, the decision can be re-evaluated later.

Labour remains critical, according to Gaganiaras, who pointed out that large, fully automated Amazon facilities in Brampton, Ont. still employ 1,000 people per shift.

“We need the technical capabilities, the maintenance, the computer and the local knowledge to keep the systems running, so labour is still a very critical component of decision-making.”

Avison Young real estate broker, associate and principal Ben Sykes said some companies have no option but to move outside of the GTA because most land, aside from some infill sites, has been built out.

While there are a large amount of large industrial facilities in the pipeline in the GTA, Sykes said there’s very little small and mid-bay space available. Yet, there’s a large market because few developers are servicing that segment.

Konev said there are price discounts outside of the GTA, but they’re not significant.

Sykes reminded attendees that, despite skyrocketing rents, they only account for five per cent of overall supply chain costs. A 20 per cent increase should therefore be looked at from that perspective.

Supply chain issues

Gaganiaras said the supply chain is moving from a just-in-time to a just-in-case model, which presents challenges.

“Now you’re paying more for space to store product that you’re hoping to sell, but then we move further upstream and we have huge disruptions in ocean and air schedules. So the inventory that you’re bringing in that you’ve planned for is missing the season. And so we’re now building up inventory that’s off-season.”

Konev said Fengate sees plenty of demand for short-term storage.

“When you want to put up a building, you need a building to store a lot of your equipment. If you’re building condominium building, you need to store your appliances. A lot of demand is coming from that segment of the market, so we’re trying to figure out how to cater to that short-term piece.”

Forecasting is another challenge, according to Gaganiaras, who said e-commerce was growing very rapidly two years ago but has now flattened out. E-commerce facilities typically require four to five times the amount of space as a traditional retail fulfillment operation, he added.

“When you’re forecasting inventory and you’re trying to build out systems and facilities and supply chain strategies, there’s really a lot of potential outcomes where you could be at 200,000 square feet or you might be at 150,000 square feet,” said Gaganiaras.

“And there’s a huge difference as it grows and compounds. It becomes a long-term impact. So the idea of short-term storage or short-term solutions is very attractive to the end-users and the occupiers because it allows us to manage more discrete challenges.”

“Users are trying to figure this out on the fly and at the same time they’re being forced into signing long-term leases,” said Sykes. “We have clients that are literally at the start of a project in some cases and don’t exactly know the specific business operation or how they’re going to operationalize the building.”

Seventy million square feet of industrial space is in the GTA development pipeline, said Sykes.

Gaganiaras said delivery of automated systems for new industrial buildings takes at least a year and often longer, so they don’t coincide with the building fit-up. The systems also take two months to commission.

“There are a lot of challenges in marrying up all these different components, where historically you could order racking. You knew what the lead time was and you knew exactly how long it took to take it up. And as soon as it’s up, you could start using it.”

In a rising rental rate environment, developers often want to wait as long as possible to lease a new building to maximize leasing rates. Sykes said 90 per cent of the industrial space being delivered this year is already leased and much of the space coming in 2023 has also been committed, so tenants are looking into late 2023 or 2024 to secure space.

Everyone is building in aggressive inflation rates into their costs and Fengate errs on the conservative side and builds in bumps on interest rates when considering land purchases.

“You have to believe in the growth to really make sense of any land purchase these days,” said Konev.

Multi-storey industrial and automation

Fengate hasn’t built multi-storey industrial buildings because of the high cost and lack of tenant demand, but said it could make sense once land hits $6 million to $8 million per acre.

Sykes said multi-storey industrial is being driven by developers – due to high land costs and constrained land availability – more than by end-users, which can face higher fit-out costs for taller buildings.

Spec-built, single-storey facilities in Canada are topping out at 40-foot clear heights while many European industrial buildings are up to 60 feet.

Gaganiaras said most traditional equipment caps out at 40 feet and the costs of adding automation and going higher are significant. Such buildings also reduce the potential tenant pool as most users can’t take advantage of 55-foot clear heights, he added.

Sykes pointed out that moving products up and down also takes more time, adds to costs and may not be appropriate for items that churn quickly. Operating heavier equipment that can go higher also requires wider aisles, which may somewhat negate any benefits, Gaganiaras added.

Konev said municipalities are often willing to push fully automated industrial facilities through the approvals process faster because of the promise of high-paying jobs for the area.

Gaganiaras said tenants are making their automation systems work in whatever space is available. In a market with more equilibrium, users would be seeking buildings with higher power availability and clear heights, and sufficient structural strength to manage conveyances at ground level and connected to the ceiling.

Sykes said automation is very expensive and users have to consider payback periods before making such investments.

“The challenge for a lot of these users on the automation side is their business could be quadruple or half, or they could be bought by somebody.

“So how do they go and invest in a 20-year payback automation system, not knowing that in five years they may need twice the amount of space? And then all of a sudden all that infrastructure’s just out the window.

“Automation is great, but it’s not the cure for even e-commerce.”

Scioli said many tenants are seeking three- to five-year leases and thus aren’t willing to invest in automation systems.

Traditional racking solutions offer flexibility via adding or subtracting staff to manage inventories, Gaganiaras noted, while automation is expensive fixed infrastructure but can continuously run at full speed.

Konev said tenants planning sophisticated automation will seek a design-built facility to incorporate it and offer built-in expansion capabilities. They’ll also lock in to 30-year leases.

Impact of ESG considerations

Fengate is a speculative developer focused on keeping costs down but still delivering quality, and Konev said many tenants aren’t willing to pay a premium for LEED-certified buildings. Sykes agreed, saying tenants are primarily focused on rents and when they can move in.

“If you truly want to future-proof your building and you’re OK to take a small return today, then work some of these things into your model,” said Sykes of LEED and other ESG initiatives.

“If it’s all about ‘What are my returns from Day One and will the tenants pay?’ I don’t think the tenants now will pay.”

Reid said all major institutional investors have ESG mandates for assets that will be held a long time.

Scioli said green buildings trade at a premium in Europe and he’s starting to see some demand for LEED-certified buildings by both tenants and some municipalities in Canada. He noted Panattoni is building class-A industrial buildings that are close to LEED status.

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

Predicting Market Cycles: How to be less wrong. Commercial Real Estate (CRE) Adds To Production On The Supply Side Of The Economy.

In 2008, it took two months from the crash for countries to begin printing money. In 2020, it took just two weeks. We heard “inflation is not a problem”, then we heard “it is transitory” and yet . . . here we are today.

Predicting market cycles is nearly impossible. But history rhymes and cycles follow typical patterns. Our industry has many veterans who lived through such cycles and recognize these patterns.

I am not one of the veterans. But, I look for answers in history.

In my first Predicting market cycles article I asked, “If central banks increase rates to control inflation, what will it do to the economy?”

My question came from models developed by renowned investors like Ray Dalio and Howard Marks. Now that we are living this reality, it seems fitting to write a second chapter.

Not all recessions are created equal

From post-Second World War until the 1970s, we saw classic industrial inventory cycle recessions. The U.S. had a manufacturing economy, and when there was excess inventory and a change in demand, there was a sharp and short-lived recession.

Blue-collar workers would suffer layoffs, followed by a rebound in employment.

But in the 1970s and 1980s, recessions were fundamentally different – caused by U.S. federal government fiscal policy. The U.S. became dependent on imported commodities and the economy was vulnerable to supply shock.

Funding the Vietnam War (among other things) led to budget deficits and that led to inflation. The 1970s became a decade of “stagflation”. This is because of the Bretton Woods System (the end of gold standard and creation of a fixed international currency exchange) and the dependence on international oil prices.

A sluggish economy with inflationary pressure was new to the U.S. President Jimmy Carter appointed Paul Volcker to deal with it as the new Federal Reserve Board chairman.

Instead of focusing on the Fed’s two mandates – inflation and employment targets – Volcker focused on money supply growth. This led to sharp interest rate increases, spurred unemployment and helped lead to the 1980-’82 recession.

Volcker’s fiscal policies however, ultimately led to the end of skyrocketing inflation.

Does this sound familiar?

That is because central banks are following a playbook that once worked! Despite two recessions in the early 1980s because of high interest rates, Volcker is credited with keeping inflation under control.

Continuing to look back, as recessions became financial – based on market bubbles – we saw:

– 1990-’91 Commercial Real Estate (CRE) or “Credit-Crunch” ;

– 2001 Dot-com Bubble;

– 2007-’09 Housing Market Crash, Global Financial Crisis (GFC).

The problem with financial recessions is that they last longer. The de-leveraging must occur and it takes time.

Aggregate demand drops and liquidity is lower. This kind of recession tends to hit the service sector of the economy more strongly.

Inflationary forces: 2008 vs. 2020

“Inflation is always and everywhere a monetary phenomenon.” – Milton Friedman, 1963

Inflation didn’t happen after the 2008 GFC. Some economists thought that central bank balance sheets can swell without causing inflation, but they were wrong.

A few reasons:

– Central banks and governments used every imaginable lever to stimulate the economy during the pandemic – monetary and fiscal policies.

– As a result, the banks received new money and held on to the new money. Excess reserves doubled in the U.S. between February and May 2020.

– To encourage more lending, the Federal Reserve eliminated reserve requirements.

This put post-2008 measures to shame; 2020 stimulus was enormous in comparison. Worse yet, this time we also have inflation from supply-chain logjams and commodity shortages. Other things to blame are extreme weather, the war in Ukraine, geopolitics and de-globalization.

Inflation today is the key focus not only for capital markets but for households, businesses, politicians and media.

Central bankers walk a fine line of rate hikes vs. sparking a recession.

Everyone is thinking about the inflation-driven recessions of the mid-1970s and early 1980s. And about Paul Volcker’s playbook.

What does this mean for real estate?

The housing sector is a consumption good, part of final demand. But commercial real estate (CRE) adds to production on the supply side of the economy.

CRE is also considered a capital asset. Much like stocks and bonds, CRE is often found on the balance sheets of institutional investors and banks.

This means CRE helps add to employment and GDP. It is vital to economic recovery.

The housing sector responds faster to rate hikes. Canadian home prices declined for the second straight month – an abrupt turnaround in our housing market.

Many multifamily housing projects are being put on hold and this will impact the construction cycle. Yet people need housing and countries like Canada are in great demand for immigration.

How about the impact on CRE?

CRE has a smaller share of the market than housing, representing perhaps 1/3 and housing 2/3.

CRE also tends to be less directly related to the general macro-economic business cycle. Analysis of it is more complicated.

What will happen to CRE cap rates and prices?

What is the cap rate? In CRE it is the rate of return expected to be generated on an investment property. Cap rate = Net Operating Income (NOI) / Current Market Value (Purchase Price).

If NOI is $100,000 and it is purchased for $1 million, then the cap rate is 10 per cent.

When interest rates are low, cap rates are also low. With low interest rates, servicing larger debt requires less income – i.e. is “cheaper”. More cheap credit = more cash to buy. Due to demand, prices for CRE increase and cap rates decrease.

How are cap rates influenced by inflation? Cap rates follow real interest rates. Real interest rate = nominal interest minus inflation. E.g. nominal rate 5% – inflation 6% = real interest rate is -1%.

High inflation = cap rates decrease and property prices increase.

If real interest rates are lower, why do we see the CRE market expecting higher cap rates?

– CRE has long-term leases and fixed NOI. Real ROI drops with higher cost of servicing debt and fixed NOI.

– Buyers’ expectations of more nominal interest rate hikes and taming of inflation.

Values of CRE are not immediately reflected because they are typically based on income. And commercial leases are typically long-term.

As long as inflation is higher than nominal interest rates, expect real property value to go up. But there is a delay because lease rates are not immediately adjusted.

Putting it all together

We are facing inflation; central banks are raising rates, and everyone is worried about a recession.

Benjamin Tal says “60 to 65 per cent of the inflation we are seeing now – not all of it, but a big part of it – is COVID-related. If you all agree with that assumption that this is a transition year, that should disappear over the next year.”

I truly hope he’s right. But I am concerned that what many consider transitory tends to last longer.

China’s “Zero Covid” policy isn’t working – we have mass testing and restrictions. Goods are delayed in production and delivery.

The war in Ukraine isn’t ending and it’s causing food and energy problems around the world.

De-globalization means more warehouse space is needed to make and store goods during off-season to satisfy demand later (making goods more expensive).

Yet we have record low industrial vacancy; land and construction costs are driving warehousing prices ever higher.

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

The Construction Of Office Space Is Declining In Canada Amidst Runaway Inflation Increasing Construction Cost

A new report from Colliers Canada has found that although the number of under-construction offices is still very robust, with more than 15.7M sq. ft being built, that number is down from its earlier peak.

The office space that is going up is largely concentrated in downtown Toronto and Vancouver, Colliers notes. And there’s plenty of interest for it in those markets. In Toronto, downtown office occupancy is up 24%, compared to just 7% at the beginning of the year. And as the report states, employee attitude towards both travel and work safety has improved. 

“Coupled with the warmer weather, this has led to a renewed vibrancy in the streets of the downtown core,” the report reads. “In the face of uncertainty regarding hybrid work, tenants have turned to experts in real estate and design to explore options for creating appealing and functional spaces for their employees, with flexibility and future-proofing at the forefront of tenants and designers’ minds.”

In Vancouver, demand is outpacing office supply, pushing the city’s office vacancy rate to fall to 5.8%.

“Larger office tenants form the most active segment but face a limited number of available options which continues to shrink,” the report reads. “Smaller tenants appear to be taking a wait-and-see approach as larger companies navigate the complexities of return to office strategies.”

But not everyone is jumping right back into the office real estate market. As the report says, the three already-implemented Bank of Canada interest rate hikes are causing significant drains on people’s wallets, giving pause to tenants and investors alike.

“Both tenants and investors have felt the impacts of the recent Bank of Canada interest rate hikes and their effects on consumer spending,” the report reads. “Tenants who do not have immediate space needs are taking the ‘wait and see’ approach to leasing, while higher interest rates have increased the cost of borrowing, leading to a smaller pool of buyers.”

Canada’s industrial market is similarly on the rise, experiencing a “bull run driven by fulfillment centres,” the report says. Across the country, rents are rising and vacancy has dropped below 1%. In major markets, the vacancy rate is even lower, hitting a minuscule 0.1% in Vancouver and 0.2% in Toronto. 

Industrial rent prices are also on the up and up, rising 30% annually in some markets. In the Greater Toronto Area in particular, asking rental rates are up 35% year over year. Colliers notes that typically in the past, net rental rates would be discounted if tenants leased more space, but that discount is being offered much less frequently, if at all.

Source Storeys. Click here to read a full story

A Look Inside Amazon’s New Downtown Toronto Office

As employees continue their return to in-person working, Amazon is laying down even more roots in Toronto with a brand new downtown office space.

The company’s newest workspace, dubbed YYZ18, is now their third Tech Hub office in Toronto. Located across eight floors inside 18 York Street, the new office takes up an impressive 130,000 sq. ft and is home to teams working on everything from Amazon Music to Alexa to Prime Video.

The office was designed with collaboration in mind, featuring everything from communal working areas to large meeting spaces to cafés where employees can gather for a coffee or meal. But for employees looking for a little more privacy, there are also smaller phone and meeting rooms, as well as cubicles with privacy screens. 

And with the office being downtown, it offers employees some pretty spectacular views through the building’s floor-to-ceiling windows.

The design team behind the Southcore Financial Centre — the building where the office is located — placed a large emphasis on sustainability when crafting the tower. Eco-friendly infrastructure like a rainwater collection system, an advanced waste management program, and an automatic shade system all offer opportunities to reduce the building’s carbon footprint.

Out on the building’s third-floor terrace, there are five bee hives helping to pollinate all of the native species used in the building’s landscaping. The third-floor subroofs are also home to an urban forest, and the second-floor courtyard has been transformed into an urban park, bringing even more green space to downtown.

Although an already impressive addition to Toronto’s office spaces, this isn’t the end for Amazon. Even as some offices are downsizing their physical presence, Amazon is planning to keep growing with an additional three floors and 75,000 sq. ft of space set to open next year inside the 18 York Street location.

The now three Amazon Toronto offices are already home to more than 2,000 employees, but with hundreds of jobs currently accepting applications, that number will only continue to grow.

Source Storeys. Click here to read a full story

Co-Working Space ‘Industrious’ Opening First Canadian Location in Toronto

American co-working space and private office provider Industrious officially announced its Canadian expansion on Tuesday, with plans to open its first flexible workspace north of the border in Toronto.

“This new location allows us to plant our first flag in Toronto, one of the top performing office markets in all of North America, and a market our existing network of enterprise members has been asking us to expand into for years,” said Director of Real Estate at Industrious Sam Segal.

The Industrious location will takeover the former WeWork space inside of 33 Bloor Street East in Toronto’s Yorkville neighbourhood. Not only is the location steps away from Yonge Street, but the Bloor Street tower also has direct access to the Yonge/Bloor subway station.

“The building is right in the heart of a highly amenitized, mixed-use area comprising significant retail and residential development, with direct connectivity to Toronto’s subway system,” Segal said. “We’re confident this location will provide an accessible and amenity rich experience for our members.”

The new location will be dubbed Industrious Yonge & Bloor and will offer more than 450 seats across a whopping 36,000 sq. ft of office space. Similar to other co-working spaces, Industrious locations typically feature rentable office spaces for both individuals and teams, as well as shared common areas like meetings rooms and phone booths.

And Industrious is wasting no time with their Canadian expansion, setting the opening date for September of this year.

“Although we had interest from several providers, Industrious’ operating track record was best suited to provide quality flexible workspace that will be beneficial for the market and for our existing tenants,” John Shields, vice president of leasing at Epic Investment Services, the developer behind 33 Bloor Street East.

Industrious currently operates more than 100 locations across the U.S. and the U.K., and recently acquired two workspace providers in Asia and Europe, adding over 350,000 sq. ft to its portfolio. According to a release, the company is aiming to double its international presence by the end of the year through a mix of takeovers and organic growth.

Source Storeys. Click here to read a full story

Solmar Sells GTA Industrial Land to Prologis in $500M Deal

A 198-acre tract of industrial development land in a prime logistics node in the Greater Toronto Area Town of Caledon has been sold in a near-$500-million transaction by Solmar Development Corp. to Prologis.

The property consists of two parcels, each almost 100 acres, at 12713 and 12519 Humber Station Rd., between Healy and Mayfield streets. It’s located at the edge of an area designated for industrial and commercial development, where a number of large facilities including Canadian Tire and Amazon warehouses have recently been developed.

The transaction closed today (June 9).

Benny Marotta, the founder and CEO of Solmar, told RENX in an exclusive interview the land is not far from a previous business park his firm developed in Bolton. When he considered the value of this tract of land, Marotta said he felt it was a better option to sell rather than develop it himself.

“We actually did an industrial development called Equity Industrial Park in Bolton,” Marotta explained. “We developed it, we built the buildings also. We do that. too, but this time the cost of the land is so high it is more beneficial to sell it rather than building on it.”

The Humber Station Road property

He said the economics of this property are more suited to a large-scale pension fund or investor such as Prologis, which would develop the site for longer-term stable income.

At one time, Marotta’s family-owned-and-operated company held about 500 acres in the area, but this was the last remaining tract. Previous tracts were also sold for development.

The property offers easy access to Hwy. 50, and the northern terminus of Hwy. 427. Hwy. 400 is a few kilometres to the east and the route for Ontario’s planned Hwy. 413 is right beside the site.

“There’s going to be a new Hwy. 413 coming out right adjacent to where the property is, with an exit, so those lands are perfect for employment,” Marotta said. “Caledon was smart enough to make an industrial hub in the area. Then there will be residential close to it, so that way the live-and-work (dynamic) comes into effect.”

Broker sold land to Solmar

James Doucette, the president and broker of record at Toronto-based JCD Commercial Realty, brokered the transaction and has had a long relationship with Solmar. He was also the broker when Solmar acquired the land about 16 years ago.

“I sold him all that land initially and now we’ve got the deal with Prologis,” Doucette told RENX. However, even in his wildest dreams, Doucette never thought that almost two decades later he’d broker another deal for the site at nearly $2.5 million per acre.

“No,” he said with a chuckle. However, conditions have changed radically, especially during the past few years. “Let me put it this way, there is pretty well zero vacancy . . .

“The other (industrial) buildings around here, and in the GTA from what I’ve seen and heard, there is no space available. It is just crazy,” he said, “and I know because I’ve looked for it before, and there is just nothing out there.”

According to CBRE’s Q1 2022 industrial report, vacancy in the Toronto area is at a record low of 0.5 per cent and asking rents increased for a 20th consecutive quarter to $13.59 per square foot. Rates for new or fully modernized properties can be considerably higher.

In addition to its location in an established industrial region, with good highway access, the Humber Station Road property is greenfield and virtually all of it is developable. Doucette said only a small portion of the site would be withheld from development.

Prologis and Solmar

He estimated this property could offer Prologis the potential to build up to, or slightly over, three million square feet of space. It acquired the site via a bid process.

San Francisco-based Prologis is the world’s largest owner and operator of industrial real estate. 

The firm is currently involved in a takeover bid for another large, U.S.-based commercial real estate owner/operator, Duke Realty Corp. The bid values Duke at about $24 billion US but has been rejected by Duke management as “insufficient.”

Marotta formed Solmar in the mid-1980s and for many years was focused mainly on residential development and land.

That has expanded into multiresidential development in recent years, with projects in Vaughan (most recently, the sold-out Park Avenue Place), Brampton and Mississauga.

He is also developing a mainly single-family community of about 1,500 homes in the community of Erin, where site preparation has begun.

Solmar also maintains a land bank for future projects.

“The company has been doing what we are doing for the last 30 years,” Marotta said. “We always look ahead, so we have plenty of inventory.”

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

Canada Goose Flocks to Toronto Downtown Core for New Office Lease

Canada Goose is flocking to a new headquarters on the Toronto waterfront with one of the largest office leases of the quarter.

The retailer known for its parkas that can withstand even the most extreme cold has leased 115,000 square feet over four floors at Menkes Developments’ 100 Queens Quay East site in Toronto.

The lease signals an underlying confidence in the market and in the return to the office, according to a statement from CBRE, which represented the landlord in the deal.

“Many landlords would like to have Canada Goose as part of their project,” said Brendan Sullivan of CBRE in the statement.

Canada Goose will move its office operations to the waterfront from the company’s existing location at its manufacturing facility near Caledonia Road and Eglinton Avenue. Additional manufacturing space will be created out of the office space at the factory location.

Canada Goose will share rooftop signage at 100 Queens Quay East with the LCBO, the anchor tenant.

The Canada Goose deal brings 100 Queens Quay East to 92% leased, with 50,000 square feet remaining in the 875,000-square-foot building. Waterfront Innovation Centre, across the street, has just under 40,000 square feet of space available for lease, CBRE said.

Avison Young said the first quarter saw the Greater Toronto Area office market continue to recover from the impact of the COVID-19 pandemic.

“A second straight quarter of stable and promising results as occupiers continued to make plans for the future despite another pandemic wave that delayed the return-to-office intentions of many into the second quarter,” said the real estate company in a report issued in May.

Avison Young said the overall downtown vacancy rate for Toronto was 8% in the first quarter, up 2.1 percentage points from the first quarter of 2020.

“Delivery of new supply contributed to the rising vacancy rate, although net absorption was remarkably flat during the quarter, as the market gained only 1,400 square feet in occupancy,” said the real estate company.

Source CoStar. Click here to read a full story