Welltower To Buy Amica Retirement Home Chain From Ontario Teachers’ For $4.6 Billion

Deal with global investor will give US REIT 31 complexes across Toronto, Vancouver and Victoria

Welltower, a publicly traded real estate investment trust based in the United States, agreed to buy the Amica Senior Lifestyles chain from the Ontario Teachers’ Pension Plan as demand rises across Canada for retirement homes.

The Toledo, Ohio-based seniors living company, said it will pay the pension fund $4.6 billion, or approximately 3.2 billion United States dollars, for the chain’s 31 ultra-luxury Amica-branded retirement complexes in Toronto, Vancouver and Victoria, British Columbia. Welltower said the negotiated price represents “a substantial discount to estimated replacement cost” for the properties.

Welltower also said the deal includes seven properties under construction that are valued $1.25 billion as well as nine projects in the permit process valued at $150 million. As part of the pending deal, Welltower said it will also acquire a minority interest in Amica’s management team.

The transaction is just the latest of its kind for Welltower and occurs at a time when occupancy rates have risen in Canadian retirement home operations after dipping significantly during the recent pandemic. Demand for retirement homes in Canada is expected to further rise as the seniors population grows and new retirement home construction projects has slowed.

CBRE said in its latest report on valuations in that sector that institutional investors are starting to return while private buyers are expanding their portfolios.

The deal requires regulatory approvals and is expected to close in the fourth quarter. Welltower said that as part of the deal it will take over $560 million of Canada Mortgage and Housing Corp.-insured debt with an average interest rate of 3.6%.

“Construction starts remain at historic lows as a share existing inventory. While conditions appear ripe for new development in the sector, persistent high construction costs make the case for investment in existing projects that much stronger at this time,” said the real estate company in a report last month.

Bank of Montreal analysts initiated coverage on publicly-traded seniors housing companies this year in a report about baby boomers lifting the sector.

“With pandemic disruptions firmly in the rearview mirror and an aging population now upon us, we believe an attractive supply/demand picture will help drive a multi-year period of above-average organic growth,” said the analysts in a report. “The boomers are here—demographic tailwinds will support demand for year. As baby boomers age, growth in Canada’s seniors population is materially accelerating. Individuals aged 75+ are expected to reach circa 5.3 million people over the next 10 years.”

Shankh Mitra, Welltower’s CEO since 2020, said the Amica properties offer upside potential.

“Against a backdrop of rapidly growing demand and limited new supply, we expect the portfolio to drive outsized revenue and cash flow growth in the coming years,” he said in a statement.

“For the last 15 years, Ontario Teachers’ has acted as an extension of our internal team,” Amica’s Ezer said in a statement.
Welltower has been involved in other Canadian retirement home properties.

In October 2023, Welltower purchased 12 retirement homes in Quebec from Cogir for $885 million and soon after announced an agreement to divide a portfolio of seniors properties it held in partnership with Canadian retirement home firm Chartwell that left Welltower with 23 operations and Chartwell 16, along with a payment of $97.2 million to Chartwell.

The OTTP listed assets of $255.8 billion in its most recent tally made midway through 2024. Its real estate holdings, managed through its Cadillac Fairview subsidiary, were valued at just over 10% of the pension fund’s holdings, with 68 properties across Canada assessed at $28 billion. The OTTP’s largest recent transaction prior to the Amica sale took place last October when the pension fund purchased its partner TD’s 50% stake in the CF Carrefour Laval shopping centre in Laval, Quebec for $553 million.

Source CoStar. Click here for the full story.

North American Office Markets Take Different Paths After Emerging From Under Pandemic Cloud

While office markets are finally recovering, Canada appears to be trailing its US counterpart, especially in transactions

As we approach the fifth anniversary of the COVID-19 shutdown, it is worth assessing how North American office markets have since evolved. While Canada and the U.S. saw an appreciable increase in office availability following the pandemic, the relative increases have been worse in this country.

Canadian office availability increased by over 60% compared to pre-pandemic levels, compared to about a 40% increase in the United States. Note that Canada’s current office availability rate of 12.2% is still lower than the U.S. at 16.1%, but Canada has moved further away from its long-term equilibrium, which has always been lower than the U.S. due to structural supply and demand differences between the two countries.

Part of the reason office availability has increased comparatively more in Canada might be due to higher work-from-home/hybrid work rates for office employees following the pandemic. A 2023 study in The Economist magazine found that Canada has the world’s highest work-from-home/hybrid work rate. The report noted the difference may reflect structural factors, including climate, housing affordability, comparatively long and congested commuting times, and ineffective transit in some of Canada’s major urban areas like Toronto. This combination of factors resulted in Canada experiencing a bigger erosion in office utilization rates than the U.S. over the past five years.

The supply side is another major factor explaining why office availability is higher in Canada. Over the past several years, Canada has been building more new office space than it typically has relative to the U.S. While tenants have been solid in leasing this new office space, backfilling the older space vacated by the tenants has been less successful, given their clear preference for newer buildings. This also contributes to a proportionately greater increase in total available office space in Canada.

Meanwhile, some cities in the U.S. are beginning to face a possible shortage of the type of first-generation new office space that is most in demand. This could kick off a new development cycle earlier than in Canada, where intentions to build more office space are virtually non-existent.

To be sure, Canada and the U.S. are now experiencing a similar recovery in office leasing volumes, perhaps reflecting return to the office (RTO) work strategies recently adopted by some firms. Although leasing volumes are well off their pandemic lows, neither country has returned to the office leasing levels typically achieved before the pandemic. This is especially true in Canada since the downturn in leasing activity relative to pre-pandemic levels was comparatively deeper than in the U.S.

Despite the pandemic having a slightly worse impact on Canada’s office market fundamentals over the past five years, the situation in the office investment market tells a different story. Over the past five years, office market capitalization rates increased more sharply in the U.S. compared to Canada. For example, U.S. office cap rates have historically been 100 basis points higher than Canada’s (a basis point is one-hundredth of one percent). However, by the end of 2024, the relative “discount” in U.S. cap rates to Canada widened to 130 basis points.

While part of the increase in U.S. cap rates reflected eroding space market fundamentals, the widening discount to Canada was primarily due to capital market forces. Office ownership in the U.S. is more fragmented than in Canada, with merchant builders and small investors representing a larger market share. Since these investors typically employ significant debt in their capital structures, the relative rise in the cost of capital as interest rates increased during the post-pandemic period forced many U.S. office owners to take write-downs and even resulted in some distressed sales. In reaction to this distress, U.S. market cap rates rose accordingly.

In contrast, a comparatively higher percentage of well-capitalized institutions, such as pension funds, own office properties in Canada. Most are equity investors who use very little debt in their capital structure. As a result, many of these owners have felt little pressure from the capital markets to sell or even “mark-to-market” asset values despite a similar, if not worse, erosion in space market fundamentals than the U.S. over the past five years.

With the Bank of Canada cutting interest rates more aggressively than the U.S. Federal Reserve, some Canadian office owners may also be hoping that Canada’s relative cost of capital will sharply fall and ultimately preserve their property valuations.

Interestingly, these capital market dynamics may be a key reason why office investment transactions are beginning to evolve differently in Canada and the U.S.

While neither market has seen office investment transactions recover to pre-pandemic levels, a faster recovery appears to be taking hold in the U.S. In 2024, the U.S. office market recorded $42 billion in sales, a nearly 20% increase from the year before. Even more telling, sales quickened as the year unfolded, with fourth-quarter sales volume surging 63% over the same period in 2023. According to some investors, the reawakening in office transactions reflects the growing opportunity to buy properties with great long-term fundamentals at attractive pricing before a full recovery sets in.

In contrast, office sales remain near all-time lows in Canada, particularly for larger assets and portfolios. The vast majority of building sales, if any, have tended to be small suburban properties or transactions initiated by an end-user such as a school or local government. The main reason for the lack of trading appears to be a lack of liquidity in the market, as potential buyers and sellers in Canada still have widely different expectations about office property pricing in the private market.

This situation could devolve into a vicious circle. Fewer office trades mean fewer sales comps and continued uncertainty about pricing and valuations, leading to fewer sales.

Unfortunately, five years after the pandemic, investor uncertainty in Canada could become magnified further due to a potential trade war with the U.S. As a result, Canada’s elusive office investment recovery will likely continue diverging from its neighbor to the south for the foreseeable future.

Source CoStar. Click here for the full story.

Real Estate Holdings Weigh Down Ontario Teachers’ Performance

Expansion in European logistics market bright spot during 2024, pension fund says

Ontario Teachers’ Pension Plan says it achieved solid financial growth in 2024, but its real estate holdings played a role in one the country’s largest pension funds missing its benchmark return rate.

Ontario Teachers’ said its one-year total fund net return last year was 9.4% compared to 1.9% in 2023. It also said its net assets grew to $266.3 billion, up from $247.5 billion in 2023.

Despite the return, the results did not meet the benchmark, or target, return of 12.9% for 2024, Ontario Teachers’ said. The pension fund released its annual results on Thursday.

“The benchmark underperformance was primarily attributed to assets in private equity and real estate trailing their respective benchmarks,” the pension fund said.

Ontario Teachers’ did say that one of its 2024 property highlights was expanding its logistics real estate portfolio across Europe, where it acquired eight fully leased logistics assets in France and three warehouses in Germany.

The Toronto-based pension fund had assets of $266.3 billion as of Dec. 31 and 343,000 working members and pensioners. It owns 100% of Cadillac Fairview Corp., one of the country’s largest real estate companies.

“We had positive contributions from across the plan, with notable success in venture growth, credit, inflation-sensitive and public equity investments. The resilience of our portfolio, combined with our proactive approach to creating value, has positioned us strongly in an unpredictable economic climate,” said Jo Taylor, president and CEO of the pension fund, in a statement. “Our investment portfolio is well placed to deliver strong risk-adjusted returns for the plan in 2025 and meet our long-term obligations to the members we serve.”

Real estate had a negative 0.7% return, well below the 5% target rate for 2024. It was the second consecutive year of underperformance by the pension fund’s real estate holdings. In 2023, its real estate return was negative 5.9% versus a benchmark of a 2%.

Source CoStar. Click here for the full story.

Canada’s Largest Pension Fund To Sell Its Headquarters

Canada Pension Plan Investment Board said it retained CBRE to sell its head office complex in downtown Toronto, a move that comes after the country’s largest pension fund announced it would move its global headquarters next year.

CBRE’s offering is for a 100% freehold interest in 1 Queen St. East and 20 Richmond St. East, a two-building office complex that contains 503,930 square foot of space and occupies a full city block.

Marketing materials obtained by CoStar News said the property offers potential buyers “a transformative opportunity to reimagine an iconic office complex in the heart of Toronto’s financial core.”

CPP Investments, the group that manages the Canada Pension Plan on behalf of 22 million contributors and beneficiaries, plans to relocate to 330,000 square feet in the second tower in CIBC Square at 141 Bay St.

The 50-storey tower is a joint development project between Montreal-based Ivanhoé Cambridge and Houston-based Hines that broke ground in 2021. It is expected to be completed in July, according to CoStar data.

CPP Investments said it will continue to anchor its current complex until it moves into its new head office next year. The complex includes a 398,527 square foot 26-storey tower on Queen and a 105,403 low-rise office property on Richmond that was constructed in 1893 and has heritage importance.

The two buildings are connected by a five-storey glass atrium, ground and concourse retail, and a four-level parking garage.

High-profile location
CBRE noted the complex is located at Yonge Street and Queen Street, a high-profile corner connected to Toronto’s underground PATH system and two subway stations that will include connections to the new Ontario Line, scheduled to open in 2031.

The complex has flexibility that permits residential redevelopment and hospitality conversion concepts.

“The mixed-use official plan designation and strong precedence of high-rise residential developments in the immediate node support compelling site densification strategies,” CBRE said in its flyer.

In 2013, CPP Investments said it acquired 100% of 1 Queen Street East and the adjoining 20 Richmond Street East from the Ontario Pension Board for $220 million.

Excluding CPP Investments, 1 Queen is 9.6% occupied and 20 Richmond is 27.3% occupied.

Officials with CPP Investments declined to comment.

Source CoStar. Click here for the full story.

Allied Properties Reit Optimistic About Office Sector

Allied Properties Real Estate Investment Trust, one of Canada’s largest office REITs, said it is increasingly optimistic about demand for space in its buildings, even as it is being urged to cut its distribution to shore up its balance sheet.

“I want to reiterate my confidence that our portfolio will continue to hold up well in this economic environment,” Allied President and CEO Cecilia Williams told investors last week during its fourth-quarter earnings call. “Yes, we are aware of the headwinds, but we see more upside and are optimistic because of the strength of our operating platform.”

Still, Pammi Bir, managing director of real estate and REITs at RBC Capital Markets, asked Allied executives for their rationale for holding the shareholder distribution at current levels instead of lowering them. Bir said that “a cut could certainly help concerning achieving some of your debt reduction targets.”

Williams quickly shot down the idea of a distribution reduction.

“Our distribution is a commitment that we have made with our investors, and we take it very seriously,” Williams said on the call. “And we have a path to be able to strengthen the balance sheet without having to cut the distribution, which is why we are not cutting it.”

Allied announced its earnings for the quarter that ended Dec. 31 in a challenging environment for the country’s office market. The headwinds affected the REIT’s, funds from operation, during the quarter. FFO is a significant indicator of financial performance for real estate investment trusts.

Key indicator drops
In the quarter, Allied’s funds from operations totalled nearly $72.4 million down 15.3% from a year earlier. On a per-unit basis, FFO was 51.8 cents in the fourth quarter versus 61.1 cents a year earlier. The REIT’s FFO payout ratio jumped to 86% from 73.6% during the period.

Analysts with Canaccord Genuity said the drop in FFO is putting additional focus on the REIT’s “elevated” payout ratio. The payout ratio represents the amount of a company’s FFO that is paid out as distributions.

“Allied Properties REIT’s financial results highlight a continued challenging operating environment for office landlords. Results were below expectations, and while management expressed confidence that occupancy will improve in 2025, market fundamentals are not expected to improve materially in the next year,” Canaccord analysts said in their report.

As for its 14.5 million square feet portfolio, Allied said its occupied and leased area was 85.9% and 87.2%, respectively in the fourth quarter. Allied also said it renewed 69% of leases maturing in the quarter, close to its historical average of 70% to 75%.

Allied’s goal for year-end 2025 is to have 90% of space occupied and leased.

TD Cowen analysts said the expectation of a 4% drop in FFO was unsurprising given the REIT’s issues and said 2025 will be the tough for Allied earnings.

“We are encouraged by the optimism management has in the current leasing environment, the TD Cowen analysts said in a report. “We believe the cadence of 2025 occupancy gains towards the 90% target, more weighted to the second half (of 2025), will be the key driver of near-term stock performance.”

Source CoStar. Click here for the full story.

Mixed-Use Towers to Extend Vaughan Metropolitan Centre Northward

The transformation of the area around Vaughan Metropolitan Centre station continues with a new proposal at 60 Talman Court, somewhat to the north of where redevelopment of this commercial and industrial area has been taking place so far. The submission from MPAR Developments calls for two high-rise towers of 50 and 55 storeys. Designed by SvN, the mixed-use development would include residential units alongside a hotel, office space, a medical office, and retail space.

The site spans 8,582m² at the southwest corner of MacIntosh Boulevard and Talman Court, just east of Jane Street. Currently, it is occupied by a one-storey commercial building and surface parking. The surrounding neighbourhood is a mix of low-rise commercial buildings, employment areas, and natural spaces. To the west lies the Black Creek corridor. Edgeley Pond and Park  sits to the southwest.

An aerial view of the site in red and surrounding area, image from submission to City of Vaughan

The site is about 300m north of the Vaughan Metropolitan Centre boundary. The developer has submitted Official Plan Amendment and Zoning By-law Amendment applications to the City of Vaughan for towers rising 167.5m and 183.5m high from a tiered 4 to 6-storey podium. The development would deliver 933 residential units, with 438 market-rate rentals and 495 condominiums.

Context plan, designed by SvN for MPAR Developments

The project also includes a 225-room hotel alongside office and medical office spaces. The total Gross Floor Area is 90,485m², resulting in a Floor Space Index of 11.18 times lot coverage. Residential uses account for 73,029m², while the hotel spans 13,076m². Office and medical spaces total 3,865m², with 364m² allocated for retail at grade.

Proposed uses and programming, image from submission to City of Vaughan

The hotel would occupy space from the first up to the sixth floor, while the office space housed on the third floor, with medical offices on the fourth floor. The Elspeth Heyworth Centre for Women is expected to occupy the dedicated office space.

An aerial view looking west to the podium, designed by SvN for MPAR Developments

Five residential elevators per tower would result in an elevator ratio of one for every 93 units. The hotel would have four elevators, while the office space would be served by three. Below grade, plans for five levels of underground parking include 379 spaces for residents, 140 for visitors, 32 for office, and 59 for the hotel, with three spaces for retail. Bicycle parking provisions entail 810 long-term and 211 short-term spaces for residents and additional allocations of 46 for the hotel, 42 for the offices, and 14 for retail.

Ground floor plan, designed by SvN for MPAR Developments

Open space elements would include a 491m² public park at the north end of the site, with 385m² of unencumbered parkland. POPS (Privately-Owned Publicly-accessible Space) would be distributed across the south and west ends, creating connections to 8083 Jane Street, proposed for a high-rise development also designed by SvN for MPAR. The design also anticipates future integration with a multi-use path network, supporting Vaughan’s long-term plans for active transportation and green connections along the Black Creek Corridor.

Site plan, designed by SvN for MPAR Developments

VMC station and SmartVMC Bus Terminal are located 800m to the south, which is a short bus ride, about a 4-minute drive, or a 20-minute walk. The station provides access to TTC’s University Line 1 subway, York Region Transit (YRT) bus routes, and others. Rutherford GO station, 6km away, offers regional train and bus connections. Cycling infrastructure in Vaughan is expanding, with Jane Street set to feature new cycle tracks.

Looking west to the current site, image retrieved from Google Maps

The surrounding area is experiencing significant high-rise development activity. To the north, 8083 Jane Street is planned as four towers ranging from 8 to 60 storeys. Southwest, 201 and 175 Millway propose four towers up to 45 and three up to 64 storeys, respectively. Closer to VMC station, major projects underway include ArtWalk District Phase 1, with three towers up to 38 storeys, and the 60-storey CG Tower. Other notable proposals include dual 40-storey towers at 2966-2986 Highway 7, a five-tower plan at 2951 Highway 7 reaching 48 storeys, and 7800 Jane, with three towers ranging from 17 to 60 storeys. The masterplanned community at 3131 Highway 7 envisions 17 towers up to 74 storeys.

Source Urban Toronto. Click here for the full story.

Canada’s Building Permits Hit Seven-year High

Canada’s building permit activity ended 2024 on a high note, with the total value of permits reaching their highest level since 2017.

Statistics Canada reported that building permits in December surged 11% from the previous month to a seasonally adjusted $13.15 billion – a significantly stronger gain than the 1.4% increase economists had predicted, according to TD Securities.

The sharp rise reversed declines seen in October and November and was driven largely by a boom in residential construction permits, particularly in Ontario and British Columbia. On a constant dollar basis, which adjusts for inflation, total building permits were up 8.8% for December and 30.5% year-over-year, underscoring a strong end to 2024.

Building permits serve as an early indicator of future construction activity in Canada, based on data collected from 2,400 municipalities covering 95% of the population. However, the issuance of a permit does not guarantee that construction will begin immediately.

Despite the surge in permits, housing starts dropped 13% in December, falling to an annualized rate of 231,468 units, according to the Canada Mortgage and Housing Corporation (CMHC). Over the year, housing starts were up about 2%, driven by record-high rental construction levels and increased building activity in Alberta, Quebec, and the Atlantic provinces.

CMHC warned that Canada is unlikely to meet the national housing agency’s target for restoring affordability by 2030, even though housing starts are projected to stay above the 10-year average in 2025. The agency also suggested that construction activity may decline further in the coming years, citing a projected slowdown in condominium apartment construction through 2027.

The December increase in building permits was fuelled by a substantial rise in residential construction intentions, which soared to $8.97 billion. The biggest gains came from multifamily dwellings, with permits for these projects rising 33.3% in December, while single-family home permits edged up by 1.8%.

Meanwhile, non-residential building permits fell 5.9% to $4.18 billion, as a decline in commercial and institutional building plans outweighed a modest increase in industrial projects. The drop in non-residential permits was led by Quebec, while Ontario posted an increase in permit values.

Source CMP. Click here for the full story.

Allied’s Net Loss Decreases In 2024, Operating Income Rises

REIT reports year-end loss of $342.53 million, as it records $557.6M in writedowns on its assets

Allied Properties REIT recorded a net loss of $342.53 million in 2024, down 18.6 per cent from a year earlier, as president and CEO Cecilia Williams said the company is optimistic about the coming year.

The biggest drain on the balance sheet was a $557.57-million fair value loss on investment properties and investment properties held for sale. Still, that number was down 27.8 per cent from 2023.

Allied’s rental revenue rose by five per cent from the previous year to $592.04 million while operating income improved by 3.6 per cent to $328.47 million. Total net operating income fell by 4.3 per cent to $361.1 million.

Despite some of these numbers, however, Williams cited several reasons for optimism in 2025 during its annual investor and analyst conference call to present Allied’s results.

Improvements in leasing activity

Allied conducted 255 lease tours in its rental portfolio in the fourth quarter ended Dec. 31, and its occupied and leased areas were 85.9 per cent and 87.2 per cent respectively. Allied leased 571,298 square feet of gross leasable area in the fourth quarter.

“Our national portfolio’s leased area remained steady over the year and, with challenges starting to ease, we’re focused on improving both occupied and leased areas to at least 90 per cent by the end of 2025,” Williams said.

She expects Allied to outperform the market and for the bulk of the occupancy gains to come from Montreal and Toronto.

“Another positive metric in 2024 was our improved retention rate to 69 per cent, up from 61 per cent in 2023. We expect retention to continue improving in 2025, getting closer to our historical rate of 75 per cent.”

“We are currently engaged in discussions with 29 existing users that are exploring expansion options, representing approximately 150,000 to 200,000 square feet of net new leasing in aggregate,” said senior vice-president of national operations J.P. MacKay, who added that he’s seen a shift toward larger space requirements among prospective users.

Leasing activity under negotiation

Allied has 933,000 square feet of leasing activity under negotiation or at the prospect stage, of which 61 per cent represents new leasing requirements and 39 per cent represents renewals.

The primary uses represented by those touring properties continue to be firms in the technology, media, professional services, education and medical-related sectors.

Deals continue to take longer due to the availability of options in both the sublease market and in direct vacancy, but those timelines are expected to shorten as sublease space is absorbed and direct vacancies fall.

It’s helpful there’s no major new urban office building supply on the horizon beyond this year, with the last delivery being the second tower of Toronto’s CIBC Square.

Average in-place net rent per occupied square foot continued its steady improvement, ending Q4 up 5.4 per cent from a year earlier at $25.41.

Acquisitions and dispositions

Allied ended the year with total assets valued at $10.6 billion.

The trust acquired three class-AAA urban properties for $677 million in 2024:

  • 400 West Georgia in Vancouver;
  • the remaining 50 per cent interest in 19 Duncan in Toronto;
  • and an additional 16.7 per cent interest in the residential component of TELUS Sky (now known as Calgary House), bringing its ownership to 50 per cent.

The aggregate acquisition price was below development and replacement cost.

Allied sold seven lower-yielding, non-core properties — four in Montreal, one in Toronto, one in Ottawa and one in Calgary — for $229 million. That figure was above its target of $200 million.

The proceeds from those sales were allocated to debt repayment in the fourth quarter. Allied plans to sell similar properties — primarily in Montreal, Calgary, Edmonton and Vancouver — for at least $300 million that will go toward debt repayment this year.

“We’ve made progress on our development and upgrade activity as well,” Williams said. “Transfers from the development to the rental portfolio in 2025 are expected to total 340,000 square feet of completed urban workspace and 218 rental residential units.”

Allied is focused on completing all development and upgrade projects currently underway by the end of 2026, Williams added.

Debt and liquidity

Dealing with debt was a priority in 2024 and Allied reduced the amount drawn on its $800-million unsecured revolving operating facility to zero. The REIT also reduced short-term, variable rate debt to $153 million, representing 3.5 per cent of its total debt.

Allied ended 2024 with $863 million of liquidity and 83 per cent of its investment properties are unencumbered. Its total indebtedness ratio, however, rose to 41.7 per cent from 34.7 per cent in 2023.

“While the timing of the 2024 acquisitions resulted in short-term downward pressure on our debt metrics, they will contribute positively to our earnings as they stabilize,” said senior vice-president and chief financial officer Nanthini Mahalingam.

“I want to reiterate my confidence that our portfolio will continue to hold up well in this economic environment,” Williams said to end the presentation portion of the call.

“Yes, we’re aware of the headwinds, but we see more upside and are optimistic because of the strength of our operating platform.”

$450-million green bond offering

In a separate announcement Monday, Allied unveiled a $450-million green bond offering. The unsecured Series K debentures will bear interest at a rate of 4.808 per cent. Proceeds are to be used to pay off a construction loan on 19 Duncan (approximately $250 million) and Allied’s series C senior unsecured debentures due April 21 ($200 million).

The 19 Duncan property is comprised of 149,230 square feet of office space, 3,570 square feet of retail space, 464 rental residential units plus related facilities and parking. The office component is fully leased to Thomson Reuters and residential lease-up is under way.

The property is seeking LEED Gold certification.

Source Renx.ca. Click here for the full story.

Real Estate Returns Remain Below Average: MSCI/REALPAC Index

Canadian Property Index returns 3.21 per cent in 2024: ‘We are a nice, stable performing country’

The MSCI/Real Property Association of Canada (REALPAC) Canadian Property Index performed better in 2024 than it had a year earlier, but total returns remained well below historical norms.

The index had a total return on standing assets, excluding developments, of 3.21 per cent in 2024. The income return was 4.91 per cent while capital growth was -1.63 per cent.

These numbers are below the annualized standing investment return average of 8.5 per cent since tracking began in 1985, and the six per cent return averaged over the past 10 years. However, they’re an improvement on 2023 when the total return on standing investments was -0.05 per cent, the income return was 4.72 per cent and capital growth was -4.57 per cent.

Canada was in the middle of the pack among 21 reporting countries through three quarters and looks like it will stay there for the full year. Just three other countries have reported year-end results and Canada’s standing investment return was below the United Kingdom but above the United States and Ireland.

“Canada does hold its value in turbulent market conditions but, when things are more normal or things are recovering, Canada doesn’t necessarily shoot the lights out in terms of performance,” MSCI vice-president of real estate client coverage Peter Koitsopoulos said during a Feb. 4 presentation to discuss the results at Toronto’s Vantage Venues.

“We’re not necessarily the worst and not necessarily the best. We are a nice, stable performing country.”

Retail the top asset class

The total return on standing assets was highest in retail for the second straight year, but its 6.5 per cent return more than doubled last year’s 3.2 per cent. Retail was followed by residential (3.7 per cent), industrial (3.4 per cent) and office (0.0 per cent).

Community/neighbourhood retail centres had a return of 8.4 per cent — owing to a lack of supply, lower vacancy rates and better income growth — while the return for super regional shopping centres was 6.1 per cent.

The return for major metro office buildings was -0.2 per cent in downtowns and -0.5 per cent in the suburbs. Koitsopoulos attributed the difference to higher writedowns for properties in the suburbs.

Office had the highest vacancy rate at 14.9 per cent, followed by retail at 6.2 per cent, residential at 5.1 per cent and industrial at five per cent. Although the industrial rate is well above the sub-two per cent averages from earlier this decade, it’s in line with the longer-term historical average.

Office had the highest investment allocation based on capital value at 26.5 per cent, followed by retail at 24.6 per cent, industrial at 23.7 per cent, residential at 19 per cent and other smaller asset classes combining for 5.5 per cent.

Office and retail have had steady allocation declines over the past 10 years while residential has steadily grown. Industrial was on a consistent upward trajectory before spiking earlier in this decade. It has more recently experienced a small drop.

Halifax was the top city again

The city with the highest total return on standing assets was Halifax at 10.49 per cent, repeating its title from last year when it had a return of 6.9 per cent.

Halifax was followed by Calgary (6.54 per cent), Victoria (6.17 per cent), Vancouver (4.17 per cent), Winnipeg (3.97 per cent), Ottawa/Hull (3.21 per cent), Edmonton (2.95 per cent), Toronto and Regina (both 1.92 per cent), and Montreal (1.89 per cent).

Montreal (-0.8 per cent) and Toronto (2.1 per cent) had the lowest returns of any major city when it comes to industrial properties.

“Not too long ago those two markets were having year-over-year returns of 30 to 40 per cent for industrial, which is quite remarkable for real estate,” Koitsopoulos observed.

Those large returns spurred a lot of industrial development, new supply which is still being absorbed. This is creating a balanced market in those two cities — something which they haven’t had in several years.

CRE transaction volume dropped in 2024

Commercial real estate transaction volume dropped by 21 per cent last year compared to 2023, but the $31 billion in sales was only 10 per cent lower than the annual average for the five years before the COVID-19 pandemic.

“Most of the money moving in so far is from private investors,” said MSCI Real Assets chief economist Jim Costello. “They don’t have the fiduciary challenges of the big managers.”

The absence of institutional investors is somewhat hampering liquidity, but they’re expected to come back to the market as returns start turning positive.

Challenges remain, however, with a potential tariff war between the United States and Canada now creating a major new concern.

“Uncertainty harms investment because, if you’re not sure what the rules of the game are, you can’t underwrite all the risks you have when you’re putting money to work,” Costello said.

Composition of the property index

The MSCI/REALPAC Canadian Property Index measures unlevered total returns of directly held property investments.

The index includes buying, selling, development and redevelopment activity data provided by major pension funds, insurance companies and large real estate owners in Canada.

The 2024 index encompassed 54 portfolios with 2,255 assets totalling 489.3 million square feet and a gross capital value of $165.4 billion.

MSCI and REALPAC

MSCI provides decision-support tools and services for the global investment community. It has more than 50 years of expertise in research, data and technology to assist in investment decisions.

REALPAC was founded in 1970 and is the national leadership association for Canada’s real property sector.

Its 135-plus members include publicly traded real estate companies, real estate investment trusts, pension funds, private companies, fund managers, asset managers, developers, government real estate agencies, lenders, banks, life insurance companies, investment dealers, brokerages, consultants, data providers, large general contractors and international members.

REALPAC members have $1 trillion in assets under management and represent office, retail, industrial, apartment, hotel and seniors residential properties across Canada.

Source Renx.ca. Click here for the full story.

In The Ebb And Flow Of Toronto’s Office Sector, Financial Firms Anchor Down While Tech Tenants Set Sail

Toronto’s office market is adjusting based on its industry hubs

Comparing office utilization rates for specific North American cities shows that the occupier makeup of certain cities has had a material impact following COVID-19. Cities that rely heavily on tech and creative companies to fill offices, such as San Francisco, have lagged behind those that rely more heavily on financial firms, such as New York.

One of the advantages enjoyed by Toronto’s economy in recent years has been its relatively well-hedged economic diversity. Toronto is one of the top five cities in North America for both financial services and tech.

However, these services have tended to cluster within specific downtown submarkets. The clustering of financial and tech services firms within specific submarkets reveals a material divergence in general office performance metrics among the individual submarkets that comprise Toronto’s downtown core. Specifically, since the pandemic and the emergence of the work-from-home economy over the last few years, office availability rates have fluctuated based on location.

For example, the office availability rate in the Downtown West submarket, which houses many of Toronto’s tech firms, has steadily increased. In contrast, the Downtown South submarket has shown more resilience. This area of downtown Toronto, which is bisected by Bay Street, benefits from the steady demand for office space generated by financial services occupiers that congregate in this area.

It also benefits from Union Station and access points to the Gardiner Expressway, which offer comparatively faster commutes.

This disparity in office availability rates by submarket will likely hold in coming years, as overall office utilization remains lower today than before the pandemic. The rate at which it will recover is an open question that only time will tell.

One thing that is certain is that office utilization rates will not increase equally everywhere in an expected recovery. As demonstrated in the example of the two downtown submarkets, COVID’s impact on the office market is like glacial erosion. Its application is uneven, with some areas experiencing deposits of demand while others see it stripped away.

Source CoStar. Click here for the full story.