CBRE predicts record $50 billion investment for commercial real estate this year

TORONTO – Canada could see a record-breaking $50-billion worth of investment in commercial real estate this year as economic tailwinds and immigration policies support the booming sector, according to a report by CBRE, but it says the strong economy is also creating challenges of affordability and supply.

The commercial real estate services firm said Tuesday that total investment would be about $5 billion higher than 2019 and about a billion dollars higher than the record set in 2018.

Growth comes even amid low vacancies in major markets as tech companies in particular continue to prize downtown locations. Other strong areas include investments in rental apartments as home affordability gets out of reach for many Canadians, and industrial growth driven by e-commerce demand for logistics centres.

“Canada has so many advantages, and so many underlying fundamentals that are positives over the long-term, that we certainly think that growth in the Canadian commercial real estate market is going to continue,” said CBRE Canada vice-chairman Paul Morassutti.

Those trends, along with strong population growth and stable banking and governance, would help steer the sector if a recession hits, said Morassutti.

“The wild card is a recession. My feeling is we’re very well positioned to weather a recession, and I think we’ll continue to flourish after that because of those attributes.”

Heightened interest in the market is also creating challenges, including rising rents and limited office and industrial space, while climate change is creating its own issues.

CBRE says prime office rents jumped 20.9 per cent in Vancouver between 2018 and 2019, 14.2 per cent in Montreal, and 10.1 per cent in Toronto, while national industrial rents rose by 12.3 per cent between the two years for the largest increase on record.

Rents still form a small portion of company budgets and don’t seem to be a major constraint on growth yet, said Morassutti. He noted that in the industrial sector, costs savings in transportation from better locations more than offset costs from higher rents.

Rental rates for apartments are also climbing in major centres as home ownership becomes more expensive, which has helped drive investment in the multifamily. The sector could see about $11.9 billion in investment this year, up from $8.3 billion in 2018, to see the most of any commercial sector, CBRE expects.

The upward trend in residential rental rates is however putting pressure on income inequality, said Morassutti.

“Partially because of that lack of home affordability, you have all these people becoming renters, so on the one hand that’s a good thing. On the other hand, it’s not great for society that our two major cities are becoming unaffordable, it’s not great for the income divide, which is already a large social issue.”

Along with affordability, CBRE says the lack of investment in transit infrastructure, and increasing pressures of climate change on the construction sector and land values are also structural issues of concern for the year ahead.

More immediately, the impacts of the coronavirus outbreak also loom as a big unknown, but could be short-lived if it is contained, said Richard Barkham, global chief economist at CBRE said in a statement.

“If the coronavirus outbreak is relatively contained sometime in March, impacts on the Canadian economy and most commercial real estate sectors will be noticeable in the near term but less substantive over the year.”

He noted that short-term impacts would largely hit the hotel and retail sectors. He said the global property market should be able to weather the effects of the virus as anticipated today, but that a clearer picture of the epidemic should materialize sometime in March.

 

The Canadian Press 

©2020 The Canadian Press

Dueling multifamily proposals offered for Montreal’s Canada Malting site

The fate of the long-defunct Canada Malting facility along the Lachine Canal in the Saint-Henri section of Montreal is the subject of rival proposals for multifamily housing, one from a real estate development firm seeking a traditional condominium complex and the second from an advocacy group proposing a community-based project.

The Canada Malting site was constructed in 1907 and ceased operations in 1989. Over the years, the site’s terracotta silos fell into disrepair and were covered with graffiti – with many cheeky spray-painted messages complaining about the harsh aroma permeating the wreckage. The site is currently owned by Quonta Holdings, an investment management firm, and is estimated to be worth between $5 million and $6 million.

The fate of the property began to gain a new degree of importance in when Renwick Development put forth a proposal in 2013 to construct a 700-unit condominium complex at the site. This generated a large degree of opposition from local residents, who believed a community-focused project would better serve the borough’s needs. The opponents to the condominium project gathered together into an advocacy group called À nous la Malting and sought to shift the conversation away from traditional multifamily housing.

Renwick Development has since scaled back its 700-unit proposal to a smaller project that incorporates social housing units. Noam Schnitzer, founder and developer at Renwick Development, told the McGill Daily that he envisioned creating “a total of 240 units, of which 80 will be social housing units, and the rest will be condominiums.”

However, the social housing units would be segregated in a separate building on the property, with the remaining available square footage devoted to commercial spaces and an artists’ workspace collaborative. Schnitzer added that under his plan, “the provision of the services would not depend upon government funding.”

Earlier this week, À nous la Malting unveiled renderings of its vision for the Canada Malting site. This proposal envisioned a collectively owned development consisting of 200 affordable rental units, plus spaces for public daycare, a community kitchen, a rooftop garden, a bicycle repair shop and a museum. In its presentation, À nous la Malting emphasized its championing of social housing for the neighbourhood and the need to create “a refuge for people being displaced by gentrification.”

“We want to show people that it is possible to develop our city differently,” said Shannon Franssen, a member of À nous la Malting, in a CBC interview. “We don’t need to make profit off people’s need for housing and for essential services.”

À nous la Malting stated that it worked on this proposal for the past few years, with financial backing from Centraide of Greater Montreal and the Sud-Ouest borough. The presentation included detailed architectural plans for transforming the current eyesore of a site into an aesthetic pleasing multifamily development.

Julie Bélanger, director of the office of Le Sud-Ouest borough mayor Benoît Dorais, told the McGill Daily that the Canada Malting site “is very complicated” and is burdened with “a ton of issues” including the need for extensive land decontamination. Bélanger acknowledged being eager to see how the financial aspects of À nous la Malting’s proposal would add up.

But what if neither the condominium option nor the community-focused proposal worked? Belanger admitted the borough needs new housing units – it has the lowest vacancy rate in Montreal – buy she did not envision the City of Montreal stepping in to buy the property and coordinate new housing construction.

“We don’t have the means to buy it, and it wouldn’t be responsible to do so,” she said.

 

by Phil Hall / 06 Mar 2020