Former niche CRE investment is now big business

Commercial real estate is frequently influenced by changes in the wider business world and one big change is driving interest in a formerly niche asset class.

Data centres are now a cornerstone of business and $100 billion has flowed into the asset class in the last decade according to a new report from Cushman & Wakefield.

These centres include those operated by the technology behemoths who dominate in the cloud platforms, Amazon, Google, and Microsoft. These three companies have impacted data centre sizing tenfold. The 10-megawatt (MW) data center that was impressive 10 years ago now pales in comparison to 30-MW leases now signed with increasing regularity.

“The speed with which the industry is shifting makes the creation of a data center strategy a complex and daunting task,” said Dave Fanning, Executive Managing Director and Leader or Cushman & Wakefield’s Data Center Advisory Group. “Investors must be able to assess the long-term potential of a data centre to hold its value and how easily it can be upgraded. All involved require access to capital and a clear understanding of objectives.”

Vancouver challenging the leaders
Ten cities maintain their statuses among the top 10 for data centres – Northern Virginia, Silicon Valley, Dallas, Chicago, New York/New Jersey, Singapore, Amsterdam, Los Angeles, Seattle and London – but Vancouver is one of those named by the firm as a contender.

“The top markets provide the greatest number of options to the greatest number of perspectives,” said Kevin Imboden, Director of Research for Cushman & Wakefield’s Data Center Advisory Group. “While one size sometimes does fit all, for certain specializations it’s important to review and understand the factors most important to the specific requirement and aim accordingly. Combined with those markets that have been overlooked and underutilized, there is great potential for niche development and secondary markets across the globe.”

 

by Steve Randall on January 30 Jan 2020

The Top 5 Commercial Real Estate Trends of 2019 – CBRE

It’s safe to say that 2019 marked the end of an unprecedented decade for Canadian commercial real estate.

Backed by strong fundamentals, transaction volumes reached a 15-year high of $49.3 billion in 2018, as cap rates compressed to 10-year lows.

While most property types have performed well, industrial has exceeded all expectations, as e-commerce demand continues to grow.

Office construction continues at a record pace, while a rapidly growing population has boosted demand for rental space and multifamily investment returns.

Want to know more? We’ve rounded up the top 5 commercial real estate trends of 2019 to put things in perspective.

1. THE POWER OF LAST-MILE DELIVERY

Canadians can’t get enough of e-commerce, which has seen double-digit growth in recent years. The result? A drastic shift in supply chains and the industrial real estate market.

Companies looking to deliver “last-mile” goods to major metros require distribution facilities in close proximity to downtown cores.

That poses a problem in cities like Toronto and Vancouver, where there is a lack of available industrial space, and what property is available is commanding historically high rents.

Some developers have turned to the concept of multi-storey buildings, first pioneered by cities like Tokyo, to meet demand.

How limited is the supply of industrial space? The national availability rate dropped below 3.0% for the first time on record in the third quarter, with historic market fundamentals in Toronto, Vancouver and Montreal.

And while development activity is ramping up, with an astonishing 28.0 million sq. ft. in the national pipeline, it’s still not enough. Projects under construction account for just 1.5% of existing inventory.

As tenants struggle to find the space they need, investors have recorded strong returns. The sector saw investment volumes total $3.1 billion in the third quarter of 2019 alone, which would be even higher if more owners were selling.

2. APARTMENT RENTAL DEMAND HITS NEW HIGH

Millennials represent 27.0% of the Canadian population and are forming new households at a record rate. But with home ownership costs outpacing income levels, many are opting to rent not own.

That’s good news for multifamily investors. With apartment buildings at or near capacity across the country, rent growth continues to accelerate.

Average rents for purpose-built rental units have grown by 4.4% for the last two years at the national level. That number jumps to 5.0% and 7.1% in Toronto and Vancouver, respectively.

Strong fundamentals – including a growing population, rising home ownership costs and a lack of rental supply – mean this trend is here to stay for 2020 and beyond.

The Top 5 Commercial Real Estate Trends of 2019

3. RECORD-LOW OFFICE VACANCY RATES

Strong job growth has propelled the Canadian economy in recent years, with a whopping 81,000 net new jobs in August alone.

In the 12 months prior, Canada added 471,000 net new jobs, compressing the unemployment rate by 30 basis points to just 5.7%.

These numbers are the backdrop for unprecedented demand for office space and historically tight office markets.

In 2019, Toronto and Vancouver continued their reign as the tightest downtown office markets in North America, with vacancy rates of just 2.3% and 2.4%, respectively.

Tenants are having to be creative with their space as they look to grow and expand, while owners are setting the terms of the leases in a landlord’s market.

As Toronto continues to attract record levels of talent, it seems unlikely that these conditions will change anytime soon.

4. “EXPERIENCES” NOT THINGS

While retail didn’t have the buzziest headlines in 2019, there is reason for optimism – and even excitement – in some areas of the sector.

Lifestyle and entertainment centres have been drawing investor attention, as owners and occupiers continue to reinvent and reimagine traditional spaces with “experiences” in mind.

From food halls to boutique fitness, consumers are drawn to stores that offer experiences they can’t find online.

Many online retailers have opened brick-and-mortar locations in the last year, a sign that shoppers are looking for a mix of in-person and online shopping.

Meanwhile, owners are continuing to combine their retail properties with other asset types from coworking spaces to community services.

5. MARKETS SHAPED BY TECH

Canada is attracting waves of tech talent, as global and domestic companies tap into the country’s tech ecosystem.

The result is record commercial and residential real estate demand and an office construction boom in several markets.

The tech industry has accounted for 17.1% of major-office leasing activity since the start of 2018, and there is 2.8 million sq. ft. of new build pre-leasing by tech firms in Toronto, Vancouver and Montreal.

The boom is putting pressure on already tight Toronto and Vancouver markets and will likely keep office vacancy rates in both cities low in the coming year.

Also benefitting are smaller cities that offer a lower cost of living and operating. Victoria, Hamilton, Oshawa, and Guelph are making major strides in growing their tech sectors and smaller markets are expected to continue to grow in 2020.

 

by CBRE, January 2020

Canadian CRE set to perform well overall in 2020

This year should be a good one for Canada’s commercial real estate sector with overall strong performance.

The 2020 Commercial Real Estate Sentiment Survey from Devencore and Transwestern Commercial Services surveyed brokers and analysts across 43 North American offices to gain insights for the Canadian and US markets in 2020.

South of the border, there is some concern regarding political outcomes, especially the presidential election; but overall expectation is positive driven by the e-commerce industry’s demand for industrial space.

There is also expectation that medical offices will help the office sector in the US to outperform the market.

Meanwhile, offices are expected to perform well in Canada with just over half of respondents predict leasing velocity and tenant prospects will pick up during 2020, with 86% expecting stronger rent growth over the year, especially in industries such as tech and the service sector.

“Similar to the U.S., Canadian commercial real estate markets also are expected to perform well in 2020, with mild concerns stemming from political and trade impacts as well as rising construction costs,” said Jean Laurin, President and CEO of Devencore. “Our economy is healthy and job growth is steady. With the exception of certain regions, major Canadian provinces like Ontario, British Columbia and Quebec all show robust conditions.”

For the industrial sector, Quebec and Ontario residents are renewing amid tight availability, while those in Alberta have more choice and are choosing quality. However, 64% of respondents expect overall industrial asking rents to rise due to limited availability in select markets.

Land costs are also expected to rise as the availability of prime sites continues to decrease. In this environment, the attraction for industrial investment by the capital markets remains high.

 

by Steve Randall  13 Jan 2020

Canadian commercial investment should begin looking further

Would-be investors in Canadian commercial real estate should begin considering markets beyond the usual hotspots of Toronto, Montreal, and Vancouver if recent trends south of the border are any indication.

The tech industry’s sustained hunger for Canadian offices is gradually depleting available urban office space. The examples set by some U.S. cities might provide a good answer to this quandary, according to the Computing Technology Industry Association (CompTIA).

“Something like a Charlotte, or a Kansas City, or an Austin,” CompTIA senior vice-president of research and market intelligence Tim Herbert told Postmedia in an interview.

“These cities [are] more affordable, [and] in some cases you can make an argument that there is a better quality of life.”

In its Cyberprovinces 2019 study, CompTIA noted that smaller cities can become more feasible investment options in the very near future. Last year alone, Canadian tech employment expanded by 61,000 new jobs, amounting to a 3.8% annual increase.

Overall, the tech workforce grew by as much as 249,000 new employees since 2010.

Herbert added that demand for Canada’s office spaces is “not just limited to technology companies, who are starting to take office space or build new headquarters, but a range of different company types are attracting tech talent.”

Data from Avison Young showed that the Canadian office market has seen the positive absorption of 9 million square feet (MSF) in the year ending June 30, 2019. This has massively outstripped the nearly 6 MSF absorption during the immediately preceding 12-month period.

The sustained popularity of the industry and the resulting demand upon Canada’s commercial real estate is impelled by the strength of its long-term employment prospects. In 2018, tech earnings clocked in an average of $78,070 – fully 51% higher than the average reading of $51,794 in the private sector.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

 

 

by Ephraim Vecina | 24 Oct 2019

Why CRE investors should consider niche assets

Investors in commercial real estate should consider more than the mainstream asset classes and go niche.

That’s the takeaway from a new report from global real estate firm Cushman & Wakefield that highlights the benefits of investing in niche assets.

These assets include cold storage, data centers, medical offices, student housing, and senior housing.

The report says that transactions in niche assets have exploded in recent years and are now similar to retail and industrial. And changes in how we live and the aging population is set to drive volumes higher.

Niche assets have also outperformed the overall CRE benchmark in the two most recent recessions, suggesting that this could provide defensive exposure in future downturns.

Investors also gain exposure to secular drivers such as changes in demographics, affordable housing challenges, technology, and consumer behavior.

Complex operations
The report notes that institutional activity in niche assets could have room to expand from its current uneven pattern, which would “support pricing and liquidity in a virtuous cycle.”

However, it’s suggested that investors might be better buying an experienced operator in a niche or partnering with one, as niche asset strategies are “often operationally complex.”

By Steve Randall | last updated on the 22 Oct 2019

CMHC FINANCING

Toronto needs to double rental supply to meet future demand

A new report from RBC Economics focuses on the rental housing deficit which is set to intensify in the coming years, especially in Toronto and Vancouver.

The report says that supply of new rental homes will need to pick up pace to meet future demand; in Toronto the pace must double. In the meantime, lack of supply is leading to “uncomfortable highs” for rents – which means those hoping to save up to buy a home are squeezed even further while high home prices have “crushed some homeownership dreams.”

RBC says that big cities must increase rental supply to have any hope of tackling affordability issues.

It notes that there are some positive signs in some cities, such as Montreal and Vancouver where has new waves of supply underway; and in Calgary where there are elevated rental vacancies.

But in Toronto, the report says supply will not come close to demand in the coming years and calls for specific targets and incentives to address the issue.

Deficit needs action
RBC Economics’ estimates of the supply needed to balance out supply and demand in the major markets as of late 2018 are: a deficit of 9,100 rental units in Toronto, Montreal had a 6,800-unit deficit and Vancouver 3,800 units.  Calgary carried a small surplus of 300 units.

This will be exacerbated by the estimated increase in renter-households of 22,000 in Toronto and 9,400 in Vancouver over the medium term, with Montreal averaging 8,200 per year on average.

The report estimates that Toronto will need 28,600 new rental units on average over a two year timeframe with 11,600 in Montreal, 11,300 in Vancouver and 4,150 in Calgary.

Are you looking to invest in property? If you like, we can get one of our mortgage experts to tell you exactly how much you can afford to borrow, which is the best mortgage for you or how much they could save you right now if you have an existing mortgage.

By Steve Randall |  last updated on the 26 Sep 2019

 

Why use Mortgage alliance Commercial

Top 5 Reasons to Use Mortgage Alliance Commercial Canada (MACC)

 

  1. MACC is Licensed across Canada with offices in Quebec, Ontario, Alberta, and BC
  2. MACC has maintained privileged relationships with all major lenders across the country to allow our clients to access better terms and conditions for their financing needs
  3. MACC simplifies and manage the entire process of any lending transaction from pre-screening requirements and options; completing loan underwriting and lender negotiations, through to the disbursement requirements, to ensure successful completion and funding.
  4. MACC is an approved CMHC correspondent and experienced in preparing and presenting applications directly to CMHC for underwriting and approval. This provides access to preferred rates and terms, and higher loan to value ratios. This includes multi-unit rentals, mixed-use, purchases and refinances. We pre-screen deals to determine potential loan amount available based on property information provided such as rent roll, and statement of income and expenses.
  5. MACC has over 20 years’ experience in the commercial broker industry and a significant track record in deal success covering all commercial industries. We are well-positioned to guide clients through the most complex transactions and obtain the best options in the market. See our website for just a few of the projects completed.  http://macommercial.ca/projects/

 

 

 

Marion Cook  | November 2018

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Condoville: What is the real estate boom doing to downtown Montreal?

Units in high-rise condos are a hot commodity, but critics worry they will hurt the city’s vitality

On a cold Saturday morning in April, a small group of hockey fans mixed with real estate investors in the showroom of one of the many upscale condo developments in the city.

The 55-storey tower bills itself as “Montreal Canadiens-inspired,” and is being built in the shadow of the Bell Centre, near two other Habs-themed high-rises.

 

Guy Carbonneau, the team’s one-time captain and coach, was on-hand signing autographs, and hawking units.

“The Habs are built on a history of greatness and I believe Tour des Canadiens 3 will do the same for the Montreal real-estate landscape,” Carbonneau said, reading from a prepared statement.

Such is the velocity of Montreal’s condo market these days that everyone seems to be sucked into its orbit.

 

While the city’s real-estate market is enjoying a sustained growth period, downtown condo sales have been particularly hot.

Last year, 3,365 condo units were sold in central Montreal, a record that surpassed previous highs reached in 2012 and 2006, according to figures compiled by Altus Group, a real-estate data firm. There was a near 22-per cent increase in the fourth-quarter alone.

Former Candiens captain and coach Guy Carbonneau met with fans and investors at a recent event in the showroom of the Tour des Canadiens 3 condo development. (Jonathan Montpetit/CBC)


High-rise condo boom

Much of this growth was driven by new construction projects, such as the Tour des Canadiens 3, suggesting there is no longer any excess supply on the market.

“We’ve exhausted the inventory of unsold new units that were in the big towers during the difficult years of 2013, 2014 and 2015,” said Vincent Shirley, director of real-estate development at Altus.

“Today it is the launch of condo projects that is really effervescent. They will account for 50 per cent of first-quarter sales this year.”

Foreign investors have started to take note. They now account for roughly 1.7 per cent of Montreal purchases, though that’s small compared to Toronto (3.4 per cent) and Vancouver (4.8 per cent).

The high-rise condos in downtown Montreal are a bigger draw for professionals with no children or older people with equity looking to downsize. Market observers estimate as many as 25 per cent will be used as investments.

“What we’re seeing is people are wanting to live in larger spaces in the downtown. They want great views and to be able to walk to everything,” said Rizwan Dhanji, a residential sales executive with Canderel, the developer behind Tour des Canadiens.

High-rise projects with names like Crystal, YUL and the Drummond are the most ostentatious manifestations of the city’s hot condo market. (Jonathan Montpetit/CBC


In the condo development’s showroom, prospective buyers can visit a mock-up of a two-bedroom, 1000 square-foot unit.

Hints of the lifestyle on offer are embedded in the furnishings: modern leather-backed chairs, a crystal decanter on a quartz kitchen countertop, wooden Henriot box tucked away in the corner.

A floor-to-ceiling high-resolution photograph of the Saint-Lawrence River represents the view available to those who can afford the upper-level units.

Outside, Montreal’s new condo towers — imposing steel and glass structures rising 100 meters or more — are impossible to miss.

City of glass

With names like Crystal, YUL and the Drummond, they are the most ostentatious manifestations of the city’s hot condo market.

Many consider them to be its most problematic element as well.

Some of these concerns will be familiar to anyone who has followed recent developments in the country’s two other major real-estate market.

These include worries about affordability, which has declined steadily in Montreal since 2015. And some municipal politicians have mooted the need for a foreign-buyers tax.

But alongside the economic, there are architectural concerns. Not only have these residential skyscrapers reshaped the city’s skyline, they have dramatically altered the pedestrian experience along René Lévesque Boulevard and large parts of Griffintown.

In the condo development’s showroom, prospective buyers can visit a mock-up of a two-bedroom, 1,000 square-foot unit. (Jonathan Montpetit/CBC)


Like all skyscrapers, the new downtown condo towers block out sunlight and deflect air currents.

“You need lead shoes just to stay on the ground because of the wind vortex,” joked Dinu Bumbaru, policy director of the urban advocacy group Heritage Montreal.

And if the condo towers can be unpleasant to walk by, some feel they’re not much better to look at either.

“I don’t see virtue in any of them. It’s not architecture, it’s commodity,” said Phyllis Lambert, founder of the Canadian Centre for Architecture and an influential architecture critic.

“Montreal used to be a place where you would have high-rise buildings with light and air between them. But now it’s just a cavern down Réné-Lévesque.”  

Thinking beyond boom-and-boom

Neither Lambert nor Bumbaru are opposed to downtown condo-living per se. Indeed, both acknowledge the need for mid-rise residential building to combat sprawl.

But they are concerned that many of the high-rise condos are being built with little consideration for the impact they will have on surrounding neighbourhoods.

The Projet Montréal administration is expected to draw up a new master plan this year, which will guide zoning and development decisions.

They hope it will encourage a greater emphasis on the aesthetics of high-rise towers and the “strollability” of the surrounding area, by ensuring new developments don’t block out sunlight or include street-level stores, for instance.

Community groups, parents and the Commission Scolaire de Montréal (CSDM) have been pushing for a new French-language school in the downtown area, between Atwater and University streets. (Verity Stevenson/CBC)


Mayor Valérie Plante has also suggested making the downtown more accessible for families is a priority for her administration.

But many of the new condo developments don’t contribute to that goal, said Lambert.

She was dismayed to see that the development on the site of the old Montreal Children’s Hospital was allowed to proceed without setting aside space for an elementary school, which the neighborhood needs urgently.

“There isn’t proper planning in Montreal,” Lambert said.

Bumbaru, whose group intends to contribute several proposals for the new master plan, agreed. Proper planning, he said, should consider the city’s needs beyond the current boom in the real-estate market.

“In the past, we managed to generate genuine neighbourhoods with real life in them. But you wonder if the kind of building we’re doing today will support authentic city life because there is no room for families. The units are basically there to generate short-term gain for builders and investors,” he said.

“We have to raise our planning skills in this city.”


Jonathan Montpetit · CBC News · 

 

An end to mandatory parking spots at new Ville-Marie housing developments

Bylaw requiring real estate developers to build minimum number of parking spots to be nixed

Mayor Valérie Plante said she wants to amend the bylaw so that parking spots are no longer mandatory at new residential buildings in the Ville-Marie borough. (Paul Chiasson/The Canadian Press)


Condo developers will no longer be required to build a minimum number of parking spots at new housing projects in Ville-Marie, as the Montreal borough plans to change that requirement today.

A city bylaw currently forces residential developers to build a number of parking spots that’s proportional to the number of housing units, among other factors.

If that number is not met, they have to pay a fine of $80,000 for each missing parking spot.

Mayor Valérie Plante said the bylaw is outdated and that several developers have pleaded with the city to make exceptions. 

She wants to amend the regulation so that parking spots are no longer mandatory at new residential buildings.

The Ville-Marie borough — which includes the city’s downtown core, and runs east-west from the railway tracks a few streets east of Frontenac Street to Atwater Avenue — is expected to vote on the measure at its meeting Tuesday.

“I heard you, you believed this bylaw was a bit passé. So we’re getting rid of it,” said Plante, speaking at an event hosted by the Urban Development Institute of Quebec, a commercial real estate lobby group, on Monday.

She said a required minimum number of bike racks will remain in place, though. 

“We want to give developers the flexibility to decide, depending on the target population and the distance from public transit, whether it is really necessary to build parking spaces,” Plante said. 

The group’s CEO, former Parti Québécois leader André Boisclair, said he welcomed the planned change.

“This is a good thing, especially since households and young households in particular, behave differently than those of their elders,” he said.

More affordable housing units

While builders in Ville-Marie will no longer have to dig out space for parking, they soon will have to include affordable housing units in their plans.

Plante said the city has one year to draft the bylaw that will make the affordable units mandatory, and it plans to hold consultations through the city’s public consultation office (OCPM).

Plante says the city is also working on a bylaw that would require large real estate projects to include a certain number of affordable housing units. (Paul Chiasson/The Canadian Press)


The new rules, which were one of Plante’s election campaign promises, are expected to come into effect in July 2019.

Developers want to see the bylaw as soon as possible to see how it would affect future projects, Plante said, and the city is calculating the financial impact they might incur.

“We want to be reassuring — we’re working collegially with the different stakeholders,” she said.

The City of Montreal’s metropolis status, secured by former mayor Denis Coderre, grants it the power to make it necessary to have a minimum number of affordable housing units in large real estate projects.


CBC News · 

With files from Radio-Canada