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.

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by Ephraim Vecina | 24 Oct 2019

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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.

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By Steve Randall |  last updated on the 26 Sep 2019

 

Seven-building acquisition attests to Montreal’s rental strength

Late last week, Greybrook Realty Partners and Marlin Spring announced the acquisition of a Montreal portfolio comprised of seven apartment buildings with a total of 324 rental units.

Said properties are situated close to restaurants, shops, hospitals, grocery stores, two metro stations, the Université de Montréal, and hospitals like the Jewish General Hospital.

Greybrook Realty and Marlin Spring stated that they will also be in charge of renovating suites and improving the common areas across all the buildings.

“The close of this acquisition brings the total number of units within our value-add portfolio to 774. With asking rents currently below comparable products in the area, we believe an opportunity exists to improve both the product offering and revenue through execution of a value-add program,” Greybrook Realty executive director Jared Berlin said.

“With the success of our existing Montreal portfolio, supported by the City of Montreal’s strong rental market fundamentals, we believe these assets are a natural fit in our growing Quebec Multi-family Portfolio” Marlin Spring CFO Elliot Kazarnovsky added.

In recent years, strong population growth – especially immigration – has spurred sustained growth in Montreal’s rental housing market.

Figures from IPA’s Midyear Canadian Multifamily Investment Forecast Report indicated that by the end of June 2019, the city’s average rent increased 4.1% year-over-year, up to $797 per month. Average prices grew by 6% year-over-year, up to $154,400 per unit.

 

by Ephraim Vecina | 23 Sep 2019

Frenzied commercial development marks next phase for emergent metropolis

Montreal’s residential real estate market has grabbed all the headlines in recent years, but the city’s commercial sector is beginning to burgeon and it, too, will get its due.

Toronto-based Michel Durand, President and CEO of Multi-PretsMortgage Alliance Commercial, says that Toronto and Vancouver cast a pall on Montreal, but as those cities have begun topping out, the Quebecois metropolis is attracting international attention.

“The Montreal market is finally seeing its share of the Asian influence, which we saw in Vancouver about 10 years ago and then it moved to Toronto when things got overcrowded and overpriced. Now we’re seeing a lot of development money moving into Montreal, which we’ve witnessed over the last three years and which, I think, is a trend that’s going to stick for at least the next five years,” said Durand.

Of course, in Montreal, it began with an explosion of interest in residential, and with its success has come the next, if more lucrative, phase of the city’s real estate development.

“Residential is a catalyst for commercial development,” continued Durand. “Once investors and developers get a  taste of how easy it is on the residential side—we’ve seen a lot of condos and towers go up from Asian investors—which is where they start, then they go into commercial development, like office buildings and new retail plazas, by partnering with local players.”

Likely contributing to Asian interest in Montreal is the city finally has direct flights to Mainland China, added Durand.

“Flights would go China-Vancouver and China-Toronto, and that’s where the money stayed,” he said, “but a few years ago flights started going to Montreal directly and we immediately saw the effects on the commercial real estate side, which also includes residential—transactions that are completely investments.”

In tandem with an institutional partner, Kevric Real Estate Corporation recently announced its purchase of a major downtown Montreal office tower located at 600 de la Gauchetière West, for which it has big plans. The purchase is also the latest sign that downtown Montreal’s commercial real estate sector is getting a boost the likes of which it hasn’t seen since a bygone epoch in the city’s history when, as Canada’s largest city, it was the country’s economic engine.

In addition to updating 600 de la Gauchetière W.’s architecture and building a new lobby facing Square Victoria, it will try to attract companies from Montreal’s up-and-coming industries, including technology, knowledge, and media.

“This important acquisition allows Kevric to expand its offering of commercial real estate spaces for organizations which aim to distinguish themselves and will ensure the company’s growth in Montreal for years ahead,” said Richard Hylands, Kevric’s president. “Kevric is proud to continue fueling the evolution of downtown Montreal into a world-class Canadian city.”

Published on MortgageBrokerNews.ca

by Neil Sharma
31 July 2019

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Fed announces interest rate decision

The Federal Reserve reduced interest rates for the first time since the financial crisis and hinted it may cut again this year to insulate the record-long U.S. economic expansion from slowing global growth.

Central bankers voted, with two officials dissenting, to lower the target range for the benchmark rate by a quarter-percentage point to 2%-2.25%. The shift was predicted by most investors and economists, yet will disappoint President Donald Trump, who tweeted on Tuesday he wanted a “large cut.’’

“In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the committee decided to lower’’ rates, the Federal Open Market Committee, led by Jerome Powell, said in a statement following a two-day meeting in Washington. It also noted that “uncertainties” about the economic outlook remain.

Officials also stopped shrinking the Fed’s balance sheet effective Aug. 1, ending a process that very modestly tightens monetary policy and was previously scheduled to come to a close at the end of September.

Policy makers appeared open to another cut as early as September when they next convene while sticking with wording in their statement that preserves their options.

“As the committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion,” they said.

Kansas City Fed President Esther George and Boston’s Eric Rosengren voted against the cut. The statement said they “preferred at this meeting to maintain the target range for the federal funds rate.” It was the first time since Powell took over as chairman in February 2018 that two policy makers dissented.

Investors had forecast the Fed to continue easing monetary policy this year, with futures pricing the key rate to fall about another half-point by January. U.S. stocks rose to a record last week in anticipation of easier money, while the yield on two-year Treasuries has undershot 2% since May.

While the domestic economy has performed relatively well, the Fed cut amid concern that softness abroad threatens the decade- long U.S. expansion. Trump’s trade war with China is hurting foreign demand. Data released earlier Wednesday showed the pace of quarter-over-quarter growth in the euro area slowed by half in the latest three months to 0.2%.

In the U.S., after growing 2.5% last year, fuelled by now-fading tax cuts and higher government spending, the economy expanded at a 2.1% annualized pace in the second quarter. The trade dispute was blamed for a manufacturing slowdown and the first drop in business investment since 2016.

In their assessment of the US economy, officials made only minor changes to their statement language.

Powell has repeatedly said the Fed’s “overarching goal’’ is to keep growth going. Acting now, when the central bank has less room to pare rates than in past downturns, is partly aimed at getting ahead of any potential slump.

Lacklustre inflation also offered the Fed space and reason to ease. Its preferred price gauge, excluding food and energy, rose 1.6% in June from a year earlier and hasn’t met the Fed’s 2% target this year.

Trump is unlikely to be satisfied as he puts the economy at the heart of his re-election bid. He has broken with convention and undermined the Fed’s political independence by lobbying it to loosen policy and publicly questioning his nomination of Powell as chairman.

At his press conference, Powell will almost certainly be asked if the Fed buckled to that pressure. He may also be quizzed on whether the Fed, if requested, would join the U.S. Treasury in any effort to weaken the dollar given Trump’s complaints about the currency’s value.

Limited Scope

While Trump and some investors wanted the Fed to be more aggressive, its scope for doing so is limited. Stocks are high, unemployment is around the lowest in a half-century and consumers continue to spend. At the same time, a measure of business in the Chicago region fell this month to the lowest since late 2015.

The rate reduction was the first since December 2008 when the Fed dropped its benchmark effectively to zero as it battled recession and financial crisis. It began raising borrowing costs in December 2015, doing so another eight times. Officials indicated as recently as December they intended to continue to hike this year.

They dumped that plan in January as financial markets fretted monetary policy had become too restrictive.

Fellow central banks are set to follow the Fed. Those in IndiaSouth Africa and Australia are among those to have cut this year. The European Central Bank has indicated it will do so in September.

A worry for policy makers is that a decade of easy money leaves them short of ammunition for fighting a serious downturn. That likely means governments will face demands to do more if economies keep struggling.

 

Copyright Bloomberg News

by Bloomberg 31 Jul 2019

Thriving Tech and Ecommerce Sectors Drive Canadian Commercial Real Estate Records in the First Quarter

Industrial availability dropped to a record low in Q1 2019, while office markets across Canada had some of the best results in recent memory

Toronto, ON – April 1, 2019 – A flourishing tech sector and bustling e-commerce activity continue to re-shape the Canadian commercial real estate (CRE) landscape. Office and industrial property markets logged new records in the first quarter of 2019 and saw some of the strongest demand in recent memory, according to CBRE’s Canada Q1 2019 Quarterly Statistics report.

Canada’s office real estate recorded the most vigorous leasing activity in years, primarily spurred by a rapidly expanding tech sector. Overall, the national office property vacancy rate decreased by 40 basis points (bps) quarter-over-quarter to 11.5% in Q1 2019, the lowest level since Q2 2015. The amount of office product under construction nationwide in the first quarter reached 16.0 million sq. ft. for the first time since Q4 2015, as Vancouver saw an additional 1.4 million sq. ft. of new office development break ground this quarter.

The rise of online retail sales, and the associated warehouse space needed to keep up with consumer demand, has pushed the Canadian industrial market into overdrive. The national industrial availability rate dropped to a new record low of 3.0% in Q1 2019. To meet user demand for taller clear heights, larger door counts, and specialized warehouse configurations, 22.6 million sq. ft. of industrial space is under construction, the bulk of which is in Toronto and Vancouver. This is the highest level of national industrial development seen since 2015.

“Canadian office markets continue to gather momentum, in large part as a result of rapidly growing tech and co-working sectors. The remarkable office market momentum continues to build, but tenants have fewer and fewer options if they don’t plan ahead,” commented CBRE Canada Vice-Chairman PaulMorassutti. “Meanwhile industrial developers are responding to chronic space shortages with new construction, while tenants are opting to secure space prior to construction completion. In Toronto, all new supply delivered in Q1 2019 was pre-leased, and 77.6% of the 9.58 million sq. ft. under construction already has tenancies in place.”

Here are some of the other commercial real estate records logged in the first quarter:

  • Downtown Toronto office vacancy tightened another 10 bps, dropping the rate to a new record low of 2.6% in the first quarter.
  • Montreal’s downtown office vacancy now sits at 8.6%, the lowest it has been since Q4 2013, with tech company growth playing a key role in this decline. The downtown core has had 819,500 sq. ft. of new product delivered over the past eight quarters, with 998,139 sq. ft. of additional space under construction as of Q1 2019.
  • Calgary experienced 289,515 sq. ft. of positive net absorption of downtown office space in Q1 2019, the largest quarter of positive absorption since the oil downturn in 2014. Much of the activity came from tenants taking back space previously listed for sublease, spaces being converted to co-working uses, and landlords turning unoccupied supply into amenity space.
  • Toronto’s industrial market, which has had 16 consecutive quarters of positive net absorption, saw its availability rate hit an all-time low of 1.5% in Q1, with 2.2 million sq. ft. of positive net absorption.
  • Calgary’s industrial market, which has logged nine consecutive quarters of positive net absorption, had a further 649,080 sq. ft. of space taken up in the first quarter of 2019.
  • The Halifax industrial market had 50,465 sq. ft. of positive net absorption in Q1, the ninth straight quarter of positive net absorption for that city.

“In recent years, the Canadian real estate market had been somewhat polarized between areas of pronounced strength and areas facing challenges; however, this quarter showed more momentum for cities across the country, including hard-hit Alberta,” said Morassutti. “It’s worth noting that while overall office vacancy has remained stable quarter over quarter in Edmonton and Calgary, the amount of sublet space on the market – which serves as a bellwether for the office segment – decreased by 25.1% and 8.6% respectively. This is a promising indication that Alberta’s CRE conditions look to be improving at long last.”

For further details and insights, download CBRE’s Canada Q1 2019 Quarterly Statistics report here.