Toronto is a top commercial investment destination right now

Intensified demand brought about by an influx of tech companies has pushed Toronto’s office market towards becoming one of Canada’s premier investment destinations, according to a CBRE Group report.

The vacancy rate of the office sector fell to 2.7% during the fourth quarter of 2018, leading to commercial rental rates reaching an average of $35.37 per square foot.

This far outstripped Montreal’s figures, which posted a median rental rate of $22.76/sf on a 9.4% vacancy rate during the same quarter. And Vancouver, while having a higher average at $37.20/sf, did not command the level of Toronto’s demand, with a 3.8% vacancy.

Even intensified development offered only the most minimal of respites for the overheated market. As of the end of 2018, approximately 14.2 million square feet of new commercial space was under construction nationwide, with most of this situated in Toronto, Vancouver, and Montreal.

This was the strongest development activity since the first quarter of 2016, the CBRE noted.

CBRE added that despite the 7.3 million sf of space still under development in Toronto, “chronic shortage” will continue to characterize the market for the foreseeable future.

For perspective, this greatly exceeds Vancouver’s 2.86 million sf and Montreal’s 954,510 sf. This also continues the running theme of demand consistently outpacing supply nationwide, as the overall Canadian office vacancy rate fell to 11.9% in Q4 2018.

Rising construction costs herald a reckoning for small developers

Cost pressures

A year ago, people wondered how high prices could soar. Presale condo pricing was pushing the envelope across the region, and Bosa had recently sold office space at 320 Granville Street for slightly more than $2,100 a square foot.

Today, buyers are more cautious and construction cost increases mean developers have limited room to manoeuvre. While the average increase is less than 10 per cent, according to cost consultants at Altus Group, several trades are able to demand many times that because schedules are tight. It’s their way of prioritizing whose work gets done.

This concerns Neil Chrystal, president of Polygon Homes Ltd. and a panellist at the recent Urban Development Institute (UDI) forecast luncheon.

“How does the bottom line look after you factor in much more expensive construction costs? Because if the numbers don’t make sense, we won’t move forward,” Chrystal said. “We started doing less last year, and we’re still trying to figure out what we’re going to do this year.”

With some projects, it might be better to wait, so that the final cost to the consumer allows developers to get the requisite number of pre-sales to trigger financing, which banks are less inclined to give these days.

“We all need to go out and get pre-sales to get our financing, and financing is going to be tougher,” he said. “The big banks say, ‘We’re only going to be financing our Tier 1 developers.’ They’ve only got so much money to put out there.”

This could cause problems for smaller developers that aren’t well capitalized and find themselves pinched by rising costs, lower sales and higher interest rates on financing they do secure.

“There’s going to be a shakeout a little bit this year with the smaller guys,” he said. “It’s going to be trouble.”

Time to think

Your intrepid columnist is filing this from Sacramento, where he’s on the lookout for Anthem Properties Group CEO Eric Carlson. During a lively exchange at the UDI forecast luncheon, Carlson announced he was heading there promptly.

Why?

It’s not just the company’s recent purchase of the Cathedral Square site in Sacramento’s downtown for mixed-use development. Rather, it’s the city’s desire to see projects built – a desire lacking over at the District of North Vancouver.

The district regularly failed to meet its long-standing goal of building 500 new homes a year. Indeed, it recently asked for a revamp of a six-storey project for seniors in the Edgemont Village neighbourhood.

“Thoughtful people, architects and planning staff” had put in two years of work on the project, he said.

“Is two years not enough?… Is that not what they’re good at? Shame on you,” he exclaimed, to thunderous applause from an audience too familiar with cumbersome civic approvals processes.

Under the circumstances, few in the audience expect the BC NDP to build 114,000 affordable new homes in 10 years. Most pegged this year’s tally at between 1,000 and 2,000 units.

Cost comparisons

Just how tight is the Vancouver office market?

According to Colliers International vice-president Matt Carlson, with the availability of downtown office space averaging 2.9 per cent, the space being built today to address demand is pre-leasing for less than existing space.

“On a net effective basis, the spot price is higher for existing buildings – A and triple-A existing class – than it is for new buildings that are coming out of the ground,” Carlson said. “People that are having to move today in this environment, if they need space, they need space, and they’re prepared to pay whatever the market will bear.”

The demand has pushed gross asking rents to nearly $68.52 per square foot for triple-A space, while A-class space is commanding $58.72. Together, both are setting the pace for the overall rate. According to Colliers’ year-end office market report, the average gross asking rate downtown for all classes of office space is $59.84 per square foot while the average net asking rent is $32.45 per square foot.


Peter Mitham Business in Vancouver | February 6, 2019 | westerninvestor.com

Developer eyes two condo buildings on New Westminster Royal Towers site

A preliminary development application proposes a mixed-use residential, retail and child-care project

The Royal Towers Hotel may have been a happening place in its heyday, but a new plan is in play for the prominent site.

Built in 1961 as a hotel, the seven-storey building at the corner of Sixth Street and Royal Avenue is currently home to 135 residential units and a private liquor store. In December, the city’s land use and planning committee received a preliminary application from Domus, which is proposing to build a mixed-use residential, retail and child-care development on the property at 140 Sixth St.

“It’s a very large site, centrally located in the city, in very close proximity to downtown New Westminster,” said Mayor Jonathan Cote. “We do think the time has come for that site to be looked at, but we want to make sure we are getting the right development application that fits that site where it sits and can contribute to the city.”

According to a staff report on the preliminary application, the proponent is proposing to build 36-storey and 40-storey towers, which would be connected by a six-storey podium. Along with residential units, the project would include space for a non-profit child care and 1,340 square metres (14,426 square feet) of commercial space.

The preliminary plan includes commercial space fronting on to Royal Avenue and Sixth Street, including a liquor store facing Sixth Street and a restaurant at the corner of Sixth and Royal. It also includes a corner plaza at Sixth and Royal and a pedestrian mews that provides a public pedestrian connection between Sixth and Seventh streets.

The overall permitted density on the site is 5.2 floor space ratio (a 7.02 FSR is proposed) and a residential density of 3.0 FSR is permitted (a 6.84 FSR is proposed). In exchange for increased density, the applicant is proposing to provide 40 non-market units, space for a child care, 106 rental units (which is 80 per cent of those currently offered on the site) and a to-be-determined voluntary amenity contribution.

Cote, one of three council members on the land use and planning committee, told the Record the project has a long way to go before it reaches the point of becoming “a real application” to be considered by city council. He said the proposal received a “mixed reception” at the land use and planning committee meeting, where concerns were raised about the amount of affordable housing being proposed and the height of the towers.

“There was a recognition that it is a site that is contemplated to be highrise, but the height was being pushed beyond even the local context of the area,” he said. “The second major issue was the affordable housing component. There was definitely appreciation and support of there being an affordable housing component to the project, but there was a feeling the percentage of units was not high enough in terms of what the city hoped to achieve on that site.”

The 40 units of non-market housing being proposed represents 4.3 per cent of the total number of units proposed for the project. A staff report states that 71 to 84 affordable housing units would be required to meet a range of 7.5 and 10 per cent.

“The city is going through some work on developing some inclusionary zoning policy, and we wanted that development to be more in line with our thinking of that policy, which will likely put us closer to 10 per cent of the units being affordable housing units,” Cote said.

In addition to addressing the committee’s concerns about the heights of the two towers and the number of nonmarket housing units to be provided in the development, the applicant will need to address a variety of issues raised in the staff report before the project will be considered by the committee and council. If the pre-application inquiry proceeds to a formal application to the City of New Westminster, the proponent would need to submit rezoning and development permit applications to the city.

“I definitely think it is a site that will be redeveloped,” Cote said. “The Royal Towers has a long history in the community, but the building isn’t what it used to be. From the city’s perspective, the residential component in that building right now has moved to more of a rental and short-term rental component, and that’s one reason why the city is very eager to make sure that an affordability component is a big part of the new project and that any tenant relocation, when that discussion comes, is certainly a big part of that discussion.”


Theresa McManus New West Record | January 23, 2019 | westerninvestor.com

Technology disrupts commercial real estate

According to a report from Altus Group, commercial real estate firms are beginning to adopt property technology platforms in ways that promise to change the industry in the near future.

The Altus Group CRE Innovation Report surveyed 400 commercial real estate executives at firms with assets under management totalling over $2 trillion, 41% of whom are already using automaton for benchmarking and performance analysis. Thirty-nine percent are using automation for scenario and sensitivity analysis and 36% are using it for budgeting and forecasting.

“Sixty-one percent of CRE [commercial real estate] executives around North America use some online lending platform, and 23% of them are using them in a pretty significant way,” said Ross Litkenhous, global head of business development for Altus Group.

“From a crowdfunding perspective, you’re giving a broad, wide array of investors the opportunity to invest in a piece of real estate, whereas in traditional commercial real estate, you have folks that syndicate money or are tied in with a high net worth individual. Everybody gets a percentage of a deal. From crowdfunding you’re going out to the masses and asking people to invest in a deal through some sort of online platform, which is not the way real estate has been traditionally done. It’s taking evolutionary leap.”

Some of the online lending firms are Lending Tree, Blend, and RealAtom; a couple of the online investment and crowdfunding companies are Cadre and Fundrise; and an online exchange company is Ten-X.

Litkenhous talks about the bell curve, in which innovators lead the way and are followed by early adopters; then the early majority, who are followed by the late majority; and finally they are tracked by laggards, who tend to be conservative in outlook and execution.

“My opinion is we’re between early adopters and the early majority phase,” he said. “What that means is it’s gotten enough mainstream coverage and enough folks who have trusted the technology enough to do deals, and they have seen the value. Now larger companies and larger players are saying it’s been out long enough that it’s time to adopt. In our survey, we saw 53% of our respondents said they were directly investing in one type of PropTech firm.”

The report further stated that the combination of new market entrants and technologies, as well as changing demographics, have created disruptive models within the commercial real estate industry. Moreover, many firms within the industry are investing heavily in property technology to the point that they will influence the industry’s future direction.

“This means significant opportunity for firms who rapidly embrace innovation and PropTech to streamline their systems and processes to reduce complexity. Staying on top of the disintermediating drivers will help ensure CRE executives are well-positioned to leverage the latest available technologies to their advantage,” read the report.

“The combination of new market entrants, new technologies and changing demographics have created disruptive models within CRE. This means significant opportunity for firms who rapidly embrace innovation and PropTech to streamline their systems and processes to reduce complexity. Staying on top of the disintermediating drivers will help ensure CRE executives are well-positioned to leverage the latest available technologies to their advantage.”

by Neil Sharma | 23 Jan 2019  | Canadianrealestatemagazine.ca

Future Broadway Corridor shopping hub comes into focus

Cambie at West Broadway eyed for long-term redevelopment plans

Retailers are looking at 2019 as a year when a strong B.C. economy will keep sales growth robust, even as e--commerce continues to chip away at bricks-and-mortar store sales.

The future of retail space in both traditional and emerging spaces near Vancouver transit stations will likely gain clarity, while established prime shopping strips in the city struggle to remain relevant.

And while some of those strips have endured plenty of empty storefronts, there will be a collection of new retailers staking territory and vying for success.

One emerging retail area in Vancouver that is likely to be a high-traffic hub in a decade is unlikely to be on many people’s radar in 2019, as its transformation is largely in a conceptual stage.

Work crews, however, are gutting longtime retail spaces on the northwest corner of West Broadway at Cambie Street, where a second-floor Original Joe’s restaurant has long had prominent signage.  A ground-floor Starbucks and a string of other businesses stretching west all vacated space months ago to make way for a mixed-use building that will have five storeys of office space above two storeys of retail.

Pacific Crown Management Co. Ltd. gained a development permit earlier this year for the Yorkson Investment Co. Ltd.-owned site at 510 West Broadway, which is across the street from the Broadway-City Hall Canada Line station.

The project is significant because it is the first of many projects that are in various stages of conception. Those projects are expected to transform the area into a hub because it will in future be home to the intersection of two transit lines. Work on the Millennium Line Broadway Extension is expected to start in 2020 and complete in 2025.

B.C.’s Ministry of Transportation told Business in Vancouver that work to determine exact station locations is underway, and the ministry is now initiating discussions with property owners.

Rumours have circulated in retail circles about the possibility of a shopping centre being built under city hall and its lawns, which are south of the Canada Line station. The City of Vancouver is allotting $2 million for “master planning for the city hall precinct” in its 2019 budget.

Other potential projects in the neighourhood could be on sites such as 310 West Broadway, about a block east, where there is now a No Frills grocery store, said Retail Insider Media owner Craig Patterson.

“It’s safe to say that there are multiple proposals for development based on the fact that transit is being expanded in that area,” Patterson said.

The city’s current shopping hub servicing two transit lines is at the corner of Granville and West Georgia streets, where the landmark Hudson’s Bay Co. (HBC) building has been subject to much speculation over its future.

HBC and joint venture partner RioCan REIT put the store’s real estate on the block in 2017 and were rumoured to have been close to a sale in 2018. That deal fell through, however, prompting a reassessment of the site’s future and possibly the severing of an agreement between HBC and workspace company WeWork.

WeWork had been slated to lease the top two floors so HBC could consolidate in the rest of the building.

“I don’t know what will happen with WeWork,” Patterson said. “That was to be the sublease agreement. They were supposed to come in. The Bay was going to move menswear into the basement. We’ll see if that happens.”

Retailers along longtime prime shopping streets such as Robson and Alberni, meanwhile, will have their work cut out for them in the new year.

Robson Street in 2018 suffered a lot of rotation and plenty of empty storefronts in prime blocks east of Bute Street.

 “I was told that some stores’ sales on Alberni Street, in the luxury area, are down,” Patterson said, adding that he has heard that the reason for the sales decline is a drop in traffic from Chinese tourists – and this was before Canada arrested high-profile Huawei CFO Meng Wanzhou.

Rumblings about boycotts of Canadian goods and anti-Canada sentiment in Chinese media may stem the flow of wealthy Chinese tourists to Vancouver in 2019, and that could hurt shopping strips such as Alberni Street, Patterson said.

Nonetheless, he expects new retailers such as Warby Parker, Vacheron Constantin, Montblanc and Cartier to open Vancouver stores and to do well.

Hermès’ future two-storey flagship store is under construction on the southwest corner of Burrard and West Georgia streets. Retail sales in B.C. in 2018 are expected to grow by less than 4 per cent, which would be less than half of the 9.6 per cent retail sales growth in the province in 2017 – the highest annual rate since 1994, and the largest increase among provinces.

B.C. has the lowest unemployment rate among provinces and the economy is strong, however, and those are positive indicators for retail sales growth in 2019.

Copyright © Western Investor  Glen Korstrom Business in Vancouver January 24, 2019
  

Tech Sector Drives Demand For Office Space In Toronto, Vancouver And Montreal

The office vacancy rate in downtown Toronto has hit a record-low amid strong demand for work space by the burgeoning tech sector, according to a report by CBRE Group.

The commercial real estate services and investment firm says the vacancy rate fell to 2.7 per cent in the fourth quarter of 2018 in Canada’s largest city due to a “chronic shortage” of office space.

In Toronto, commercial rental rates have surged to $35.37 per square feet in the same period, up $2.50 per square feet from the third quarter.

Comparatively, rental rates were $37.20 per square feet in Vancouver, where the vacancy rate is 3.8 per cent. In Montreal, rental rates were $22.76 per square feet and the vacancy rate was 9.4 per cent.

CBRE says demand has been outpacing supply across the country.

The national office vacancy rate tightened by 50 basis points quarter-over-quarter to 11.9 per cent over the period, helped by a growing suburban office market particularly in Calgary and Waterloo, Ont.

Total net absorption nationwide — the total amount of space that tenants moved into minus the total amount of space which tenants moved out of over the period — totalled 2.7 million square feet last quarter, which was more than double the amount of new space delivered across the country.

Positive net absorption was recorded in nine of the 10 Canadian office markets.

By the end of 2018, there was 14.2 million square feet of new commercial space being developed across the country, the highest level seen since the first quarter of 2016.

The majority of that new office space was concentrated in downtown Toronto, Vancouver and Montreal.

Toronto had 7.3 million square feet under construction in the fourth quarter of last year, up nearly 1.3 million square feet from the previous quarter; while Vancouver had 2.86 million square feet and Montreal had 954,510 square feet under construction.

CBRE says the technology sector is a major contributor to increased rates of leasing for downtown office space in Toronto, accounting for 20 per cent of pre-leased space out of the 9.1 million square feet in new planned development.

By Linda Nguyen, THE CANADIAN PRESS |  Jan 24, 2019 | Building.ca

Canada's commercial property market is set for another blockbuster year

'The next wave of investment is not a matter of if or when — it's just a matter of price'

Canada’s commercial-property boom is expected to stretch into this year, helped by a tight supply and the lowest unemployment rate in at least four decades, according to brokerage Avison Young Canada Inc.

“We continue to feel very positive about opportunities in the real estate environment for the year ahead,” Chief Executive Officer Mark Rose said in a report Tuesday. “More capital is available to move into real estate debt and equity than at any other time. The next wave of investment is not a matter of if or when — it’s just a matter of price.”

Final figures for 2018 are expected to show that commercial-property investment in the country reached a record, beating the previous high of $36 billion (US$27 billion) in the year before, according to the Toronto-based brokerage.

Offices

Vacancies declined in almost every market, lowering the Canadian average to 11 per cent at the end of last year. Office space under construction nearly doubled in 2018 to more than 22 million square feet (2 million square metres), mainly in Toronto and Vancouver. The new supply is expected to push up the vacancy rate to 11.3 per cent this year. Limited space and rising rents in downtown markets across the country could push tenants out to the suburbs.

Industrial

Vacancies nationwide fell to a record low of 2.9 per cent near the end of 2018 and are expected to drop further this year. Toronto and Vancouver had the lowest industrial vacancy rates in North America at 1.3 per cent and 1.5 per cent, respectively. The cities are projected to rank among the three tightest markets in the continent this year. Construction rose to more than 20 million square feet last year, up from about 14 million square feet in 2017.

Retail

Vacancies remain in flux due to closures of big chains and the rise of online shopping. Luxury and discount retailers are flourishing at the expense of the middle of the market. Growth in spending is slowing amid high consumer debt and rising interest rates. This year, landlords will direct investments to upgrading their assets. Properties with excess land may be redeveloped to add complementary mixed-use elements, such as housing and offices.

BLOOMBERG NEWS | Updated: January 15, 2019 | Vancouversun.com

New task force to target Metro Vancouver industrial crunch

A industrial lands strategy task force was appointed in December, setting the stage for members to begin work in earnest

Task force revamped

A new Metro Vancouver industrial lands strategy task force was appointed in December, setting the stage for members to begin work in earnest under chairman George Harvie of Delta this month.

Struck in spring 2018 by former Metro Vancouver chair Greg Moore, the task force’s voting members are representatives of the region’s municipal councils. Civic elections in October required its dissolution and reappointment with representatives from the new councils. The reconstituted task force has nine voting members, up from the former seven.

Harvie and vice-chairman Brad West of Port Coquitlam may be newcomers, alongside members Linda Buchanan and Jordan Back of North Vancouver city and district (respectively), Sarah Kirby-Yung of Vancouver and Brenda Locke of Surrey. Continuity comes from mayors Malcolm Brodie of Richmond and Richard Stewart of Coquitlam, as well as Bryce Williams of Tsawwassen First Nation.

Metro Vancouver director of regional planning Heather McNell said the committee aims to have an influence beyond the region’s municipalities.

“The regional industrial lands strategy really is seeking actions on the part of all stakeholders with an interest in industrial land in the region,” she said.

To this end, non-voting members include representatives from the Agricultural Land Commission (ALC) and B.C. Ministry of Jobs, Trade and Technology; the Port of Vancouver, TransLink, the BC Chamber of Commerce and Urban Development Institute; and industrial developers, including Value Property Group and Beedie Industrial. (Chosen at the chair’s discretion, non-voting members do not include commercial real estate association NAIOP, though NAIOP director Chris MacCauley has addressed the task force.)

With less than 1.7 per cent of the region’s industrial land vacant, the task force also hopes to draft recommendations that reflect the broader geographic implications for the land crunch.

“We’re looking at the relationship to other industrial lands outside of our region,” McNell said. “As the challenges of supply happen in our region, there’s a lot more pressure out in the Fraser Valley.”

The pressure is such that both Abbotsford and Chilliwack have expressed concern at the loss of suitably sized and located industrial parcels over the past two years.

Often, companies escaping high land costs closer to the core arrive in search of land that accommodates less intensive uses, leaving little for companies that can provide good-paying jobs. Alternatively, lighter industrial uses encroach on farmland, a concern of both Abbotsford Mayor Henry Braun and the ALC.

Metro Vancouver has completed three inventories of industrial land since 2005, with the latest survey in 2015 focused on actual land use. The current work will receive reports on the economic value of the region’s industrial sector as well as agri-industrial uses.

A draft strategy should be ready by June, with a final report presented in fall 2019.

New stock

Victoria office vacancy inched down in 2018, approaching 8 per cent in the second quarter due to what Colliers International described as “aggressive demand” from both public- and private-sector tenants. The addition of new space helped boost vacancies in top-tier space, and construction seems set to continue in 2019.

Projects that were completed last year include 1515 Douglas Street and 750 Pandora Avenue, a linked development by Jawl Properties Ltd.with a total of 300,500 square feet of space.

Jawl, in partnership with Concert Properties Ltd., also completed the first phase of the Capital Park redevelopment in the James Bay neighbourhood. The final half of 2018 saw completion of the first phase, a 127,000-square-foot office building leased to the province, which sold Concert the six-acre site in 2014. A second office property of 120,000 square feet will complete in fall 2019.

The project also includes a significant residential component. The first phase included 53 rental suites, while sales have started on 113 apartments and a handful of townhomes that will make up the third phase. The entire project is scheduled to complete in 2020. 


Copyright ©Western Investor

Peter Mitham Business in Vancouver | January 9, 2019 | westerninvestor.com