Canadian Real Estate Forum Magazine - Spring Issue 2013 by Real Estate Forums

SPRING 2013

THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

EDM ONTO Rock N Solid : Marke t

MON This M TREAL: Movin arket is g Forw ard

: R E V U a O C N VA lding on Bui w Value Ne

IT ALL LINES UP

North America, Office, Industrial, Retail, and Residential

Investment Management, Asset Management, Property Management, Ownership

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CANADA’S LEADING

THE REAL ESTATE FORUM TEAM: Nataliya Antonenko Roberta Brown Hailey Chan Dennis Chui Maria Encarnacion Erin Osborne Jessica Petrucci Jean Pickering Katherine Radziszewski Frank Scalisi Sarah Segal Shruti Suppiah Gillian Wright Informa Canada Inc. George Przybylowski Vice President Mark Stephenson Vice President

Real Estate Forum THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

12 30 44

MONTREAL

About Informa BRINGING KNOWLEDGE TO LIFE Businesses, professionals and academics worldwide turn to Informa for unparalleled knowledge, up-tothe minute information and highly specialist skills and services. Our ability to deliver high quality knowledge and services through multiple channels, in dynamic and rapidly changing environments, makes our offer unique and extremely valuable to individuals and organisations.

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www.informacanada.com REAL ESTATE FORUM MAGAZINE The magazine is published three times a year to coincide with the following conferences: SPRING Edmonton/Montreal/Vancouver FALL Calgary/Ottawa WINTER Toronto EDITOR Michel Rémy Michel Rémy is the editor of TheSquareFoot.ca, a commercial real estate publication that specializes in timely market information, news and networking. ASSOCIATE EDITOR Jean Pickering Informa Canada DESIGN gbc-design.com ©2013 Informa Canada Inc. Disclaimer: The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of Informa Canada.

EDMONTON 4 Ain’t no stopping us now, Canada’s on the move 6 THE ALTUS REPORT – Finding the Balance: New Supply, Obsolete Inventory and Growth in Demand 62 Progress charted in office efficiency

64 Towards a National Sustainable Development Strategy 65 REALpac study first to quantify the contribution of commercial real estate to the Canadian economy

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PA G E #

Aberdeen Asset Management Inc. 17 Appraisal Institute Canada 41 Arcturus Realty Corporation 43 ATB Corporate Financial 39 BDO Canada LLP 35 Bentall Kennedy 11 Blackwood Partners 9 Broccolini Construction Inc 21 Canadian Urban Limited 58, 68 (OBC)

A DV E RT I S E R

PA G E #

Canderel 23 Colliers International 49 Concert Properties 45 Cushman & Wakefield 25 DTZ, a UGL company 19 First National Financial LP 67 (IBC) Fonds immobilier de solidarite FTQ 13 GE Capital Real Estate 57 Informa Canada 59, 60, 61, 63

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PA G E #

Jones Lang LaSalle 7 KingSett Capital 37 Miller Thomson LLP 55 Morguard Investments Limited 2 (IFC) Romspen Investment Corporation 31 Standard Life 51 TREZ Capital 53 Yardi Systems Inc. 5

CANADA’S LEADING

Real Estate Forum THE GOLD STANDARD FOR REAL ESTATE INTELLIGENCE

Ain’t no stopping us now, Canada’s on the move Whilst our neighbours to the South and across the pond are attempting to gain momentum to lift themselves out of market ruts; in Canada, we are already witnessing growth and superb prospects for future endeavours.

uelling the country's commercial and residential developments begins at real estate forums such as these, where more than 1,000 speakers relay pertinent and timely information on their areas of expertise to the 10,000 some attendees who come in search of insider knowledge and venture avenues for the years to come. It is our great privilege to welcome participants to these gathering of minds, which not only draws attention to Canada's ever-increasing role in the real estate market, but opportunities that will be afforded in the future. And … Oh Canada! What a future this will be. Whether your eyes look to the East or the West, it isn’t difficult to find a real estate market that continues to make growth a Canadian mantra. As the sixth largest condo market in North America, Montreal’s strides have caught the attention of everyone in this sector, not only for its position in this piece of the real estate market, but for its developmental energy too. As the eighth largest market for crane usage in North America, Montreal’s vibrancy is evident by the continued development, redevelopment and revitalization of city’s communities. Likewise, this non-stagnant approach to growth has been Edmonton’s focus since it became the focal point of the

Canadian Real Estate Forum / SPRING 2013

oil and gas industry. Its strategic location ties its nearby resources to the world’s marketplace, making it a hot place to invest, to live and in which to do business. And while Vancouver’s real estate market probably plateaued this past year, it certainly didn’t peak. As the country’s coastal Shangri La, people continue to flock to this city to take advantage of the country’s most temperate climates. As a result, the city witnessed record-high apartment sale prices, increased office development and a continually strong retail market. Canada continues to be a country in which to live, work and play, and with evidence of a strong economic outlook, it is also a country in which to prosper. It’s no wonder that the real estate market is reaping the rewards of such activity, whether it be consumer or business focused. Despite its reputation as a cold climate; few would disagree that Canada is a hotbed of real estate activity.

George Przybylowski

Mark Stephenson

Vice President Informa Canada

George.Przybylowski@informacanada.com

Mark.Stephenson@informacanada.com

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THE ALTUS REPORT

Sandy McNair

FINDING THE BALANCE: New Supply, Obsolete Inventory and Growth in Demand

CANADAâ&#x20AC;&#x2122;S COMMERCIAL REAL ESTATE MARKETS INCLUDING VANCOUVER, EDMONTON AND MONTREAL By Sandy McNair Investing in Commercial Real Estate in Canada is in favour. Returns, both income and capital appreciation, have been excellent across most asset sub classes and most geographic markets, especially relative to the bond and stock markets. Are we at risk of the capital markets getting too far in front of the leasing markets that are fundamental to, and the ultimate foundation of, performance?

Canadian Real Estate Forum / SPRING 2013

Dawn Mandarino Manager Finance

Rahim Jaffer Analyst Research

Canada

Mississauga

David Lees Sales Associate Brokerage

Monica Schiabel Marketing Coordinator Agency Leasing

Calgary

Toronto Tooronto

Nina Savic Recruiter Human Resources

Scott MacDonald Associate Research

Canada

Vancouver V aancouver

-RKQ 7DQÀHOG -RKQ 7DQÀHOG Senior V Vice ice President Project & Development Services

Bernard Lawrence Vice V ice President Brokerage

Toronto Toronto o

Montreal

A commitment commitment to to C Canada anada Jones Lang LaSalle’s ongoing commitment to, and investment in Canada provides real value in a changing world. Forr more infor o mation, please contact: Brett Miller President, Jones Lang LaSalle Canada +1 416 304 6042 brett.miller@am.jll.com

w www.joneslanglasalle.ca ww.joneslanglasalle.ca

Since 2000 there has been a significant amount of new supply added to many, but not all markets. This new supply has been received very well by each of their markets resulting in, with very few exceptions, quick lease up at desirable rental rates. This combined with low interest rates and declining cap rates has resulted in excellent financial performance for most all investors in new office development since 2000. Sandy McNair, Altus InSite

his pattern of out-performing returns, or if you wish ‘confirmation of trend’, has been noticed by and has impacted the behaviour of pension funds and other institutional investors – they are increasing their allocation towards real estate, private capital and other real assets. Additionally, the established REITs have received virtually unlimited access to new equity and debt resulting in rapid growth in portfolio size. The capital markets are also supporting, if not inspiring mergers, acquisitions and initial public offerings. The pressure to place capital is intense. Values have climbed to new highs, with capitalization rates falling to new lows, especially for the most desired asset sub classes in the major markets. The depth and quality of bidders for existing assets of best and better quality / location is daunting for many participants. Development has become the preferred alternative method to place capital for a growing number of commercial real estate investors. Choices have included: development of new downtown and suburban office buildings; repositioning, expansion or redevelopment of retail properties; development of new single or multi-tenant distribution centres or industrial malls, and; surprisingly, development of new rental apartment buildings. Let’s take a look at some facts, starting with the office market. Since 2000 there has been a significant amount of new supply added to many, but not all markets. This new supply has been received very well by each of their markets resulting in, with very few exceptions, quick lease up at desirable rental rates. This combined with low interest rates and declining cap rates has resulted in excellent financial performance for most all investors in new office development since 2000. As the table below shows this is a significant amount of development / investment activity.

New Supply of Office Space Since 2000 Vancouver Edmonton Total New Supply Since 2000 (sq. ft.) % of Existing Inventory

Calgary

Toronto

Montreal

10,772,415

2,591,830

19,249,789

26,116,516

9,047,824

21.0%

11.3%

30.6%

15.4%

10.3%

Canadian Real Estate Forum / SPRING 2013

The new supply has leased up most often at the expense of the existing inventory. While some tenants moving into new buildings take incremental space, more often they consolidate multiple locations and / or increase their density to fit more into the same space or fit the same into less space. But generalizations are truly dangerous. As always the specifics of each tenant, each building, each sub-market and market matter and vary widely. A detailed understanding of changes in occupied area is essential. At one end of scale would be Calgary with significant growth in demand, followed by Toronto. At the other end of scale would be Edmonton, Vancouver and Montreal where trading places is an equally dangerous but more appropriate generalization. In each of these markets more office buildings are under construction with varying amounts of pre-leasing in place. As the table below indicates the existing inventory in Vancouver and Edmonton is most (6.9%) and least (0.8%) exposed to increasing vacancy and declining rents driven by backfill pressure as the new buildings are filled with tenants moving from the existing inventory.

Office Space Currently Under Construction Vancouver Edmonton Calgary Total Currently Under Construction (sq. ft.) 3,567,380 175,136 3,358,857 % of Existing Inventory 6.9% 0.8% 5.3%

Toronto

Montreal

6,248,830

2,631,193

3.7%

3.0%

Opinions vary widely among the most active and informed participants as to whether each office market and sub market is under, appropriately or excessively supplied. One view is that as sub markets become too tight, like downtown Vancouver, they can accommodate significant new supply without incremental demand which simply moves the market from too tight (say 3%) to balanced (say 9%). Office leasing markets, like all markets, have tipping points, where balance is lost. Balance can be lost in office leasing markets for multiple reasons, but is most often anchored in business and consumer confidence in stability and growth in the wider economy. But unlike hotels with daily ‘leases’, office leases are long term, occupancy costs are

typically 1/8 to 1/10 of the people costs and moving is a huge commitment of time, energy and capital. It is rare and unlikely that during a downturn a large user will restack 5, 10 or 20 floors of office space to then be able to place 5% or 10% of their space on the sublet market. History teaches us that declining demand for office space and even declining leasing velocity matter. However, the most painful tipping points in the office markets have been due to excess supply, not rapid declines in demand. Assuming or hoping that demand is stable or perpetual is equally flawed. All of Canada’s major markets have significant capacity to develop even more office buildings, both downtown and in suburban locations. Rates and dates are being quoted; tenants are being recruited; investors are keen to place capital. Announcements of more new starts in Toronto and elsewhere are imminent. Will the City of Edmonton look at existing office buildings and learn from the lessons of Canada Place and Commerce Place when the Federal and Provincial Government triggered new office buildings that damaged the market for 20 years? The question of excessive or appropriate will not be easily answered – in part, because the answer will not fully reveal itself for perhaps 2 to 4 years. It is possible that new supply is responding to something more fundamental. Is the new supply sufficiently distinctive and desirable to replace existing inventory now viewed by a meaningful segment of the market as obsolete? Is the design, technology, personal control, image, efficiency, effectiveness and economics of the new supply sufficiently different and compelling to trigger a move for a meaningful segment of the market? Once again, let’s look at some facts. Clearly age is only one indicator and it fails to capture the design differences, the operational disciplines and strategies, the investments in upgrades and retrofits and transit and other improvements and attributes. But given that air conditioning technology stabilized in 1962, we have isolated the buildings built prior to 1960 as a group, retrofits notwithstanding. Once again, the specifics matter and will vary widely, but we have identified a second group – office buildings built in the 1960’s, 70’s and 80’s as being worthy of more detailed evaluation by owners, managers and competitors. One additional detail, the table below excludes government owned and occupied office buildings.

Existing Office Inventory by Year Built Vancouver Edmonton Pre 1960 % of Total Inventory 1960 – 1989 % of Total Inventory

Calgary

Toronto

Montreal

10.7%

5.1%

3.1%

13.1%

19.4%

49.2%

79.4%

62.3%

55.2%

58.6%

As perhaps a leading indicator, Canada’s largest industrial market, Toronto, currently has 4.5 million square feet under construction with only 14.5% of that space currently preleased. This indicates a level of confidence not seen since

Canadian Real Estate Forum / SPRING 2013

2008. Vancouver, Calgary and Edmonton also have industrial under construction, however only Calgary has a significant portion on spec. The proportion of the total inventory held by owner/occupants has been increasing. Rents have been constrained by declines in manufacturing and exits by US-based distributors and manufacturers. However, there are notable build-to-suit projects underway across the country and innovative development and redevelopment opportunities are receiving attention.

Canada’s retail landscape is changing quickly with multiple new-to-Canada retailers arriving or kicking the tires. While some US retailers (Costco, The Gap, Staples, Home Depot, Wal-Mart) have operated in Canada for 20 years, the pace of arrivals appears to be more than what is required to replace weakened incumbents. Incremental new retail supply and shifts in retail format will result in big winners and big losers at the same time, in the same market and often at the same locations. Retail has always had a rapid rate of re-invention, but we are in a unique phase with the pace, risks and opportunities all at accelerated levels. We are pleased to have shared this overview with you. If you wish, we’d welcome the opportunity to get into the details with you and how they might impact your firm’s strategy. ■ Sandy McNair is the President of Altus InSite. The Altus InSite team leverage extensive team-wide experience and market information to provide perspective to clients in Canada’s Commercial Real Estate Investment, Development, Lending and Leasing communities. www.altusinsite.com

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Montreal Real Estate Forum T H A N K YO U TO O U R S P O N S O R S

NATIONAL GREEN

MEDIA

PLATINUM

NATIONAL

GOLD

PRINCIPAL AND CHARGING STATION

LANYARDS

PENS

PLENARY SESSIONS

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DEPUIS E S T.

BREAKFAST

MINTS

SPEAKER BIOGRAPHIES

1823

JOURNAL

SIMULTANEOUS INTERPRETATION

POST NOTES

BRONZE

GENERAL SESSIONS

CLOSING NETWORKING RECEPTION

CORPORATE

AltusGroup 12

Canadian Real Estate Forum / SPRING 2013

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Le Fonds immobilier de solidarité FTQ, en partenariat avec des leaders du secteur, réalise des projets immobiliers rentables, créateurs d’emplois et socialement responsables depuis plus de 20 ans. C’est en participant ﬁnancièrement et stratégiquement à leur succès que le Fonds immobilier contribue à l’émergence d’une vision moderne du développement urbain qui sait FAIRE TOURNER L’ÉCONOMIE D’ICI. PROJET : TOUR QUARTIER DES SPECTACLES DE MONTRÉAL

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VINCENT CHIARA

Low cap and rental rates: Montrealâ&#x20AC;&#x2122;s unique edge

Canadian Real Estate Forum / SPRING 2013

With a new generation of office tenants on the market, Montreal real estate owners are looking toward repositioning their existing properties to accommodate their needs. Their belief is that progressive HR-focused tenants won’t mind paying extra rent for quality space with the promise of efficiency, sustainability and employee satisfaction.

iven that retaining tenants for the long term is one of the tougher aspects of the office market, Groupe Mach Inc. tends to focus on adding value to a property whether they are buying a mature asset or developing a new one. “I think it’s by responding to the needs of the tenants that you get the best growth and value in your property,” says Vincent Chiara, the company’s president. Fortunately, he says, with Montreal’s low rental rates there is plenty of room for creating value. He gives the example of a tower that recently sold for 5.8% cap, yet on a square foot basis the price was $300 a foot. “Today you could replace that for $450,” he says. “So because our rental rates are so low, even with cap rates at historical lows, our properties are still trading for substantially cheaper than their replacement value.” This unique situation, Chiara says, gives the Montreal market a significant edge over the other large markets in North America, “I’m very comfortable buying a property at a fraction of its replacement value because my competitor on a new building can’t compete with me at those rates.” Michelle Morra-Carlisle Canadian Real Estate Forum / SPRING 2013

MICHEL LEBLANC

Montreal finds recipe for economic rebound Harness Montreal’s abundant creative talent, add large dollops of natural resource services, fold in world-class research universities, stir in lots of fun et voilà – Montreal’s economic mojo is back, according to Michel Leblanc.

“W

e’re more optimistic than we’ve been in 20 years,” enthused the Metropolitan Montreal Board of Trade chief operating officer. “Right now the rush is on to be the first to announce, start and deliver commercial tower and mixed real estate projects.” “Very high value-added industries have replaced rust-out in Montreal’s legacy manufacturing sector,” the economist and expert policy analyst explained. “The aerospace industry here is very

NORMAND BÉLANGER

Condo picture stable until at least 2015 According to Normand Bélanger, the next 18 months look solid for the Montreal condominium market. From 2015 onward, though, there is no clear indication how condo sales will fare. 16

Canadian Real Estate Forum / SPRING 2013

“T

strong, and we’re reaping from investment in labs and university research, as the biopharmaceutical industry restructures and outsources the development of new molecules.” “Besides the Cirque du soleil, during the past decade we’ve developed a movie production industry that’s the envy of the country.” “Fashion design, new materials and textile logistics have supplanted Montreal’s venerable garment industry, plus Quebec is about to open its mineral “Very high valuetreasure trove in the Far North,” Leblanc added. “That added industries will spur demand for engihave replaced neering, legal and financial services here in Montreal, just rust-out in as it did in Australia.” “We’re investing billions in Montreal’s legacy infrastructure – such as roads, manufacturing transit and hospitals – and sector.” expect to play an increasingly important role as a North Michel Leblanc, American powerhouse,” he Metropolitan Montreal concluded. “You can feel the Board of Trade confidence out there.” Robert Frank

rue, there’s a bit of a slowdown right now, but only with respect to future projects,” explained the Fonds immobilier de solidarité FTQ president & chief executive officer. “Projects planned for delivery in 2013-2014 are well-positioned. For 20152016 onward, though, we’ll be watching very closely which way sales will go during the next few months.” “Political risk has had some degree of impact,” Bélanger acknowledged. “Everything that has transpired during the past year has certainly brought hitherto low-profile issues to the fore.” He nonetheless sees ample opportunity in Montreal for investment in large projects of 1,000 units or more.

“We’re looking at valuations that have some very interesting capitalization rates,” he calculated. “Right now there are office tower projects yet to be developed that could prove quite interesting, to the extent that they are well-structured.” Bélanger anticipated that the market will increasingly demand LEED and BOMA BESt certified facilities. “With markets awash in capital, it’s much harder for a company to attract manpower than finance,” he observed. “Congenial, comfortable and pleasant environments make it easier to recruit staff. These standards hold promoters, developers and managers to a specific baseline for interior quality.” Robert Frank

Investing in global real estate markets requires first-hand knowledge. That’s why we like to keep our feet on the ground.

Global real estate markets present Canadian investors with new opportunities to diversify their domestic property portfolio. But gaining access to some markets and identifying the future long-term champions can be challenging. At Aberdeen, we believe active real estate investing requires a strong local presence to truly understand the conditions on the ground. We don’t rely on others for our research. We do the job ourselves: thoroughly, professionally and on location. With some $30 billion1 invested in direct and multi-manager strategies, Aberdeen is among the world’s largest investors in global real estate markets2. We’re also part of an independent asset management group, meaning our clients’ interests and our own remain aligned.

For guidance to the potential opportunities within international real estate markets and more information on Aberdeen’s global property expertise, please contact: Jonathan Matson Senior Business Development Manager – Real Estate Americas 212-776-1175 jonathan.matson@aberdeen-asset.com Renee Arnold Head of Business Development – Canada 416-777-5570 renee.arnold@aberdeen-asset.com

www.aberdeen-asset.ca 1

December 31, 2012. 2 The Institutional Real Estate Letter-North America, October 2012. This information is not intended as an offer, recommendation or advice with respect to the purchase or sale of any security, and is for informational purposes only. Investments in property segregated mandates and property pooled funds may carry additional risk of loss due to the nature and volatility of the underlying investments. Property segregated mandates and property pooled funds may not be available for investment by Canadian investors unless the investor meets certain regulatory requirements. There is no recognized market for property and there can be delays in realising the value of property assets.

MATHIEU COLLETTE

Downtown condo sales riding popularity spike Can the Montreal condo market sustain its frenetic growth rate? According to Mathieu Collette, the numbers prove the city’s residential developers prescient. Montreal Condo Sales GROWTH PER QUARTER Units Sold ■ Old Montreal ■ Downtown East & West ■ Griffintown

1,155

800 700

STEVEN MARINO

600 500

697

400 300 200 100 0

297 205

496 243

447

385

Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012

uring the past decade, Altus Group’s top condo researcher has witnessed a dramatic shift in Montrealers’ housing preferences that has offset the ongoing spike in condo development. The flood of new downtown living space during the past three years has been handily absorbed by a correspondingly massive uptick in purchases. “Montreal is ten years behind Toronto and Vancouver,” Collette observed. “In 2002, 28 per cent of all construction was condos,” he recalled. “For 2012, that figure was 58 per cent.” “During the last quarter of 2011, 26 projects were on the market, with 241 sales over the entire year,” he continued. “The fourth quarter figure last year was 48 projects, but that was in response to significant demand, because sales soared to 2,648 in 2012. Some 83 per cent of 2016 deliverables are already sold.” Collette attributes the sea change to demographics, with the peak of the baby boomlet turning 21 this year seeking affordable digs downtown, and many of their parents returning to the urban core to be close to work and services. He foresees retail businesses piggybacking on the downtown densification surge. “Right now there’s no grocery service downtown,” he noted. “We might see supermarkets inhabiting office towers, or perhaps an entirely new type of grocer will evolve that specializes in small-volume, high value-added products that people can carry away in a bag.” Robert Frank

Canadian Real Estate Forum / SPRING 2013

Torrent of capital chasing trickle of quality assets Montreal’s retail real estate offers plenty of opportunity to earn sound, stable returns – if you can find some to invest in, that is.

“M

any new, dynamic retailers are entering the Montreal marketplace,” observed Steven Marino. “New entrants, including Target and others, are looking for key locations to continue to drive their businesses.” “Montreal offers our clients the opportunity to invest with geographic and economic exposure and diversification, across a variety of asset classes that meet our clients’ investment objectives,” underscored GWL Realty Advisors’ vice-president, investments. “The biggest challenge to investing in the Montreal market is getting access to good quality product,” he lamented. “Not enough vendors are putting quality, income producing real estate assets on the block.” “Right now, it’s difficult for vendors to get a satisfactory return on the capital they would generate in selling assets, so many groups are preferring to hold on to their assets,” Marino acknowledged. “Likewise, many groups are vertically integrated, building for their own account, then electing to hold the asset and enjoying the cash flow generated.” Marino sees the need to densify central business district retail real estate throughout Canada, including Montreal. “With fewer good land parcels remaining, tenants and owners will need continue to work together to form creative solutions to get consumers to shop on the second floor,” he predicted. “Sainte-Catherine street will continue to strengthen and we’ll see more densification of condominium and podium-type retail development – where retail caters to specific market niches.” Robert Frank

ROBERT KUMER

Why go it alone? Your best real estate asset is the team around you

major Canadian real estate market, Montreal has some interesting operating nuances. Operators and investors from outside the province of Quebec must be sensitive, for instance, to cultural and language differences. Robert Kumer, a partner with KingSett Capital, largely attributes the company’s success in Montreal to enlisting help from local operating part-

ners, particular in the industrial market. “If you’re not there on the streets talking to brokers and tenants, it helps to have local guys help with your business plan,” he says. “We’ve tried to do a few thing on our own in Montreal which, in hindsight, probably wasn’t the right thing to do.” He says the challenge of real estate today, not only in Montreal but across Canada, is finding ways to create value

that other investors might not have thought of. Pricing is thin and money is plentiful, so access to capital isn’t necessarily a competitive advantage. Nor is access to debt, and nor is access to opportunities, since no vendor today wants to sell an asset unless it’s fully marketed. How can investors compete? “The key is to take a different spin on an idea and to execute the business plan,” Kumer says. “For that you need a good team, people on the operating side that are creative and focused and have the relationships to get the deal done.” Michelle Moora-Carlisle

NANCY SHOIRY

City, private sector forge win-win strategy By early 2014, Montreal will embark on an unprecedented development plan that aligns its strategy with commercial stakeholders, said city development director, Nancy Shoiry.

“I

t’s a historic opportunity,” enthused the architect and urban international districts.” planning expert, who studied in Montreal, London and Boston. “Top priorities include districts surrounding two new mega-hospitals, “This is the first time in the 25 years Griffintown, University of Montreal, the “Everything is linked. Major that I have worked in this field that I have seen harbourfront, Champlain Bridge, de the private sector say we can work together to investment is about to reshape l’Assomption boulevard, and the Hippodrome— develop a common vision—one which serves where there’s scope to build 5,000 residences not just the underground city during the next 20 years.” everyone’s interest.” The Demain à Montréal development plan “We intend to develop quality residential but public spaces like the show involves recognizing the importance of a thriving neighbourhoods where people can live, work, and international districts.” economy to the overall life of the city, “not only play—and spend—in the local microeconomy.” to attract investment, but also to attract busiShoiry also underscored the importance of Nancy Shoiry, City of Montreal nesses to set up here.” Quality of life, public projects beyond the downtown core like Anjou, transit and infrastructure development are the other three objectives. in the east, and Pierrefonds, in the west, where 6,000 new residences are “Everything is linked,” she explained. “Major investment is about to being developed. reshape not just the underground city but public spaces like the show and Robert Frank

Canadian Real Estate Forum / SPRING 2013

JEAN-MARC DUBÉ

Record setting industrial market leaves some puzzled Target’s decision to build a 1.3 million square foot distribution site close to Highway 401 in Cornwall follows similar decisions by Walmart and Shoppers Drug Mart to build on 1.5 million square foot and 600,000 square foot properties respectively.

JULIE MARTINEAU

Retailers see Benefit in the Montreal Market 22

Canadian Real Estate Forum / SPRING 2013

eanwhile, large industrial parks around Montreal have lots of availability. “We’re losing companies from Quebec,” says Jean-Marc Dubé, vice president of Colliers International and a chartered real estate broker in Montreal. “You have towns just outside of Quebec in Ontario seeing booms. Cornwall is seeing an industrial development boom by companies that could have located in Quebec.” Despite his worries about Montreal’s industrial market, Dubé says this year was the best he’s seen in two decades. Strong capital markets and few development projects kept lease “This year was the prices in older industrial parks high. best he’s seen in Still, he expects business to two decades. flatten out in the next quarter, primarily because the user market Strong capital has been dropping since late 2012. markets and few Pension fund managers are telling him they’re pulling out and tradi- development tional buyers now favour commerprojects kept lease cial, residential and retail investment. prices in older In such circumstances, industrial parks Montreal’s many old industrial buildings could pose a problem. high.” “It’s extremely expensive to Jean-Marc Dubé, redevelop these buildings or even Colliers International raise the roofs,” says Dubé. “It doesn’t make any sense to add to them. We’re seeing a lot of low ceiling old manufacturing spaces being redeveloped downtown, primarily into condos. Where that’s not going to happen, they’re offering lower rents. Rents on these are going to get lower and lower.” Tracey Arial

In 2012, we saw several tenants go into bankruptcy protection. Some retailers closed their least-performing stores and proceeded to structure their business in order to be more competitive. In Quebec, the smaller markets have been most affected by these closures. Owners of shopping centres in these markets must now attract new retailers into their malls which is no small feat. I believe 2013 will also have its share of tenants going into bankruptcy protection which will affect the retail landscape of the province of Quebec, says Julie Martineau, vice president Leasing, Eastern Region at Ivanhoé Cambridge. With the imminent opening of the Target stores, some owners are looking forward to an

increase in traffic into their malls. In 2012, the GMA (Greater Montreal Area) has seen the arrival of much anticipated retailers such as True Religion, Victoria Secret, Crate and Barrel and William Sonoma. Over the course of 2013 and beyond, more retailers and restaurants will arrive in the market. The Quebec market still has room to grow as far as offering is concerned. Several retailers who are not in our market presently see potential in the Quebec market but they want to make sure they understand the consumer and approach this market with care, as they should. Just like the retailers, landlords should be very careful not to over supply the market.

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n Montreal, that decision will unite the city’s largest financial services team in one space in about three years. “We really want to embrace some of the best practices in workplace environments,” says Sheila Botting, Deloitte partner & national leader of real estate and financial advisory who is in charge of renewing about a million square feet of space across the country for the firm. “Every time there’s a lease expiry, you have to make a decision to stay where you are, upgrade or move. In Montreal we did about 30 different scenarios, but now that we’re embarking upon a workplace transformation, it’s very difficult to do that in our existing space. It’s much easier to move to a brand new space or a new building to do that. We’ll

“We really want to embrace some of the best practices in workplace environments.” Sheila Botting, Deloitte

SHEILA BOTTING

Deloitte’s Unequalled Approach Deloitte recently decided to undergo a major real estate transformation to provide a more innovative environment for 9,400 employees across Canada.

SAL IACONO

Modest Montreal growth rates no impediment to real estate opportunities

Canadian Real Estate Forum / SPRING 2013

transition from a traditional office space environment to a downtown campus.” The downtown campus will consist of 160,000 square feet in Cadillac Fairview’s planned 32-floor skyscraper to be named the Deloitte Tower. Botting likes that construction will meet LEED platinum standards, with upgraded h-vac systems, extensive column-free space and other resource economies. The interior design for the space is still underway, but priorities include open spaces for collaboration, the use of high technology everywhere and physical amenities that appeal to employees, such as a ground floor café and lots of light. Tracey Arial

espite modest growth rates in Montreal’s office occupancy market, the demand to fill the 26 floors of its newest downtown office tower will be anything but. The new Deloitte Tower being built by The Cadillac Fairview Corporation Limited is a 514,000 square foot project, of which Deloitte will be an anchor tenant. It’s the first stage of a multi-year redevelopment of land surrounding the Bell Centre. Sal Iacono, senior vice president, Development and Portfolio Management, Eastern Canada Portfolio, explains the rationale for such an investment in a market where occupancy and rental rates remain stable. “There are several important requirements for tenants in downtown Montreal that are currently not being met,” he says. One is to achieve room for growth in their current premises. “There are plenty of tenants that

occupy space in existing buildings for 15 or 20 years where there’s just not enough room left over for them to grow on a contiguous basis,” explains Iacono, who is confident that the majority of their floors will be filled with tenants who will occupy one, two, or three floors in a contiguous fashion. The second requirement is for space built to today’s standards with LEED® Platinum certification that 20- to 50-year-old buildings cannot offer. Features include efficient floor plans which translate into lower occupancy costs for tenants; bicycle storage rooms and shower facilities; and top architectural design expertise. Deloitte Tower will be launched in 2015, part of a mixed-use project that will feature access to office space, transportation, entertainment, retail, and a 556-unit condominium development, all on the same block. Barbara Balfour

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CLAUDE MARCOTTE

Diversified development draws droves downtown Build mixed-use in Montreal and they will buy, is the watchword.

“M

ontreal is a mixed-use city,” The diverse design had to satisfy competing asserted Claude Marcotte, interests, though, which ratcheted up the “with a different lifestyle and complexity of the design and structure of the a different economy.” development. “Urban streets typically feature ground level “Food stores generate lots of deliveries and retail, with housing in back or above, so new residents want dedicated parking,” Marcotte developments like Griffintown exemplify explained, “but you have to allocate access to Montreal,” said the IBI retail customers as well, Group executive. “Leasing the first floor at a because that's how “The land is quite retailers earn their higher rent and the second a living.” expensive, but Montrealers have little He also lauded the little less, reduces residents’ elasticity in terms of how Tour des canadiens much they can afford for land cost burden and they’re which, he said, sold 500 housing,” Marcotte attracted by the convenience units within a few weeks. continued. “Leasing the “With a subway first floor at a higher rent of living just above the shops running below, we’re and the second a little putting retail underthat serve them.” less, reduces residents’ ground and 8-9 floors of Claude Marcotte, IBI Group land cost burden and parking above, dressed they’re attracted by the up like the residential convenience of living just above the shops that component,” Marcotte said. “It’s probably one of serve them.” the best achievements integrating a residential “The first phase,” he added, “will feature a tower in a very intense institutional and entertainpharmacy, grocery and a restaurant on the second ment zone.” floor. We even have 75,000 square feet of office “That’s what Montrealers are buying today,” he space, with a hotel sitting on top of it, with 200 concluded. condos—all in the same phase of development.” Robert Frank

Canadian Real Estate Forum / SPRING 2013

ARMAND DES ROSIERS

Poised to Purchase Hot prospects in Montreal’s tight office real estate market

he recent announcement of new office towers was music to investors’ ears in Montreal, where the real estate sector hasn’t seen much supply lately. Will 2013 bring more such projects? “The vacancy rate is low and rental rates are firming up, which is positive,” says Armand Des Rosiers, managing director, RBC Capital Markets Real Estate Group. He expects strong investment levels in 2013 thanks to historically low interest rates, high prices and low cap rates. Supply is sparse,

but it’s out there. “Granted, there is an imbalance between demand and supply. In today’s market there is probably five times more money looking for real estate than there is actual supply,” Des Rosiers says. “However, we have good yield flow, and quality real estate is trading at a premium.” He adds that investors remain cautious. They have stringent underwriting criteria, with a critical eye on the quality of available real estate, tenants' credit, lease terms, and how they will be able to finance the acquisition. Nonetheless, conditions are ripe for promising transactions. “All of the investors now are getting increased allocation for real estate for 2013,” Des Rosiers says. “Pension fund allocation is going up, REITs have access to capital markets, and private investors have access to the mortgage debt financing market. It all makes for a very strong market.” Michelle Morra-Carlisle

MICHEL BOUCHARD

Development, redevelopment offer best returns in stagnant market

“I

n this environment of low inflation and low growth, real estate investors have to be very careful,” counseled Michel Bouchard. “The current dearth of investment opportunities coupled with readily available capital inflates values.” Redbourne Group’s co-COO does not expect capitalization rates to budge much this year. “At the end of 2013, we expect returns on investment to be quite similar to late 2012,. Real estate premiums overlong-term bond, are probably at their highest level in several years. The market does expect a small increase in interest rates, probably due to brighter U.S. prospects, but we do not foresee significant changes in capitalization or discount rates before the year ends.” Bouchard cautioned investors to “determine values very carefully in the current market environment.”

“We are living in an era of very low inflation,” he observed. “Real estate likes inflation, but it is a two-edged sword: We need some of it to create value but, in turn, we have to be prudent when we assess properties.” “So how do we create value in a prospective property purchase?” he asked rhetorically. “Not from compression of capitalization rates. It has to come from rental value increases, vacancy reduction, repositioning assets and timing the fund’s maturity to position it at the top of the cycle.” “In today’s environment, development and redevelopment produces the highest rate of return,” he concluded. “Montreal’s vectors can be a little different from other markets, but the trend is similar to other large Canadian centres.” Robert Frank Canadian Real Estate Forum / SPRING 2013

MICHAL KUZMICKI

Downtown Montreal retail property “is gold” “Montreal’s current fundamentals make it a very attractive market to invest in,” surmised Michal Kuzmicki.

“S

ainte-Catherine street is more dynamic right now than at any time in the past 30 years,” stated Brookfield Financial Real Estate Group’s managing partner. “Quebec has less retail area per capita than any other province and retail sales have been higher in Quebec than in Ontario for years.”

“Montreal has about 10.5 square feet of shopping mall space per capita,” he explained. “In Ottawa, that’s about 11.1 square feet. In Toronto, about 18 square feet. We’re certainly not over retailed and our sales remain strong.” Kuzmicki anticipates more neighbourhood-style retail development, as droves of Montrealers continue migrating downtown. “People will increasingly live closer to work and want better service from upgraded grocery stores as well as personal – and perhaps medical – services in their neighbourhood.” “Owners know what they have is gold and are very reticent to sell their

G NATHALIE VOLAND

Doing Well by Doing Good With a bit of vision, real estate can be profitable for the entire community.

Canadian Real Estate Forum / SPRING 2013

iving back is key to Nathalie Voland’s success. For 20 years the president of Gestion immobilière Quo Vadis has offered real estate investors a “triple bottom line”— profit, as well as investment in community and the environment. “When people of higher net worth see that we support that cause,” Voland says, “they want to do business with us because of our different value system.” In an underdeveloped area of Montreal, for example, Quo Vadis attracted higher quality tenants by creating a community within a building, including a daycare, gym, restaurant and more. “What happens is that people shop in the area, drop off their kids to do activities in the area, and want to live there,” Voland says. She sees real estate as a tool of economic development rather than an end in itself. Besides developing properties, the company also manages them for others. When the owner of a Toronto

property,” he observed, predicting few top quality offerings during the coming year. “Most of the product that we will be seeing will be of secondary quality or in secondary locations,” he said. Kuzmicki lauded Cadillac-Fairview’s plan to transform the downtown landscape. “It’s the largest private initiative in Montreal history,” he noted, “and will bring a long-forgotten, virtually abandoned district back into the downtown mainstream.” “That will keep people here and bring more people here – and that’s all good!” Robert Frank

building wasn’t sure how to retrofit it, Quo Vadis created a Communoloft—a turnkey, high-design executive space ideal for start-ups. The company tends to focus on small-tomedium sized, innovative businesses. “The idea is not to make money on them when they’re small,” Voland says, “but to sustain their loyalty as they grow.” More than 40% of clients in Voland’s portfolio have expanded. Today, with successful projects behind her, the company’s track record is well known. Quo Vadis was recently invited by Montreal’s “Cartier de l’innovation” to help rebrand and redevelop the up-and-coming area of Griffintown. It helps that Voland sees beyond what’s in front of her. “An asset that is revenue generating now might bring other opportunities in the coming years,” she says. “It’s interesting to look at today, tomorrow and the day after.” Michelle Morra-Carlisle

ALAIN DUBUC

Dual cultures, creativity, drive rebound – after four dark decades Alain Dubuc doesn’t mince words about Montreal’s stagnation.

“M

ontreal was Canada’s largest city,” the economist and La Presse columnist reminded, soon after Toronto eclipsed Chicago as North America’s third-largest city last month. “Montreal lost its leadership, became impoverished, saw its citizens flee and its economy shrink to become the poorest North American metropolis.”

“On paper, we have all the ingredients of a successful metropolis, but there remains a problem turning that potential into as much wealth-creation as it ought to, leaving Montreal well behind its potential, with higher unemployment than the rest of Quebec.” Alain Dubuc, La Presse

“There’s a tension with the rest of Quebec,” Dubuc explained. Despite generating 42 per cent of the Quebec’s tax revenue, Montreal doesn’t get the support that other provinces and states afford their wealthspinning megacities, he said. “On paper, we have all the ingredients of a successful metropolis, but there remains a problem turning that potential into as much wealth-creation as it ought to, leaving Montreal well behind its potential, with higher unemployment than the rest of Quebec.” Ironically, he said, the city’s setbacks have paved the way for its current rebound. “Oddly, our poverty is an advantage, attracting artists just like Soho in

New York City. That creativity primes the pump.” “An even more definitive success factor is that Montreal is bilingual at heart,” he emphasized. “All great cities are multicultural, but Montreal is made up of two big communities that get along rather well. The two bodies of thought – North American and European – creates a tension that gives Montreal its dynamism. We’ve reached the point at which that dualism is more of a plus than a minus.” “Ontario now faces the restructuring shock Montreal lived through thirty years ago,” Dubuc adroitly observed. “Whatever our problems, we can’t be worse than Ontario is right now.” Robert Frank

JOEL OSPOVAT

Currency risk plus interest rate change = proceed with caution With one eye on the currency risk and another on possible changes in interest rates, Sandalwood Management president Joel Ospovat is treading cautiously in the real estate markets.

“W

e’re concerned about the currency risk, because the US dollar has appreciated significantly against first world countries,” says Ospovat, who adds that the growth in leasing and rental markets is not what they’ve seen in the past. “I think most of the cash that’s on the sidelines is looking for yield with growth, so it’s my gut that resale will be a little better than offer. “If mortgage rates move, even by one and a half basis points, the whole real estate space will be a very different place.” Despite market risks, Sandalwood is continuing to achieve growth in different asset classes, currently managing five shopping centres for an emerging REIT.

“If mortgage rates move, even by one and a half basis points, the whole real estate space will be a very different place.” Joel Ospovat, Sandalwood Management

“Luckily in our business, we’re able to redeploy capital. I think we’re in a very lucky position where we’re able to be patient and if we grow, it’s great and if we don’t grow, it’s great. “We’re not in a position like some of the retail guys where we have to pay out our earnings.” In the next 12 to 18 months, Ospovat believes the negatives will be outdone by the positives in the Montreal markets, “I think there is so much money sitting on the sidelines wanting a place in real estate, that it’s likely going to be a good 12 to 18 months. “But I worry massively about what will happen when interest rates change.” Barbara Balfour Canadian Real Estate Forum / SPRING 2013

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Steady as she 32

Canadian Real Estate Forum / SPRING 2013

Stable markets, continued low interest rates and strong capital markets will offset possible slow-downs in residential construction and jobs in the coming year for a cautiously optimistic overlook overall.

“T goes

here’s going to be a steady real estate market for all of Canada, especially for the major markets of Vancouver, Calgary and Toronto,” said Mark Renzoni, chief operating officer of CBRE Limited. “The market is steady, but it’s not as strong as it was in 2011-2012.” British Columbia faces a political election later this spring, but Renzoni says it shouldn’t have an impact on real estate since the industry supports both parties getting most of the attention. Job growth is shaky, but strong capital markets and low interest rates through 2013 and possibly for six months after that should help protect sales. Condominium development, especially in Vancouver, has been slowing too, but Renzoni says the spring market is likely to pick up. “There will be pockets of strength in residential and condominium development but overall there will be a soft landing.” Industrial construction, some on a spec basis, is occurring again, so that’s a positive sign. The outlook for office and mixed use in Vancouver is very positive and well-timed. “The first buildings come onstream late in 2014 and throughout 2015. Nordstrom’s new location in the old Sears with Cadillac Fairview is gaining momentum for the local retail market. That’s a very good for the economic outlook of downtown Vancouver.” Tracey Arial Canadian Real Estate Forum / SPRING 2013

SHENOOR JADAVJI

How to succeed in a low-yield market

n the low-yield market of Vancouver, the only way for Lotus Pacific Investments Inc. to make money is through its developments. Unlike several cities out west that still have good deals, Vancouver is not a return-driven market, says chief operating officer Shenoor Jadavji.

“Vancouver is very difficult for us to play in because five and sub-six caps just won’t work for our return structures,” says Jadvaji. “Last time we played in Vancouver was in 2008 and 2010, when we did some offices in the Yaletown market, and that worked out really well.

“A few years back, we did a mixed-use, 96-unit development called Stella on top of a Honda dealership – that was a very exciting, fun project for us.” Shenoor Jadavji, Lotus Pacific Investments Inc “A few years back, we did a mixeduse, 96-unit development called Stella on top of a Honda dealership – that was a very exciting, fun project for us.”

“But we’re not generally a Vancouver player.” Instead, Lotus Pacific is continuing to seek out opportunistic plays in Alberta, Saskatchewan, and Manitoba, where opportunities to increase rent remain solid and real estate expansion continues due to the oil and gas sector. They’re also seeking opportunities in neighbourhood retail centres, looking at tertiary markets with strong assets and exploring possibilities in Seattle, Portland and further down the coast. With several joint ventures with institutional partners under its belt, the goal of Lotus Pacific is continue its acquisition streak, so far totaling 3.1 million square feet in the past 16 months. “As we and our investors mature, we want to see some stability and not to have all of our deals be opportunistic, so we’re also trying to grow in that area,” says Jadvaji. Barbara Balfour

AVTAR BAINS

Conquering Vancouver In a full-throttle market, real estate investors must get creative

he traditional criticism of real estate when compared to other investments, like the stocks or bonds, is that it’s an illiquid asset. Yet in today’s Vancouver market and across British Columbia, it’s almost inaccurate to call it that. “The stunning part of our market is the combination of high liquidity and highest prices ever paid,” says Avtar Bains, president of Premise Properties. “Logic would dictate that you’d have better liquidity when prices are low, but that is not the case in real estate, and it’s certainly not the case in Vancouver.” Another fascinating development, he says, is that the market is getting incredible support from all asset groups. No group in particular – not the

Canadian Real Estate Forum / SPRING 2013

pension funds, life companies, public companies, REITs, ethnic capital, private capital, syndicated funds – is alone responsible for real estate’s high liquidity. It appears, rather, that each of these sectors is running on full cylinders. The challenge is an over demand, undersupply scenario that makes it difficult for people to grow their portfolios. “That’s where people have to be creative,” Bains says. “So you look at joint ventures, or buying half the property, or development, or issuing debt … You’ve got to be creative to get capital out in this environment and still feel confident that if and when the interest rate matrix changes, you’ll still have some protection. That is the key to our market.” Michelle Morre-Carlisle

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CHUCK WE

Room to Grow Vancouver makes way for long-awaited office space

fter the financial meltdown, the availability of office space in downtown Vancouver dropped to four percent, one of the lowest rates in North America. Recently, though, developer interest is growing. From late 2014 through 2015, four new office buildings will deliver nearly 1.5 million new square feet of office space in the core. “These buildings are serving a need for large engineering companies, and for any other tenants that have been starving for space,” says Chuck We, director of leasing for Oxford Properties Group. “It’s about time Vancouver started delivering world class products, because it is a world class market.” We believes new developments will still achieve their pro forma rents, which will drive the value of triple A class space in the city slightly upwards. Except for a trickle down effect as the market absorbs the space left over in A and B and C class buildings, he believes the current pace of the downtown market will remain strong. Predictions? “I see branch offices getting larger,” We says.

ANNE McMULLIN

Public transit to define the cities of the future 36

Canadian Real Estate Forum / SPRING 2013

“I see branch offices getting larger. ...we’re building better elevator capacity, better amenities for staff, and an integrated backbone to service tenants’ technological needs. The harder a space works, the more it’s worth in the market.” Chuck We, Oxford Properties Group “They’ll be closer to 20,000 to 50,000 square feet as opposed to 5,000 or 10,000. Tenants will have to make efficient and effective use the space which is why we’re building better elevator capacity, better amenities for staff, and an integrated backbone to service tenants’ technological needs. The harder a space works, the more it’s worth in the market.” Michelle Morre-Carlisle

s a working expert on public transit, Vancouver’s Anne McMullin believes mass transit shapes a city just as much as it will shape its future development. While Vancouver already has an excellent public transit system, McMullin believes future development in and around the city will depend upon the close proximity of public transport for residential homeowners who wish to avoid using their cars to get in and out of the city. “While people used to talk about ‘location, location, location’,” said McMullin, “…they’re now talking about ‘transit, transit, transit’.” While the rising price of energy is certainly one of the critical factors that are behind the rising numbers of people who choose to use public transport instead of their car in order to make their way through most, if not all of the cities in

North America, she also believes that easy access to public transit facilities have done a lot to enhance the gentrification of certain urban areas which are now blessed with easy access to public transport. According to McMullin, it won’t be long before cities begin to adjust their zoning criteria to permit higher residential densities in selected areas in order to accommodate a new wave of residents who wish to avoid the suburbs and remain as close to the city center as possible. As public transit hubs begin to dominate the new (and possible gentrified) urban environment, residential developers will begin to take advantage of the village ‘hub’ that will include the usual collection of small retail outlets, service stores and other small business interests that quickly define a neighbourhood and its people. P. A. Sévigny

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As new competitors descend from North America, Europe, and the rest of the world through e-commerce, retail markets are being attacked from all sides. CHRISTINA FLANNIGHAN

Fighting Back: How to Win in the Retail Market Game

hopping is such a popular pastime and large part of our culture that it will always be here to stay, but retailers will have to up their game to stay competitive, say Christina Flannigan, president of consulting firm Praxis Projects. “We’re seeing a really drastic change in retail markets, some very challenging times for developers as well, and we’re just at the start of it,” says Flannigan. “We’re seeing smaller, more productive stores. Power centres and Class B shopping centres are being challenged with more vacancy, so developers have to find different uses for the space, whether with offices or community type uses.

“A daycare is a good example of complementary usage not traditionally seen in retail.” So far, US retailers have achieved success in markets north of the border, but the real test will be when the highly anticipated Nordstrom and Target come in to challenge competitors like The Bay as well as the general merchandise category, says Flannigan. While Internet sales only comprise about five per cent of overall sales, growth has been steady and dramatic. “What you’re seeing is Best Buy price matching Amazon or other purely ecommerce retailers, but with a cost base they need to support too. How can bricks and mortar stores sell at the exact same price and still be viable?” Barbara Balfour

RON EMERSON

Vancouver’s Lower mainland subject to unique set of commercial development problems

of possibilities for serious development projects would be on Emerson, one of Vancouver’s leading ICI open up once the city’s perimeter road is built and put into (Investment, Commercial, Industrial) development service, he also discussed the problems developers presently agents, described the unique set of problems which encounter when they seek to assorted currently affect commercial real “There’s an acute shortage of zoning changes for land which was estate development around the lower mainland district located near available land. The other issue is originally reserved for agricultural use. As over half of the lower mainand around Vancouver. that over half of the available land’s available land is subject to an “There’s an acute shortage of available land,” he said. “The other inventory is functionally obsolete.” AGR (Agricultural Land Reserve), developers must also consider the issue is that over half of the available Ron Emerson time and effort they require to apply inventory is functionally obsolete.” for the assorted zoning changes they In a district where over half of need to turn their development projects into a working reality. the available land is still zoned for agriculture, Emerson mainAccording to Emerson, it doesn’t take a genius to figure out tains that there are more than a few excellent development where developers can find working opportunities near and opportunities but it’s a process in which patience must match around Vancouver. Aside from the mountains, the ocean and perseverance in order to be recognized as both a virtue as well the border, Emerson said there’s simply nowhere else to go as an asset. When asked about what he thought about the find the land you need for future developments. lower mainland’s present market, Emerson believes a number “If we can’t get the land we need,” he said, “… there’s of opportunities will present themselves because of the usual always Alberta or Washington State.” factors (such as higher taxes) that often force industry out of P. A. Sévigny the city and into the suburbs. While he did mention that a lot

Canadian Real Estate Forum / SPRING 2013

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MORLEY GREEN

Lots of money available now for the right borrowers Commercial borrowers with strong projects can expect lots of choice for funding in the coming year, despite rapid changes in risk, interest rates and values.

o says commercial financier Morley Greene, founder and president of Vancouver-based Trez Capital. “It’s a great time to be a borrower in this space. I see a lot of competition in the marketplace with everyone just driving down the rates to get the money out there.” Unlike traditional lenders, Trez specializes in short-term financing for commercial properties undergoing repositioning or renovation. Founded in 1997, Trez Capital now manages a portfolio of more than $1.46 billion, placing it among Canada’s largest private commercial lenders. Greene says his success is due to liquid assets, luck and strategy.

He went into Alberta at the right time, for example. He also doesn’t fund projects such as hotels and golf resorts, which are particularly challenging right now. Keeping current with rapid changes in interest rates and asset values is crucial too “Right now, values are very high,” says Greene. “A lot of people are buying stuff right now just to buy. They want to have it on their balance sheets just to grow. In our business, the best thing we can do is get back our money. A guy will pay back with interest or he won’t. You’ve got to be careful that you don’t chase transactions just to get them on the books.” Tracey Arial

ANDREA GOERTZ

Leveraging real estate for productivity, environmental accountability and brand awareness

Goertz has found that real estate renewals also surpass he TELUS decision to consolidate 15 locations into environmental accountability targets. The integration of a a single office tower in Toronto was designed after major network switch into the new million square foot seven years of employee-led work scheduling. When TELUS Garden in downtown it was done, employees reported “... real estate renewals also surpass Vancouver, for example will save 45% more access to quiet space, the company 80% in energy 45% better access to collaboraenvironmental accountability targets. costs. “We have access to very tion and 40% more access to meeting space for a 5% increase The integration of a major network switch fast speeds and it had an addibenefit that we didn’t in productivity overall. into the new million-square-foot TELUS tional think of at the outset,” said The results were even better Garden in downtown Vancouver, ... will Goertz. “We’ve been able to than the 2% productivity gain excess heat from our the company hoped for and save the company 80% in energy costs.” recycle switching centre to heat our helped increase the pace of Andrea Goertz, TELUS office tower.” similar real estate renewals across Goertz says that workspace Canada. renewal enables the company to respond with more flexi“We’ve moved away from the notion that everyone bility to their customers, thereby reinforcing their brand. needs a dedicated work space,” said Andrea Goertz, TELUS “We’ve seen the benefits of real estate as a key component of senior vice president of strategic initiatives and communicarealizing how our brand can come to life.” tions. “We have a goal to get 70% of our team working on a Tracey Arial mobile basis by 2016.”

Canadian Real Estate Forum / SPRING 2013

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MARK HANNAH

Navigating the North Shore Vancouver’s small but hopping real estate market

commercial. “There’s no choice but to go vertical,” he says. he North Shore of Vancouver is truly unique. Residents The other challenge on the North Shore is transportation. are close to downtown yet have immediate access to The area isn’t served by SkyTrain, Vancouver’s light rapid three ski mountains, ferries, the Trans-Canada transit system, but does link to it via passenger ferry. For highway and Whistler. The area, which includes north and motorists, however, congestion is a problem. They depend on west Vancouver, has attracted many families; creating a large two road bridges connecting employee base for businesses that, consequently, also want to be there. “One limitation of this affluent area Vancouver to the Trans-Canada Real estate has seen substantial growth is its short supply of land. There’s Highway. Construction or an accident on a bridge can, on occasion, cause a in all categories – single family homes, no choice but to go vertical.” major lockdown on the North Shore. condominium and apartment rentals, “It’s a great place to raise a retail and commercial. Mark Hannah, Avison Young Canada family if you can handle the traffic,” One limitation of this affluent Hannah says. “The current demographics are well-educated, area is its short supply of land. Developers are rapidly running high-income people who want to raise their families on the out, the only large expanse of undeveloped land belonging to North Shore. They do put up with the traffic because First Nations. Mark Hannah, principal, Avison Young they’ve got all the amenities they need.” Canada, believes the near future will bring larger density Michelle Morra-Carlisle mixed-use projects incorporating retail, residential and

“W

STUART MORRISON

Distribution is in the driver’s seat 42

Canadian Real Estate Forum / SPRING 2013

e have reset the largest industrial real estate transaction record twice in the past 12 months, initially with the sale of Modalink Gateway Distribution Hub for $81.2M then again with the sale of Hopewell Distribution Centre Phases 1 and 2 for $102.4M’’ said Stuart Morrison, executive vice president at Colliers International. Transaction sizes are increasing primarily because much larger buildings, specifically distribution centres, are being developed to capitalize on Metro Vancouver's growing position as Canada's import and export gateway. Investors are able to purchase hundreds of thousands of square feet in a single transaction – the first 2 phases of Hopewell

Distribution Centre total over 935,000 square feet. The Metro Vancouver industrial real estate market is facing severe land supply constraints. Property values have appreciated steadily and should continue to do so as it becomes more and more challenging to acquire land suitable for development of new distribution centres. Strong investment demand for industrial real estate should continue for the foreseeable future. Pension funds, life companies, REITs and private investors have significant amounts of capital to place in this asset class. We were able to generate eight competing offers for our most recent industrial investment opportunity, equating to well over $480 million of offers.

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ANDREW MEGSON

Edmonton’s bull market ready to roll

Edmonton is one of the country’s most promising real estate markets with plenty of opportunities for the right investor who wants to improve his position in the city.

Canadian Real Estate Forum / SPRING 2013

side from describing the city as a “safe and stable’ environment for serious development projects, Megson said much of the city’s economic strength rested upon a steady influx of skilled workers with a corresponding demand for assorted goods and services for which there was no shortage of money to pay for them.

“You’ve got to consider that Edmonton leads the country in the retail sales sector,” said Megson. While all the numbers look good for Alberta’s capital city, Megson did mention that the city’s effervescent real estate market could face a number of challenges if the city’s municipal leadership neglects the city’s immediate future and its potential to become a leading urban economic supply and service center for the prosperous Canadian resource sector. Aside from making sure there’s plenty of land made available for future development projects, Megson hopes that politicians at every level will continue to make sure that both the municipal and provincial governments come

through with the services and infrastructure the city’s developers need to see their projects become a working reality. Aside from a quick word about the fact that the price for a serious piece of the city’s real estate remains well within reasonable limits for the prudent investor, he also believes there will be plenty of opportunities in and around the city if construction begins on either one (or both) of the new pipelines (Excel and Gateway) the energy industries require to ship the province’s oil off to new and established markets that are located thousands of miles away. “People are confident and business is expanding,” said Megson. P.A. Sévigny Canadian Real Estate Forum / SPRING 2013

BRAD FERGUSON

Stoking the Embers of Edmonton’s Economy It’s not just the plentiful resource-based economy in Edmonton that’s on fire, but the knowledge and skills of its residents who’ll continue stoking the embers for decades to come.

“A

workers from across the border and courting foreign investment. s Edmonton’s population creeps towards the one million Currently five countries are actively interested in Edmonton and northern mark, a critical mass is starting to develop in our service Alberta, including China, Japan, Korea, the UAE, sector – business, professional, education and health care, engineering, and “We have what the world wants – and Saudi Arabia. “We have what the world wants – all the scientific services,” says Brad Ferguson, president all the fundamentals in one fundamentals in one geographic space, and I of Edmonton Economic Development. “These are big parts of the economy that before in geographic space, and I think this is think this is what’s making Edmonton sexy right now, and helping me do my job,” says history, we haven’t seen grow at the pace they’re what’s making Edmonton sexy right Ferguson. growing at right now.” “People come here in hopes of opportuShort term planning in the city to ensure now, and helping me do my job.” nity and choose to stay here when it’s -25 they're staying ahead of the population growth Brad Ferguson, degrees out because they’re a part of building involves infrastructure expenditures on schools Edmonton Economic Development something for themselves and their commuand hospitals. In the long term, Ferguson’s focus nity. Family, business, education – whatever at Edmonton Economic Development involves your opportunity is, you can build it here.” looking at light rail transit planning, establishing the city as a transportation Barbara Balfour logistics and warehousing hub for northern Canada, actively recruiting skilled

T CORY WOSNACK

A market to watch: downtown Edmonton’s slow but certain transformation With no dramatic overnight changes, Edmonton can be considered a sleeper success in terms of real estate. But slow and steady doesn’t begin to describe what’s happening in the core. 48

Canadian Real Estate Forum / SPRING 2013

he framework for a $480 million advantage of strategic negotiations well arena is just one “exceptionally prior to expiry of their lease. exciting” example according to Wosnack describes another Cory Wosnack, Principal, Avison Young phenomenon new to the landscape: Canada. “Edmonton has never seen Landlords of existing buildings, wishing such a link between office leasing and to maintain high occupancy, are now in retail, hospitality and lifestyle,” he says. competition with new developers. What Hotel groups, restaurant groups will developers offer tenants in order to and retailers are slowly secure pre-leasing? How “As the market gravitating to downwill landlords upgrade town. And partly due to improves, we expect their properties to a strained employment compete with new tenants to pay more inventory? market, employers are considering downtown “Not every develrent to stay central. for the lifestyle perks it oper who wants to build offers employees. “As This “new” downtown a new tower will the market improves, we succeed,” Wosnack says. will materialize by expect tenants to pay “Of the half-dozen that 2016-2017.” more rent to stay want to build, we may central,” Wosnack says. only see two or three Cory Wosnack, He estimates this “new” new towers. We haven’t Avison Young Canada downtown will materiseen this kind of compealize by 2016-2017. Real estate transac- tition in Edmonton since the early tions, meanwhile, are happening earlier 1980’s.” in the cycle. Companies are taking Michelle Morra-Carlisle

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TOM REDL

Construction in Alberta Remains Stable Alberta construction executive Tom Redl described his industry as “stable” with “little chance of inflation”.

RAY TOWNSEND

Wood-frame multi-family rentals priority for Edmonton There’s been a lot of talk about high-density construction in Edmonton now that the arena is getting underway, but four-storey wood-framed housing for families are needed now.

“T

here’s a massive appetite for brand new multi-family product,” says Raymond Townsend, senior vice president of CB Richard Ellis Limited. “Those people who have gone out and built brand new four-storey multi-family purposebuilt rental, they’re finding, on occupancy permit or shortly after, they’re one hundred percent leased.” What happens in the industrial market is key, he says, and Edmonton’s real estate market revives as the region attains fabrication jobs from Fort McMurray. “When the industrial market does very well, all other markets seem to do well. The kind of housing here is driven by a blue collar market.” Townsend believes that the condo market will have little or no influence on the rental market over the next year or so, other than offering newer product for rent. Although Townsend believes that the industry will support the vision for the arena district once it gets underway, he sees few possibilities for high-density construction. Rare successes include the new 237-unit 16-storey new concrete Mayfair Village project by Procura, but that was subsidized. Land values don’t otherwise support the prohibitive cost of concrete and steel construction and zoning regulations prevent wood-frame projects higher than four storeys. “If they change the requirements and allow for sixstorey wood-frames, then the density will increase.” Tracey Arial

Canadian Real Estate Forum / SPRING 2013

hile it’s still a bit inconsistent for some companies, Redl said the Alberta construction industry is bouncing back even if some firms are still working hard to get their business back on track. As a working executive, Redl said that it was far more difficult to run a construction business during a real estate ‘boom’ than it was to run the same business in a normal business environment or even a recession. While nobody likes a difficult business environment, Redl did say that a good company can take advantage of the situation “There’s a good amount of because “… you have the high quality capacity left in time to get it right!” Even as everybody can apprethe system, which is being ciate a healthy, stable and prosperous business envi- created by new arrivals ronment, the veteran who are looking for suitconstruction manager also able housing while settling believes ‘boom’ times require a bit more disciinto the province’s robust pline because clients and prosperous economy.” always expect more from their contractors and that’s Tom Redl when builders’ business begin to run into problems. “You can’t do it all;” he said, “… and sometimes you just have to know when it’s time to say ‘No’.” When asked about the present state of the Alberta real estate markets, Redl said that the commercial real estate is doing well. “There’s a good amount of high quality capacity left in the system,” he said which is being created by new arrivals who are looking for suitable housing while settling into the province’s robust and prosperous economy. When asked about sustainable development protocols, Redl believes that sustainable design still depends upon a ‘top-down’ decision process that is driven by a “value-based” agenda on the part of the project managers and owners. Due to a high number of variable factors, Redl said that it’s difficult to provide anyone with a clear answer as to how much it will cost a client to provide a client’s project with a LEED (Leading Environmental and Ecological Design) silver certification In a world where the long term benefits often outweigh the short term costs that are the result of a commitment to respect the new building codes, Redl believes that sustainable development protocols will soon become nothing less than ‘business as usual’ for Alberta’s major construction companies. P. A. Sévigny

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JIM TAYLOR

Beautifying Downtown Edmonton Edmonton Downtown Association’s executive director, Jim Taylor has nothing but kind things to say about the immediate future of the city’s downtown core.

ollowing an inspired decision to hire a young MBA student to work up a detailed description of all the projects that are presently being discussed, planned or otherwise already being built within Edmonton’s relatively small downtown core, Taylor’s report describes some 36 assorted real estate development projects (worth some $4.8 billion dollars) which will effectively alter the face of the city’s relatively small business district over the next five years. “There’s no secret here,” said Taylor. “It’s just that very few people tend to look at the cumulative picture.”

Broken up into three categories, Taylor said the report already indicates that plans for the city’s downtown development have gone “far past the tipping point” as several projects are already in the ground and on their way to becoming a working reality. Others are past the point of no return insofar as they all have their requisite permits and it’s just a question of time before the cranes and the bulldozers move in to begin digging the building’s new foundations. While a number of other projects are still nothing but a good idea, Taylor believes that several have a good chance of finding their way off the table and into the ground if conditions continue to favour the city’s ongoing transformation into a leading service center for the province’s energy sector. Aside from a number of PPP (Public and Private Partnership) initiatives such

“A SIMON FARBROTHER

Building Edmonton to Attract Talent and Investment As one of the most vibrant parts of the country, Edmonton has a tremendous amount to offer to investors, says city manager Simon Farbrother. Canadian Real Estate Forum / SPRING 2013

P.A. Sévigny

t a business level, there’s a very competitive tax rate, an availability of land supply, and a real sort of can-do attitude in terms of making things happen,” he says, adding that city council has worked hard to realize its vision of a world-class city. “The plans focus on a strong urban core, vibrant suburbs and an environment that supports the quality of life of all residents of Edmonton.” Upcoming initiatives include the redevelopment of Edmonton International Airport, and expansion of both the Northern Alberta Institute of Technology and the light rail transit system. The city is also contemplating a partnership with the University of Alberta and private development to bring performing arts and arts-related investment into the downtown core, while also updating performing arts facilities in the city. The city recently signed a deal with the Katz Group for a $600 million NHL arena; the city will own the asset and land while the Katz Group will have a 35 year lease to operate the facility, opening in 2016. The main entrance into the arena will be a new plaza in the downtown core featuring restaurants, a hotel, commercial activity and office retail development. “We’re very conscious about quality of life here," says Farbrother. "We’re creating an environment for people to work, live and play 52 weeks a year." Barbara Balfour

as the city’s much-discussed new arena project, Taylor also mentioned how the new development includes a number of high-end residential projects, which will contribute a much-appreciated element of cultural and social diversity to the city’s downtown core. Aside from the city’s new museum, Taylor believes the city’s plans to build a new LRT (Light Rail Transit) system through the downtown district will do a lot to provide a new life and purpose to the city’s downtown core. While he admits that several projects will require a serious amount of civic infrastructure, this is one who believes that civic initiatives such as the Jasper Avenue renovation project will continue to provide a sum that is far superior to the total of its parts.

PHIL MILROY

It’s in the Pipeline

n a world where actions speak far louder than words, Phil Milroy’s investment in his own city and its community have a lot to say about the business environment in both Alberta and Edmonton its capital city. As a seasoned real estate entrepreneur, Milroy is still able to see how full (or empty) the glass is but as of now, the glass is far more than half full and “… everything’s good!” Like a lot of his colleagues, Milroy believes the Alberta real estate market contains a lot of opportunities but he still believes there could be more than a few storm clouds on the horizon; especially if the energy sector continues to encounter problems before it can begin to move its product out to its available markets located east and to the south of the province. As ever, a shortage of skilled labour keeps driving up the price of production and any kind of upward movement in the capital markets could

“Much depends upon those pipelines, … because the oil industry must still develop the means to get its product out to the world.” Phil Milroy, Westcorp Properties Inc. have a catastrophic effect upon any number of the province’s assorted real estate development projects. But even as the Edmonton Arena project is still looking for the $100 million it needs to begin putting shovels into the ground,

Milroy spoke of another civic initiative which indicates the kind of confidence Edmonton’s business people have in their own city. “The new Arts Center is a good idea,” said Milroy. “It’s going to do a lot to revitalize the city’s downtown core.” When asked about what he thought about Alberta’s prospects for the future, Milroy said that a lot depends upon the imminent construction of the province’s two critical pipeline projects. “Much depends upon those pipelines,” he said, “… because the oil industry must still develop the means to get its product out to the world.” But aside from his initial concern about what’s going on in the boardrooms of the province’s powerful oil interests, Milroy believes thousands of families will soon discover a new future in Alberta because he already has a number of his own residential housing projects in the ground with more being planned for both Calgary and British Columbia. P.A. Sévigny

DAVID ALLISON

Online epiphany: Social media useful, just don’t go overboard “Social media has matured into just another tool,” concludes its former most ardent evangelist, David Allison.

“A

few years ago, I was telling real estate professionals that social media was going to change the world,” Braun/Allison’s principal recalled. “Since then, I’ve stopped waving my arms

frantically.” “My diminished excitement about social media is at a very practical and tactical level. I still think it will change the way we communicate as human beings, and the proof of that transformation is all around us” he says. Now, the advertising and marketing executive counsels against becoming a social media lemming. “I have changed my mind completely regarding how effective it is at generating real estate sales,” he said. “Digital searches and research have been proven to be the number-one way that prospects begin the hunt for real estate,” he observed. “Very few

Canadian Real Estate Forum / SPRING 2013

people will be influenced by a real estate Facebook page or Twitter feed.” “We tried,” he conceded. “Lord knows, we ran contests, befriended the world and waited for them to friend us back. Not much happened.” Paradoxically, Allison observed, real estate’s rush to social media heightened the effectiveness of 20th century marketing techniques. “It turns out that some of the tried-and-true tricks that many of us had written off as outdated are now the most effective tools out there,” he acknowledged, “partly because no one is using them any more.” Allison sees a role for social media nonetheless. “It’s just not the central role that we anticipated,” he explained. “There are specific tactical applications that make sense – as well ridiculous applications that make no sense at all.” Robert Frank

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Edmonton: Where it All Happens If Dave Young could be anywhere, he would stay put in Edmonton. The West is his favourite part of Canada, and there is no western province he’d rather be than Alberta. Within that province, “Edmonton is where it all happens,” says the senior vice president of CBRE Ltd. “This is where it gets built, manufactured, produced and shipped to other parts of the country.

e says Edmonton is poised for industry-driven growth. The real estate market has proven resilient even in the face of global issues such as the 2008 credit crisis, which slowed the pace of transactions but didn’t dramatically impact vacancies. “People want Alberta exposure and Edmonton exposure,” Young says. As industry thrives, what the city needs is manpower - an issue beyond the realm of real estate or even municipal or provincial politics. “It’s a federal government issue, an immigration issue,” Young says. “We have to recognize that for many trained profes-

sionals coming into the country, it can be difficult to get jobs. And we need to sell the fact that there are opportunities here.” Competing for talent will be an ongoing challenge for Edmonton, especially as other parts of Canada face similar labour issues. Young believes marketing will be key, regarding not only manpower but also the debate over the proposed Keystone XL oil pipeline. “This region is extremely important not just to Alberta, but to Canada,” he says. “When Alberta is successful, the country is successful.” Michelle Morra- Carlisle Canadian Real Estate Forum / SPRING 2013

INDIRA SAMARASEKERA

Innovators in the Oil Patch Even an advanced economy must keep advancing Alberta’s status as a major centre of wealth and development comes from both brainpower and a wealth of natural resources. But from the vantage point of public research and higher education, a transition from a resource-based, industrial society to a knowledge society is well on its way.

“H

arvesting our natural resources increasingly depends on advances in various technologies – sophisticated technologies that will only emerge from highly creative thinkers working in an idea-rich, discovery-rich environment,” says Indira Samarasekera, president of the University of Alberta. She believes that the shift toward investing in human ingenuity, creativity and skills that is impacting the global job landscape will soon be felt in Alberta, “to our benefit or our detriment, depending on our choices.” Samarasekera would like to see Canadian cities such as Calgary and Edmonton learn a lesson from Detroit,

which “failed to use its vibrant economic ecosystem to create a new economy to replace the auto sector when it went into decline.” According to Samarasekera, Alberta should, in the short term, stimulate research and development of new technologies that leverage its existing knowledge in environment, water, and while new technologies bring disruptive change to any sector, she adds, how Alberta embraces, manages and anticipates change will affect its future success. “There is one thing we can count on,” Samarasekera says. “The 21st century will belong to those who learn how to harness human capital to its fullest.” Michelle Morra-Carlisle

CHRIS FOWLER

Cheap capital and credit defines market stability Investors are already taking advantage of a highly competitive commercial mortgage market.

“C

seeking their own niche within what Fowler described as an “… already apital and credit will remain cheap for at least the next two competitive market.” years,” said Canadian Western Bank president & chief operEven as his bank considers each and every deal ating officer, Chris Fowler. “We “While we’re still concerned upon its own merits, Fowler did say that he prefers don’t expect to see any kind of serious increase in interest rates until the end of 2014.” about a building’s age and its business initiatives in which the developer quickly gets around to providing land with the added Fowler admits that low interest rates have condition. … we also consider the value that secures everybody’s investment. While created a stable business environment in which the demand for capital still depends upon the (so-called) roll-over risk which he likes to see a diversified mix which includes plenty of residential development, he also prefers length and quality of a building’s leases. may occur if there’s a sudden to see business done quickly and efficiently in “While we’re still concerned about a building’s age and its condition,” said Fowler,” … we also and sharp rise in interest rates.” order to bring deals to a successful and profitable conclusion. consider the (so-called) roll-over risk which may Chris Fowler, “Private capital is looking to get into the occur if there’s a sudden and sharp rise in interest Canadian Western Bank debt business,” he said, “… but there’s a lot of rates.” competition and that’s doing a lot to keep the Once again, Fowler stressed that he and his price of capital down.” colleagues are confident that the Canadian real estate market will remain P.A. Sévigny steady and stable over the next few years even as private capital interests are

Canadian Real Estate Forum / SPRING 2013

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Appointment Notices

TO ADVERTISE IN THIS FEATURE, CONTACT FRANK SCALISI, Director of Sponsorship and Advertising Sales, Phone: 416-512-3815, Email: frank.scalisi@informacanada.com Canadian Urban Limited is pleased to announce the appointment of Charles S. McConnell to their Board of Directors and Investment Committee. Mr. McConnell worked in a variety of positions with ATCO over the course of 29 years culminating in his role as Corporate Treasurer.

He served as Managing Director in the establishment of their Portugal office and was responsible for ensuring ATCO’s compliance with regulatory requirements and the development of local business relationships. With over 40 years of progressive financial leadership Mr. McConnell will be a great asset to the Canadian Urban Board.

ANDY HORVATH

Edmonton’s industrial market in 2013

o far, 2013 has seen a healthy industrial real estate market in Edmonton. The first quarter saw a lot of leasing activity, as well as some new developments. Net rental rates for industrial properties are getting very high-up to the double digits for new properties on the south side. The good news in Edmonton is that vacancy remains low (around 3.5 % at the time of writing). Andy Horvath, partner, Industrial Sales and Leasing, Cushman & Wakefield, expects the rate to rise as new structures are built but says much of the vacancy today is in older buildings. “Where we see it is in buildings that are obsolete in terms of shallow loading areas, lower ceiling heights, or buildings that are just old and dated,” he says.

Canadian Real Estate Forum / SPRING 2013

“People prefer to go to new.” What’s challenging industrial real estate investors? Horvath says that while Edmonton continues to stay vibrant, one current difficulty is a lack of small spaces on which to build. “People looking for a site that’s 3,000 to 8,000 square feet don’t have many options out there,” he says. The other hurdle – as western Canada awaits a decision on the proposed XL Pipeline Project – is moving product out of Edmonton. “We need the pipelines,” Horvath says. “If product moves, Edmonton will remain vibrant.” Michelle Morra- Carlisle

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DECEMBER 4-5, 2013 • TORONTO, CANADA

The 22st Annual Canadian Real Estate Forum Always A Sold-Out Event! JOIN OVER 2500 EXECUTIVES AT CANADA’S LEADING REAL ESTATE FORUMS A two-day real estate conference focusing on key trends and issues related to the acquisition, financing, leasing and management of all forms of investment real estate. Presentations by more than 130 well-known experts from across Canada, United States, Europe, Asia Pacific and South America.

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DECEMBER 3, 2013 • TORONTO Discover the latest trends, strategies and opportunities in real estate markets around the world.

For event sponsorship and advertising opportunities, contact • Frank Scalisi at 416-512-3815 • toll-free: 1-800-660-7083 ext. 153815 • email: frank.scalisi@informacanada.com

Progress charted in office efficiency REALpac report shows that the energy consumption of Canada’s office buildings is slowly being reduced.

Average Actual and Normalized Energy-Use Intensity, Canada-Wide (by year in ekWh/ft2/yr) The lighter coloured bars represent average actual energy-use intensities and the darker coloured bars represent average normalized energy-use intensities.

33.2 31.4

Carolyn Lane

hile a growing number of owners and building managers are taking action to reduce their energy use, a recent national industry report shows that many opportunities still exist to push building performance to the highest levels. REALpac’s 2012 Energy Benchmarking Report: Performance of the Canadian Office Sector, released this February, includes data, analyses, and results of three annual surveys starting in 2010. The data were analyzed and compared to provide a detailed breakdown of the trends and patterns of building energy performance across Canada over time. Looking at the average energy use in office buildings across Canada each year, the trend towards reduction becomes clear. The national data set shows the 2011 annual mean normalized building energy use intensity was 27.7 ekWh/ft2yr – a drop from 28.7 ekWh/ft2yr in 2009. This three-year trend in normalized energy use, which accounts for the variations in buildings and weather, distinctly indicates a movement towards lower energy use and progressive action being taken at the individual property level and across the country. The slight increase seen in the average normalized use from 2010 to 2011 may be a consequence of the changing mix of building submissions (not all buildings in 2010 participated in 2011 and vice versa), or the addition of poor-performing buildings, which would skew the data, or a combination of multiple factors. What is encouraging in the 2010-2011 findings is that within the top 25% of buildings, more lowered their normalized energy use metric below 20 eKWh/ft2/yr than were added to the data set from year to year, indicating a positive shift towards higher performing buildings.

Green Leadership After the 2009 launch of REALpac’s “20 by ‘15” program – which set the energy consumption target for office buildings at 20 equivalent kilowatt hours of energy use per square foot of building area per year (20 ekWh/ft2yr) to be achieved by 2015 – the Association developed the Energy Normalization Methodology followed by the introduction of a national Energy Benchmarking Survey for office buildings in 2010. This leads to the collection of data

Canadian Real Estate Forum / SPRING 2013

31.0 28.7

27.6

27.7

26 24 22 20

2009

2010

2011

and the publication of the first national Energy Benchmarking Report for office buildings in 2011. With three years of energy consumption data to draw upon, it is now possible to compare a building’s performance over time, within a geographic area, as part of a larger portfolio and on a competitive level. “In only three years, REALpac’s Energy Benchmarking Report has made an impact on the commercial office sector, taking a much needed step towards actively measuring and benchmarking energy use in buildings,” said Carolyn Lane, vice president, membership, marketing & communications, REALpac. “For owners and managers, the continuous analysis of reliable energy-use data is critical in helping them understand how their buildings stack up on an industry-wide basis and where the opportunities lie to improve operations,” she added. The real property sector, being a significant energy and resource consumer, has an important role to play in decreasing the environmental footprint of commercial buildings in Canada. Significant achievements in the areas of environmental performance and energy efficiency have been made over the past number of years. “REALpac,” says Lane, “is proud to play a role in helping the industry realize its potential as a leader in green and energy efficient practices. The Association recognizes the need for industry-wide environmental benchmarking data and shared best practices, and will continue working with its constituents and its national and international counterparts to help ensure the sector is well positioned for a sustainable future.” For more information and to download a copy of 2012 Energy Benchmarking Report: Performance of the Canadian Office Sector, go to realpac.ca ■

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EXPOSURE TO KEY PEOPLE IN THE REAL ESTATE INDUSTRY Canadian Real Estate Forum subscribers include senior executives of the real estate industry from: • Public and private real estate organizations • REITs • Pension Funds and pension fund advisors • Banks, trust companies, life insurance and other financial institutions • Corporate real estate executives among Canada’s 500 largest companies • Federal and provincial governments • Brokers, law firms and other intermediaries

• The magazine has a strong shelf life by offering high quality articles and analysis on the major themes and topics examined at a conference along with comments and insights from leading experts and well-known practitioners. • There is no other national business magazine that is specifically targeted at all the key Canadian real estate decision-makers who are active in office, industrial, retail and multi-unit residential sectors across the country. This is the unique element that the Canadian Real Estate Forum offers you – an opportunity to reinforce your marketing message to a very exclusive audience at a very affordable rate.

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Towards a National Sustainable Development Strategy REALpac efforts demonstrate that the commercial real estate industry is indeed a natural ally to governments in achieving a greener economy. By Ryan Eickmeier

Ryan Eickmeier

ith real estate professionals across Canada pushing the vertical and design limits of commercial buildings, sustainability is no longer a pipedream, but instead an obtainable target. New construction is being erected to meet increasingly stringent standards while major retrofit work continues to renew Canada’s building stock. While these advancements in the private sector have yielded exemplary results, what it is lacking across the country is a consistent and aggressive approach that ties in all three levels of government – a truly national sustainable development strategy. Over the past 15 months and at the behest of our Members, REALpac has engaged governments at the municipal, provincial, and federal levels to help formulate sound public policy related to sustainable development. Not only are these efforts designed to showcase the important advancements being made, but they also demonstrate that the commercial real estate industry is indeed a natural ally to governments in achieving a greener economy. At the federal level, it is clear that Canada’s policy and action plans do not sit on the leading edge of sustainability and are, in fact, lagging behind many countries worldwide. Even with the release of the Federal Sustainable Development Strategy (FSDS) and subsequent annual updates, there is a lack of transparency and clear targets for industries to achieve. Moreover, the FSDS does not adequately take into account the considerable environmental footprint federally owned and leased buildings have, nor does it present a viable path towards reducing it. In March, perhaps in recognition of these deficiencies, the Office of Greening Government Operations (OGGO) was tasked with exploring ways to reduce the environmental footprint of the federal

Canadian Real Estate Forum / SPRING 2013

government’s real property interests. Appearing before the Parliamentary Standing Committee on Government Operations & Estimates to speak on this issue, REALpac made the case that cost represented perhaps the biggest barrier to energy efficiency. The introduction of favourable tax incentives would allow the private sector to help government invest in greener buildings, while creating jobs, reducing collective carbon footprints, and infusing money into the economy and government tax coffers. In addition, clear commitments by the federal government to achieve high-level energy-certifications, as well as use ongoing targets for energy, water, recycling, use of materials, and indoor air quality, will allow the government to exemplify top-down leadership and proactively monitor its relative impact on the environment. Provincially, REALpac has met with and encouraged government officials from British Columbia to Nova Scotia and all provinces in between to mandate the achievement of high-level energy-use certifications for government buildings, create provincial plans that take into account greenhouse gas production and materials recycling, and amend provincial building codes to mandate water conservation and gray water use in construction and renovation. Using results from REALpac’s 2012 Energy Benchmarking Report: Performance of the Canada Office Sector, we are able to isolate annual energy use intensity to draw

positive progress, Calgary is also in the process of developing trends on where reductions are occurring year over year, and a new incentive program. And while considerable progress where they are not. This data set enables us to quantify and has been made, cities like Edmonton, Regina, Winnipeg, localize our industry’s carbon footprint, and acts as a valuable Ottawa, Montreal, and Halifax have yet to push the envelope tool in formalizing sustainability plans with government. in this area and transform themselves At the municipal level, and using findings from our 2012 “While each meeting yields varying into sustainable cities. While each meeting yields Canada-Wide Development Process takeaways, the key to a strategy varying takeaways, the key to a Survey Report, REALpac continues to meet with officials to support that ties in ten municipalities, an strategy that ties in ten municipalities, an equal number of provinces, sustainable development and design best practice standards found in equal number of provinces, and the and the federal government is consisVancouver, Calgary, Toronto, and federal government is consistency tency and information sharing. Strong domestic and international Mississauga, and promote them in and information sharing.” best practice research can fuel these other major municipalities across the conversations, and although we still country. We believe these standards Ryan Eickmeier, REALpac have a long way to go in achieving a are important not only from a social truly national sustainable developand environmental standpoint, but ment strategy, the last 15 months have proven this goal is also an economic one – all to the betterment of the commuwithin reach. ■ nity in which they are upheld. REALpac has further praised cities like Vancouver and Ryan J. Eickmeier is Director, Government Relations & Policy, REALpac. Visit Toronto for providing financial incentives to support the www.realpac.ca to download the REALpac 2012 Energy Benchmarking Report: uptake of voluntary guidelines and alleviate the upfront costs Performance of the Canada Office Sector or 2012 Canada-Wide Development of achieving high-level environmental standards. In terms of Process Survey Report.

REALpac study first to quantify the contribution of commercial real estate to the Canadian economy The groundbreaking research report covers the size, scope, and economic contribution of the sector, both nationally and provincially, and across sub-sectors.

t is obvious in places like downtown Toronto and Calgary, where so much construction is underway, that commercial real estate is important to Canada’s economy, but for the first time there are more than cranes and scattered reports to prove it. A groundbreaking research report, published by the Real Property Association of Canada (REALpac) and the NAIOP Research Foundation titled Contribution of the Commercial Real Estate Sector to the Canadian Economy, offers the most comprehensive overview ever created of the sector’s economic contribution, both nationally and provincially, and across sub-sectors. With research performed by Altus Group Economic Consulting, this highly credible report captures the massive size and scope of the industry through such findings as: in 2011, some $21.6 billion of capital investment flowed into the sector, about $14.9 billion was spent on new buildings, and $6.7 billion went into capital improvements, renovations, and upgrades. Overall, the sector generated $63.3 billion in annual economic activity – more than twice that of the province of Newfoundland & Labrador.

The report underscores the sector’s role as a major employer. According to its provincial breakdown of the amount of personal income generated by the industry in 2011, Ontario lead with $7.3 billion, followed by Alberta at $3.8 billion, Quebec at $3.4 billion, and British Columbia at $1.8 billion. The findings also showed where the bulk of the investment was expended in 2011. Of the $44.3 billion nationally spent on non-residential building construction, some 41 percent was invested in Ontario, amounting to about $18.2 billion, which was slightly more than the investment total of both Quebec and Alberta. However, fuelled by a strong local economy, Alberta enjoyed the highest growth rate for investment in non-residential buildings over the 2007-2011 period, followed by Ontario and Quebec. Although the amount of investment in Atlantic Canada was close to the combined amount in Manitoba and Saskatchewan, the region’s growth rate in non-residential investment was much higher than the growth rate seen in both western provinces over the 2007-2011 period. Continued on page 66 Canadian Real Estate Forum / SPRING 2013

REALpac study first to quantify the contribution of commercial real estate to the Canadian economy Continued from page 59

HOW BIG IS BIG? CRE sector stats paint the picture Among its findings, Contribution of the Commercial Real Estate Sector to the Canadian Economy shows that in 2011 the sector: • Supported 340,000 jobs, many of which are high-paying professional positions. This is roughly equivalent to the total employment of the entire Canadian agriculture industry; • Generated $18.1 billion in personal income – more than twice that generated by the agriculture, forestry, and fishing industries combined; • Generated $12.5 billion in corporate profits earned by many small and medium companies as well as some of the largest pension funds and insurance companies in Canada; • Contributed $7.2 billion in personal and corporate income tax revenues for the federal and provincial governments; • Generated $3.5 billion in building management fees and almost the same amount for commercial brokerage fees from sales of commercial properties in 2011, and • Accounted for $32.4 billion in total net contribution to Canada’s GDP.

Many profit and millions benefit In 2011, the CRE sector generated about $12.5 billion in profits for Canadian companies. While the sector is made up of firms of all sizes, many commercial building managers are large corporations owned by pension funds and insurance companies and their profits flow back into pension and insurance funds that directly benefit millions of Canadians. Directly, the sector generated corporate profits as follows: • New construction – $1.6 billion; • Improvements – $0.9 billion; • Property/building management – $0.9 billion; and • Brokerage services – $1.0 billion. In total, the sector generated corporate profits as follows: • New construction – $5.3 billion; • Improvements – $2.5 billion; • Property/building management – $2.3 billion; and • Brokerage services – $2.3 billion. Broken down, the sector generated corporate profits within the regions as follows: • Atlantic Canada – $0.5 billion; • Quebec – $2.4 billion; • Ontario – $4.9 billion;

Canadian Real Estate Forum / SPRING 2013

• Manitoba and Saskatchewan – $0.8 billion; • Alberta – $2.6 billion; and • British Columbia – $1.4 billion.

“In 2011, the CRE sector generated about $12.5 billion in profits for Canadian companies. ... many commercial building managers are large corporations owned by pension funds and insurance companies – and their profits flow back into pension and insurance funds that directly benefit millions of Canadians.”

Personal Income The employment supported by the CRE sector generated billions of dollars in personal income across Canada’s regions in 2011, broken down as follows: • Atlantic Canada – $0.8 billion; • Quebec – $3.4 billion; • Ontario – $7.3 billion; • Manitoba and Saskatchewan – $0.9 billion; • Alberta – $3.8 billion; and • British Columbia – $1.8 billion. For more information and to download a copy of Contribution of the Commercial Real Estate Sector to the Canadian Economy, go to realpac.ca ■

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