Canadian Real Estate Forum Winter 2020 Issue by Real Estate Forums

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WINTER 2020 / ISSUE 85

LOOKING AHEAD TO AN INNOVATIVE FUTURE

Nothing Beats Face-To-Face Pandemic Hastens Advent of the 15-Minute Metropolis To Take Care of Business, Take Care of Your People Pandemic Propels Proptech Pivot

Expect Sharp Rebound as Canada Emerges from Crisis Cocoon Better Messaging Needed to Repopulate Downtown Future Mall Owners Need to Engage with Customers as Much as Retailers

WWW.REALESTATEFORUMS.COM

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MOVING FORWARD

George Przybylowski Vice President Real Estate Informa Connect

What a year this has been for us all! A year of recreating the way we live our lives, view others and of course do business. Many of us have been compelled to look within ourselves and reconsider our values, our culture, the way we do business – taking stock and coming to conclusions of what’s “really” important. We’ve coped with isolation from family and friends. Many of you have had to deal with financial loss and uncertainty in professional lives, and some have regrettably suffered personal loss of a friend, a loved one – to those we extend our very deepest condolences. In the realms of the real estate market, this has been an unprecedented and challenging time for all of you – and unquestionably the toughest year that my team has experienced in the events industry. On that note – I take this opportunity to extend my sincere and most heartfelt thanks to all those sponsors and industry members, chairs, speakers and attendees who took “a leap of faith” and got behind us, supporting our efforts to pivot from face to face to virtual as we tasked ourselves to keep the conversation moving, facilitate connections, and to disseminate relevant market intelligence and related information. We launched the REF Club which now has over 1,500 members since its inception in the spring, and delivered nine virtual Forums and Conferences since September with the 29th “Toronto” Real Estate Forum being our swansong for 2020. We’ve received exceptional feedback from many of those that have been involved in our events at all levels which has been especially motivating for our team and we are looking forward to engaging you virtually until we can move safely back to face-to-face Forums and Conferences hopefully by the fall of 2021. Ingenuity has forever been a tool in the Canadian Real Estate Forum’s toolbox – from attracting the industry’s top advisers and influencers to ensuring stakeholders have a direct line to the latest trends and opportunities in investment, development, financing, leasing and asset management.

the Real Estate Forum on December 2 and 3 is no exception. This virtual format gives a nod to the technologically driven revolution the industry is currently undergoing and attendees will learn first-hand how the market has managed the challenges of 2020, and what they see on the horizon in 2021. Economic and other trends will be discussed for the Canadian, U.S., and global marketplaces, especially as they relate to office, retail, industrial and multi-unit residential. Interviews with former Bank of Canada Governor Stephen Poloz and Empire President & CEO Michael Medline will be two of these conversations. From investment and leasing to development and financing, real estate gurus will provide the lay of the land and offer up guiding principles for the way ahead. Keynote speaker, bestselling author, and New York Times foreign affairs columnist Thomas Friedman will shine light on how to thrive in a world gripped by technology, globalization, climate change, and a pandemic. In addition, we will be once again announcing the winner of the "Outstanding Young Leaders Award" for 2020. Being optimistic in challenging times can be daunting, which is why this year the Forum also includes sessions on how are our attitudes and behaviours; maneuvering the risky waters of a post-pandemic marketplace; reimagining cityscapes to be more adaptable, efficient, and flexible; insights and visions into the retail market; strategic capital management; workable strategies for the office marketplace; the upshots of the multi-unit sector; and how development activity is proceeding during COVID-19. Virtually everything you need, in one place, with one click. Best wishes to you and your families for a happy, healthy and safe New Year.

George Przybylowski

Breaking down barriers and creating accessibility has long been a fundamental cornerstone of our events, and this year www.realestateforums.com

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CONTENTS

EDITORIAL 3

INFORMA CONNECT – REAL ESTATE Andrew Mullins, Chief Executive George Przybylowski, Vice President EDITOR Michel Rémy

Moving Forward

ALTUS GROUP REPORT 8

Bracing For Change: Urban Areas Face Unique Challenges Across Sectors

ASSOCIATE EDITORS Kelsey DeLuca Jean Pickering DESIGN Informa Connect Design Studio SPONSORSHIP & ADVERTISING SALES Frank Scalisi, Director 416-512-3815 frank.scalisi@informa.com

COMMERICAL MARKET STATISTICS 53

Latest Commercial Market Statistics Across Canada

FOR MORE INFORMATION VISIT realestateforums.com ABOUT THE CANADIAN REAL ESTATE FORUM MAGAZINE The Canadian Real Estate Forum Magazine is published three times annually. Editions coincide with key Canadian Real Estate Forums and associated markets: Spring: Montréal • Vancouver • Edmonton Fall: Ottawa • Calgary Winter: Canada-wide • Global E-magazines are available at realestateforums.com 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 Connect.

REALINSIGHTS 61

Top 10 Real Insights from the Toronto Real Estate Forum

INTERVIEW SERIES: ONE ON ONE WITH INDUSTRY EXECUTIVES 56

Question 1: What Was The Greatest Challenge That You Faced This Year?

Question 2: As You Look Forward to 2021, What Do You Foresee On The Horizon?

Canadian Real Estate Forums / WINTER 2020

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REAL ESTATE FORUMS TORONTO 16

Moving to a New Normal

Incomes Can’t Defy Recession Indefinitely

Nothing Beats Face-To-Face

Pandemic Hastens Advent Of The 15-Minute Metropolis

Planning Ahead In Uncharted Territory

The Essential Human Factor: Nurturing Our People, Projections In A Pandemic

Investment Opportunities, Accelerating Trends, Improving Efficiencies: QuadReal Benefits From COVID’s Silver Lining

Sincerest Thanks To Sponsors For Their Ongoing Commitment

United States Still Strategic, But Pandemic Prompts New Look At Europe, Asia

Smart Retail Is A Good Strategy

Stay Focused On Long-Term

Better Messaging Needed To Repopulate Downtown

This Crisis Toughens Tomorrow’s Real Estate Leaders

A Very Compelling Light At The End Of The Tunnel

Young Leaders Program Injects Energy and Diversity Into the Mix

Pandemic Propels Proptech Pivot

Expect Sharp Rebound As Canada Emerges From Crisis Cocoon

Future Mall Owners Need to Engage with Customers as Much as Retailers

Struggling Retailers Face Make-Or-Break Holiday Shopping Season

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THE ALTUS REPORT In this issue of the Altus Report, we discuss real estate investment trends in the Vancouver and Toronto market areas.

BRACING FOR CHANGE: URBAN AREAS FACE UNIQUE CHALLENGES ACROSS SECTORS

By Raymond Wong Vice President, Data Operations Data Solutions Altus Group

Erika Siegert Senior Analyst National Research Insights Data Solutions Altus Group

The COVID-19 pandemic has disrupted all sectors on a global scale but has posed especially unprecedented challenges among Canadaâ&#x20AC;&#x2122;s larger metropolitan areas. Most offices have now remained empty for nearly ten months as initial restrictions were put in place in mid-March, leaving some adjacent retail and restaurant businesses among city centres struggling to survive. While the industrial real estate market has fared well due to growing e-commerce sales, space shortage challenges have increased the need for industrial developments in proximity to city centres in order to sustain rising demand. In the multi-family market, rental units in urban areas have seen a surge in supply as consumers have now modified their space and location preferences due to pandemic-induced lifestyle changes. However, new home sales are still growing, indicating some recovery in both Toronto and Vancouver markets. While it is still early in the second wave to see its ultimate impact, transactions continue to move forward for now, in alignment with changing market dynamics.

Despite restrictions lifting after the onset of closures in the spring, the second wave threatens to make an even stronger impact on employment and business survival moving forward, depending on how long the spike in case numbers will last. Following a record high in May, unemployment in most Canadian markets has seen some recovery as restrictions lifted, where B.C. saw the strongest increase in employment compared to other provinces. In Ontario, employment in the Toronto CMA alone jumped twice as much as overall provincial growth, reaching 93.3% of pre-pandemic levels in August, according to Statistics Canada. Nationally, strong gains were seen in the manufacturing sector, while recovery among accommodation, food services and retail trade has slowed. This trend has been bolstered by new government restrictions reverting to a modified stage two, which include temporarily prohibiting indoor food and drink services, the closure of multiple entertainment amenities, and overall tightened gathering limits coming into effect in mid-October in some parts of the Greater Toronto Area. Some of these restrictions have since been lifted, but dining and gathering limits remain, posing challenges for restaurants and small businesses as cold

Chart 1: OfďŹ ce Sublet Availability as a % of Available Space Q3 2019 VS. Q2 2020 VS. Q3 2020 '$"!# !"#$%

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Weathering the challenge together

Keep business moving, improve online interactions, support your residents and implement new safety protocols with technology designed to help — even in the most di cult circumstances.

YARDI CANADA LTD. Maintaining business continuity and preparing for the future

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weather approaches. Although Statistics Canada reported a slight slowdown in overall business closures in May and June, and the federal government announced continued support for small businesses by way of the Canada Emergency Rent Subsidy and the extension of the Canadian Emergency Wage Subsidy, closures could persist as the upcoming winter months may dampen demand. Empty city centres drive lasting uncertainties In most markets across Canada, office availability has continued to inch upwards since the spring, driving change especially in downtown cores where numerous large companies, including banks and advisory firms, are substantial tenants. While both Toronto and Vancouver vacancy rates are among the lowest compared to other major markets, office sublet availability as a percent of available space is the highest – Toronto at 21.8% and Vancouver reaching 32.5% in the third quarter this year. Despite uncertainties, new supply is moving forward in both markets, with tenants still committed to

existing long-term leases. An example of this is Google’s rising development in Toronto’s downtown at 65 King Street East, with 400,000 square feet of office space that is currently under construction and set for completion in 2021. Similarly, Amazon announced an expansion in Vancouver and is set to acquire over 1 million square feet of office space over 35 floors in the redevelopment of the downtown Canada Post building. This comes after news of multiple tech giants announcing more permanent work-from-home allowances, which has prompted speculation as to whether other large companies intend to reduce their office footprints moving forward. Deloitte seems to be leading the pack in this decision-making, as they recently announced the closure of four UK offices with plans to transition staff from these offices onto “work-from-home contracts.” At the same time, while the sublease trend was initially seen with small tenants as a means of reducing costs during this period of re-evaluation, the prevalence of subleases among larger companies is growing as well.

network operating with next to no demand compared to pre-pandemic levels, posing additional vacancy challenges if they cannot survive long-term. As the pandemic endures, many optimistically project that a return to offices will not be seen until well into 2021. While this long-term timeline could leave room for larger companies to start offloading some space, the ongoing battle between the benefits of working from home and in-person office culture will likely lead to some downsizing, but more importantly, drive a re-think of current spaces to better meet the needs of the returning workforce. Return to work considerations will not only include ensuring physical distance between employees and introducing new safety measures, but could also include a shift in tenant mix towards adding more co-working space in office complexes – a strategy intended to offer further flexibility for tenants should they need to add more space to accommodate ongoing capacity changes. These growing trends will likely persist, but as the market continues to change, long-term effects of the pandemic on downtown offices remain to be seen.

Uncertainties in the office market have created subsequent complications, especially in urban areas. In addition to street-front retailers facing challenges, downtown Toronto’s now nearly empty financial district leaves about 1,300 retailers in the underground pedestrian PATH

Strong performing industrial sector still vulnerable to challenges As the industrial sector maintains its strong position throughout the pandemic, challenges with growing demand and space shortages are expected to continue. Ongoing pandemic restrictions encouraging

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Canadian Real Estate Forums / WINTER 2020

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the next normal of real estate

It is time to reimagine real estate and the future of work. Is your business prepared to thrive in a post-pandemic world? jll.ca/reimagine

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individuals to stay at home have made the distribution and timely delivery of goods ever more important, which has further increased demand for top-tier industrial space. The holidays could also intensify already heightened online sales volumes, as the Retail Council of Canada projects it to be the most e-commerce-driven holiday season on record. With that, distribution may be further impacted as consumers may make purchases earlier in the season in anticipation of potential delivery delays. While logistics operations have had time to adjust to heavier demand since the onset of stay-at-home measures, unique changes in purchase patterns this year may require further adjustments in order to meet fulfillment timelines. Strong demand has bolstered the industry thus far but still poses availability challenges. While national industrial availability has remained stable at 3.1% in the third quarter, availability in both the Vancouver and Toronto markets are tight â&#x20AC;&#x201C; Vancouver dropping from 2.7% in Q2 2020 to 2.2% in Q3 2020, and Toronto sitting at 1.9%, marking the two

lowest rates among major markets. Both markets have also seen an increase in industrial transaction volume compared to volumes recorded in 2019, however, high-quality industrial space with state-of-the-art capabilities are hard to come by. Where availability is tight, especially in metropolitan areas, investors are looking to expand outwards while maintaining a prime location that maximizes convenience and minimizes costs for distribution efficiency. In Toronto, developments have been expanding in the east end with growing infrastructure investment in the surrounding 400-series highways, as well as an increase of affordable housing in the area. In Ajax, for example, a new 1.1 million square-foot Amazon fulfillment centre was recently announced, set to kick off the development of the GTA East Industrial Park. The area would include another nearly 1 million square feet of industrial space, projected to be completed in 2021. Amazon recently opened a fulfillment centre in neighbouring Scarborough and has outlined additional expansion plans for Hamilton and Stoney Creek. The Vancouver industrial market is also expanding with multiple new developments over the second and third quarter this year in Abbotsford, Burnaby, Richmond and Surrey. Still, as rental rates rise and deals continue to close, more space will be needed to meet rising demand.

Rising supply in urban rental markets While the residential market experienced a pause in what is typically the most active season of the year this past spring, overall transactions improved as restrictions lifted, but the priorities of both renters and homebuyers have shifted along with lifestyle changes brought on by the pandemic. This has ultimately created a new dynamic among multi-family markets especially in urban areas. Both Toronto and Vancouver have seen a shift in multi-family rental markets resulting from pandemic-induced changes. Border closures have caused national immigration levels to drop 41% in the first seven months of 2020 compared to the same time last year, with Ontario immigration decreasing by 43%, and British Columbia by 33%, according to Immigration Canada. This, paired with the transition to online-learning for post-secondary education leading to the loss of international students returning to rental units, has contributed to soaring supply levels in both markets. Rising supply has also been impacted by plummeting demand for short-term or vacation rentals as a result of pandemic restrictions limiting business travel and tourism, causing their subsequent conversion into long-term rental units further contributing to growing supply in the Toronto and Vancouver markets. Whether or not absorption will catch up remains to be seen, but prolonged border closures, travel regulations and remote work will likely

Chart 3: Greater Toronto Area New Home Sales by Type YTD Q3 2019 vs. YTD Q3 2020

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Chart 4: Vancouver New Home Sales by Type YTD Q3 2019 vs. YTD Q3 2020

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continue pushing these trends forward. This growing supply has caused rental rates to drop in both markets. In the third quarter of this year, the Toronto Real Estate Board reported an increase in rental listings by 114% compared to the same time last year and reported a year-over-year dip in one-bedroom rental rates by 11%. Similarly, the PadMapper October 2020 Canadian Rent Report outlined a year-over-year drop in one-bedroom rental rates by almost 8% in Vancouver. One-bedroom and studio rental rates are also reported to be dropping more than that of two- or three-bedroom units, reflecting continued preference for more space, especially to accommodate home offices. Still, the two cities remain the most expensive to rent in compared to other Canadian markets. This prolonged trend has led some to extreme measures, with some landlords offering incentives for renters to sign leases. These have included offering multiple months

of reduced or free rent, gift-cards, move-in bonus credits or waiving parking fees. Although some renters have considered taking advantage of these perks, surging supply could persist as long as restrictions remain in place. Since stay-at-home measures delayed spring sales in the new home market, pent up demand shifted forward into the summer months, with some areas reporting a notable increase in sales compared to previous years. While changing buyer priorities point to a preference for more space, new condominium sales have seen some signs of recovery in the Toronto market, with Toronto condominium sales jumping 35% in Q3 2020 compared to the same quarter last year, according to the Altus Group Condominium Apartment Monitor. The Vancouver market has also seen some signs of recovery, with condominium sales improving from the second quarter, but still dropping year-over-year. At the same time, heightened demand has been seen in the single-family market, with Toronto single-family sales more than doubling, and Vancouver single-family sales growing more than three times in Q3 2020 compared to the same period last year. This growing momentum has continued into the fall, reflecting more owner-user transactions

rather than investor-driven transactions, a trend also resulting from ongoing pandemic restrictions. Will rental demand return to pre-pandemic levels? Changes brought about by the pandemic will inevitably continue to impact the market in the foreseeable future, leaving cities scrambling to adjust. The evolution of where and how employees work has been seen now more than ever, with many signs pointing to future working models that prioritize flexibility and employee preferences, with remote work at least part of the time. While this is likely to impact office footprints for many large companies, landlords and tenants are already considering return to work strategies on top of office re-structuring plans to accommodate changes to safety requirements. The result of these strategies will ultimately impact where people live, work and play, specifically in metropolitan areas where retail, entertainment, and restaurant businesses, as well as the residential market, will fall in line. Looking ahead, as many wonder if reduced rental demand in both Toronto and Vancouver markets will recover to pre-pandemic levels, many speculate that existing trends and challenges will endure as long as restrictions remain in place. â&#x2013;

Canadian Real Estate Forums / WINTER 2020

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Canadian Real Estate Forums / WINTER 2020

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MOVING TO A NEW NORMAL

Jaime McKenna Managing Director & Group Head, Real Estate Fengate Asset Management

It has been an interesting year with the tremendous global impact of COVID-19. In the real estate industry, optimism was already returning to the marketplace in June. Today we see the Canadian market starting to trade again with respect to certain asset classes. While office and retail remain very muted in terms of overall investor sentiment and interest, the market is becoming quite resilient in industrial and multifamily. For many of us, the key is to think in terms of three to seven years versus trying to take advantage of any immediate buying opportunities this year, because it’s too soon to fully understand the full impact of COVID-19 on the economy. Some things are fairly certain. We know that Canada has a housing shortage. We know that immigration numbers will come back once the public health crisis resolves. Fundamentals in the apartment space will continue to hold. Rents are compressing right now, so our starting point will be slightly lower as we underwrite in the future. The industrial asset class seems to be benefiting from the pandemic because it exposed supply chain gaps within the Canadian marketplace – hence the bullish optimism around that asset class. Retail has already had a resurgence and a big catch-up and will likely fare better than everybody expected. We have heard people ask, “Is office finished?” but are already seeing offices as full as COVID restrictions will permit. The www.realestateforums.com

Ted Willcocks President & CEO Triovest

reality is that people wanted flexibility to work from home versus being in the office before the pandemic accelerated that movement. The office asset class is here to stay but will likely undergo a change in velocity, a disruption we can work through. Given news of potential vaccine discovery, we can anticipate that the markets will start to trend back — somewhere in the sphere of normal volumes — for 2021. Opportunistic investors who move quickly will tremendously benefit from distressed assets, particularly in the industrial and multifamily space in the coming year. A large draw of the Real Estate Forum has always been the social aspect. While we all miss networking and dining with peers, until normal life resumes, the Forum has done a great job at enriching the content to appeal to a virtual audience. We have diverged somewhat from the traditional. New themes have emerged, and we look forward to hearing from industry leaders on the mental health and long-term impacts of working from home, as well as diversity and inclusion. Having struggled through COVID-19 and had several months to talk about its impact on our asset classes we understand that, today, Forum participants want to hear about the path forward and where are the opportunities to invest. This event is about more than cap rates and interest rates. Our aim is to challenge participants in terms of thought. Beyond real estate, let us all come away thinking of ourselves as leaders and of the future of our teams. ■ Michelle Morra 17

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INCOMES CAN’T DEFY RECESSION INDEFINITELY

Benjamin Tal Deputy Chief Economist CIBC World Markets

The world faces a winter of discontent, predicts CIBC World Markets’ deputy chief economist, as markets continue to dance to the tune of the coronavirus. “This recession is unlike any other,” observed Benjamin Tal. “The virus determines the agenda.” After a 45% improvement in economic activity in the third quarter, growth will plunge to near zero during the next quarter or two. “Some places like China, which is way ahead of the United States, face better prospects, especially in large cities,” he conceded. “But North America and Europe will certainly see setbacks.” Core real estate markets won’t see significant changes in coming months. “The rental market will continue to confront major demand challenges, reflecting lack of investment and reduced immigration as well as the advent of very large supply still in the pipeline,” Tal explained. Rebound expected mid-2021 Low-rise rentals look likely to outperform the high-rise segment, as a weakening economy drives up vacancies. Low-quality properties will face a credit crunch this winter – albeit a temporary one. 18

“The market is exaggerating the impact of the long-term effects of working from home,” Tal asserted. “Demand will return to 80-85% of previous levels.” The immigrant crunch should also only prove temporary, he added.

“Bond and stock markets are bound to vaccine and virus news,” Tal said. “Once we show that we’re not totally defenseless, optimism will steepen the yield curve and push up long-term interest rates.” Rebalancing required Though the flood of liquidity that the feds injected into the economy, early-on, prevented a panic, it also has produced significant distortions.

“By the second half of 2021, immigration will rebound,” Tal reassured, though he cautioned against complacency. “As Joe “The rental market will Biden removes continue to confront immigration strictures, Canada but, as will face major demand stiffer competition for the challenges, reflecting 400,000 new immigrants lack of investment and whom it wants to welcome.” reduced immigration as New American green initiatives could also constrain Canadian crude oil shipments.

well as the advent of very large supply still in the pipeline.”

“Keystone is clearly negative for Canada, but more-restrictive on American energy regulation will, paradoxically, be positive for Alberta,” he anticipates. “A lot depends on whether we witness a split Congress.” Interest rates will track the trajectory of the virus and the prospect for a vaccine, better antiviral treatment and the rate at which rapid testing rolls out.

“There will be a permanent increase in government spending to finance increased social assistance.” Tal predicted. “Expect higher taxes on either capital gains, dividends, wealth or big tech – though not on income.”

“Incomes are rising at the fastest rate in history,” he concluded. “That should not be happening in a recession. Obviously, some people are getting money who should not be. A lot of it has gone to the Amazons of the world, instead of supporting small, struggling Canadian businesses.” ■ Robert Frank

Canadian Real Estate Forums / WINTER 2020

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H&R REIT

SmartCentres REIT

Amica Senior Lifestyles Inc.

Crestpoint Real Estate Investments LP

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$226,500,000 Four Construction Loans

$100,000,000 Revolver

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May 2020

Choice Properties REIT

Allied Properties REIT

H&R REIT

RioCan REIT

AIMCo / Fitzrovia Real Estate Inc.

$1,000,000,000 Three Senior Unsecured Debenture Offerings

$700,000,000 Two Senior Unsecured Debenture Offerings

$500,000,000 Revolver

$350,000,000 Senior Unsecured “Green” Debenture Offering

$298,000,000 Construction Loan

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March 2020 / May 2020

February 2020 / May 2020

April 2020

March 2020

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Starlight U.S. Multi-Family (No. 1) Core Plus Fund

Crombie REIT

BCI QuadReal Realty

Artis REIT

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$218,200,000 Fund Unit Offering

$58,500,000 Trust Unit Offering

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cibccm.com 416 956-6200 CIBC World Markets Inc. is a legal entity name. CIBC Capital Markets is a trademark brand name under which different legal entities provide different services under this umbrella brand. Products and/or services offered through CIBC Capital Markets include products and/or services offered by the Canadian Imperial Bank of Commerce, the parent bank of CIBC World Markets Inc. and various other subsidiaries of the Canadian Imperial Bank of Commerce. CIBC World Markets Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. CIBC World Markets Corp. is a member of the Financial Industry Regulatory Authority. The CIBC logo and “CIBC Capital Markets” are trademarks of CIBC, used under license. All other trademarks are owned by their respective trademark owners.

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NOTHING BEATS FACE-TO-FACE Annie Bergeron Design Director, Principal Gensler

“Face-to-face is linked with empathy and trust, which are the foundation of innovation.”

In the Summer/Fall 2020 issue of its U.S. Workplace Survey, Gensler asked people whether they would prefer to work full-time in the office, two or three days at home, three or four days at home, or full-time at home. Roughly 30 percent of respondents said they preferred to come into the office full-time; 20 percent said they would work well at home full-time; and 50 percent were somewhere in the middle, preferring some kind of hybrid work arrangement. The survey also asked people if they still wanted their own dedicated desk at the workplace. While the majority said yes, when asked if they would trade the dedicated desk for more flexibility to work from home as needed, 40 percent said they would.

pointing to a hybrid of office and home, though yet it’s unknown exactly how much hybrid adoption there will be. Bergeron shares several reasons why the office is far from becoming redundant.

According to Annie Bergeron, design director, principal, Gensler, the firm’s research has shown time and time again that when employees are empowered to have more choice, they have better balance in their lives and are more productive and generally happier. Working from home during the COVID-19 pandemic hasn’t been a matter of choice for many of us, but a great number of employers have certainly become more open to making it an option. The future of work seems to be 20

Working completely remotely means sacrificing face-to-face interaction. For anyone hoping to move up in an organization, working remotely can hinder success. If offices are centres of attraction for talent, where people go to see and be seen, an employee who is working remotely is not being seen, heard, or perhaps even considered. Besides improving opportunities for advancement, seeing colleagues in person also fosters collaboration which, according to the Gensler survey, is happening less because of COVID-19. People who are working 100 percent from home are only collaborating 27 percent of the time, say the findings, compared with closer to 50 percent of the time, pre-pandemic. “Face-to-face is linked with empathy and trust, which are the foundation of innovation,” Bergeron says. She refers to a few important levels of working relationships made possible by face-to-face interaction: peer to peer relationships, which foster the knowledge transfer that happens organically when peers are co-located; mentor-mentee relationships, which are really about succession planning; and the friendships formed in the office, whether close

friendships or “weak ties” – the rapport people have with co-workers or team members that are an extension of their friendship circle. “People who have a lot of weak ties are happier, more fulfilled,” Bergeron says. “Working from home severs this.” She adds that for people who live alone, these ties can constitute up to 75 percent of daily human interactions – and today, with many people now working 100 percent remotely, many are feeling the effects of loneliness. In another sense, the pandemic may have eased the isolation for some people. Pre-COVID, a company with a headquarters might have people in satellite offices join meetings virtually. Those people would have a lesser experience than the others who meet face to face. Since the start of the pandemic, however, everyone meets virtually. “The pandemic has been kind of an equalizer in terms of inclusivity and equity,” Bergeron says. “With COVID these people feel fully integrated with their teams because you’ve taken location out of the equation.” “A future concern is, when some people are there in person and some are remote, how to create experiences that are not almost like a caste system where some people are dispersed or disconnected? How can we leverage technology in the future to have a better telepresence?” ■ Michelle Morra

The link to download the Gensler Workplace Survey: https://www.gensler.com/research-insight/gensler-research-institute/us-workplace-survey-2020-summer-fall Courtesy of the Gensler Research Institute Canadian Real Estate Forums / WINTER 2020

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“We’re increasingly concentrating our portfolios in city cores, to deliver more and better building services.” Serve, recommend, reorient, educate Gecina’s early commitment to green properties and high-quality standards, specification and services have already earned the brand a handsome reputation. “Our top priority is to take our tenants’ needs into account. We never assume that we know better than them – but we’re talking about spoiling people, either,” Brunel underscored. “We don’t necessarily do whatever they want. Sometimes recommending alternatives and helping them to reorient their priorities will serve them better.” Gecina applies its You First approach to all its stakeholders, not just its customers.

PANDEMIC HASTENS ADVENT OF THE 15-MINUTE METROPOLIS

Méka Brunel Chief Executive Ofﬁcer Gecina

“Crises don’t create trends, but they definitely accelerate them,” maintains Gecina Chief Executive Officer Méka Brunel. The coronavirus crises has fast-forwarded to movement to reshape major cities into a collection of socially and economically stratified, self-sufficient communities, by placing amenities in close proximity. “People want to be within 15 minutes of whatever they need,” she explained, “whether it’s by walking or public transit. This will gain momentum and alter the shape of redevelopment.” The second trend that has picked up the pace is the online revolution, which has spurred more flexible use of space and ways of life. “You can work and enjoy leisure activities from anywhere,” Brunel commented. “A lot of administrative and middle-management jobs will give way service and value-added jobs, requiring us to adapt our properties and businesses accordingly.” The third trend is climate change. The pandemic has stepped up the pace of Gecina’s carbon footprint reduction plans. 22

“We also adhere to that principle in our dealings with our employees, our shareholders, our peers, our neighbours, our mayors and the environment,” she continued. “We will do whatever we’re able to do.” The goodwill that Gecina generates has bolstered its position as Europe’ biggest real estate firm, with €20 billion in assets.

“Our top priority is to take our tenants’ needs into account. We never assume that we know better than them – but we’re talking about spoiling people, either. We don’t necessarily do whatever they want. Sometimes recommending alternatives and helping them to reorient their priorities will serve them better.” Help, when help is needed “These actions are not merely the right thing to do. This is not charity. This is above all about respecting people and remaining responsible to the community,” Brunel declared. “We call our social action Utiles ensemble: Helping to support one another and to nurture those relationships.” For example, at the outset of the coronavirus crisis, Gecina offered its suddenly empty student residences to nurses and other clinical workers. “We also put some properties at the disposal of community organizations – particularly those who help domestic violence victims,” added Brunel, who also donated two months of her salary to charity. “Humankind has always shown that it can come up with solutions,” she observed. “This is one of those times. Many years from now, we’ll look back and say ‘Wow!’ My grandchildren will ask me whether the tales that I’m telling them are true.” “What use is it to pile new money on old, when people are suffering?” she concluded. “What we’ve done amounts to small gestures. Each, on its own, will only do a little. But small gestures add up.” ■ Robert Frank Canadian Real Estate Forums / WINTER 2020

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PLANNING AHEAD IN UNCHARTED TERRITORY

Paul Mouchakkaa Managing Partner & Head of Canadian Investment Management BentallGreenOak

As investors prepare their real estate portfolios for 2021, Paul Mouchakkaa, Managing Partner and Head of Canadian Investment Management, BentallGreenOak, says three questions are top-of-mind: “What are the cyclical versus secular shifts that are either new or that have been accelerated by the pandemic? Are you an absolute return investor (with perhaps a shorter time horizon) or a relative return investor (longer-term, beta driven)? Are you pursuing a diversified strategy, or is your portfolio highly concentrated because retail and office are perhaps more challenged looking forward? Given these considerations, how might your investment strategy shift?” Because the pandemic is still ongoing, Mouchakkaa says it’s a challenge to try and predict which parts of the industry will come roaring back with a healthy economy and which parts may be 24

“So much of the difficulty is economic, just purely cyclical, but there are some secular changes and behaviours that are going to continue post-COVID.”

permanently impaired. “So much of the difficulty is economic, just purely cyclical, but there are some secular changes and behaviour that are going to continue post-COVID,” he says. “More online shopping, more remote work, and an overall focus on health and wellness will have lasting effects on all aspects of commercial real estate.”

City centres have certainly felt the impact of COVID-19 with a large part of the population working from home. Mouchakkaa says that whereas investors tilted more toward the core, recently there may have been a shift in the other direction, toward well-located suburban properties. This doesn’t worry him, however: “I think it’s a type of softness that you could invest through.”

Asked about opportunities in the coming months, Mouchakkaa says there hasn’t been much distress to date. Some of the underlying challenges in the economy may have been papered over with the unprecedented monetary and fiscal support packages. So long as there is an effective vaccine on the horizon and interest rates remain low, he doesn’t foresee Canada having of the type of distress that Canada and the US experienced in the early 1990s. Beyond the industrial and multifamily sectors, which are universally considered more resilient investment areas today, he points to what has truly succeeded in this pandemic and seems poised for continued success: real estate that is tied to technology and sciences.

His colleague is also optimistic. Phil Stone Principal, Head of Canadian Research at BentallGreenOak, says that prior to the pandemic, Canada’s top metropolitan areas saw significant outflow of people into the suburban bedroom communities “but international immigration more than backfilled that void left by people moving out of the city. You had extremely strong population growth in Canada, but the immigration tap is now only on about a quarter turn whereas it was full blast before.” Stone expects immigration to eventually come back to pre-COVID levels. “Urban core markets will still be able to attract from abroad,” he says. ■ Michelle Morra Canadian Real Estate Forums / WINTER 2020

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Learn more about our Real Estate group and our recent transactions by scanning the QR code above. TD Securities is a trade-mark of The Toronto-Dominion Bank, representing TD Securities Inc., TD Securities (USA) LLC, TD Securities Limited, London and certain investment activities of the Toronto-Dominion Bank. ® The TD logo and other trade-marks are the property of The Toronto-Dominion Bank. (2011)

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THE ESSENTIAL HUMAN FACTOR: NURTURING OUR PEOPLE, PROJECTIONS IN A PANDEMIC

Michael Turner President Oxford Properties Group

“As for returning companies to downtown, we may see 'the COVID reversal train' while also 'a more equal distribution of the downtown versus the suburbs' using a 'hub and spoke strategy' instead of 'a central office strategy' to build brand and team loyalty.”

Since the onset of cellular technology, say with the Blackberry, “where the phone [and work communication] went with you everywhere,” the social contract between employer and employee has been changing. It was a fundamental shift then, and now, with the pandemic, a few notable things have happened as it relates to this evolving social contract at Oxford. “The more capabilities we provide to [our] people in their pocket the more they can work from anywhere.” The human factor, of course, has been thrusted to the forefront in these anxious COVID times to reveal “much more raw, real and human relationships between all of us” and that the employee can indeed be trusted by the employer to work from anywhere while also be granted the “flexibility where s/he wants it.” “[My people need] to be at their best and supported in this time of difficulty […] so that they can be effective,” asserts Michael Turner. “I get value out of my best assets.” From the start, “we had to figure out how to operationalize at scale and in real-time, worrying about things like cash funding on a daily basis,” which is something real estate companies’ “infrastructure is not designed to support.” The heavy burden on our employees across four continents was not lost on us as we shifted to working from

home. But we pivoted successfully to “move more [of our global] operations to the cloud”, a journey that had already began pre-COVID, thus “the mindset of our employees [started to change] and to ‘Think Global, Act Local’” by employing new tools and digital technologies, “our MO, now”. The plan is to continue to “build on the infrastructure” that my team has put into place in that time period, so it’s “accelerated our aspirations of building and operating a global real estate company." Oxford’s long term decision-making is moving in a positive “direction of travel” as we “increase our exposure to strategies that would historically be called ‘alternatives or niches’” such as in industrial, cold storage, data centers, and life sciences, “all trends that were started before COVID and have meaningfully accelerated” because of it. In terms of valuation, there’ll be attractive opportunities across the board in 12 to 36 months. As for returning companies to downtown, we may see “the COVID reversal train” while also “see a more equal distribution of the downtown versus the suburbs” using a “hub and spoke strategy” instead of "a central office strategy” to build brand and team loyalty. But employers and employees will need to “articulate this idea of work from anywhere” while using cloud computing and new ways to mentor and create. ■ Natasha Arora Canadian Real Estate Forums / WINTER 2020

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INVESTMENT OPPORTUNITIES, ACCELERATING TRENDS, IMPROVING EFFICIENCIES: QUADREAL BENEFITS FROM COVID’S SILVER LINING Dennis Lopez Chief Executive Ofﬁcer QuadReal Property Group

“When it comes to interacting with your colleagues, generating creativity, building relationships and trust...you need to go into the office.”

When COVID-19 hit last March, QuadReal quickly decided the best COVID induced investment opportunities would be in the public markets. “We thought this was the most interesting place to start investing because the public markets immediately adjust pricing for events like the pandemic, and the private markets always react a lot slower,” says CEO, Dennis Lopez.

“So, we literally adjusted all our investment activity, re-evaluated our entire pipeline and terminated or paused over 70 per cent of our projects. Then we started to rebuild our investment pipeline with COVID impacted transactions. The public market investments were our first. The pre-COVID projects we continued to fund were those important to us strategically or those that we thought would be able to economically withstand the oncoming pandemic.” In addition to presenting investment opportunities that may not have otherwise been available, the pandemic also facilitated a number of internal efficiencies within the company. “We used to manually do 150 - 180 tax returns a month. Now, 80 per cent of those are done using AI. Instead of passing papers around to physically sign, we now use electronic signatures. These changes were all underway but were accelerated when we found ourselves working from home...we had to have better processes” said Lopez. COVID also accelerated societal trends that were already in place, such as the shift from bricks-and-mortar retail to e-commerce. While this has been devastating for some parts of retail, it has been a boon for the industrial sector. “We think the dramatically increased penetration of e-commerce isn't going away post-COVID. Many more people have learned to use the internet for shopping, they're not going to go back to their old habits” says Lopez. Regarding offices, government talks about mandating lower density could help the asset class, he says. “They’re talking about mandating the density to be at least 200 sq. ft. per person. But frankly I think tenants will do that, and probably more. While the demand for office space will be negatively impacted by more people working more from home, it will be positively impacted by higher space requirements per employee. We feel the negative reaction to office usage is overdone. When it comes to interacting with your colleagues, generating creativity, building relationships and trust...you need to go into the office.” ■ Barbara Balfour

Canadian Real Estate Forums / WINTER 2020

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TO TAKE CARE OF BUSINESS, TAKE CARE OF YOUR PEOPLE them,” says Adam Paul, President & CEO, First Capital REIT. “The world today is so dynamic. You just never know what’s around the corner, and you really need a corporate culture that has the ability to pivot on a pretty quick dime.” Adam Paul President & CEO First Capital REIT

Much of the real estate industry is about long-term business, and making investment decisions that will have implications for decades. Of the tough lessons learned in 2020, one has been the importance of adapting quickly. “We planned for a lot of things, but a global pandemic was not one of www.realestateforums.com

“The other, obvious lesson is that liquidity is so important,” Paul adds. “The position you might find yourself in one day can be totally insufficient another day.” When COVID-19 hit, 50 percent of First Capital’s tenants were mandated to close and the other 50 percent were much busier than normal. The task at hand was to help those who needed resources, government programs and other support, while ensuring that the tenants deemed essential by governments were able to get their goods and services to consumers “and deal with operational risks of having a higher demand than normal,” Paul says.

2020-11-18 10:52 AM 2020-11-18

Back in mid-March, First Capital converted its in-person work environment to a digital one within 48 hours. Once it became apparent that the pandemic would last awhile, First Capital took immediate health and wellness measures. The REIT hired a professional instructor to offer Pilates, yoga and meditation classes to employees, offered webinars to promote mental health awareness, and hosted a fitness challenge and a sustainability challenge employees could compete in through an app. Other virtual initiatives have included weekly social gatherings, and a Halloween party and dress-up competition. “People are working together but apart,” Paul says. “The health and wellness piece remains top of mind and, in my opinion, is not being adequately covered by the media relative to other aspects of COVID, like daily case count.” Fostering relationships with tenants, as well as employees, has been an important opportunity brought on by the pandemic. “You really expose one’s true character in the midst of a crisis,” Paul says. “We must ensure that our character that’s exposed is what we want it to be.” ■ Michelle Morra 29

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A VERY COMPELLING LIGHT AT THE END OF THE TUNNEL

Brett Miller Chief Executive Ofﬁcer Canderel

In mid-March of 2020, the team at Canderel really mobilized. “It was almost like a swat team, with an urgency to activate our online capabilities,” says Chief Executive Officer, Brett Miller. “We had to put in place our skeleton teams, learn how to monitor our buildings offsite, put in place all of the protection protocols.”

Yet Miller has come to realize that the second phase of the pandemic is more difficult because the diverse population of its workforce – spanning five generations – responds in different ways and has different concerns. Health and wellbeing are a concern particularly for the most senior employees, while the 25- to 30-year-old crowd, who live in an urban environment, often alone, have found imposed lockdowns extremely frustrating. In between those two age groups, others have tried to run a family while working full-time and virtually. Miller says he himself fits in the demographic of people whose careers are established, who have had an easier time of the pandemic, with more leisure time and a relaxed approach to work-life balance. In general, though, he says that trying to get everyone excited about buying a building or developing a condo tower has been tough.

“It simply didn’t resonate,” he says. That necessitated really listening to people’s concerns, doing a lot more talking to individuals, “though not in the same room, so you missed the nonverbal cues and the body language. That was very challenging.” These are difficult times for downtown cores, but Miller believes that in two or three years these centres will thrive again. Montréal specifically, he says, is about to see light at the end of the tunnel. “That light is very strong and compelling,” he says, citing a totally refurbished Ste-Catherine Street, a new urban park at McGill College, and other major renovations throughout the city. At Canderel, Miller says that the pandemic has created opportunities, including interesting acquisitions or partnerships. He is optimistic about prospects for 2021, both for his business and for the city. “In two years, Montréal will have absolutely spectacular infrastructure and be one of the most exciting and dynamic and modern cities in North America,” he says. ■ Michelle Morra

“In two years, Montréal will be one of the most exciting and dynamic and modern cities in North America.”

Canadian Real Estate Forums / WINTER 2020

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PANDEMIC PROPELS PROPTECH PIVOT

migration from city core apartments to more traditional homes.” For homebuilders, proptechs deployed green materials and energy-efficient homes. Multi-family maintenance is increasingly self-operated, reducing costs and improving user satisfaction, as real estate increasingly becomes seen as a service – a concept that resonates with commercial builders who are undertaking a similar transformation.

“People want smart buildings. The pandemic has dramatically driven demand for the heightened health and safety that these systems deliver. Users are willing to pay a premium for such protection.” enabled equally effective security protocols.

Dharmesh Ajmera U.S. Proptech Sector Leader Deloitte & Touche LLP

Investment in real estate technology firms (proptechs) soared to this year attracting more than $2.5 billion in capital as they rose to confront the challenges of coronavirus crisis that has blurred the boundaries between live, work and play. “Proptechs have proved proficient at scaling their capabilities to fill a vital breach created by COVID-19,” acknowledged Deloitte’s U.S. Proptech Sector Leader Dharmesh Ajmera. “For example, iBuying proptechs accelerated their growth to facilitate an unanticipated 32

“People want smart buildings,” Ajmera declared. “We’re not merely talking about smart elevators. When people enter your space, the office should be able to recognize the current level of activity and manage the premises effectively by adjusting lights as well as the flow of people entering. The pandemic has dramatically driven demand for the heightened health and safety that these systems deliver. Users are willing to pay a premium for such protection.” As owners automate the infrastructure inside their properties, they also need to ensure that they don’t expose themselves to unanticipated risks. “It only takes one vulnerable system to compromise your entire infrastructure,” he cautioned. “That’s why many companies have moved beyond the cloud and contain risk by consolidating their collection of systems into a single, large system.” A second safety layer entails ensuring that the proptechs whom you partner with have

“They need to demonstrate that their systems comprise controls equal or better than your own,” Ajmera underscored. Expect more demand for products and services such as smart cleaning and monitoring, virtual appraisals, touchless property navigation, digital lease transaction and remote property management. Some real estate firms have already formed strategic partnerships with proptechs to lever the cost controls and operational efficiency gains that they enable. Ajmera counseled real estate firms to conduct a digital maturity assessment to guide their decisions on how best to adopt a proptech strategy. “It’s not a lot of work,” he reassured. “We’re talking 4-6 weeks to conduct a very comprehensive assessment at a very low cost. Everyone we talked to found it very useful.” ■ Robert Frank Canadian Real Estate Forums / WINTER 2020

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EXPECT SHARP REBOUND AS CANADA EMERGES FROM CRISIS COCOON

“Cities like Toronto will continue to attract talent, capital and ideas,” he affirmed. “That is what made this city. Nothing will change that. Our political leaders have asked us to stay at home as best we can, so we’re largely working from home. Our sense of safety will return soon after a vaccine becomes available, and we will witness a rebound far sharper and more pronounced than many might think.” Canada entered the pandemic with very strong real estate markets and with strong balance sheets at most of its real estate stakeholders.

Jon Love Chief Executive Ofﬁcer KingSett Capital KingSett Capital Chief Executive Officer Jon Love expressed unbridled confidence that Canada’s great cities will continue to prosper. 34

“This is effectively hitting the pause button. It might be startling and can be scary for some, but in my life, this is a walk in the park,” Love suggested, contrasting the current health crisis with the early 1990s, when most major real estate firms faced bankruptcy. He urged young real estate professionals to retain their perspective; to maintain their connection with friends, family and colleagues; to stay positive and “to remain calm and carry on.”

“Our sense of safety will return soon after a vaccine becomes available, and we will witness a rebound far sharper and more pronounced than many might think.” “The real lockdown victims are not the broader real estate industry,” he reminded. “Regrettably, it’s small business operators and people who have to leave their homes to go to work.” Governments now face the thorny task of winding down massive stimulus spending. “It’s the most important challenge facing government: To ensure that this stimulus doesn’t turn into long-term program spending. Current levels are unaffordable, with federal and provincial governments posting deficits totaling some $1.5 billion a day. If we don’t get our house in order, Canada will surrender its sovereignty to its creditors, who will force us to make choices that we don’t want to make,” he cautioned. ■ Robert Frank Canadian Real Estate Forums / WINTER 2020

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2020 KingSett Growth Fund KingSett High Yield Fund KingSett Senior Mortgage Fund KingSett Income Fund KingSett Urban Fund

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“Percent rent is coming back in lieu of base rent; variable rent as opposed to net rent – a trend we expect to continue. The only question is for how long, and how deep?” he observed. Conversion therapy Some owners have opted to convert their big-box properties into apartments or condos. “This is a trend that will accelerate in the year ahead,” Johnston anticipates. It remains to be seen, though, whether some of those big-box proprietors will follow an American trend and turn them into distribution facilities. “It’s not as easy to convert in Canada, especially to take clearances from 16-feet to 38-feet,” he said, and proper zoning can be an obstacle. Intense investment in industrial The shift to online sales has boosted industrial rents and land prices. “Tight land availability led Amazon to drastically change configuration, building a five-storey fulfilment centre outside Ottawa that would been unthinkable a few years ago,” noted Amy Erixon, Principal & President, Global Investment Management, Avison Young. “In the last recession, rents fell from $5-7 per square foot to $2-3 net effective for large-scale logistic facilities. Today, they’re $16+. No wonder multi-storey projects are penciling!”

STRUGGLING RETAILERS FACE MAKE-OR-BREAK HOLIDAY SHOPPING SEASON

Ofﬁce outcome uncertain Office availability crept up to 13% this year, reflecting a modest rise in space returned for sublet. Rents are holding, propped up by juicier tenant inducement packages, and rent collections have been strong. “Co-working has seen mixed results” she suggested. “While we don’t yet know how deep the changes will be over time, at least some work-from-home will likely remain more prevalent than prior to the pandemic.”

Amy Erixon Principal & President Global Investment Management Avison Young

Colin Johnston President, Research Valuation and Advisory Altus Group

Who will remain standing in the wake of a widely expected spate of retail bankruptcies early in 2021? The answer will likely be determined by the landlords who have so far held struggling retailers’ fate in abeyance. How those merchants perform during the upcoming holiday season will make or break many of them. “The strong will get stronger and the weak will get weaker,” predicted Colin Johnston, President, Research Valuation and Advisory, Altus Group. “Landlords might have to renegotiate rent during the next two years.” Delinquency rates have risen to almost 25% for enclosed mall and more than 10% for open strip malls. 36

Rental residential regains allure Capitalization rates remain resilient, despite downward pressure on rents, perhaps due to strong long-term fundamentals for multi-residential. “For the first time in recent memory, new purpose-built apartments are approaching condo construction levels,” Erixon reported. “This is an important and meaningful trend.” Downward rent pressure is seen in suburbs and cities, across Canada, and is slightly stronger in Toronto and Vancouver which have the most investor-owned condos and Airbnb units. “People are adding those units to the rental pool pushing down rents,” she said, adding ”some home purchase demand has been brought forward due to the record low interest rates, but a majority of apartment tenants in Canada remain in place for long durations. Unlike other property types, apartment managers had to turn on a dime when work from home orders were issued. “A survey of some 20,000 residential tenants over the summer showed 87% were satisfied or very satisfied with their landlords’ COVID-19 response,” Erixon concluded. “Well done!” ■ Robert Frank Canadian Real Estate Forums / WINTER 2020

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Thank You to Our Sponsors for Their Ongoing Support Throughout 2020 The Toronto Real Estate Forum over the years has been and is the place to learn, connect and gather unique insight into the Canadian commercial real estate market. A must attend for anyone who wants to participate in Canada’s CRE industry. Jon Love Chief Executive Officer KingSett Capital

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Speaker Video Series

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Thank You to Our Attendees for Their Ongoing Support Throughout 2020 The meet and mingle of “in person” events are really hard to replicate. That said, I used the Network feature to touch base with people that I may not necessarily bump into. This was a more purposeful connection opportunity through a virtual Forum. Patricia Verburgt Business Development Manager DIRTT Environmental Solutions

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factory housing for manufacturing development. “We were at the forefront,” Cohen said. “We were there, did it and exited – though retain a footprint with our partners and would consider opportunities there, should they arise.” Reliable relationships through thick and thin The deadly virus affected Cohen significantly, both professionally and personally. “I contracted COVID-19 in March,” she recounted. “That put me out of action for several days.” MUFG nonetheless immediately leapt into action to protect the bank as well as its clients and joint venture partners and ensure that its public market exposure remained covered. “We didn’t wait for our stakeholders to call us. We were very much focused on outreach: ‘Do you have what you need? How are you doing? Are your families ok? How can we help during this time?’” she recalled. “When times are bad, people want communication. They want to know that their partners, their allies, are “We didn’t wait for our there. We had learned from the 2009 crisis that stakeholders to call us. We were very much focused on the poor communicators often proved the ones outreach: ‘Do you have what whom we no longer wanted to do business you need? How are you with.”

UNITED STATES STILL STRATEGIC, BUT PANDEMIC PROMPTS NEW LOOK AT EUROPE & ASIA

Gila Cohen Managing Director Real Estate & Private Equity Mitsubishi UFJ Financial Group

Invest in America was the watchword for 2020 – until the coronavirus crept out of China and paralyzed most of the world’s major economies. “The United States seemed the tip of the spear,” affirmed Gila Cohen, Managing Director, Real Estate and Private Equity, Mitsubishi UFJ Financial Group (MUFG). “Then COVID-19 threw that strategic thinking for a loop!” MUFG decided to wait for the volatility to subside. 40

“We initially expected the market recovery to follow the sun,” she said. “Asia first, followed by Europe, then the United States – but as the year progressed and lockdowns resumed, it became clear that we were living through unprecedented times, and we decided to stand fast until 2021. The United States is still strategic, but the pandemic has prompted us to look at Europe and Asia for continued development.”

doing? Are your families ok? How can we help during this time?’ When times are bad, people want communication. They want to know that their partners, their allies, are there. We had learned from the 2009 crisis that the poor communicators often proved the ones whom we no longer wanted to do business with.”

MUFG, Japan’s largest and the world’s fifth-largest bank, spotted the potential for Southeast Asia markets like Vietnam early on, where it partnered with other Japanese institutions who implement workforce and

Cohen, who underscored that her opinions are her own and do not necessarily reflect those of MUFG, remains eager to resume face-to-face dealings, once the pandemic abates. “You get a lot of nuance when you meet in person that is lost through video conferencing,” she concluded. ■ Robert Frank

Disclaimer: The opinions expressed by Gila Cohen are solely her own and do not express the views or opinions of Mitsubishi UFJ Financial Group (MUFG).

Canadian Real Estate Forums / WINTER 2020

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SMART RETAIL IS A GOOD STRATEGY it through our own talent and balance sheet” to unlock major developments.

Donald Clow President & CEO Crombie REIT

While retail in general has been one of the hardest hit asset classes since the onset of the coronavirus pandemic, the food retail industry, despite being a “very low margin business”, has thrived as an essential service through these uncertain times. As such, so has “our grocery-anchored portfolio,” affirms Donald Clow, “that is 90 to 93 per cent of our entire business” anchored by Sobeys, IGA, Safeway, and Thrifty Foods. As an owner and developer, Crombie REIT is also laser focused on Sobeys' retail growth, working in strong partnership to “uniquely unlock value” and “participating in

Meanwhile, Crombie’s other portfolio investments “have a very low percentage that is negatively impacted” by COVID Namely, in a project announced by Sobeys because it has “a very small percentage of for four customer fulfilment centres across the [four F] retailers” (aka fashion, food, the country, with two locations to open in fitness, and film) where people tend to Western Canada, one being built in Montreal gather. But, as with “our peers and and one now opened in Toronto. Driven by colleagues in the landlord business and e-commerce using the Ocado smart owners of real estate, platform, these large “We’re working closely we’ve created programs to industrial facilities or ”hub help solid operators and and spoke network”, with Sobeys on their good retailers hopefully whereby each hub is survive and are working entire network” as we 300,000 sq. ft. and continue to understand with the government and spokes 10,000 to 30,000 their programs.” sq. ft. with large parking all the potential site lots “generally spread out While the “retail buying and or site around communities”, will apocalypse” has been a converting opportunities. trending concern because use “computer hardware, like R2D2s, to basically of the immense popularity It’s a “very exciting pick and pack grocery of e-commerce, the truth of program!” orders for home delivery.” the matter is that “bricks Whether in Ottawa, and mortar retailers have to Quebec City or “peripheral regions”, both change and develop omni-channel 18-wheeler trucks and cube vans will be presence and the e-commerce only retailers employed, for instance, from a Montreal also have to develop a bricks and customer fulfilment centre, for doorstep mortar-type presence.” Moving into 2021 delivery to people’s homes. “We’re working with “great focus”, Crombie and its solid closely with Sobeys on their entire network” team are engaged to “help its retailers as we continue to understand all the accelerate their transition to serve potential site buying and or site converting communities and consumers in an opportunities. It’s a “very exciting program!” omni-channel, [post-COVID] world.” ■ Natasha Arora

Canadian Real Estate Forums / WINTER 2020

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The path ahead

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STAY FOCUSED ON LONG-TERM

urged Choice Properties REIT President and Chief Executive Officer. “Through this adversity, we are all going to be the better for it.” His first order of the day was to scrutinize how his firm’s balance sheet would withstand the short-term challenges. “Early on in the pandemic, we were worried about cash management, something we hadn’t fretted over since 2008,” Diamond recalled. “The strength of the balance sheet came out again and highlighted that.”

Rael Diamond President and Chief Executive Ofﬁcer Choice has weathered the worst of the coronavirus crisis so far in three asset Choice Properties REIT classes: grocery anchored retail, which has performed well; industrial, primarily general Real estate is a long-term warehousing, which has delivered investment that should not be exceptional results; and office, which has distracted by short-term experienced some pressure this year. disruptions, counsels Rael Diamond. “Even office will fare well over the long-term,” he predicted. “Our largest tenant “As asset owners, we mustn’t get was considering executing a termination caught up in transient trends,” 44

option about a month ago. As we worked with them, they initially scaled that back to keeping half the space. Ultimately, they decided to keep it all. This is a tech tenant. It’s their culture. Their workplace is a success tool for them.” While Diamond credited Choices’ information technology infrastructure investment for helping it to sustain its collaborative culture during the pandemic, the hybrid workplace still poses challenges, with some staff at home and others at the office. “It’s just not as effective,” he affirmed. “People are happier, more collaborative and productive when they share the same space.” Real estate firms need to lead by example in that respect, Diamond suggested. “At the end of the day, if we don’t use our space, how can we expect our tenants do so?” he concluded. ■ Robert Frank Canadian Real Estate Forums / WINTER 2020

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BETTER MESSAGING NEEDED TO REPOPULATE DOWNTOWN

Laurence Vincent Co-President Prével

“How are we going to build a business culture around the people that are all behind their screens?” Montréal, like all major cities in Canada today, faces a real estate challenge in its downtown core as office workers continue to work from home amid the ongoing COVID-19 pandemic. Laurence Vincent, Co-President, Prével is convinced that, slowly but surely, people will return to the office, though not necessarily full-time. “Yes we’re missing almost 600,000 workers that are not coming anymore,” Vincent says, “but at least we have about 100,000 citizens that are living in the downtown core.” As masses of professionals hunker down in their pajamas this winter, what will it take to lure them back? Vincent suggests that better marketing—starting right now – is critical. A bit of pressure is needed, she says, to encourage not only local office workers but students, tourists and international workers to head downtown as soon as Montréal is out of the red zone. For one thing, Vincent says, people need reassurance about public transit “because it is the reason why a downtown core works.” She believes that once the pandemic is over and people feel safe taking the bus, train or métro to work again, the city needs to make the downtown core “way more accessible.”

Currently that is difficult because so much construction is happening in Montréal. Meanwhile, Vincent stresses the importance of marketing offices in a better light. “It’s in the way that we present work from home,” she says. “Yes it has advantages, but we forget that there are a lot of inconveniences. How do you think we’re going to integrate new employees when they’re at home? How are we going to build a business culture around the people that are all behind their screens? How are we going to create new ideas and have all of those informal, spontaneous discussions? How will we entertain our network? It has been proven that it’s not necessarily people’s education or their money that determines whether they’ll be successful. It’s the strength of their network.” Over the past eight months Vincent has heard people say that working remotely is fantastic, and that they are as productive as they ever were. “But it’s not true,” she says. “Maybe we’re able to execute the work, but can you launch a business from home? We’re being very definitive at this point, saying this is going to be the way of the future, when we have no idea.” ■ Michelle Morra

Canadian Real Estate Forums / WINTER 2020

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THIS CRISIS TOUGHENS TOMORROW’S REAL ESTATE LEADERS

Michael Emory President & CEO Allied Properties REIT

An entire generations of real estate executives entered the industry during the past decade experiencing nothing but price appreciation and rent growth. Then 2020. “I was fortunate, as we experienced this era of extreme disruption, to have lived through and led through crises before,” recalled Michael Emory. “That prepared me very well as the shutdowns became dramatic this year.” Though the Allied Properties REIT President & CEO described the global financial crisis of 2008 as “very educational”, he reminded that while “it was scary, in Canada it didn’t last very long.” Rather, it was the disruption that ravaged real estate markets at the outset of Emory’s career in the early 1990s, that truly tempered his mettle. “That was when I learned the most about real estate and leadership,” Emory said. “It’s no accident that, almost without exception, the people who have run major real estate organizations during the past two decades matured as businesspeople during the devastating five-year-long crisis of the early 1990s.” 48

Fortunately for Allied, its 2020 office revenue streams faced only brief setbacks, and not very significant ones. Emory nonetheless valued the management experience that the pandemic imbued in Allied’s next generation of leaders, as they worked through the disruptions. “You can’t teach crisis management,” he contended. “You can acquaint them with the theory. But ultimately, they have to experience it for themselves.”

“I was fortunate to have lived through and led through crises before. It’s no accident that, almost without exception, the people who have run major real estate organizations during the past two decades matured as businesspeople during the devastating five-year-long real-estate crisis of the early 1990s.” The result? “They rose to the occasion and will benefit mightily throughout the remainder of their careers,” Emory smiled. Not just Allied will benefit from burnishing those qualities, he suggested. From an industry perspective, the next generation of leadership will prove better prepared because of what has happened. “It’s invaluable to experience a situation where all of a sudden some your revenue streams are materially challenged,” Emory said. Downtown ofﬁce market to rebound Allied anticipates a robust return to urban core office space, once the pandemic peters out.

“The technology advertising media and information services whom we house have all indicated to us that when the pandemic is over, they will bring their entire workforce back to the office,” Emory underscored. “Most people in creative enterprises won’t want to work from home full-time. It’s unthinkable,” he insisted. “They don’t want it and should their employer demand that they work from home full-time, they would probably go work for a competitor who isn’t as short-sighted. That’s why they’re in the urban core to begin with. They prefer to spend more for the amenity-rich space there, rather than locate in the suburbs. I don’t anticipate that will change in any fundamental way.” Emory echoed many industry observers that the pandemic did far less to change current trends than to accelerate them dramatically. “The workspace is a very dynamic reality that has been evolving for decades,” he declared. “The current crisis on only shaping and propelling trends that have long been underway. Wellness was already an extremely important workspace quality. What the pandemic will do is to emphasize and inform that need in terms of physical structure and accommodation. “The trend toward sustainability was already well underway, as well,” he continued. “One of the good things about the pandemic is that it increased our awareness of it.” The office environment will long continue to nourish the human need to meet and exchange ideas, Emory concluded. “Human beings are deeply social creatures,” he said. “Cities remain the most important for an organization in the world to cater to that need. That won’t change. The pandemic has made our desire to socialize stronger than ever.” ■ Robert Frank Canadian Real Estate Forums / WINTER 2020

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Now, more than ever we have an enormous role to play in keeping our communities safe. Security Supervisor Jaideo Kardeo has been a part of the Cadillac Fairview team for 10 years. Each day, Jaideo helps his community navigate the mall, ensuring their health and safety. In a COVID-19 world, Jaideo and his team are an invaluable resource to our guests and clients. “For me, it’s all about love and kindness. If we lead with positivity, we’ll be met with positivity, and that’s what we need right now.” Cadillac Fairview salutes all frontline workers in commercial real estate. Let’s work together to protect our communities and each other.

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YOUNG LEADERS PROGRAM INJECTS ENERGY AND DIVERSITY INTO THE MIX

John Rider Senior Vice President Chicago Title Insurance Company Canada

Young leaders are critical and essential to the future of real estate. To acknowledge these rising stars of Canada’s real estate industry, Chicago Title Insurance Company Canada sponsor the Outstanding Young Leaders program. Professionals aged 35 years or younger are considered for complimentary registration to attend any of the upcoming major Real Estate Forums. Eight nominees are selected and become eligible for the Outstanding Young Leader Award.

guys comprised most of the participants. Rider was immediately attracted to the concept of an awards program because it would help to build a future for the industry and add diversity and inclusion. “The people who are nominated are a great mix of young people from across the country in all parts of the real estate industry, men and women with all sorts of backgrounds, which is fantastic,” he says.

John Rider, Senior Vice President, Chicago Title Insurance, has attended the Real Estate Forum since its inception and says there have always been discussions about how to encourage growth from young people. As a self-described “middle-aged white guy” he says that, in the early days of the Forum, middle-aged white

Millennials have often been described, perhaps unfairly, as a needy generation with a poor work ethic, but Rider says that the Outstanding Young Leaders program nominees demonstrate quite the opposite. “This is the entrepreneurial generation that is looking to bring change and make things work more effectively,” he says. “They will really be the impetus for the change in the industry. That is exciting.

“It’s shocking how accomplished these young professionals are. Their background, experience and drive are really impressive. I also get a sense that a number of them are very entrepreneurial and are real risk takers.” Young leaders are making a difference all over Canada, and Chicago Title Insurance Company Canada continues to promote the Outstanding Young Leaders program to attract more and more of them. Rider aims for the program to grow into a truly national program, to a point where organizers or “overwhelmed” with nominations from all over the country. Speaking on behalf of the company Rider says, “We take a real pride in the program. We’re just thrilled to be involved.” ■ Michelle Morra Canadian Real Estate Forums / WINTER 2020

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INTRODUCING THE ALL NEW

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Latest commercial market statistics across Canada These results are released by Altus Group, powered by our proprietary commercial transac琀on data. Our independent and comprehensive data, analyses and insights on the commercial real estate investment and residen琀al development markets in Canada are collected and compiled using na琀onally-consistent research processes. Our solu琀ons are used by real estate industry stakeholders to gain market intelligence, iden琀fy and validate opportuni琀es, benchmark, strategically plan, manage risk and more. To learn more about our data solu琀ons, visit altusgroup.com/data.

Food anchored retail and industrial assets are the top preferred by investors, driven by demand for convenient access to goods due to ongoing pandemic restric琀ons Property type barometer – All available products (Q3 2020)

MOMENTUM RATIO (BUY % / SELL %)

6 4 2 0 -2 -4 -6 -8

Source: Altus Group’s Investment Trends Survey

As industrial supply 琀ghtens and demand surges, industrial market fundamentals and rental rates remain strong especially in Vancouver and Toronto markets Industrial net rental rates – Single tenant industrial (Q3 2020) 17 16

9.4 8.7

8.5

8.6

7.8

8.0

7.2

8.3

9.7

9.5

10.4

10.7

7.8

$ PER SQUARE FOOT

12.5

13.7

7 6 5 4

YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS YEARS 1-5 6-10 1-5 6-10 1-5 6-10 1-5 6-10 1-5 6-10 1-5 6-10 1-5 6-10 1-5 6-10 VANCOUVER

EDMONTON

Source: Altus Group’s Investment Trends Survey

altusgroup.com/data

CALGARY

TORONTO

OTTAWA

MONTREAL

QUEBEC CITY

HALIFAX

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Property transactions by asset class Vancouver apartment and industrial sectors saw some gains, while retail transac琀ons remained stable amid con琀nued pandemic challenges 2019

Office

2019

Retail

2019

Hotel

Res. Land ICI Land

2020

Apartment Industrial

Land

Property transac琀ons by asset class – Vancouver Market Area | YTD Aug. 2019 vs. YTD Aug. 2020

2020

2020 2019 2020 2019 2020

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

Total Investment | YTD Aug. 2019: $6.5 B; YTD Aug. 2020: $4.9 B

$1.2

$1.4

$1.6

$1.8

$2.0

$2.2

$2.4

$2.6

$2.8

BILLIONS $$ BILLIONS

Source: Altus Group

Despite economic challenges, the Edmonton market saw a jump in apartment and hotel transac琀ons, and saw other sectors remain rela琀vely stable 2019

Office

2019

Retail

2019

Hotel

Res. Land ICI Land

2020

Apartment Industrial

Land

Property transac琀ons by asset class – Edmonton Market Area | YTD Aug. 2019 vs. YTD Aug. 2020

2020

2020 2019 2020 2019 2020

$0.0

$0.2

Total Investment | YTD Aug. 2019: $1.3 B; YTD Aug. 2020: $1.5 B

$0.4

$0.6

$ BILLIONS $ BILLIONS

Source: Altus Group

Investment ac琀vity down by 21% as investors con琀nue to focus on value-add assets with poten琀al for expansion, including apartment, industrial and land 2019

Res. Land ICI Land

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

Property transac琀ons by asset class – Calgary Market Area | YTD Aug. 2019 vs. YTD Aug. 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.1

$0.2

Total Investment | YTD Aug. 2019: $1.6 B; YTD Aug. 2020: $1.3 B

$0.3

$ BILLIONS $ BILLIONS

$0.4

$0.5

$0.6

Source: Altus Group

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Property transactions by asset class Industrial and apartment remain the most sought-a昀er asset classes with con琀nued transac琀on ac琀vity in the Greater Toronto Area 2019

Office

2019

Hotel

2019

Retail

2020

Apartment Industrial

Land

Property transac琀ons by asset class – Greater Toronto Area | YTD Aug. 2019 vs. YTD Aug. 2020

Res. Land ICI Land Res. Lots

2020

2020 2019 2020 2019 2020

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

$4.5

$5.0

BILLIONS $$BILLIONS

Total Investment | YTD Aug. 2019: $12.3 B; YTD Aug. 2020: $9.7 B

Source: Altus Group

The O琀awa market saw some growth in land transac琀ons but dropped in other sectors compared to strong performance seen last year 2019

Res. Land ICI Land

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

Property transac琀ons by asset class – O琀awa Market Area | YTD Aug. 2019 vs. YTD Aug. 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.1

$0.2

Total Investment | YTD Aug. 2019: $1.5 B; YTD Aug. 2020: $1.0 B

$0.3

$0.4

$0.5

$0.6

$ BILLIONS $ BILLIONS

Source: Altus Group

Industrial transac琀on volume in Montreal remained ac琀ve, with further an琀cipated rent increases moving forward 2019

Res. Land ICI Land

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

Property transac琀ons by asset class – Montreal Market Area | YTD Aug. 2019 vs. YTD Aug. 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.2

$0.4

$0.6

Total Investment | YTD Aug. 2019: $5.7 B; YTD Aug. 2020: $4.2 B

$0.8

$1.0

BILLIONS $ $BILLIONS

$1.2

$1.4

$1.6

$1.8

$2.0

Source: Altus Group

altusgroup.com/data

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Interview Series: One on One with Industry Executives

Question 1: What was the greatest challenge that you faced this year?

Faced with the coronavirus crisis, we have maintained our business by continuing the transformation of the company. Gecina has shown resilience thanks to the quality and centrality of its assets. We continued to develop our assets and took a decisive step with the subsidiarization of our residential portfolio. We are continuing our B2B2C shift through the deployment of YouFirst, our relational and service brand. MĂŠka Brunel Chief Executive Officer Gecina

The lockdown was the greatest challenge. Leading a company "at distance", over the phone and then through Visio was really something new I was not prepared for! Nathalie Charles Global Head of Investment Management BNP Paribas Real Estate

Having visibility into how work was proceeding while working from home and in an ever-evolving condition. Hugh Clark Executive Vice President, Development Allied Properties REIT

To break routine that was engrained in 30 years of work life. COVID has required everyone to adapt and change. Embracing a virtual work (and social) environment is critical to our new economy. Staying positive with family, friends and clients! Gord Cook Executive Vice President Colliers International

For our retail services platform at C&W, I was in the process of implementing many new strategic initiatives and growth plans for the firm but with COVID-19, many of these priorities were obviously delayed and/or altered. That said, the challenge was a chance to refocus on key business fundamentals, determine new ways to provide "real time" insights to our clients, an opportunity to reallocate limited resources as well as re-tooling the retail business line to face the new realities. I believe this self-reflection on our business during COVID will make us stronger going forward. John Crombie Executive Managing Director, Retail Services, Canada Cushman & Wakefield ULC

Canadian Real Estate Forums / WINTER 2020

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Trying to assess the risk we are facing, without having had an experience with such matters in the past.

stakeholders, has required considerable adaptation in a work-from-home environment.

Richard Diamond Senior Vice President Canderel

Jane Gavan President, Asset Management Dream

The greatest challenge I faced this year is managing transactions, relationships and projects remotely. The learning curve on technology and video conferencing capabilities was steep, but enabled business to continue.

COVID had a tremendous impact on the operations of close to 36M sq. ft. of retail and office properties across Canada for CF. All aspects from operations/front line property staff management, physical property closings/re-openings challenges, implementation of safety practices, dealing with tenant issues, lack of office occupancy and rent collection to dealing with general impacts on retail tenants/industry along with sometimes complex government operating restrictions and support programs (CECRA).

Brad Divins Vice President, Senior Transaction Manager Wells Fargo

Planning. Making everyday life decisions are challenging enough in normal times and the lack of reliable intel in support of assured decision-making presents significant challenges. From a business perspective, while CRE brokerage is often erratic, the onset of COVID-19 and the ensuing concerns over the direction of the global economy has added substantial risk to otherwise well-informed planning and decision-making. Casey Gallagher Executive Vice President, National Investment Team CBRE Limited

Our greatest challenge was balancing the wellbeing of many stakeholders in safely closing down and reopening more than 10M sq. ft. of enclosed shopping centres across Canada. We value our relationships with our tenants and managers in these difficult and uncertain times. At the same time as stewards of government pension plan funds we have a duty to pay monthly pensions and all the costs of property ownership. Andrew Garrett Executive Director, Real Estate IMCO (Ontario Pensions)

Naturally COVID - managing people and a business through the most prolonged uncertainty of our careers has been exceedingly challenging. In a matter of months, paradigms like urbanization and densification very quickly came under scrutiny making capital allocation decisions much more difficult. At the same time, effectively engaging people, whether team members or other

Sal Iacono Executive Vice President, Operations The Cadillac Fairview Corporation Limited

Valuations during this pandemic have been very challenging. At first there was a lack of liquidity, i.e. no trades to use as benchmarks. Then there were a few transactions, but many people questioned if they were truly market, and not just distressed sales. Some clients and market participants felt that we were discounting values too much and too soon, some felt the exact opposite. While the industrial and multi-res markets appear to have stabilized, much of retail remains in a freefall, while the disconnect between economic occupancy (tenants paying their full rent) and physical occupancy (using very little of their space) in the office market will take time to fully play out. The job of all valuers is to reflect the market, not set the market. In 2020, that has been harder than ever! Colin Johnston President, Research, Valuation & Advisory, Canada Altus Group

Through "peak panic" in April and May of 2020, our biggest challenge was protecting KingSett's culture. KingSett is a business built on relationships - both internal and external. When our people are stuck in isolation, focusing on remaining positive, engaged and collaborative becomes the #1 challenge and priority. Rob Kumer Chief Investment Officer KingSett Capital

Canadian Real Estate Forums / WINTER 2020

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$70,000,000

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Interestingly, I would say the biggest challenge was not the impact of the Coronavirus itself or our own ability to adapt operations to keep people safe, but rather having to interpret the many different and sometimes conflicting pieces of advice and guidance from Government on regulations, Coronavirus safety precautions, and steps to re-open our buildings and the economy. Ash Lawrence Managing Director, Real Estate, Canada Brookfield Property Group

The greatest challenges that my team and I faced this year was adapting to the pandemic and addressing its effects in our work, as well as incorporating lessons and insights from this summer's movement for racial justice. My team rapidly adjusted to remote work, but the overall adjustment to our focus areas and our priorities took more time and consideration. Personally, I have a 4-year-old at home (along with older kids) and he has been in virtual school since March. That has created all sorts of challenges of its own. Caregivers have perhaps never been more stretched. Rachel MacCleery Senior Vice President ULI

Other than working with a team to anticipate both the significant exodus of occupants from our assets during COVID-19, to figuring out how to accommodate occupants as they possibly returned to the workplace or shopping centre - my biggest challenge was leaving Oxford after 10 years. Having built a significant presence at Oxford, and with much success, to starting fresh....the challenge of reinventing requires careful thought, planning and skillful execution. Lachlan MacQuarrie Real Estate Executive Self Employed 60

Without question the biggest challenge was dealing with the unknown. The term unprecedented has been overused but it is unquestionably the most appropriate description. Fiera Real Estate has been growing at a rapid pace for a number of years which has included platform M&A's as well as an ever-expanding team and enhancements to the platform. Dealing with the day-to-day operation at the outset of the pandemic was relatively easy with the established systems we had in place. However, keeping our culture alive and well during this crisis has been tough on everyone. Our team has grown to about 55 people in Canada in three separate offices. After several challenging months with a remote work environment, I can confidently state that we have the best team in real estate! Blair McCreadie Head of Canadian Real Estate and Fund Manager Fiera Real Estate

Implementing effective and efficient communication processes (and tools) needed to actualize the new "virtual" workplace and sustain group dynamics. Understanding and adapting to the communication challenges (both internal and external) was critical in order to manage our workflow, execute on strategy and sustain corporate culture. Lou Iafrate Executive Vice President, RVA Altus Group

Adaptation and learning on the fly. Change can happen quickly; you have to be flexible and never stop learning on the job. Surround yourself with good people and walk the good path. 2020 was a challenging year for many entrepreneurs and businesses, hopefully 2021 will bring a more positive outlook. Paul-Emile McNab Director, Business Development and Strategic Initiatives Canadian Council for Aboriginal Business

Canadian Real Estate Forums / WINTER 2020

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TOP 10

REAL INSIGHTS

2020 Toronto Real Estate Forum

ISSUE 53

INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF TORONTO REAL ESTATE FORUM

ECONOMIC RECOVERY SLOWING

CAPITAL LOOKS FOR PORTS IN THE STORM

GDP and employment continue to improve; causes a degree of optimism

H1 2020 Canadian investment volumes at $19.7 B is down 20%, according to Altus Group

DEBT LIQUIDITY POINTS TO BIFURCATION IN THE MARKET

INTEREST IN THE BURBS INTENSIFIES DURING THE PANDEMIC

APARTMENT SECTOR FACING HEADWINDS AS PANDEMIC IMPACTS DEMAND

OFFICE VACANCY INCREASES BY TWO FULL PERCENTAGE POINTS IN DOWNTOWN TORONTO

PANDEMIC SPEEDING UP THE EVOLUTION OF CITIES

Average rental prices are declining as small investors and professional landlords try to attract clients from a diminished pool of potential renters, according to Statistics Canada

In line with the national average, sublet space represents approximately 36% of vacant space in Toronto, as occupiers reassess their space requirements in the evolving economy

STRONG INDUSTRIAL PERFORMANCE

RETAIL GETS HAMMERED BY PANDEMIC, BUT OPPORTUNITIES TO EVOLVE ARE EVERYWHERE

THE PANDEMIC HAS ACCELERATED THE ADOPTION OF TECHNOLOGY

Low interest rates have made homes more affordable, and the WFH trend means that people are not as concerned about being located close to the core

5.3 MSF of new product delivered in Q3, but vacancy in the GTA remains at rock-bottom

“Commerce is being raised from the dead, online, offline, and everywhere in between.” – Nick Winkler

Adoption of new technologies is making businesses nimbler and resilient to future disruption

Commercial mortgage spread increases as lenders price in elevated risk associated with certain asset classes

Cities have the opportunity to rethink space in order to become more equitable and more resilient

for further details on these top trends please visit the real estate forums portal at realestateforums.com

To access the Real Estate Forum portal, please visit: www.realestateforums.com We welcome feedback. Please email: sarah.segal@informa.com

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Since I'm retired and living in a "retirement resort," I have not had to face the challenges that others have had. The biggest challenge I witnessed, however, is that of my daughters-in-law, both of whom are employed but now also taking care of their small children at home without relief from nursery school or babysitters.

1. Managing an Architecture practice from my dining room. 2. Trying to support our favourite F&B and retail. 3. Life with no live performances and much less arts. 4. Supporting our Tenants.

Judith Olson Donald Bren Professor of Information and Computer Sciences University of California Irvine

Dermot Sweeny President Sweeny&Co. Architects Inc.

The greatest challenge that I faced in 2020 was managing the very near-term impacts of COVID on a national portfolio, while ensuring that employee and resident safety was (and remains) the priority.

Not letting the urgent completely distract us from what is important.

Anthony Lanni Executive Vice President, Residential QuadReal Property Group

Our greatest challenge this year was finding new and innovative ways to continue to manage and grow our business with team members no longer congregating in a central office. This entailed enhanced communication with our team members as well as with our various stakeholders. Allan Perez Chief Executive Officer CanFirst Capital Management

The greatest challenge in 2020 has been to understand the impact of COVID on consumer spending patterns. From a real estate perspective, rent is a direct function of sales, usually a significant portion of a store's overhead. With sales dropping to zero in some categories in March and April and without understanding how sales would rebound after re-opening, it was and remains difficult to project sales and what a retailer can afford to pay in rent. Tim Sanderson Executive Vice President, National Lead, Retail JLL

Managing the immediate downside observations from owners and investors to help them slowly see through the challenges that lay ahead. We have seen disruption before and this is just a new version of it. Peter Senst President, Canadian Capital Markets CBRE Limited

More precisely, balancing additional COVID-19 related workload (such as analyzing the present condition, and future of, office buildings) against longer term strategic analysis such as climate change implications for real estate investment strategy. Wendy Waters Vice President, Research Services & Strategy GWL Realty Advisors

Maintaining culture in our operations and ensuring that internal communication is consistent and regular such that employees are happy and engaged. Jeremy Wedgbury Senior Vice President, Commercial Mortgages First National Financial LP

Uncertainty. Firstly, with the rapid arrival of COVID-19 none of knew whether this would be with us for a short of long time. Well 7 months in, it's obvious that the "new normal" will be in fact be uncertainty. Brian McCauley President & CEO Concert Properties Ltd.

All of the stresses - professional and personal â&#x20AC;&#x201C; in managing through COVID and in particular from mid-April until about mid-June. Michael Turner President Oxford Properties Group

2020 â&#x20AC;&#x201C; what wasn't a challenge.....COVID, unrest in our communities and impact on our properties. Annette Prater Executive Vice President, Technology & Innovation Brookfield Properties

Canadian Real Estate Forums / WINTER 2020

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Interview Series: One on One with Industry Executives

Question 2: As you look forward to 2021, what do you foresee on the horizon?

The crisis has accelerated the impact of three major trends: the metropolitanisation, the digital revolution and the climate emergency. Climate change is one of the biggest challenges. Our real estate industry has a historic opportunity to accelerate its environmental transformation. The recovery must also be inclusive. The diversity of profiles is a formidable lever for fostering innovation and the global challenges we face. MĂŠka Brunel Chief Executive Officer Gecina

2021 will be tough and at the same time, full of exciting opportunities - as always during crisis. Nathalie Charles Global Head of Investment Management BNP Paribas Real Estate

Yes, I am looking forward to a return to normalcy. We can live with new norms, so long as they are consistent. Hugh Clark Executive Vice President, Development Allied Properties REIT

Low interest and government intervention has helped business and individuals. 2021 will see the impacts of reduced consumption, unemployment and less economic output. This will lessen demand for space in most asset classes. As an advisor I see opportunity to grow new business lines with key partners. Gord Cook Executive Vice President Colliers International

With the impact of ecommerce and changing consumer demands, the retail industry in 2021 and beyond will undergo a radical transformation and renaissance that will have a material shift for shopping centre real estate and designs of physical stores for retailers. With change, comes opportunity! At minimum, it's a unique chance to reimagine different ways to reposition retail real estate to better serve the shopper of tomorrow! Retail is certainly NOT dead, only evolving with the changes and shifts in consumer preferences! Long Live Retail! John Crombie Executive Managing Director, Retail Services, Canada Cushman & Wakefield ULC

Canadian Real Estate Forums / WINTER 2020

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Happy Holidays from

Thank You For Your Continued Support In 2020 Wishing You and Yours a Safe, Healthy, Happy & Prosperous 2021

! CREF WINTER 2020.qxp 2020-12-01 6:32 PM Page 68

Continued uncertainty within the general economy and a few fundamental real estate questions that still need to be answered, but not sure we will have answers in 2021, such as decisions on how the office fits into companies' plans and how the downtown condo/apartment market will evolve. Richard Diamond Senior Vice President Canderel

I see much of the same in the first half of 2021 with remote working and collaborating being done via technology. The main concern in the first half of the year is availability of cash given a marked slow-down in business revenue. The 2nd half will be determined by how quickly business picks up and if a vaccine is readily available to the masses. Brad Divins Vice President, Transaction Manager Wells Fargo

Uncertainty. My outlook for the balance of 2020 is erratic with rising COVID challenges creating market gyrations that fluctuate with greater frequency. Accompanying this global health crises is a divisive election in the US, a major trade war with China and a movement toward nationalism that gains momentum across many developed nations. That these issues are underway simultaneously is wildly concerning. Early 2021 will see a euphoric response to the announcement of vaccines and treatments for the COVID virus with positivity surrounding implementation being offset by the significant economic repercussions stemming from the 2020 shutdowns. Casey Gallagher Executive Vice President, National Investment Team CBRE Limited

In 2021, we are building a strong real estate investment team that has the unique opportunity to co-invest over $2B globally with dynamic partners building the next generation of core real estate. I see an opportunity to benefit from projects built in growing global city centres that are forced to be designed with more progressive thought towards safety, sustainability, and collaboration due to the COVID crisis experience. I see more partnerships/mergers between industry leaders as there is an accelerated convergence between live, work, and play spaces. 68

I see a wide variance in the recovery of various businesses as firms who rely on mostly cost cutting falling behind those who rebuild better by leveraging technology that provides a bespoke customer experience. Andrew Garrett Executive Director, Real Estate IMCO (Ontario Pensions)

I can imagine much more focus in Canada, akin to what has been happening in Europe for years, on how real estate is positioned to not only mitigate environmental impact, but how it purposefully contributes to social benefit. ESG will increasingly become table stakes for investment. Jane Gavan President, Asset Management Dream

Unfortunately, we see ongoing COVID waves and ongoing restrictions that will continue to hamper the recovery of office occupancy and mall traffic/sales. We don't expect full lockdowns as in 2020 but we will muddle along till there is an effective and widely distributed vaccine hopefully by end of 2021. Sal Iacono Executive Vice President, Operations The Cadillac Fairview Corporation Limited

Unfortunately, I anticipate that the impact of this pandemic will take time to play out in 2021. How many retailers will still be there post-Christmas season? Will there be a vaccine, and will people return to the office in a meaningful way? Are the film, fitness, fashion and food (restaurants) industries structurally changed going forward. Hotels and seniors' housing â&#x20AC;&#x201C; what's the future look like in terms of their operating models? Will immigration come back and stimulate the multi-family sector. So many questions, so little clarity. Colin Johnston President, Research, Valuation & Advisory, Canada Altus Group

2021 will be a slow return to a life that in large part resembles what we knew life to be in 2019. I have no doubt we will face serious operational headwinds in retail, office and some industrial assets. We will have tenants that struggle, leasing

Canadian Real Estate Forums / WINTER 2020

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will be slow, financing may be scarce. However, my fundamental view is that, once people feel safe, human nature will revert us back to a normal experience - largely working in offices, eating in restaurants, seeing movies in theatres. The key objective will be to make sure we have a good strategy, and our team works hard each day to execute that strategy. The market itself is uncontrollable so we need to be laser focused on doing everything we can to outperform - not an easy task but we're up for it. Rob Kumer Chief Investment Officer KingSett Capital

For 2021, I see continued challenges as a result of COVID across asset classes. These challenges will continue to impact occupancy, rental rates capital spending and development pipelines. We are in this for the long haul, and as we settle into the new normal of operating under pandemic conditions, we continue to investigate new ways to deliver strong occupancy and service excellence. Anthony Lanni Executive Vice President, Residential QuadReal Property Group

2021 will provide better clarity on the path forward then we saw in 2020 so yes, I'm looking forward to 2021. We can see that significant progress on both therapeutic and vaccine development will continue through the end of 2020 and into 2021 with hopeful estimations that new products will filter through the healthcare distribution system mid to end of the year. There will still be significant economic pain in the first half of the year, much of which has simply been delayed by this year due to government support and accommodating lenders. While painful, this process will also clear the decks for a recovery assuming the Government can execute a clear and focused spending/stimulus plan and wrap up the "support" spending. Ash Lawrence Managing Director Brookfield Property Group

I am hopeful that the grave challenges of 2020 will set the stage for meaningful progress on issues which have plagued America for generations. There is growing recognition of the costs of systemic racism and inequality, the fraying of the social safety net, the importance of public health 70

and health care. I think people want change and are willing to work for it. Within the real estate industry, I believe we are witnessing a great awakening, and I think that is exciting. Rachel MacCleery Senior Vice President ULI

I look forward to a new role for me in 2021, but I also look forward to the return of innovation, a return to strategic planning, and a return to success for our industry. I look forward to a new role for me in 2021, but I also look forward to the return of innovation, a return to strategic planning, and a return to success for our industry. Lachlan MacQuarrie Real Estate Executive Self Employed

As we look forward, we are no longer gearing up for a marathon and but know we will have to be agile and resilient as we work through a long, long recovery. Brian McCauley President & CEO Concert Properties Ltd.

Things are stabilizing. Our platform is stronger than ever. We continue to have strong performance in our 11 Canadian real estate and debt strategies. We are constantly innovating both in terms of our investment process and analytics but also in expanding investment solutions for our widening investor client base. We are looking forward to the challenges of 2021 even though it is unclear how the year will look from an economic standpoint. In general, real estate is performing well but there are cracks. Retail assets were already facing headwinds coming into the crisis while the new work-from-home model is clearly going to impact the office sector. Many believe that in the short to medium term the office market will at best be flat. Tenants will have less people in the office, but more space will be needed to accommodate physical distancing. On the other end of the spectrum, we have multi-residential and industrial. The former is facing some near-term challenges with lower immigration and high unemployment, but we believe a recovery and continued growth will occur as immigration returns and businesses begin hiring people back. The obvious winner is industrial. Increased Canadian Real Estate Forums / WINTER 2020

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e-commerce is a forgone conclusion. At record low interest rates consumers continue to buy and the normal pattern will be remotely. Industrial assets which are used to distribute goods will continue to benefit but it's also important to note that as residential development grows, so does the need for 'service industrial' space. For example, the home improvement and construction industry is generally always housed in very well-located industrial buildings. The real estate industry is not without its challenges however as there are record numbers of residential and commercial loans on payment deferral and lenders will need to address the implications on their balance sheets. This is likely to impact the market. There will be investment opportunities coming out of these challenging times. In the end, real estate, no matter how it is perceived, is critical to economic growth as enterprise will always need a roof. Blair McCreadie Head of Canadian Real Estate & Fund Manager Fiera Real Estate

A more dynamic and evolved "office" workplace that can operate either virtually or in traditional settings as we start going back to the office in the latter half of 2021. Longer term, the need to insulate our economy from similar destabilizing events in a post pandemic world will reshape how we use real estate with the brunt of that change to be shouldered by office and retail assets... Lou Iafrate Executive Vice President Altus Group

Building business relationships built on trust is key to bringing about positive change and foster more economic opportunities for Indigenous businesses, economic development corporations and communities. The work of the Canadian Council for Aboriginal Business has played an important role in identifying the opportunities and challenges with research insights, data and strong policy recommendations to support the advancement of the Indigenous economy. Enhancing economic opportunities through Indigenous procurement will not only advance the Indigenous economy but will also benefit the Canadian economy and help facilitate economic reconciliation in Canada.

I believe that many people have discovered that they CAN work from home successfully. I believe, therefore, that once the pandemic is over, there will be a new work style where either some people always work from home, or there is a mix of days when they are at home and days they are in the office. Judith Olson Donald Bren Professor of Information and Computer Sciences University of California Irvine

I believe that 2021 will look and feel much like 2020, with the major difference being that we will have had the better part of 2020 to prepare ourselves for the new "normal". Allan Perez Chief Executive Officer CanFirst Capital Management

In 2021, bricks and mortar retail is going to have to evolve quickly to regain the attention and confidence of the consumer. The longer the lockdowns and shutdowns continue, the greater the propensity of consumers to shift their buying habits online. Retailers need to make the in store buying experience as seamless and painless as the online experience. Why does anyone ever have to stand in line ever again in a store waiting to make a purchase? The technology is there, it has been for years and retailers need to embrace it. Tim Sanderson Executive Vice President JLL

Revenues vs costs for many businesses. A lot of industries will need to take a hard look at costs as we get into 2021 given the corona impact across virtually the entire industry, Peter Senst President, Canadian Capital Markets CBRE Limited

Better access to rental accommodation in most desirable areas. Devastation in local small businesses especially the Arts and Retail/F&B. Dermot Sweeny President Sweeny&Co. Architects Inc.

Paul-Emile McNab Director, Business Development and Strategic Initiatives Canadian Council for Aboriginal Business 72

Canadian Real Estate Forums / WINTER 2020

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Over the course of 2021, as a global society, we will become better at living with COVID. It will not be gone, but to most people it will feel less risky to return to perhaps 90% of pre-COVID life. Gradually, people will again work at the office, do more shopping in person, and even travel. Wendy Waters Vice President, Research Services & Strategy GWL Realty Advisors

With still much unknown about where COVID goes, we are still very optimistic about new business opportunities given the low interest environment. That said, commercial real estate is now more than any time in recent history a management intensive business that requires experience and creative skills to be successful.

A grinding, slow motion economy suffering from a lack of policy clarity and poor leadership. At the same time, the economy, society, technology and demographics is going through a great transition. Michael Turner President Oxford Properties Group

Blue skies ahead! Faster industry changes and adoption of all things contactless and digital. Annette Prater Executive Vice President, Technology & Innovation Brookfield Properties

Jeremy Wedgbury Senior Vice President First National Financial

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FUTURE MALL OWNERS NEED TO ENGAGE WITH CUSTOMERS AS MUCH AS RETAILERS

John Crombie Executive Managing Director Retail Services, Canada Cushman & Wakeﬁeld

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Artificial intelligence, pop-up shops and reimaging the mall to be a community gathering space are among the many tools being used by landlords and retailers to revitalize today’s retail landscape. Such innovative measures could not come too soon, as year-end Canadian retail sales for 2020 are estimated projected to be down between five to six per cent. This represents a significant decrease, says John G. Crombie, the Executive Managing Director of Retail Services in Canada at the global commercial real estate services firm, Cushman & Wakefield. “It’s the first time we've seen negative year over year sales, and this fallout will continue,” says Crombie. “To give you an example, we have counted almost 1,700 store closures in Canada to date. As a benchmark, last year, we had a total of only 646 closures. “We still don’t know the final count as some are yet be determined. Unfortunately, we feel there will be another significant spike in January and February as historically that’s always been a terrible time for retailers announcing bankruptcies.”

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That said, brick and mortar stores are not going away anytime soon, says Crombie, and those who do succeed will be the ones who adopt the omni-channel approach. Whether they connect with consumers physically in-store, online through the computer or mobile phone, or through Canadian Real Estate Forums / WINTER 2020

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“Eventually you may see more people saying, ‘why do I need to go online? The prices aren't that much better, I'm better off going to the store where I can touch and feel different products.’”

catalogues and flyers, what’s key is how they create customer engagement. While COVID-19 has accelerated the online shopping experience for both convenience and safety reasons, Canadian shopping patterns are less e-commerce-based compared to our southern neighbours, at 8.7 per cent versus almost double that in the US. “Eventually you may see more people saying, ‘why do I need to go online? The prices aren't that much better, I'm better off going to the store where I can touch and feel different products.’ As the impact of the pandemic lessens, I think you'll see more of www.realestateforums.com

that going forward,” says Crombie. Meanwhile, the increases in consumers ordering groceries online has encouraged grocers to convert industrial spaces into “dark stores” not for customers that act as fulfilment centres for e-commerce delivery. Landlords are also altering shopping centres to allow for BOPIS (Buy Online, Pick Up In Store) with new and enhanced curbside or in-centre pickup, which is being accelerated by larger retailers such as Walmart, Home Depot and Best Buy. In light of the pandemic, we are witnessing a faster recovery for retail in the suburban markets, says Crombie. “People aren't going into the downtown core; they’re cocooning, working from home, traveling shorter distances when they do go out and spending more per store visit. Consequently, the urban retail market has

been slower to recover due to this shift in consumer behaviour along with the fact that many office buildings are only partially full. Some retailers are electing not to open their downtown locations at this stage of the pandemic because it may not be economically worthwhile to do so. That said, we expect this to change significantly in 2021” Still, opportunities exist for shopping centres as long as landlords view their roles as “lifestyle architects” rather than simply owners of real estate where transactions take place, he says. “It’s about creating that shopping community that acts as a hub of daily life. A place where food and entertainment generate neighbourhood interaction and fun that cannot be duplicated online along with incorporating discovery and recreational uses as well as providing cost effective fulfilment / logistics centres for “last mile” 75

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“Now when people spend, they do so on themselves, with fewer items of higher quality. It’s about creating that shopping community that acts as a hub of daily life!”

deliveries to local consumers. A place where the owner of the mall is “as much engaged with customers” as the retailer is. That’s going to be the new future going forward.” Crombie notes a recent trend towards increased spending in the luxury category, which was first observed in China as it bounced back from COVID. “When the malls opened, they saw huge spikes in luxury sales and we are seeing the same thing happening in Canada. There’s an attitude that when you’re doing Zoom calls all day and only half your body is showing, you might as well have nice earrings, necklaces or a nice watch. So for now, when people spend, they seem to be doing more so on themselves, purchasing fewer items of higher quality and price point.” It will be interesting to see if the trend continues in 2021.

Finally, expect the owners of shopping malls to implement greater use of AI going forward to better monitor pedestrian mall traffic to reduce congested areas for safe shopping, ensuring proper cleaning cadence for high traffic locations as well as adding new mobile technology to increase customer engagement and the overall mall experience. Also, the malls will increasingly use pop-up retailers to fill temporary vacancies. “It’s great for retailers to get into centres and test their product with customers they may not have been exposed to otherwise. And it pays the rent,” he says. “I expect to see quite an acceleration in pop-up retailers as we get back to a more normal market, however you choose to define what that might be.” ■ Barbara Balfour

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