CBRE Canada Advantage Magazine - Summer 2021

HR Professionals Ready for Their Biggest Challenge

Suburban Office Yet to See a Post-COVID Boost

Revenge Travel Will Kickstart Hotel Recovery

ADVANTAGE

Summer 2021

Magazine

Reimagined, Flexible, Irreplaceable: The Office Returns More Relevant Than Ever

www.cbre.ca

A Note from Werner PRESIDENT & CEO

I couldn’t be more excited to be writing this from an office that is increasingly full of vaccinated and energized employees.

It’s amazing how quickly we’ve transitioned from third wave to third gear!

Our clients are moving from real estate strategies for various outcomes to signing new leases, buying new properties and implementing workplace strategies that reflect the new world around us.

This edition of Advantage Magazine gives you a glimpse into the fast-changing real estate dynamics with a focus on the office sector.

Patios are the gathering place for social reconnection and offices are poised to welcome back employees with new physical and digital arrangements that will spur innovation and attempt to strike a better work-life balance. Suburban office landlords will attempt to increase their appeal and HR professionals are preparing for one of their biggest challenges ever – balancing employee and employer interests in the return to work.

With the pandemic easing and the economy gaining momentum, we’re seeing opportunity in the hotel sector while emerging areas of strength, like data centres, continue to thrive.

It’s an exciting time for individuals and businesses alike. Enjoy these stories and have a great summer with your colleagues, families and friends!

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CBRE ADVANTAGE MAGAZINE

Contents SUMMER 2021 Whither the 04 Workplace?

Louis Karam is CBRE’s 07 New Leader in Ottawa

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HR Professionals Ready for Their Biggest Challenge: The Return to the Office

Office Has Yet to See 10 aSuburban Post-COVID Boost CBRE Montreal 12 Celebrates 25 Years

04 08

Revenge Travel Will Kickstart 14 the Canadian Hotel Recovery Is Officially a Big Deal 16 InToronto The Data Centre World

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Events for 17 Advantage

12 07 SUMMER 2021

14 16

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Whither the Workplace?

It’s the question on the mind of most in the commercial real estate world right now: What is the future of the office?

CBRE’s Loren Bergmann, Managing Director for Workplace Strategies, and Lisa Fulford-Roy, Senior Vice President, Client Strategy, have a better sense than most. Day in and day out they work with office-occupier clients who are contemplating how to configure their workplaces to meet post-pandemic standards and adapt to changing work styles.

Bergmann and Fulford-Roy and their colleagues have the benefit of being connected to CBRE’s global network of workplace strategy experts, providing access to valuable advance intelligence from other parts of the world, such as the APAC and EMEA regions, which are farther along in the return to the workplace process.

“Our global team has never been more connected, and it’s been a total game changer,” says Bergmann. “We’re able to see what’s happening on the frontlines around the world and that’s helping to guide our conversations with clients here in Canada.”

% OF ORGANIZATION ANTICIPATING DIFFERENT LEVELS OF REMOTE WORK

SEPT 2020 JUNE 2020 No remote work (<10% full-time-remote)

14% 10% <25% full-time remote employees

25% 27% 25-75% Full-time remote employees

49% 38% >75% full-time remote employees

3%

5%

Unsure

9%

20%

Source: CBRE 2020 Global Occupier Sentiment Survey

TECH LOVES OFFICE While Manhattan is struggling with a glut of vacant office space, Bergmann notes that tech giants Facebook and Apple have announced plans to increase their office footprints in the city.

“That’s intriguing to me, because tech has always been the driving force and other sectors typically follow,” she says. “If those tech companies are committing to new office space, that indicates they think there’s still a strong demand for people wanting to come together.”

Google has said that as of September it is encouraging employees to be in the office at least three days a week.

“And who measures team effectiveness better than Google?” Bergmann says. “I’m inclined to believe they know what it takes to make a successful team.”

There has been no shortage of stories of employees hired during the pandemic who have had trouble integrating into teams while working remotely. And CBRE’s recent survey of 1,000+ office workers made it abundantly clear what employees valued most in the office after working remotely during COVID-19. Employees listed encounters with colleagues (38%), in-person meetings (33%) and in-person collaboration (32%) as the top benefits of being in an office. “It just shows you that office will continue to be a driver of culture and key to knowledge sharing,” says Bergmann.

% OF ORGANIZATIONS THAT SEE THE ROLE OF THE OFFICE AS IMPORTANT BECAUSE IT:

SEPT 2020 JUNE 2020 Provides a place for employees to collaborate, innovate and be productive

100.0% 95.0% Provides a place for the company to reflect its brand and culture

100.0% 80.0% Provides a place for employees to experience community and social interaction

100.0% 70.0% Provides a place for the company to engage and attract talent

87.5% 80.0% Provides a place for managers to oversee employees

6.3%

20.0% Other

6.3%

15.0%

Source: CBRE 2020 Global Occupier Sentiment Survey

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EMPLOYEE EXPERIENCE How does an organization determine how much space it will need in the new reality? It will depend on the tenant and the market. “Everyone is in the same predicament when it comes to trying to figure out how the new workplace will function, but the solutions are nuanced and client-specific,” says Fulford-Roy. “More than ever before it’s not one size fits all. It requires custom and flexible solutions.”

The amount of office space a company needs will be shaped by the role it sees the workplace playing in a new hybrid model. “Most organizations want to create a compelling employee experience at the office,” says Fulford-Roy. “The new workplace will be geared toward bolstering culture and reinforcing the company’s brand, with team-building amenities that help to foster collaboration.”

The option of working two to three days a week in the office, and the other days from home, is “extremely popular with most of our clients right now,” says Bergmann. But what will be the impact of increased work from home on office layouts and space allocations? She anticipates most businesses will require the same-sized footprint as they did before, only it will be recalibrated, with far more emphasis on We Space (kitchens, cafes, collaboration areas) versus

Me Space, like individual workstations, due to be replaced by desk-sharing in a hybrid model that favours an activity-based work environment.

Clients in the midst of longer leases or needing to make imminent real estate decisions are considering workplace changes that reflect evolving employee expectations, collaboration demands, and new ways of working. For many this includes revalidating spaces for collaboration and focus as well as integrating a broader range of technology solutions to support a seamless employee experience.

Booking software is being considered to manage space demand, create ease of booking and locate colleagues in a free-address environment. Other considerations for hybrid work include optimization of what’s known as “mixed presence collaboration,” to ensure that employees, regardless of where they work, are equally included, engaged and able to contribute, unlike virtual participants pre-COVID.

Me space

VS

We space

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“We’ve all been working remotely, and tech savvy is no longer a distinguishing feature. From our perspective, life stage has a significant impact on preference for remote work and frequency of remote work.”

- Lisa Fulford-Roy, Senior Vice President, Workplace Strategy, CBRE Canada

FLEXIBILITY IS THE NEXT AMMENITY A recent CBRE client survey showed that 81% of respondents expect at least half of their workforce to be office-based in the future, and 83% of the organizations surveyed said they anticipate the workplace being a more shared environment.

“We’ll be using the office to come together and build trust. So we need spaces that allow people to meet, create, innovate and work together, which requires more than the typical meeting room,” says Bergmann. “Office space will be less static than before. Think hackable and reconfigurable arrangements. Less complicated cubicles so you can repurpose space or take furniture with you if you grow and move.”

Flexibility will be key in the new workplace and one solution that’s been getting a lot of attention is micro-architecture: off the shelf components that can be moved around a workplace space or taken with you if your lease is expiring in a few years. “Architectural changes will allow tenants with long leases to make the changes needed to stay relevant and reflect the times,” Bergmann says.

For landlords trying to maintain occupancy and attract new tenants, flexibility will be their new competitive advantage. “Flexibility may be the next sought-after amenity,” Fulford-Roy says. “That could take the form of communal lounges within office buildings or leases that make it easier to grow or move within a portfolio. Flexibility is going to differentiate physical buildings and real estate service providers.”

LIFE STAGES SHAPE PREFERENCES MOST At a more philosophical level, Fulford-Roy notes that the structure of hybrid work will be shaped by employee preferences based on their life stage and career maturity.

Someone with a young family at home, for example, might want to have more work/life separation. While empty nesters with a deeper bench of experience and an established professional network may choose to work from their home office a few days a week. Whereas a single employee who lives alone in a small condo with little space to work would likely want to come into the office most of the time, to build their career and social networks.

Although employees will be more empowered than before — 73% of organizations surveyed by CBRE said they anticipate more employee choice over when and where they work — Bergmann stresses that businesses are going to reassert themselves to make sure that they are getting the results they need for clients and that they maintain the culture that is so important to their longterm success.

“Most businesses are able to accommodate the hybrid model and have some employees working from home some of the time,” she says. “Work from home demand could be a thorny issue for employers and employees to navigate, but from a space and design perspective, there are ways to build out workplaces that meet everyone’s needs.”

Adds Fulford-Roy: “For leaders, it’s going to come down to determining the right balance to preserve culture, innovation and high-performance teams. What leaders prioritize — whether it’s innovation or lower costs — is so specific to each business, what they value and what they want to measure going forward. That’s what is informing their decisions, and the future of office will consist of a range of tailored solutions.”

LIFESTAGES OF AN EMPLOYEE EARLY CAREER

MID CAREER

ESTABLISHED CAREER

PRE-RETIREMENT

YOUNG FAMILY

SCHOOL-AGE FAMILY

EMPTY NESTER

BUILDING SOCIAL NETWORKS

WELLBEING

IMPORTANCE

“In recent years, the workforce was viewed as consisting of two camps: those that were tech savvy and those that weren’t, and this was attributed to generational demographics,” she says. “Fast forward to today where we’ve all been working remotely, and tech savvy is no longer a distinguishing feature.

From our perspective, life stage has a significant impact on preference for remote work and frequency of remote work. Employers

should anticipate ongoing changes in demand and build a flexible and agile solution that flex with employee preferences throughout their career cycle.”

FLEXIBLE WORK OPTIONS

WORK-LIFE INTEGRATIONS

SINGLE

Source: Microsoft Work Trend Index survey

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Louis Karam is CBRE’s New Leader in Ottawa CBRE’s Louis Karam will be the company’s new leader in Ottawa.

The stability of the Ottawa marketplace, its growing tech sector and strong real estate fundamentals have increased the city’s profile with businesses and investors across the globe. Ottawa is about to get an additional boost from an expected rebound in economic growth and Louis Karam’s perspective on end-to-end real estate solutions will help owners and tenants achieve their business goals and better their bottom line.

Karam, who previously oversaw CBRE’s Project Management business in Eastern Canada, is a valued partner to numerous Fortune 500 companies and has an extensive network across the region. “Louis is a dynamic, results-focused leader who provides comprehensive real estate strategies,” said CBRE President and CEO Werner

SUMMER 2021

Dietl. “Louis knows our clients well and has the drive, knowledge and character to make a significant positive impact in this new role.”

Becoming Managing Director of CBRE Ottawa is a fitting way for Karam, who joined the company in 2011, to mark the beginning of his second decade with the company. “Our Ottawa office already has an incredibly deep bench of top talent and I’m excited to guide the team to new heights post-pandemic,” said Karam. “Our clients in the National Capital Region will experience an even higher level of service as we enhance the connection between our Ottawa business and other markets, while better leveraging our global network, tools and technologies.”

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HR Professionals Ready for Their Biggest Challenge: The Return to the Office As Canadians prepare to return to workplaces later this year, employees have no shortage of questions and concerns regarding exactly what the postpandemic workplace will look like.

For some insight, we spoke to CBRE’s People team and local office management to find out what we might expect when we walk through our office doors.

VARYING REACTIONS It’s important to realize that people will be in different places as they begin to return to the office.

“Some will be energized about getting back; others might be exhausted by the past year or still have competing family responsibilities,” notes CBRE Canada Sales Manager Amanda Fediuc. “So the challenge for

employers is figuring out where everyone is at and how we return to the office in a way that works for everyone. It would be nice to have everyone back, happy and effective, but it’s a tough situation that requires a lot of listening and flexibility.”

“Everybody has experienced some form of stress over the past year and more change could result in unintended employee turnover,” adds Martha McIver, CBRE’s Head of People. “This isn’t just a big shift for employees coming back to the office, it’s also a pivotal moment for businesses managing the transition.”

Organizations that don’t address these issues among their employees will run the risk of losing the talent they worked so hard to attract.

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“It would be nice to have everyone back, happy and effective, but it’s a tough situation that requires a lot of listening and flexibility.”

- Amanda Fediuc, Sales Manager, CBRE Canada

CLEAR COMMUNICATION Returning to the office will have varying appeal and, for some, the renewed commute and change of plans could be jarring.

It is essential that managers keep close tabs on their team to make sure they’re OK, while also establishing clear expectations around their contributions while at the office.

“Managers are going to have to do a lot more in terms of one-on-one discussions with employees to talk about expectations for meeting business goals as we emerge from the pandemic,” says McIver.

“That could be saying to their employee, ‘I know you’ve got a lot to balance right now, but my goal is in X number of months I would like things to look like Y.’ And it will be important to be clear with those employees. Or you can say, ‘I’d like to review the situation in a few months and see what’s working well or not.’”

SAFETY CONCERNS Returning to the office doesn’t mean everybody will be confident about their health and safety. “There is still a residual anxiety people will have coming out of the pandemic,” says Fediuc. “Even if your company has the best hygiene plan and safety guidelines in place, initially it will be tough. People may be hesitant.”

Employees should feel free to discuss those issues with their employer, and employers must appreciate that there will be wide variation in individual safety concerns. “It will come down to that person’s tolerance of risk, what’s happening with their family, where they’re located geographically speaking,” McIver says.

While company leaders might be tempted to enforce a mandatory, full-time return to the office, a lack of flexibility could end up driving employees away. “If you don’t have that discussion with your employees you won’t know whether they are open to coming back to the office fulltime or not,” McIver says. “And if employees aren’t feeling safe or heard they’re going to vote with their feet.”

FLEXIBLE FUTURE Some employers will resist, but the future work week for most organizations will involve some mix of remote and office-based days.

While McIver acknowledges that it’s best practice for a new employee to be at the office as much as possible, in order to absorb the company’s culture, values and work ethic, “once you’ve gotten to know people and you’re there occasionally, I think you can accomplish quite a lot remotely.”

Again, clear expectations at the hiring stage will be a must when it comes to the structure of the work week. “If an employer has an offer out, they’ll need to emphasize that the job is working remotely for now and also state what they can expect in the months ahead.”

Companies that refuse to budge on offering some mix of remote working could end up losing good candidates.

“People have been so used to the flexibility,” says McIver, “they might feel they’re giving up too much to go back to a traditional office job.”

“This isn’t just a big shift for employees coming back to the office, it’s also a pivotal moment for businesses managing the transition.”

- Martha McIver, Head of People, CBRE Canada

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Suburban Office Has Yet to See a Post-COVID Boost The effect of the pandemic on Canadian office markets has become clearer and so far suburban office isn’t a net beneficiary.

It’s not all bad news. Suburban office markets have fared slightly better than downtown centres, with nationwide suburban vacancy increasing by just 3.5% since the first quarter of 2020, compared with downtown centres, where vacancy increased 5.0% in the same period.

But predictions that the pandemic would trigger a fundamental shift away from downtown office towers and into suburban office parks have not come to pass. “I’ve seen absolutely zero evidence of that trend,” says CBRE’s Miles Kettner, a Toronto-based broker who specializes in suburban office leasing. “The only dominant trend that’s playing out is uncertainty among office tenants who still don’t know what the future holds.”

Toronto saw suburban office vacancy rise to 16.2% in the first quarter of 2021, up from 15.0% a quarter earlier. Kettner says his suburban office clients are doing deals only if they must, usually because a lease renewal looms. And those having to make decisions are often downsizing.

“The deals I’m working on, 16,000 sq. ft. is becoming 12,000 sq. ft., 20,000 sq. ft. is becoming 10,000 sq. ft. I just finished a two-year renewal because the tenant is saying they’re not sure where things are going to be in a few years’ time. So everything is smaller and shorter-term.” And there has been increasing willingness among both direct landlords and sublandlords to accommodate shorter-term requirements, he notes.

That said, opportunistic users have a great chance to secure premium space in the suburbs via the sublet market. “There is better-quality space available here and it’s better term,” says Kettner. “And people don’t have to come in for just a year or two. There are lots of sublets out there for six, seven, eight years.”

In Toronto West, Kay Locke, who specializes in suburban office real estate, says she’s been seeing a significant increase in investor activity in her area in recent months and is currently working on five suburban office acquisitions and dispositions with her colleagues.

Locke, a 15-year industry vet who’s been in the real estate business through a few cycles, notes that once investor activity picks back up, it helps buoy the spirits of prospective occupiers. “If I’m an office tenant and I see that investors are buying up suburban office buildings and showing belief in the market, that confidence filters down.” She adds that the bulk of the deals she’s been working on, sales and leasing alike, have involved low-rise flexible office properties. “The towers in the suburbs will take slightly longer to rebound, unfortunately,” she says. “There may still be some lingering COVID effect there.”

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“If I’m an office tenant and I see that investors are buying up suburban office buildings and showing belief in the market, that confidence filters down.”

- Kay Locke, Vice President, CBRE Toronto

HUB AND SPOKE In Vancouver, suburban office vacancy in the first quarter of 2021 contracted 10 bps to 6.5%, with the bulk of the action in Burnaby, which saw a 70 bps decline in vacancy. This in contrast to downtown, where there has been a consistent and gradual increase in vacancy throughout the pandemic.

In the depths of the pandemic, there was much discussion about the hub and spoke office model being the way forward for larger organizations. Hub and spoke means companies, in a bid to offer flexibility and support for a distributed workforce, have a central hub headquarters and a network of smaller regional offices, or spokes, closer to where employees live.

The hub and spoke model had been gaining traction prior to the pandemic, and CBRE’s Luke Gibson says it’s been the reality for years in Metro Vancouver, where downtown offices can be difficult to access from the suburbs because of a number of bridges and tunnels and highway congestion throughout the region.

“Hub and spoke has always been here. Professional services, financial and engineering firms have been early adopters in this market, with offices downtown and branches in suburban centres like Surrey, Langley, Burnaby and Richmond.”

It’s not hard to see the appeal of suburban offices in the aftermath of the pandemic, Gibson points out. “You have low-rise buildings where you can park your car in front, walk in and up a set of stairs, and you’re at your desk, making accessibility seamless and with fewer touchpoints”

Demand has been especially strong for higher-quality improved office spaces, and Gibson, a senior vice president specializing in suburban office leasing, says his clients are recognizing the value of existing improvements. “The cost to build has jumped significantly, and tenant improvements have never been more expensive, nor the timing on permit approvals for those projects more unpredictable. So quality improved space that is on rapid transit has been leasing at a brisk pace compared to shell space, which has seen a much slower take-up”

SOUTH SHORE SENSATION Montreal’s South Shore office submarket has been a bright spot for suburban office leasing in that city.

It’s not pandemic concerns that are driving tenants to the South Shore. According to CBRE senior vice president David Cervantes, the area’s allure has everything to do with the construction of a light rapid transit line that will connect downtown to the airport via the South Shore, centered around the junction of Highways 30 and 10.

Three major office projects are driving absorption there: Oxford Properties’ mixed-use campus DIX30, Solar Uniquartier and Jonxion, with more projects on the way. “The whole story of demand in that part of the South Shore centres around the creation of more robust transit and amenity in that hub,” says Cervantes. “So much so that during the pandemic there were three straight quarters of positive net leasing activity there while the rest of the South Shore had more space returned to the market than was leased.”

Cervantes believes state of the art office space on the South Shore will continue to see strong demand. “New development is a winner because tenants want quality office space, which is being significantly influenced and motivated by health and wellness concerns. People want to step into that upgraded new development envelope and it’s a way for companies to say to their employees, ‘We care about you.’ ” The suburban office market can’t be painted with one brush.

The pandemic hasn’t caused a suburban office renaissance in Toronto, but demand can be strong outside downtown cores where geographic constraints and strong transit links increase desirability and flexibility.

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CBRE Montreal Celebrates 25 Years CBRE wasn’t a known quantity in Montreal when the company (then called CB Richard Ellis) opened an office there in May 1996 with a skeleton crew of four brokers.

Jacqueline Boutet, her daughter Michèle, and son-in-law Pierre Lacroix set up shop at 1010 Sherbrooke St. W., with Ramsay Lunan moving from CBRE’s Toronto headquarters to help launch the Montreal branch.

To amplify the brand, Lunan went around town asking property owners if he could put CBRE signs on their sites, despite not having an actual mandate with them. It was a bold plan—and it worked. “Some of the owners said OK,” Lunan recalls. Before long, after plenty of hustle by the team, CBRE signs were popping up all over town and the deals began to flow. “We quickly got recognized as a company to watch,” says Lunan.

A quarter-century later, as CBRE celebrates the 25th anniversary of the Montreal office opening, the company is very much still the one to watch in Quebec. The operation has grown from four sales professionals to a team of 95 supporting a range of brokerage, project management and valuation services, and there are additional offices in suburban Saint-Laurent and Quebec City.

Giving back to the community that helped the business expand has always been a core philosophy. CBRE Montreal has raised hundreds of thousands of dollars over the years for the Montreal Real Estate Foundation for Kids, the Hockey de rue tournament benefiting underprivileged kids, the JDRF Challenge, and the Angel Tree toy drive for Montreal Children’s Hospital, and St. Mary’s Masters golf tournament, among other groups.

‘WE NEED TO GO GLOBAL’ Back in the mid-90s, Jacqueline Boutet was running her own boutique brokerage when she received an information package from CB Commercial. Jacqueline was a pioneer in everything she did, says Michele, and she saw where the commercial real estate industry was headed. “My mother always had vision and she said everything is going global—we need to go global.”

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She reached out to Evan White, who had co-founded CBRE’s fledgling operation in Toronto in 1983, to express interest in joining forces, and ended up meeting with White and CBRE Canada chief operating officer Blake Hutcheson to discuss the possibilities.

Before long, Jacqueline, Michèle and Lacroix had signed a contract and were hanging the CBRE shingle on a 7,000 sq. ft. space at 1010 Sherbrooke. “We knew it was the beginning of a great adventure,” Lacroix says. “It was very exciting—everything had to be built.”

They were joined by Lunan from Toronto. Adept at acquiring talent and sourcing opportunities, Lunan, who was born and raised in Montreal, approached past clients and developed new business in the office leasing and industrial sectors, eventually diversifying into investment, multifamily and retail.

CBRE’s Montreal office was open concept, which was regarded as unconventional at the time but was standard for CBRE then as it is today. “It was considered a promotion to have a closed office in those days,” Boutet notes. “For CBRE it was important to hear what people were discussing on the phone. It gave us additional knowledge of the market.”

But that open environment helped to quickly foster a culture of teamwork, respect, collaboration and communication. “And that’s what differentiated us from the competition,” Lunan says.

EXPANSION The year 2005 was a big one for CBRE in Montreal, with the company moving to new downtown digs, at 2001 McGill College, while also expanding into the suburbs with the launch of an office in Saint-Laurent to better serve the industrial market.

The suburban office at 4030 Côte-Vertu was a basic affair — a 1,200 sq. ft. space that didn’t have a colour printer or a proper

CBRE ADVANTAGE MAGAZINE

conference table. “We were pioneers again and were told, if you make money we’ll get you a real office,” Boutet recalls.

The following year CBRE acquired two companies with a local presence: Groupe Axival, a valuations firm, and Trammell Crow, a development, investment and property management firm.

All three merged under one roof and expanded into 11,000 sq. ft. – more becoming of a real estate services company – at 333 Décarie.

In 2014 CBRE moved into Quebec City to establish a stronger presence in the provincial capital. The office opened with one broker, Stephane Hudon, who then brought Philippe Lambert on board.

Two years later, the downtown Montreal team moved to its present state-of-the-art location at 1250 René-Lévesque Ouest, part of CBRE’s industry-leading workplace transformation program.

A suburban expansion to a larger office at 400 Sainte-Croix in Saint-Laurent in 2019 was also part of that program.

“The office has never stopped growing, year after year,” Lacroix notes. “This is thanks to our incredible clients who supported us and our culture of innovative leadership.”

Earlier this year, Ruth Fischer was named CBRE’s new Managing Director in Quebec, the first woman to lead a regional market for CBRE in Canada, marking the beginning of another chapter for the company in La Belle Province. “Since CBRE’s start in Montreal, women have played a key role and brought tremendous value to the whole organization,” Michèle Boutet notes. “Today they represent a significant proportion of the leadership team and the office overall.”

“Our Quebec team has done remarkable things over the past 25 years, and I’m excited to be carrying on that tradition of excellence while working to take our organization to the next level,” says Fischer.

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Making it official: Jacqueline Boutet and Evan White sign the papers while Blake Hutcheson, Michèle Boutet and Pierre Lacroix look on.

BIG DEALS CBRE Montreal has seen its share of big deals over the last 25 years, including some notable ones for the Day 1 crew.

For their part, Jacqueline and Michèle Boutet and Lacroix helped Canada Lands secure a site for a new stadium for the Montreal Expos. Sadly, the team left town in 2004 for Washington. Lacroix brought WeWork to Canada in 2016, and in 2005 Lunan brokered the sale for General Motors of a 3.1 million sq. ft. property with a 900,000 sq. ft. industrial building in Boisbriand, Que. to a U.S.-based diversified developer.

There will be plenty more deals to come and Lunan anticipates more excitement in the near future because he knows that the company can’t afford to stand still. “The next 25 years belongs to a new generation. I’m so excited about what I see from them, and it’s needed,” he says. “Real estate services are more multi-faceted and sophisticated than ever before. More than anything else, the strong communication and cooperation that got us to this point will be essential going forward. Of course, we also need to keep having fun!”

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Revenge Travel Will Kickstart the Canadian Hotel Recovery Canada’s hotel industry has been battered in the past year and a half and needs you to travel the country when it’s safe in order to turn things around. A full resurgence will be complicated by Canadian travelers’ desire to go abroad and more tightly controlled business travel budgets.

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CBRE Hotels’ newly released outlook anticipates a slight recovery this year in revenue per available room, or RevPAR, forecasting it to rise 16% nationally to $50 (down from $106 in 2019).

This will be driven primarily by an uptick in drive-to domestic leisure travel in and around major centres such as Toronto (where RevPAR is projected to rise 27%), Vancouver (+17%) and Montreal (+33%).

Domestic travel plays a key part in driving hotel demand in Canada, representing between 75% to 80% of overall tourism revenue most years. A higher level of domestic leisure activity could actually help the Canadian hotel industry in the short term if international travel remains limited by the pandemic. However, in the absence of large meeting, conference and international corporate and leisure business, Canadian hotel occupancy levels are forecast to be in the 38% range nationwide, versus 65% in 2019.

At these occupancy levels CBRE is forecasting only slight growth in the average daily rate (ADR) for the year, to $131 versus $163 two years ago. “Once the confidence is there, the more rate yield we can expect to see,” says CBRE Hotels Director Nicole Nguyen.

“When we get closer to the 60% occupancy mark nationally, we will begin to see more significant ADR growth.”

While vaccination rates are rising and border re-openings are hopefully on the horizon, CBRE doesn’t expect RevPAR to return to 2019 levels until 2025.

RECOVERY IMPACTS As with COVID itself, there are so many variables at play and the recovery could ultimately come together very differently than expected. The prolonged impact of the economic shutdowns may see businesses eager to get people back to work and back to travel as soon as possible, driving a more robust corporate travel recovery.

Even if Canadians do choose to travel within the country, there could be challenges in getting them to where they want to go.

For example, many airlines have cut back on primary routes and in some cases eliminated secondary routes in order to adapt their business to the impacts of COVID. It may prove challenging to ramp everything back up quickly. “The ability of the airlines to re-engage all of that capacity in a short timeframe is uncertain,” Nguyen says. “How quickly they’re able to respond may factor into the recovery. ” There is increasing pressure from hotel operators to reopen the U.S. border or at least have some visibility on what it will take to make that happen. The lack of certainty around the border is proving to be a serious threat for the meetings, convention and event industry, which is unable to book or confirm busines in Canadian cities with confidence. “Meeting, conference and event business provides a base for hotel operators to build from,” says CBRE Tourism & Leisure Director Rebecca Godfrey. “But if this business is absent it presents a compression building issue, particularly in our urban core markets.”

INCREASING INVESTMENT MOMENTUM On the investment front, CBRE Executive Vice President Luke Scheer says there remains significant capital on the sidelines looking for opportunities to be deployed in the hotel space. “We have seen pent-up demand first-hand in assets we have been marketing thus far in 2021. Investors are actively looking to seize opportunities as we move forward in the recovery” As fundamentals begin to improve, so too will investor confidence in pursuing and executing transactions in the hotel space.

“We are also seeing increased interest in resort assets given the resiliency these properties have shown during the current environment,” Scheer adds.

“We are also encouraged by the continued interest from foreign One of the risks to the recovery of the Canadian hospitality incapital as U.S. and international investors continue to view Canadustry is Canadians themselves. They love to travel and haven’t da as a highly sought-after market to invest in the hotel space.” been able to do that in a meaningful way recently. However, they are usually quick to hop on planes and head for foreign destinations. By in large, Canadians have a strong desire to travel and the funds to do so. As we have seen in other countries, “revenge ACTUAL RESULTS travel” is expected to propel the early OCC ADR REVPAR SUPPLY DEMAND OCC ADR REVPAR recovery. On Memorial Day weekend 2019 65% $163 $106 1.4% 1% -0.4 pts 5% 5% many markets in the U.S. reported 2020* 33% $129 $43 0.8% -48% -32 pts -21% -59% occupancy levels of 90%, better than or comparable to the same weekend pre-pandemic.

OUTLOOK

2021-2025 CANADIAN OUTLOOK

Open borders could produce a travel exodus. “People have been at home for a year and a half, they’ve done the road trips,” Nguyen says. “The moment they’re vaccinated and can move around freely there is a strong chance that they will reschedule the all-inclusive trip to somewhere sunny that they had to cancel, will hop on a plane for Europe or head across the border. We may have a hard time keeping them at home.”

SUMMER 2021

OCC

ADR

REVPAR

SUPPLY

DEMAND

OCC

ADR

REVPAR

2021

38%

$131

$50

1.1%

16%

5 pts

1%

16%

2022

51%

$136

$70

1.5%

36%

13 pts

4%

39%

2023

59%

$145

$85

1.8%

16%

7 pts

7%

22%

2024

62%

$157

$98

0.6%

7%

4 pts

8%

15%

2025

65%

$163

$106

0.7%

5%

3 pts

4%

8%

* 2020 performance has been annualized to reflect total inventory Source: CBRE Hotels’ Trends in the Hotel Industry

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Toronto Is Officially a Big Deal In The Data Centre World Demand from cloud service providers and large tech companies led to the second-most data centre leasing in North America happening in Toronto, according to a recent report from CBRE. Toronto saw 38.1 megawatts (MW) of data centre absorption in 2020, bested only by Northern Virginia, which had 217.2 MW of absorption last year. Montreal was ninth on the list, with 11.0 MW of net data centre absorption in 2020.

4 to 5 years before you see any substantial yield from the project.

It takes 3 years just to complete a ground up build even if the power is available. That’s why data centres can be so challenging from a greenfield development point of view.”

One of the fastest-growing real estate sectors, data centres are in high demand as businesses reconfigure digital infrastructure to improve remote work capabilities, and tech giants and cloud service providers race to meet consumer and corporate demand.

It’s a different story in Montreal, which has the second most data centre space under development in North America, with 57 MW, more than either Silicon Valley, Washington, DC, or Chicago.

Toronto, by virtue of its size and status as a home to large enterprise companies, is seeing unprecedented data centre demand, and there are vast amounts of capital ready to be deployed.

“There has been this explosion of demand in recent years,” says CBRE Vice President Scott Harper, who heads up the Toronto data centres business.

CBRE Senior Vice President David Cervantes, who heads up the Montreal data centre business, notes that there are similar pressures for data centre developers on the island of Montreal.

But off island, “you have a lot more options. You could build a new data centre hub in any direction from downtown Montreal.

Toronto doesn’t have that same advantage. You can’t just annex Buffalo and go south; plus the population there is so much bigger.”

While Harper says the GTA is projected to see upwards of 50 MW of annual data centre absorption in the coming years, there are big hurdles standing in the way of that growth. For all the talk about fibre optics and megawatts, the success of the Toronto data centres market hinges on finding dirt to develop.

That’s not as easy as it sounds. As Harper points out, the GTA industrial market has been “gobbling up land.” Considering that a new data centre development might require up to 20 acres, finding an adequate site in the GTA is a near impossibility.

Industrial land in the region is worth around $3.5 million an acre, according to Harper, and while real estate might represent 10 per cent of a data centre’s total development cost, it does make it costly to buy a 20-acre parcel. “Even if you did find a site that large, you’d have to pay $70 million, and then it could be

16

Toronto requires creative solutions for growing its data centre market. One option Harper has been talking to clients about is buying up an older industrial facility that isn’t being maximized, say, a 180,000 sq. ft. building, and tearing it down and putting up a shiny new 300,000 sq. ft. data centre in its place. “It’s an upsize situation without having to use more land.”

Another option is to add a data centre to a property that has existing cash flow, such as purchasing an office building on a site that has additional land zoned for data centre development.

“It’s all about creativity when you’re coming up with data centre deals these days,” says Harper. “If you’re looking for upside, those who can buy deals and land will win.”

CBRE ADVANTAGE MAGAZINE

Events for

Advantage

Golf JULY 19 SIOR Canada: Annual Golf Classic JULY 22 NAIOP Calgary: Golf Tournament 2021 AUGUST 4 CREW Montreal: Golf & Cycling 2021

AUGUST 5 CREW Calgary: 16th Annual Golf Tournament AUGUST 19 NAIOP Edmonton: 2021 Golf Tournament AUGUST 26 CREW Vancouver: Golf Tournament

AUGUST 31 CoreNet Canada: Golf Classic SEPTEMBER 17 CREW Toronto: 25th Annual Golf Classic SEPTEMBER 22 NAIOP Toronto: Golf Day

Virtual JULY 14 NAIOP: Office Building Design - Strategies for a Reimagined Future AUGUST 11 ULI: Brave the Storm Strategies for Coastal Resilience

SEPTEMBER 13-16 Retail Council of Canada: RCCStore

SEPTEMBER 29-30 Canadian Real Estate Forums: RealREIT

SEPTEMBER 22-23 Canadian Real Estate Forums: Canadian Apartment Investment Conference

Live AUG 30-SEP 1 NAIOP: I.CON West Long Beach, CA

OCTOBER 14-16 SIOR: CREate 360 Nashville, TN

SEPTEMBER 26-29 NAIOP: CRE.Converge Miami Beach, FL

NOVEMBER 11-12 NAIOP: I.CON East Jersey City, NJ

SEPTEMBER 28-30 CREW: 2021 Network Convention, Las Vegas, NV

SUMMER 2021

NOVEMBER 24 CoreNet: 10th Annual REmmy Awards Toronto, ON DECEMBER 5-7 ICSC: Here, We Go. 2021 Las Vegas, NV

17

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Exclusive news and analysis you won’t find anywhere else www.cbre.ca/AdvantageInsights