CBRE Canada Advantage Magazine - Spring 2022

Solving the ESG Riddle

Top Trends Shaping Real Estate

Here Comes Halifax

Industrial Holds the Key to Housing and Growth

SPRING 2022

Advantage In Pursuit of Potential Commercial Real Estate Looks Ahead to New Goals and Challenges

cbre.ca/advantagemagazine

A note from Werner PRESIDENT & CEO I recently returned from ICSC Whistler where retailers and services providers gather for three days every year to connect and strategize for the year ahead. The incredible energy, ideas and friendships that come from events like this are so important.

Being surrounded by our clients and CBRE retail professionals has left me invigorated!

There is a lot happening in the world and we are very fortunate to have a real estate industry that is thriving in many ways.

Investor sentiment is at an all-time high with a record $57.9 billion of commercial property trading hands last year and a new benchmark is expected to be reached in 2022. Industrial availability is at alltime lows, spurring new developments wherever they can be launched.

Multifamily markets fundamentals are stronger than ever, the retail sector is ready for a big comeback and office markets are preparing for an infusion of workers back into our city centres.

This is where ESG comes in and is one of the topics in this edition of Advantage Magazine.

ESG considerations are being embedded into every stage of the property lifecycle, from due diligence to acquisitions and from leasing to asset management.

CBRE Reception at ICSC Whistler 2022

By keeping ESG principles at the center of how we operate moving forward, our industry can ensure this moment of great economic prosperity will be one that ends up strengthening our communities in new and innovative ways.

We hope this edition of Advantage Magazine helps you and your business find inspiration and optimism in these complicated times.

Global events remind us that as we accelerate out of the pandemic, we must work together to ensure that the wellbeing of people and the environment are at the core of our planning, decision making and execution.

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Market Outlook: 5 Commercial Real Estate Trends That Will Shape 2022 Solving the ESG Riddle? Timber Frame Construction Could Hold Some Answers Edmonton’s Economic Growth Depends on New Industrial Development Inclusionary Zoning in Toronto: Game Changer or Deal Breaker?

CBRE’s Emerging Leaders: Sarah Henderson and Kai Tai Li CBRE Halifax Celebrates 20 Years

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Why Halifax Is a City on the Rise

Contents

SPRING 2022

How the Cogswell District Project Will Change Halifax Toronto Industrial Land Conversions Offer Lucrative Housing Opportunities

Companies Eye Flexible Spaces for Return to Office Magnetizing the PostPandemic Workplace

Investors Return in Force to Purchase Seniors Housing

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Market Outlook: 5 Commercial Real Estate Trends That Will Shape 2022 Despite anticipated challenges – namely high inflation, interest rate hikes, and looming labour shortages – CBRE’s Canada Real Estate Market Outlook paints a positive picture for the sector in 2022. From the lure of elusive industrial space to the adoption of ESG, here are five trends that will shape Canada’s real estate market this year.

Inflation and Rising Interest Rates The Bank of Canada has raised interest rates twice so far in 2022 in an effort to rein in stubbornly high inflation. Economists are calling for additional increases this year as central banks around the world attempt to keep prices under control.

Thanks to the underlying strength of commercial real estate fundamentals, investment volumes and capitalization rates are not expected to be adversely impacted by interest rate hikes. And, if there’s a silver lining to inflation, it can be found in real estate. A stronger economy, more jobs, higher demand for space and rising rents can make real estate a natural hedge for investors against inflation.

Adoption of ESG Environmental, Social and Governance (ESG) considerations will become increasingly important for real estate investors in 2022. The adoption of ESG practices in the real estate sector has lagged, but that is already changing. In the office market, ESG-focused occupiers will turn their attention to timber developments.

The material offers carbon emissions savings of 60% to 70% compared to steel and concrete buildings. The adoption of ESG in the retail sector will be driven by socially conscious consumers seeking to support brands that align with their values. Government policies and financing programs will spur multifamily landlords to incorporate ESG strategies into new developments.

Return to the Office Office market conditions will strengthen in 2022.s. Office workers will return to their desks in-person, allowing employers to test new strategies that enable hybrid work. The net amount of office space that is leased in 2022 is forecast to total 6.2 million sq. ft. nationwide before rising to a 15-year high in 2023.

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Industrial Demand Remains High

Recovery in Retail

Demand for industrial space will continue to outstrip supply well into 2022, driven mainly by Canadians’ swift adoption of ecommerce and the growing need for safety stock in the midst of supply chain challenges. With little available industrial space remaining, the industrial development pipeline will see heightened – and competitive – pre-leasing activity. Until there is balance between supply and demand, industrial rental rates, sale prices, and land costs will remain excessively high across Canada..

As consumers move increasingly online, retailers and shopping centres have begun to put a greater emphasis on their physical spaces in attempt to recapture the market. In the year ahead, thematic stores, promotional events, and expanded display areas will become prevalent. New food and beverage concepts will also help to draw customers back to the shops, as will service-oriented retailers. Landlords have paid increasing attention to the latter as they look to diversify their tenant mix, especially as existing retailers – particularly within the fashion industry – consolidate their locations.

Find out more about these market drivers and the other trends shaping life and work in 2022.

Download CBRE’s Canadian Real Estate Outlook at CBRE.ca SPRING 2022

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Solving the ESG Riddle?

Timber Frame Construction Could Hold Some Answers Environmental, social, and governance (ESG) are moving from concept to reality. These factors will become increasingly important as businesses plan to meet the 2050 and collective goal of a net zero world. But, what is ESG? And how will it change your business and decision making?

ESG factors are the criteria used by potential investors to evaluate a company’s sustainability. ESG is a way for socially conscious investors to align their capital with their values.

E S G

Environmental factors, such as a company’s carbon emissions, consider conservation of the natural world.

Social factors examine how a business treats people, including employees and customers.

Governance considers how a company is run, such as executive pay and board diversity.

As CBRE Vice Chairman Paul Morassutti noted in his Market Outlook keynote, ESG factors are becoming increasingly integrated alongside financial factors in the investment decisions of a growing number of businesses, particularly those working in commercial real estate.

The embodied carbon of construction, refurbishment, and fit-out is becoming a more prominent issue, as is the operational performance of buildings. Nearly 40% of global greenhouse gas emissions are produced by the real estate sector, a significant portion of which is due to a reliance on unsustainable construction materials.

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T3 Bayside Rendering

Tim-ber!

An ESG-friendly solution for commercial real estate? Mass timber. Timber buildings are far more environmentally sustainable than any other building typology. Compared to traditional steel and concrete buildings, timber offers carbon emissions savings of as much as 70%.

While it may seem counterintuitive to cut down trees to achieve sustainability, North America grows enough timber to construct one seven-storey building every 20 minutes. And all reputable timber companies only source material from sustainably managed forests, in which more trees are planted than harvested. The carbon sequestration of building with sustainably harvested timber, combined with the carbon avoidance achieved by not building with steel or concrete, is equal to taking approximately 1,500 cars off the road – permanently.

Growing Demand Timber will not be a hard sell to office investors and occupiers – the demand is already there. Brick-and-beam office conversions have been all the rage in Vancouver, Toronto, and Montreal as businesses, particularly tech companies, seek spaces that will inspire employees to return to the office. Timber buildings offer the same authenticity and aesthetics as old-school brick-and-beam, but also provide new-build features such as sound attenuation, natural light, and modern elevators and HVAC systems.

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One noteworthy timber frame project is Hines’ T3 Bayside: Designed by world-renowned Danish architecture firm 3XN, T3 Bayside is the latest in a series of creative modern workplaces built with Hines’ T3 concept: Timber, Talent, Technology. Phase I will bring 251,000 sq. ft. of contemporary, innovative office space to Downtown Toronto’s eastern waterfront in early 2023.

Safe and Cost-Effective Timber does not equal tinder. Any concerns about flammability are extinguished by modern design safety elements, like flame retardants, which make modern timber frame buildings self-extinguishing. While the construction costs for timber frame builds tend to be higher, they can be constructed faster than their steel counterparts. So the final project costs for timber buildings can end up being equivalent or even cheaper than steel frame construction.

Timber buildings are one solution. To meet the goals of the Paris Agreement and limit global warming to 1.5 degrees Celsius by 2050, a whole host of other ESG practices will have to be widely adopted throughout the commercial real estate industry over the coming years.

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Edmonton’s Economic Growth Depends on New Industrial Development The tide has turned for the Edmonton economy, with energy prices climbing and a wave of distribution companies looking to set up shop there. But additional successes could be at risk.

Edmonton saw a remarkable 2.1 million sq. ft. of industrial space leased in the fourth quarter of 2021, the most industrial leasing since the third quarter of 2013. And another 1.8 million sq. ft. was leased in the first quarter of 2022.

The challenge stems from the fact that the amount of new industrial space completed last year fell 48.5% from 2019, Edmonton’s first year-over-year decline since 2017.

Without more industrial supply, the Edmonton Metropolitan Region could see its economic growth constrained and further industrial rent increases – a challenging situation that exists in most other Canadian cities right now.

Developers and investors are stepping up to the plate. A record 4.5 million sq. ft. of industrial projects are currently under construction, but the growing supply-demand imbalance has already sent the industrial vacancy rate to a fiveyear low of 4.2% and declining, while rental rates are steadily increasing for planned industrial developments.

“Some of the biggest logistics companies in the world are looking at locating in Edmonton, but we need to move faster, build more and capitalize on this opportunity,” says Dave Young, Managing Director for CBRE in Edmonton.

Supersized Industrial Demand he size of the average industrial user continues to increase as ecommerce take-up explodes. Canada had lagged behind global peers in terms of ecommerce adoption, but since the pandemic, ecommerce penetration has nearly doubled, from 10% in 2019 to 19.6% today. Canada is now on par with the U.S. for ecommerce penetration and our industrial markets are struggling to keep up.

In Edmonton, sales of industrial buildings larger than 50,000 sq. ft. more than tripled in 2021, from six transactions in 2020 to 22. Edmonton Metropolitan Region only has three warehouse facilities available immediately larger than 100,000 sq. ft. currently available, which limits the number of options for tenants in the market, not to mention that 73.3% of the new industrial space under construction has already been preleased.

“You might look at the 4.5 million square feet of industrial space under construction in Edmonton and think that’s a sufficient amount, but it’s mostly preleased,” says Braylon Klemchuk, Senior Sales Associate with CBRE. “We have new and existing logistics users that need significantly more space than we’re currently building.”

This is one of the reasons that Panattoni Development Company is building the first speculative industrial building in the region larger than 500,000 sq. ft. Located at Apex Business Park, the building is scheduled for completion in the third quarter of 2022. Buildings of this scale are common in Toronto and Vancouver, but this project represents the dawn of a new era for the Edmonton industrial market.

“Edmonton has had a fairly balanced industrial market since 2008, but now we’re at an inflection point,” says Mark Edwards, Development Manager at Panattoni. “The marketplace has been building for that established trendline, not for the additional 700,000 square feet of annual demand that has suddenly been added to an already active market.

It may take time to recalibrate, but we’re excited by the opportunities in Edmonton.”

“The goal isn’t to have the lowest vacancy rates and highest rental rates in the country. The goal is to have enough of the right type of industrial space to capture opportunities.”

DAVE YOUNG MANAGING DIRECTOR, CBRE EDMONTON

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Edmonton Industrial Under Construction Major Projects (150,000 SF+)

Southport Crossing Building 3 154,000 SF Q2 2022*

Anthony Henday Business Park 197,000 SF Q2 2022*

Discovery Business Park Centre 4 213,000 SF Q1 2023*

Horizon Business Park Building E 214,000 SF Q2 2022*

Apex Building 3 548,000 SF Q3 2022*

SF sizes rounded to the nearest thousand *Estimated delivery date

Repeating History In 2021, CBRE predicted that Canada’s major industrial markets could run out of quality logistics and distribution space by year’s end. That unthinkable possibility became a reality sooner than anticipated.

In Vancouver, the industrial availability rate in the fourth quarter of 2021 was 0.9%, the lowest it’s ever been. It’s the same situation in Toronto, where industrial availability is also 0.9%.

Both cities have historically significant amounts of construction taking place – nearly 10 million square feet each – but with over 90% of that new space already pre-leased, rental rates and sale prices are pushing to record levels as demand outstrips supply.

Highlands Business Park 2,900,000 SF Q4 2022*

Source: CBRE Research, Alberta Major Projects, Q1 2022.

Even with land at the ready, adding new supply is more complicated than simply flicking a switch.

“Every developer out there is looking to step up, but there are a lot of factors at play right now that make construction challenging,” says Dan Viner, Manager, Acquisitions & Assets for Crestpoint. “We’ve got supply chain issues delaying steel delivery by eight months and other building components arrive out of sync, plus prices are climbing. It’s a tough environment to underwrite and execute in, but inflation rent growth are helping to offset some of the challenges.”

Permitting Process is Key One factor working in Edmonton’s favour is a faster permitting process than other major markets.

“Users in markets such as Vancouver and Toronto have turned to Edmonton for more palatable lease rates and immediate availability of product,” says Klemchuk.

“If we don’t adjust to demand and start building more, we could find ourselves in a similar supply constrained, high-cost situation as other markets in Canada.”

Development permits and approvals take months or years in many cities, but it’s broadly accepted that Edmonton has some of the fastest approval times in the country – an advantage that could help the city ramp up construction and maintain its industrial momentum.

If You Build It…

“The goal isn’t to have the lowest vacancy rates and highest rental rates in the country. The goal is to have enough of the right type of industrial space to capture opportunities, grow our economy, add jobs and serve consumers,” says Young.

Unlike other cities in Canada, Edmonton still has the chance to ramp up construction and capture demand from other markets. QuadReal Property Group is trying to create opportunities with their development at Anthony Henday Business Park.

“We are encouraged by the sustained demand we have experienced in the Edmonton market and our recent lease up of over one million square feet,” says Meghan Kinney, Vice President, Leasing at QuadReal. “As tenants seek lower cost alternatives to Toronto and Vancouver, the Edmonton Region is uniquely positioned to capitalize on this activity with an environment well-suited for developers looking to deliver on new product in the next few years.”

Crestpoint Real Estate Investments is also looking to be part of the solution, having purchased Northport Business Park in February 2021. Northport is an 845,856 sq. ft. Class A industrial development, but the real potential lies in the 42.77 acres of future development land that surround it. They are moving forward with two speculative buildings: 113,000 sq. ft. on the front parcel and 205,000 sq. ft. on the back parcel.

“We can look elsewhere for the cautionary tale, but what really matters is that we have the solution in hand here in Edmonton. We have available land, quick permitting times and developers ready to step up. That’s good news for Edmonton and potentially for online shoppers right across the country.”

Edmonton Under Construction (MSF) 5.0 4.0 3.0 2.0 1.0 0.0

2011

2012

Northwest

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2013

2014

Southside

2015

2016

Nisku/Leduc

2017

Acheson

2018

2019

2020

2021

Source: CBRE Research, Q4 2021.

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Inclusionary Zoning in Toronto: Game Changer or Deal Breaker?

“At this point, no potential development sites have been sold at a materially lower price point. Just because development underwriting supports lower land values does not mean that market participants will sell and accept lower prices.”

GRANT CHERNENKOFF DIRECTOR, VALUATION & ADVISORY SERVICES

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Ontario’s Affordable Housing Taskforce recently released a plan to increase the supply of housing across the province. One tool that Toronto and other cities are beginning to utilize is inclusionary zoning. Inclusionary zoning requires affordable housing units to be built as part of a new residential development, but what is being touted as a game changer could also be a deal breaker for many developers. Market watchers are suggesting that development land may need to be repriced, but there are many factors at play.

Grant Chernenkoff is a Director with CBRE’s Valuation & Advisory Services group and runs the Land Valuation Practice with Vid Stambolovic. Grant has specialized in real estate, finance and development land for over 15 years, and he recently explained how inclusionary zoning affects development proformas, how developers might respond to affordable housing requirements, and what impact inclusionary zoning will have on development land values.

What impact will inclusionary zoning (“IZ”) policies will have on underlying land values?

Without many test cases, the exact impacts are difficult to quantify. At this point, no potential development sites have been sold at a materially lower price point than would otherwise be expected in the wake of IZ bylaws. However, some logical assumptions can be made as to what’s about to happen.

What factors currently determine the value of land?

Land values are fundamentally driven by what can be built and the type of use permitted on site. Not all buildings and uses are equally profitable. Profitability can be defined as the difference between revenues and the costs, which includes an acceptable level of to the developer. Some people question the need for profit, but developers assume huge risk and expend significant effort to deliver new housing units. If there is no profit, there are probably no units being built by a private company.

Won’t profits and land values be maintained due to affordable unit cost savings?

Hard construction costs are relatively the same for both market and affordable units. Cost consultants indicate that components in affordable units are not significantly discounted compared to a market-priced component of a similar size. While the level of finishes may be somewhat lower, the overall impact to a construction budget is quite limited and potential costs savings are outweighed by the overall reduction in potential revenues arising from the affordable housing component.

What path forward would most developers prefer?

The preference of most developers is to increase the selling price or rental rate for the remaining market-based units in a development as this would have the least overall impact to the development process. However, this assumes that the market will bear price increases and we all know that housing affordability is an issue for so many people. If not, it’s hard to see how development projects move forward.

What about adjusting profit margins to decrease costs?

Decreasing profit margins is an option, but development margins are not as large as some might think for high-density development projects to begin with. Typically, profits range anywhere from 10% - 15% so it wouldn’t take much to reach a point where a developer wouldn’t see the financial incentive to build.

What about lowering overall project costs?

New mechanisms or incentives would be needed to change the math in any significant way because savings won’t be found in the construction process.

New IZ legislation doesn’t currently include provisions for lowering municipal fees for the mandated affordable component, so there are no savings to be had there.

What’s left to reduce in price?

That leaves only one cost input that could be meaningfully reduced – the price of the underlying land. The path forward is some combination market pricing, profit margins and land values. However, it seems likely that pressure will mostly fall on land values as that is the only surefire way for developers to maintain acceptable levels of return for the risk involved with residential construction.

Will land prices actually fall?

Just because development underwriting supports lower land values does not mean that market participants will sell and accept lower prices. Entrenched positions could reduce liquidity in the high-density residential land market due to a bid-ask spread. This could lead to an even further reduction in new housing supply, which would put further upward pressure on new product pricing and rental rates, creating a vicious circle.

In short, IZ is no quick fix and could have unintended consequences.

How does the new math impact development proformas?

There will less flexibility in development proformas as revenues fall and costs rise. That leaves three possible “relief valves” to ensure residential construction remains viable where there is inclusionary zoning: • Higher pricing for the market rate portion of the project • Lower acceptable profit margins for developers • Lower overall project costs.

SPRING 2022

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CBRE’s Emerging Leaders The company’s best and brightest young talents share insights and perspectives on the challenges and opportunities that come with building a career in commercial real estate.

The next generation of real estate professionals are making a splash in markets across Canada.

At CBRE Edmonton, Sarah Henderson is quickly making a name for herself on a team with more than 55 years of collective industry experience.

Henderson joined the firm in early 2018 as a Research Analyst and within a year had advanced to the role of Sales Representative.

Just four years later, she holds the position of Senior Sales Associate on the Edmonton Office Advisors team.

Change and challenge embracing, Henderson’s position as a young leader is well-deserved. We spoke with her about the best career advice she’s received, what excites her about commercial real estate, and the tips she has for other young people getting their start in the industry.

What’s the most surprising thing that you learned early on in your career?

I learned that it takes a lot of patience to do well in this industry. There are so many deep-rooted relationships that already exist between clients and senior people in the industry. It takes some time to really get yourself known, recognized and respected. You need to have the patience, the passion, and the drive to keep going when it feels like you’re not getting anywhere. Because eventually you will find that success.

What inspires you about office leasing in Edmonton?

The Edmonton market itself is a huge challenge, but that actually brings about a lot of opportunities. It’s a tenant’s market, so that makes the tenant side very exciting. That also makes the landlord side more difficult. We have to be creative in how we advise in a market with more than 20% vacancy.

How is your perspective unique and helpful to clients?

My approach to my client’s needs is holistic and insightful. I get them to think about aspects of their office and their business in a way that they haven’t before. Some people don’t immediately see how real estate can change their processes and help them meet their business goals. Being transparent and realistic is a big part of it, too. If you’re not being genuine people can see right through you.

What is the best advice you’ve gotten since starting your career?

My Managing Director, Dave Young, has a lot of experience in this business and has given me great advice. He encourages me to nurture my existing relationships with clients. The best advice he’s given me is to never to take relationships for granted. Even in times when you’re very close with a client, the relationship is going very well and you’re performing well, never take that for granted. Always show your value and never get comfortable.

What are the biggest challenges facing young people looking to get started in CRE? The challenge of commercial real estate is to get your hands dirty as quickly as possible. You have to create opportunities for yourself. Whether that’s popping over to someone’s cubicle to ask if you can help out or just picking up the phone and calling landlords. You may not even

know what to say at first but taking that risk and getting out there as soon as possible will propel your career.

What excites you most about the future of commercial real estate?

I think what I’m most excited for is the digital age of commercial real estate. How we’re shifting from “old-school” processes to new, efficient forms of technology. Like 3D virtual tours, for example. Seeing more brokers and landlords being present on social media is exciting too. These forms of communication are the future.

How do you prioritize your mental and physical health?

It’s important to check in with yourself. Identify the things about work that you’re enjoying and the clients that you enjoy working with and then take the time to have gratitude for that. It’s also really important to get outside. Whether you’re going for a walk or exercising in some capacity, carve out that time. You’ll feel way better.

Do you have some tips for others who are just starting out in CRE? Figure out early on what you want your focus to be and what your strong skills are that you bring to your clients. Don’t hesitate to identify your goals and make sure that they’re known to your superiors and your mentors. It will help you so much. Making it known what success looks like to you is important for them to know, because they want to see you succeed. Also, just absorb as much information as possible and ask a lot of questions. Information is gold in our business. Be open to opportunities and know what your goals are, you’ll do well. Just put your head down and work hard. Be true to your self and you’ll find what works for you.

“Absorb as much information as possible and ask a lot of questions. Information is gold in our business.”

SARAH HENDERSON SENIOR SALES ASSOCIATE, CBRE EDMONTON

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“Everybody is supportive of each other in this business.

We’re all young, hungry and want to succeed.”

KAI TAI LI VICE PRESIDENT, CBRE TORONTO

Kai Tai Li takes comfort in being uncomfortable.

As a Vice President on CBRE’s National Investment Team, Li is constantly searching for his next challenge – it’s what keeps life interesting, he says. Just six years into his time at CBRE, the University of Pennsylvania grad is an expert in every asset class across multiple markets.

Confident yet humble, Li takes the time to answer cold calls from students and offer advice to other young professionals seeking guidance.

We spoke to him about the challenges facing young people in commercial real estate, what excites him about the industry, and the advice he has for anyone beginning their career.

What inspires you about commercial real estate in Toronto?

It’s the camaraderie. Everybody is supportive of each other in this business. We’re all young, hungry, and want to succeed. This business can be perceived as hyper cutthroat, but I’ve found that there’s less competitiveness and more enablement of each other. Your success is my success.

What piece of advice has been most influential on your career?

One of my baseball coaches used to say, “You want to practice the way you play.” That is, if you don’t put in the work now, come game time it’s already too late.

When your clients are thinking of choosing a broker, that’s game time. If that’s when you reach out to them for the first time in years, then your business is already going to someone else. If you foster those relationships, provide them with intel, make them feel comfortable, when they say go, you’re already top of mind.

Can you talk about a mentor you’ve had and how they’ve helped you?

I count all the senior people on my team as mentors. They provide me with support, positive feedback, strategy, and constructive criticism.

I’ve had a lot of success in recent years thanks to them. I like to emulate the people who inspire me. Because I sit around them all day, I’ve been able to pick up on the positive things that they do, and they do a lot of things extremely well.

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They radiate confidence, they’re focused, they listen well. Business aside, these are good attributes to have.

What’s the most surprising thing you learned early on in your career?

I was surprised by how much soft skill is required in this industry – the things that you don’t learn in a classroom. I majored in economics and I have a background in finance. Those are certainly fundamental skills that are required for the job, but to take your career to the next level you’ve got to have communication skills, you’ve got to be accountable, and you need to be cool under pressure. Your clients are human, and you need to care for them.

How is your perspective unique and helpful to clients?

I bring a unique perspective because I cover all asset classes, all sizes, and all markets. I cover so much of Canada at the same time so I’m able to deliver commentary for a broader range of clients. Having a hand in all aspects of commercial real estate capital markets helps me deliver extra value to clients and helps me cover their blind spots.

What are you watching for in Canadian commercial real estate investment trends?

There’s a bit of a changing of the guard right now when it comes to ownership. We’re going from institutionally owned assets to the private market. The most active money in Canada right now is private wealth, and those investors are seizing opportunities that institutions aren’t chasing right now. It will be interesting to see how we navigate through this environment in the next couple of years.

demonstrating your capabilities and being entitled. There’s always more to learn. You have to be patient. You have to earn certain things with time.

How do you support other young people in this business?

I volunteer in a number of ways, the primary one being the NAIOP Developing Leaders Committee. Last year I chaired the development challenge, which was very rewarding, and I’m doing that again this year. I take a lot of coffees, a lot of calls, and a lot of cold calls from students. It wasn’t that long ago that I was in their position, so I appreciate what they’re doing. If someone takes the time and initiative to reach out to me, I’m happy to go and meet with them.

Do you have any tips for those who are just starting their career in commercial real estate?

Master the basics. Master those soft skills. Some people come into this industry with their head full of steam and try to plan their whole career.

Take a step back and master the basics and the fundamentals. Don’t get too ahead of yourself.

Also, take care of yourself and your personal life. You can’t have long-term success if you don’t. Exercise, eat well, see your family, take a vacation. Life comes at you pretty quickly. You don’t get those years back.

What are the biggest challenges facing young people looking to get started in commercial real estate?

Finding a balance between confidence and humility can be a challenge. Real estate tends to draw people who are very confident. Everyone sees themselves as an expert in their respective field. That’s fantastic and that’s what clients want to see, but there’s a fine line between

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CBRE Halifax Celebrates 20 Years

Bob Mussett and Chris Ca rter Office CBRE Halifax

500 acres sold in 2004 that would become Dartmouth Crossing

When CBRE held its Atlantic Market Outlook Breakfast last November, it was the company’s first live event in Canada since the start of the pandemic.

Hundreds from across the Atlantic Region business community eagerly descended on the Halifax Convention Centre to hear from CBRE and local experts—an impressive show of strength and confidence in a region that has weathered the storms of the last two years remarkably well, with its office and retail markets remaining relatively stable and its industrial market thriving alongside the multifamily sector.

And as CBRE celebrates the 20th anniversary of the launch of its Atlantic Canada headquarters in Halifax, the well-attended 2021 Market Outlook event was a particular source of pride for Bob Mussett, who co-founded the office with Chris Carter back in 2002. “It has been our hallmark,” Mussett says. “We started doing it in our second year and have been doing it for the past 18. We own that space here now. It is the market-leading event for real estate in Atlantic Canada and it’s one of the best things we ever did.”

“The addition of new business lines has been and will continue to be a key piece of our growth in the region.”

ANDREW BERGEN MANAGING DIRECTOR, CBRE HALIFAX

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Atlantic outpost CBRE was not a known entity to Halifax investors when Mussett and Carter launched the Atlantic Canada outpost following several years of discussions with then CBRE Canada president and CEO Blake Hutcheson, who wanted the company to establish a true coast to coast presence. Before the deal was done, though, Mussett and Carter, who’d been working for Oxford Properties, first had to be vetted by Andrew Wright, then one of CBRE’s Senior Managing Directors.

Hutcheson dispatched Wright to Halifax to suss out the pair, which amounted to beers at a local watering hole, The Thirsty Duck. “We had a good chat and I guess he went back and gave us the thumbs up,” Mussett recalls. “Then Blake knew we were okay.”

They hung out their shingle at a small office at 1801 Hollis Street, opening with a skeleton crew of just five employees. While it may have been a humbly sized team to start, it was loaded with talent, and Hutcheson had great faith in Mussett and Carter’s prospects for growing the operation in Atlantic Canada. “He said he envisioned this being a $10-million business,” recalls Carter. “I had trouble believing it early on—we did something like $600,000 in our first year—but it came to pass. We’ve hit that threshold and have actually gone beyond it now.”

CBRE Halifax has become a respected brokerage in the region, playing a part in most of the landmark transactions over the years. “We haven’t done all the major deals in Atlantic Canada,” says Mussett, “but we’ve certainly done most of them which only speaks to the trust of our clients and strong relationships in this market.”

On the office leasing side, CBRE Halifax has helped IBM grow from 18,000 sq. ft. to 87,000 sq. ft. at Westway Campus; and TD Insurance’s 86,253 sq. ft. lease at Baywest Centre kicked off construction of a 100,000 sq. ft. expansion above a former Hudson’s Bay store. In the industrial market, CBRE assisted Walmart with its first distribution centre in Atlantic Canada, in Moncton, On the retail side, CBRE represented Ikea in securing their first site in Atlantic Canada: a 330,000 sq. ft. building that opened in 2017. And the local Debt & Structured Finance team represented Southwest Properties in securing new refinancing terms on 18 multifamily assets in Halifax.

Evolving CBRE Halifax expanded quickly in its early days and after four years relocated to more spacious digs at its current location at 5855 Spring Garden Road.

And the office’s lines of business have expanded along the way, too, to now include Advisory & Transaction Services, Debt & Structured Finance, Project Management and Valuation & Appraisal. “The addition of new business lines has been and will continue to be a key piece of our growth in the region,” says Atlantic Canada Managing Director Andrew Bergen, to whom Mussett passed the torch in 2020.

CBRE’s Atlantic Canada presence has expanded beyond Halifax in recent years, as well, with new satellite offices being established in St. John’s and Fredericton.

“The deals aren’t as big in those markets, but the opportunity is there,” notes Carter “We also have really good people on the ground doing great work.”

Mussett and his team faced challenges selling outside investors on why Halifax would be a good market to consider. “But that’s changed dramatically,” he says.

Few deals were more major than the 2004 sale of the 500-acre Countryview “More and more institutional investors are looking at Halifax as a location that’s Drive site in Dartmouth to North American Development Group. The site went on reliable and steady. We always had to fight that small market perception and lack to become Dartmouth Crossing, the largest power centre in the region, at over 1.7 of understanding in other parts of the country, but it’s been very different today million sq. ft. “That was something we were always proud of,” says Mussett. “It was than it was 20 years ago.” just asphalt and wilderness when we started, but we put together the model for It’s been a wildly successful two decades for CBRE Halifax, and Mussett figures that development and (North American CEO) Glenn Munro had the vision when there’s still room for growth in the years to come. “Andrew has got a super team he came to town to see the potential and it’s been a huge success for them.” to run the office and he’s made some great additions, and we’re seeing the A year later came the sale of the Marriott Waterfront Hotel, the first million-dolgrowth of the collaboration between different strengths in our office and how lar month for the Atlantic Canada commercial real estate market, according to that can unlock a lot of opportunities for both our clients and us. That’s going Mussett. to ramp up on a national basis, unlocking collaborative opportunities not just in In 2020, CBRE Halifax — in collaboration with David Montressor and the National Atlantic Canada but everywhere.

Big deals

Apartment Group — brokered the sale of a 1,503-unit multifamily portfolio from BCIMC to CapREIT, the largest-ever apartment transaction in Atlantic Canada.

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“We’ve got lots of runway ahead. Thank you to our clients for 20 amazing years.

Here’s to 20 more!”

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Why Halifax Is a City on the Rise Halifax is known for its fresh seafood, historic charm, and friendly locals.

But the seaside city is rapidly emerging as a hub for something else: tech talent.

The Maritime municipality nabbed seventh place on the list of the “Next 25” upand-coming North American markets in CBRE’s 2021 Scoring Tech Talent report.

In 2020, the industry employed 14,700 people, representing five-year job growth of 24%.

Halifax’s status as an emerging tech hub was given a boost when Adaptiiv Medical Technologies, a homegrown software company, recently leased 8,870 sq. ft. of space at the iconic Purdy’s Wharf office complex. “Halifax is a dynamic environment for start-ups like ours, and the city is attracting loads of young tech talent,” says Alex Dunphy, CEO and co-founder of Adaptiiv. “We’re an exciting young company with a strong growth trajectory and similar to Purdy’s Wharf, we’re local with global aspirations.”

Boom Times On Many Fronts Home to six universities, Halifax provides tech companies with a steady supply of new workers with each graduating class. Students, like businesses, haven’t been deterred by the pandemic: 31,532 students were enrolled across the city during the 2020/2021 school year—the highest enrollment ever recorded. It’s not just students heading east. Halifax’s population has grown by more than 8,000 every year since 2017, according to Statistics Canada, and the city added 9,262 people between June 2020 and July 2021. Rather than international arrivals, the majority (5,594) of new Haligonians moved from other Canadian provinces.

The growing population has been a boost for the economy. Halifax Partnership, an economic development agency, reports that total employment in December 2021 was up 2.7% year-over-year, while the unemployment rate ended the year at 5.7%—the lowest it has been since August 2019. The city’s manufacturing sector saw the largest employment gains last year, at 20%. Professional scientific, and technical services followed, with 17% growth.

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Falling Vacancy, Increasing Momentum With companies vying for space, the overall office vacancy rate in Halifax fell to 15.4% in the fourth quarter of 2021, a decrease of 40 bps year-over-year.

The 12,000 sq. ft. of net office leasing reported in Q4 made Halifax the fourth most in-demand office market in the country. There has been a flurry of leasing activity in the suburban office markets as well, as residents are lured out of the downtown core by cheaper housing and kept there by increasing gas and toll prices.

Despite the rising demand for space, however, Q4 2021 marked Halifax’s sixth consecutive quarter without any new office supply, as developers’ focus on multifamily projects. In contrast to the office market, the city’s industrial market is poised to see a boost of inventory in 2022, with 113,000 sq. ft. of space slated to come to market this year. With Halifax’s industrial availability rate at 2.2%, the space is much needed. The scarce supply of industrial space pushed average net rental rates to an all-time high of $8.40 per sq. ft. in Q4 2021. Halifax is still far more affordable than other major cities, though, and well below the national average net rent of $10.47 per sq. ft.

Big City Ambitions Halifax’s growth has been a long time coming and it’s poised to continue; the city’s current population of 460,274 is expected to reach half a million within the next five years. As Halifax expands, the city could come to rival Toronto, Vancouver, and Montreal as a major Canadian business hub. Thanks to its rebounding economy, affordable office space, and deep pool of tech talent, that day could come sooner than later.

CBRE Advantage Magazine

How the Cogswell District Project Will Change Halifax A stroll through the scenic streets of downtown Halifax will soon look a lot different.

Construction is slated to begin on the Cogswell District Project – the largest city-building project in Halifax’s 180-year history.

The project will see the Cogswell Interchange demolished, and a new community spring forth in its place. The aptly named Cogswell District will connect Halifax’s downtown core with the north end and the waterfront, creating a seamless flow between communities previously divided by the interchange. Sixteen acres of existing road infrastructure will be converted into a new mixed-use neighbourhood, and the entrance to downtown will be extended northward, improving vehicle and pedestrian traffic.

The Cogswell District will include development blocks capable of supporting new residential and commercial spaces for 2,500 people. Highlights of the pedestrian-friendly plan include Poplar Street Park, Barrington Bikeway, Barrington Street Transit Plaza, and the Granville Square and Ordinance Plaza. With traffic redirected to their door and thousands of new residents moving in, waterfront and downtown businesses are set to boom.

slice of all downtown parking inventory. Purdy’s furthers its position as a prime business destination thanks to its connection to the Downtown Halifax Link. The climate-controlled pedway system connects all three Purdy’s buildings to hotels, restaurants, shops, and offices throughout the downtown core.

The buildings’ benefits aren’t going unnoticed. In the last year, Adaptiiv Medical Technologies, a homegrown software company, leased 8,870 sq. ft. of space, and financial advisory firm Selectpath snapped up 2,000 sq. ft. Dexter Construction, the company at the helm of the Cogswell District Project, recently completed a deal for 3,491 sq. ft. of space, too. With the allure of Purdy’s Wharf already becoming clear, businesses will have to act fast to get a spot in the iconic towers.

By the time the Cogswell District is complete, it may already be too late. “The secret is out and now is the time for tenants in the market to take advantage of the changes in and around Purdy’s,” says Houston.

Purdy’s Wins Big One major beneficiary of the Cogswell District Project will be Purdy’s Wharf.

Situated alongside the development, the recently renovated complex can expect a flurry of new tenants as Nova Scotia’s capital reconfigures around the new neighbourhood and companies look to capitalize on the strategic location.

“Purdy’s stands to reap the most rewards from the Cogswell District project, as it will enhance traffic flow and aesthetics in the area and shift downtown core activity towards Purdy’s,” says CBRE’s Associate Vice President Mat Houston. “It will help to add further momentum to Purdy’s resurgence.”

Commute Duration

Employee Home Locations

How far employees commute to their usual place of work on a regular basis.

Concentration of employees (visitors during the hours of 8am and 6pm) seen in Purdy’s Wharf.

The refurbished Purdy’s includes modernized lobbies, a tenant lounge, a food hall, and a restaurant overlooking the harbour. The complex houses a fitness centre, daycare centre, and ample green space. Holder of Atlantic Canada’s first LEED EB Gold Certification, Purdy’s Wharf uses 34% less energy than the average commercial building. Its seven-story covered parkade accounts for a hefty

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Toronto Industrial Land Conversions Offer Lucrative Housing Opportunities

On the wall behind the desk in his home office, CBRE’s Michael Bellissimo has a framed picture of a painting, Stag at Sharkey’s.

The 1909 work by George Wesley Bellows depicts two boxers fighting in a club in New York City (fighters back then were known as stags). “I grew up in the west end of Toronto and this was a sport people did out here,” says Bellissimo, who also has a picture of Canadian boxing legend George Chuvalo adorning his office wall.

The picture of Stag at Sharkey’s was a gift from Silvano Venuto, owner of Silvano Colour Labs. Years ago, Bellissimo helped him sell his factory on Weston Road so that the multi-floor building could be converted; it eventually became a self-storage facility. “It was one of first deals I did in the industrial redevelopment space,” Bellissimo says. “So getting that picture from Silvano really meant a lot to me.”The picture reminds Bellissimo of the duty of care he has as a commercial real estate professional to do right by his clients. As Toronto undergoes rapid growth, there are pressures to maximize value and utility of all available space and land. Bellissimo specializes in finding solutions that support local businesses while helping them to maximize the value of their land and, in some cases, shift their heavier industrial operations to a more appropriate location for the times.

Having grown up in the area, Bellissimo has respect for the industrial businesses that have stuck around, like rubber plants, plastic bottle factories and car scrapyards. He is determined to find an outcome that takes care of the owners of these properties, helping them get the best return for their investment.

“My goal is to have everyone come out of these transactions feeling like a winner,” says Bellissimo. “These are solid and high-valued businesses and the right advisor can help them to be adequately compensated for their properties, which have been integral to the community’s growth.

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CBRE Advantage Magazine

“I can leverage the strength of the CBRE platform and our National Investment Team to ensure these private owners and businesses get access to the institutional level capital and associated developers they’re looking for,” he adds.

“Meanwhile, those lands are freed up for housing. These infill opportunities often add vibrancy to the area and help support the growth of the community, and the potential upside for investors is substantial.”

The Starklands A case in point is The Starklands, a site that Bellissimo and his team just put up for sale.

A community-defining development opportunity located in the Stockyards district of Toronto, The Starklands comprises an 11.16-acre site with 1.65 million sq. ft. of proposed gross floor area. The contemplated development, which has full site plan approval, calls for four mixed use-towers between 24 and 46 storeys, as well as three-storey townhouses.

The project will have more than 1,800 residential units — with a sizeable affordable housing component — and nearly 200,000 sq. ft. of office and retail space.

The proposal also includes new onsite parkland, four new road connections and two new local roads, and facilitates greater access for a complete community with two privately-owned publicly accessible pedestrian connections.

The Starklands property will have access to the approved St. Clair–Old Weston SmartTrack Station and is within walking distance of an abundance of retail amenities and transit options.

“This is a great example of the ideal outcome we would hope for in a land conversion situation,” says Bellissimo. “We only launched the property for sale a few weeks ago and so far, interest in the site has been phenomenal. It speaks to the demand for rare offerings like these.”

SPRING 2022

There are further opportunities along this corridor. “After many years living and working in this area, we know which sits lend themselves most favourably to new uses and a second life,” says Bellissimo.

CBRE data shows that there are 500 acres of land available for similar conversions in the area between the Humber River and Bathurst Street, south of Highway 401 (this tabulation excludes the traditional industrial parks in the area).

“People I grew up with would love the opportunity to live and contribute to communities like this in the west end,” Bellissimo says, noting there are an additional 800 acres that could get converted in the future. “If we can support the industrial businesses to relocate and free up land for new housing – it’s a great outcome for everyone involved.”

Everybody wins Bellissimo wants others to enjoy the same success he’s been able to have in helping Benny Stark put The Starklands site up for sale.

A hometown boy with an industrial real estate background, he is the guy with the smarts and the strategy but also with the heart to see his clients to maximize the value of their properties that have served them—and the community—so well for so long.

“A boxer is focused, tenacious and leaves it all out there. I hope I’m a bit like that, but not in an aggressive way. I’m just fixated on solutions that make sense,” Bellissimo says. “It makes sense to me that we should get these businesses the best return on their property investments while making space for new families who can treasure this area as much as I do.”

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Companies Eye Flexible Spaces for Return to Office For tenants, workers and market watchers attempting to decipher the future of the office and the role it will play within their organizations and lives, there are increasingly clearer indications of what the future may hold.

Landlords are taking note and are beginning to retool their vacant spaces to better align with tenant needs and the predominant risk-averse mindset.

Such as what KingSett Capital has been doing with its Ready Set Go program, building out fully furnished model suites in its office buildings that are Wi-Fi-enabled and, most crucially at this moment of great uncertainty in the office market, have flexible lease terms of one to five-plus years. The market has responded well, proof that KingSett is meeting a growing market need. Since February 2020 KingSett has leased 58,000 sq. ft. of space under its Ready Set Go program, 14,000 sq. ft. of that at Scotia Plaza, where the program was first introduced in 2019.

The purpose of the program is to maximize the value of the smaller vacant spaces in KingSett’s portfolio as smaller users opted for co-working spaces instead “While we aren’t trying to replicate the community aspect provided by co-working, Ready Set Go allowed us to welcome tenants who were looking to minimize their upfront investment and maximize lease flexibility, which is exactly what our furnished spaces offered,” says Jamie Petch, KingSett’s Senior Vice President, Office.

KingSett built five suites at Scotia Plaza prior to March 2020 and all were leased in relatively short order for five-year terms at premium rents. Then COVID hit and the office-leasing market came to a grinding halt. But when workers began returning to the office in the summer of 2020, the KingSett team decided to expand the Ready Set Go program. “We thought people who wanted office spaces now would probably be concerned about committing long-term but would still need to be in an office.”

So KingSett built out an inventory of Ready Set Go spaces across its Toronto portfolio and began leasing them up, but some things had shifted. “Now the term lengths were shorter than five years,” Petch says. “These were smaller groups who wanted to come back to the office but didn’t want to commit to a long-term scenario because nobody knew—and many firms still don’t know—what their longterm strategy will be.”

KingSett saw their occupancy rates increase and start generating cash flow for these smaller suites, “which gave us the ability to secure tenants who may not have been looking at our buildings had the spaces not been finished,” says Petch. While the program is primarily for KingSett’s smaller spaces, the landlord has built a 12,000 sq. ft. furnished suite at Atrium, part of an experiment to see what the ideal size for Ready Set Go suites should be.

Furnished suites will remain a long-term tool for KingSett, and Petch says they have expanded the program to Vancouver. And while it won’t work in every market or class of building, he sees Ready Set Go as representing the evolution of the model suite. “We’re offering a simple solution for capital avoidance and term flexibility, and hopefully that’s what helps people return to the office, knowing that there are solutions.”

Adds CBRE’s Michael Spence, who works with KingSett on its Ready Set Go program, “There is so much more choice out there at the moment, including the sublease spaces, so landlords have to be more flexible. And those that are adapting are the ones getting deals done.”

“Ready Set Go has allowed us to welcome tenants looking to minimize upfront investment and maximize lease flexibility.”

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JAMIE PETCH KINGSETT CAPITAL CBRE Advantage Magazine

Events for Advantage MAY 4 QUEBEC CITY

MAY 18 EDMONTON

JUNE 14 TORONTO

Canadian Real Estate Forums: Quebec City Real Estate Forum

Canadian Real Estate Forums: Edmonton Real Estate Forum

CoreNet: Spring Social Event

MAY 5 VANCOUVER

MAY 19 TORONTO

ULI: A Conversation with Mayor Kennedy Stewart

NAIOP: Golf Tournament

CREW Toronto: 2022 Annual General Meeting

MAY 11 HALIFAX

MAY 22-24 LAS VEGAS

JUNE 21-22 TORONTO

ICSC: Las Vegas

Canadian Real Estate Forums: Global Property Market

Canadian Real Estate Forums: Atlantic Real Estate Forum

MAY 11 TORONTO NAIOP: The Entrepreneurs’ Perspective

MAY 11 TORONTO ULI: Fireside Chat 2022

MAY 17 EDMONTON Canadian Real Estate Forums: Western Canada Apartment Investment Conference

SPRING 2022

MAY 31-JUNE 1 TORONTO RCC: RCCStore22

JUNE 2 MONTREAL

JUNE 15 TORONTO

JUNE 22 EDMONTON NAIOP Edmonton: 2022 Invitational

Canadian Real Estate Forums: Montreal Real Estate Forum

JULY 11 TORONTO

JUNE 2-3 KELOWNA

AUGUST 30 TORONTO

CREW Edmonton: Kelowna Retreat

CoreNet: Annual Golf Classic

SIOR: Annual Golf Classic

JUNE 7 TORONTO Canadian Real Estate Forums: Land & Development

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Magnetizing the Post-Pandemic Workplace

Faced with rapidly accelerating business and dramatically different employees, companies are having to quickly figure out what their post-pandemic workplaces will look like, and what role real estate will play in the process. One thing is clear, going back to the office won’t be as simple as flicking on the fluorescent lights.

A CBRE Occupier Sentiment Survey found that, moving forward, the vast majority of companies are planning to be back in the office for at least half of the work week, if not more. Forty-seven percent of large companies (those with over 10,000 employees) and 33% of medium-sized companies (100 to 9,999 employees) indicated that they would pursue an equal mix of remote and office-based work. Just 19% of small companies (fewer than 100 employees) had settled on the same policy. Twenty-six percent indicated they would have no remote work option.

Clearly, an industry standard has yet to emerge. Organizations will tailor their future office solutions to their own individual workforces’, and they will be based on factors including culture, attraction and retention, and business priorities.

While organizations are itching to get back to the office in some capacity, their employees will need more convincing. After spend-

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ing the last two years successfully working from home, staff won’t be satisfied simply sitting at a desk. To entice employees back to the office, companies will need to magnetize their workplaces with revamped spaces and upgraded amenities.

“Organizations must be focused on creating really great social, collaborative spaces where employees can engage with one another and truly benefit from being in the same environment – the very thing we have been so sorely missing during the past two years,” says CBRE’s Senior Vice President, Client Strategy, Lisa Fulford-Roy. “Companies can make this transition a seamless one, but it requires an integrated approach with Talent, CRE and IT stakeholders to first understand what employees will value as consumers of space. A people-centric workplace solution rooted in experience, purpose and flexibility can foster culture with moments that matter and sustain high levels of team engagement.”

CBRE Advantage Magazine

“Organizations must focus on creating great social, collaborative spaces where employees can truly benefit from being in the same environment.”

LISA FULFORD ROY SENIOR VICE PRESIDENT, CLIENT STRATEGY

Flexible Spaces

Welcoming Amenities

The post-pandemic office building will play host to an increasing number of hospitality-inspired amenities. Thirty percent of companies surveyed by CBRE indicated that outdoor amenities would be the most in-demand building feature of the future, while 23% believed that fitness facilities were of the utmost importance. Onsite food and beverage options and access to public transportation were both chosen by 21% of respondents, and 12% of companies saw concierge services as the most desired feature.

Just as the physical office space is adapted to meet the future of the workplace, the more intangible office amenities will need to be altered, too. Features that focus on creating a welcoming environment and support employee health and well-being will be paramount to getting people back to their desks. Amenity strategies should centre around human needs and create experiences that are unique, memorable, and fulfilling. There will be more “moments that matter.” Examples include days of service, community outreach, designated “do not disturb” time, culture crews, mental health days and team outings.

While such amenities will no doubt be welcomed by workers, the most desired attributes of a post-COVID office are those that favour flexible shared space and infrastructure. Sixty-three percent of companies saw flexible office space as the most in-demand feature. Flexible open space was sought-after by 56% of respondents, while 54% favoured indoor air quality.

The trends held steady amongst large companies as well as tech, media, and telecom businesses, though shared meeting space emerged as a highly valued asset as well. Financial services companies were more likely than their peers to rank connected tech/building apps, touchless technology, and sustainable building design as in-demand qualities.

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With the end of the pandemic drawing closer, companies that intentionally align their plans with employee’s needs will be better able to retain talent and ultimately create a more productive and engaging workplace. Through flexible spaces, team zones and people-focused amenities, businesses can magnetize their workplaces, and transform the office into a place that employees want to be, rather than somewhere they have to be.

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Investors Return in Force to Purchase Seniors Housing The sector is on pace to have its best period ever for investment, with $4.6 billion in Class-A portfolio trades set to close between the fourth quarter of 2021 and the first quarter of 2022. That two-quarter volume is poised to match the all-time annual investment volume of $4.6 billion reached in 2015 Typically, the annual volume of seniors housing investment in Canada is somewhere in the neighbourhood of $1.7 billion. This means the sector could see twice that volume in half the time over the next two quarters, and the momentum shows no signs of slowing down.

“In spite of the negative press surrounding seniors housing at some points during the pandemic, there has been a total renaissance in the sector this year,” says Burnett, Senior Vice President, Healthcare Capital Markets. “More than ever, investors are aware of the need to care for aging baby boomers and the time to execute a real estate strategy is before the demographic wave swamps the system.”

“Cap rates on seniors housing product can be as high as 6.0%. That’s unbelievable yield in this environment.”

MAT BURNETT SENIOR VICE PRESIDENT, HEALTHCARE CAPITAL MARKETS

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CBRE Advantage Magazine

Renaissance seems an odd word to use when describing seniors housing, but that’s exactly how CBRE’s Mathew Burnett characterizes the turnaround that the Canadian seniors housing sector has experienced following an extremely difficult year fighting COVID-19.

Hefty capital backlog

Increased foreign competition

The resurgence is due in part to a hefty backlog of capital in search of opportunities and big players, especially American operators, who have massive amounts of capital to deploy. Canada’s largest seniors living operator, Chartwell Seniors Housing REIT, has a market capitalization of $3 billion; U.S. giants Ventas and Welltower have market caps of ~ $22 billion and $40 billion, respectively.

U.S. players first entered the Canadian market in 2012, when Welltower (then called HCN) partnered with Chartwell to acquire the 42-property, 8,200-unit Maestro Senior Living portfolio, a deal brokered by CBRE, and the first billion-dollar senior living transaction in Canada. While having paused its Canadian investment activity in recent years, Welltower is now among the U.S. health care REITs showing renewed interest in Canada.

Want proof of how attractive Canadian seniors housing is right now?

Blackstone Real Estate Group—the biggest real investor in the world— entered the Canadian seniors housing market last July, creating a joint venture with Selection Group to acquire a portfolio of 13 seniors’ housing residences in Quebec comprising 3,548 units. The deal also includes a 300-plus-unit property in Montreal. More recently, Ventas acquired the Hawthorn Senior Living Canadian portfolio, a deal brokered by CBRE.

This is putting Canadian groups, typically more conservative with investment strategies and pricing, on notice. A recent portfolio sale saw three American groups in the second round of bidding.

Joining the fray have been other institutional investors flocking to the seniors housing sector in search of yield, which can be nearly double that of marquee asset classes like industrial, apartments and office. Cap rates, a measure of investment return, hover around 3.0% for those assets, while cap rates for the high-quality seniors housing product can be as high as 6.0%.

“That’s unbelievable yield in this environment,” says Burnett. “There is nothing the sector can go through that is worse than COVID and the industry is rebounding strongly from that. Investors now see seniors housing as a desirable defensive investment that also offers a lot of growth potential.”

SPRING 2022

“Increased foreign competition is keeping domestic groups on their toes, but aggressive pricing isn’t the biggest challenge facing the sector,” says Burnett. “It’s the supply-demand imbalance that is the chief concern.”

Rising construction costs—exacerbated by pandemic supply chain issues—have forced groups with development plans to scale back or cut seniors housing projects altogether.

“There is cause for serious concern if supply can’t be built fast enough to accommodate our aging population,” says Burnett. “COVID has focused investor attention on this important service, and it’s made the demographic wave feel closer, and more pressing, than ever.”

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On the blog: Exclusive news and analysis you won’t find anywhere else

A Post-March Break Look at Canadian Hotels

Where are Industrial Rents Headed?

Panattoni’s Wade Dobbin Looks Ahead

Niagara Region Industrial Market is Building Back Better

How CentrePort Gave Winnipeg’s Industrial Market Its Groove Back

Joanna Grant – Fresh Perspectives: Montreal’s Life Sciences Sector CBRE’s Emerging Leaders Is Having a Renaissance

Read more at cbre.ca/advantageinsights