For many businesses and industries, 2023 delivered more hard knocks than soft landings.
Thankfully, there is more hope and optimism coming into 2024 and the consensus is that the worst is behind us. The prospect of interest rate cuts is increasing and while the future remains uncertain, we know that Canada has a long history of being able to make progress and deliver results in challenging times.
We need not look further than Alberta to see green shoots, innovation and opportunity. This is where we also find our lead story for this edition of Advantage Magazine.
Our office leasing team in Calgary recently finalized a 1.0million sq. ft. mega-deal for Canadian Natural Resources Limited. This story is worth your time as it challenges assumptions about the office market, landlord cooperation and what can be expected in a slowing economy.
In the spirit of defying conventions, we have compiled several articles delving into the Canadian office market. From De Havilland moving their headquarters to Calgary, to case studies in office leasing from London, Ontario and an extensive analysis of the latest statistics, you will gain a deeper understating of the true state of affairs in the office market.
As our Chairman, Paul Morassutti, aptly puts it, “The office market is both stronger and weaker than you think.” Keeping abreast of the bifurcation between commodity and quality buildings, as well as the latest occupier trends, will be crucial for those facing an office lease or renewal in the year ahead.
PRESIDENT & CEOWe also know that many investors are trying to optimize portfolios and capitalize on once-in-a-business-cycle opportunities. For these readers, we have a look at the debt professionals that are keeping markets moving. We also feature the landmark Morguard hotel portfolio sale, which demonstrates that substantial transactions are happening and the investment outlook is improving. Hotels are often leading indicators and the first asset class to rebound coming out of recessionary cycles.
This edition of Advantage Magazine fosters optimism and instills confidence. It is a confidence rooted in the facts and not perception. I am a strong believer that, as an industry, we can harness our collective experience, creativity and momentum to invent the future that we want right here in Canada!
Wishing you and your businesses all the best in the year ahead!
You could say this deal was two in a million.
CBRE’s Bryan Walsh recently closed two deals for a combined 1 million sq. ft. of office space in Calgary for Canada’s largest oil and gas producer, Canadian Natural Resources Limited (CNRL).
Considering the economic climate and the state of the office market, a deal like this certainly turns heads.
“It took a lot of creativity, patience, grit and knowledge,” says Walsh. “But also a great deal of trust.”
He tells us how he beat the odds to close Canada’s biggest office leasing deal of 2023.
Perseverance Pays Off
Walsh had supported CNRL over the years, helping them shed excess office space from acquisitions.
One day a CNRL representative questioned what to do about their upcoming office lease expiry, which would be in 2026. Walsh immediately had ideas, but there was one major hiccup. “They had never used a broker for an expiry,” he says. “They had declined help on previous deals, preferring to do it on their own.”
Not easily discouraged, Walsh sought out alternatives for CNRL to consider alongside the renewal option. His previous work with CNRL had a given him a good understanding of their values and culture, giving him an edge to collaborate on developing the right solutions.
“I knew there was a risk of being charged premium rent if they stayed in their space,” he says. “So I came up with a Plan B that would beat their premium renewal cost and improve their workplace at the same time.”
Hard work, experience and perseverance always pay off in the end.
– BRYAN WALSH CBRE CALGARY
Walsh proposed consolidating CNRL from their existing premises across three different buildings into two Class AA buildings. Located across the street from each other and boasting large floorplates, it appeared to be the perfect low-cost solution to accommodate CNRL’s space needs.
The first building, Cadillac Fairview’s 400 4th Avenue SW, was “relatively straightforward” says Walsh. “Their anchor tenant, Shell Canada, was about to move out, leaving the building entirely empty.” CNRL was one of only two tenants coming to market for a few years that could solve Cadillac Fairview’s problem.
The second part of the equation was trickier. Walsh had his eye on Oxford Properties’ Devon Tower at 400 3rd Avenue SW, which had 270,000 sq. ft. of vacancy.
“The landlord was actively out in the market,” he says. “I told them I could solve their vacancy problem, but it would have to be for 16 floors of space, including their full 13-floor vacancy.”
Oxford was skeptical at first, as this plan required them to hold off on any lease deals for several months. “I had to sell the vision and reassure the landlords,” Walsh says. “For the deal to work they would have to trust me and each other.”
Thankfully Walsh was familiar with both buildings, having listed 400 4th Avenue SW in 1996 and leased the same 13 floors in 400 3rd Avenue SW in 2002. He had also maintained strong relationships with both landlords, even listing one of Cadillac Fairview’s developments in recent years.
“Having that experience was critical,” Walsh says. “Without that preexisting knowledge of the buildings and trust from both landlords, this deal would’ve never happened. They had to have faith in my experience and in knowing what was right for CNRL.”
He connected the landlords to come up with a joint solution. The team, collaborating with CBRE’s Client Solutions group, put together a brochure that was tailored to showcase CNRL’s potential new tenancy. It was branded as a two-building solution, which they dubbed “4002”.
“Building a partnership between the two landlords was a big advantage but not as easy as it seemed,” Walsh says. “Here were two experienced pension funds that were fierce competitors but now had to work in sync to make sure the tenant’s needs could be met.
“It required constant communication, but both landlords were committed to making the deal happen.”
Good things take time, especially when big changes are being proposed. CNRL toured the space several times and the vision started to take shape. Eventually CNRL determined that the relocation to 400 4th Avenue SW and 400 3rd Avenue SW was the best solution for their business. The new deal would benefit their bottom line, while improving both their workplace and neighbourhood.
Cadillac Fairview was extremely pleased with the outcome. “Bryan’s creativity and vision brought about a solution to a large pending vacancy,” says Lou Ficocelli, CF’s vice president of leasing. “His focus, determination and wealth of experience helped us find a mutually beneficial opportunity for all parties.”
Equally pleased was Oxford’s vice president of real estate management West, Dave Routledge: “Solutions to real estate’s most difficult challenges start with leadership and a clear vision. Bryan brought this vision to Oxford, resolving the largest pending vacancy in our Calgary office portfolio. His professionalism, depth of experience, competitive insight and perhaps most importantly, ability to build trust between three parties were crucial in making this transaction possible.”
The move will take place in phases as CNRL’s lease at Bankers Hall West comes to an end in 2025, followed by the expiry of its Bankers Hall East and Home Oil Tower leases in 2026.
“Getting this deal completed successfully took almost everything I learned since getting into this business in 1984,” says Walsh. “It shows that hard work, experience, creativity and perseverance really do pay off in the end. What is most meaningful, is that I was able to channel all of that to support a long-time client who trusted my idea and advice.”
It also shows that in Calgary, opportunity continues to be alive and well.
Four Canadian cities are leading the way when it comes to weathering the impacts of climate change on real estate, according to a new report from CBRE Econometric Advisors.
The inaugural North American City Sustainability Study ranks Montreal, Ottawa, Toronto and Winnipeg among the Top 10 most resilient cities thanks to their commitment to net zero carbon or greenhouse gas emissions by 2050, and increased use of renewable energy over the past five years. Also featured in the Top 10 are Austin, Boston, Denver, New York, San Francisco and Washington, D.C.
The report assessed a total of 66 cities based on their capacity to withstand transition and physical climate risk, and their mitigation and adaptation initiatives.
“The cities that take the lead on sustainability today will have a competitive edge as the economy shifts to a low carbon, more sustainable future,” says Robert Bernard, Chief Sustainability Officer at CBRE. “With over 50% of the world’s population living in cities, cities will be critical in driving sustainability and helping communities adapt to climate risks.”
Water stress remained low or unchanged across all four ranked Canadian cities, and renewable sources such as hydro power generated most of their electricity (94% in Ottawa and Toronto, 99% in Montreal and Winnipeg).
Over the past five years, air quality improved in three cities, while the number of days where heating was required – heating uses three times as much energy as cooling – decreased in Winnipeg, Ottawa and Toronto.
All four Canadian cities boasted strong green-bond programs to help fund local climate projects and initiatives, including Winnipeg’s
Made-in-Manitoba Climate and Green Plan. Winnipeg increased its number of LEED-certified buildings, an initiative also undertaken in Toronto.
The report notes that all four Canadian cities are vulnerable to property damage from extreme weather conditions such as winter storms, flooding and severe thunderstorms, but their capacity to withstand climate change and its effects will help to protect property values and draw interest from real estate clients.
“The transition to a low carbon future is increasing the complexity of real estate decision-making,” says Dennis Schoenmaker, Executive Director and Principal Economist at CBRE Econometric Advisor. “Occupiers and investors have a host of new factors and costs to consider, including new regulations.
“Cities that show climate resilience will attract more occupiers looking to meet their own decarbonization goals and are likely to benefit from a halo effect on property values.”
A 2022 CBRE survey revealed that reducing greenhouse gas emissions is a top priority for nearly 70% of commercial real estate organizations. With buildings accounting for 39% of global energyrelated carbon emissions, commercial properties play a significant role in helping occupiers reach their carbon reduction targets. As the world moves towards a low carbon future, sustainable buildings and resilient cities will continue to attract real estate investor interest. Those that don’t keep up may eventually find themselves marooned at sea, literally and figuratively.
Turns out the hottest office building in Toronto for leasing right now is actually not a brand new one.
In fact it’s the venerable red-granite Scotia Plaza, whose owners Kingsett Capital and AIMCo have invested $84 million on major renovations, including a full lobby revamp, new food court, and new elevators for the iconic 1988 office tower.
Scotia Plaza’s owners also invested significantly in sustainability, transforming the building into the first Zero Carbon Performance certified office tower in Canada.
CBRE has worked with KingSett to complete 225,000 sq. ft. worth of new leasing deals with Fogler Rubinoff LLP, Northleaf Capital Partners, Pacific Life RE, and Sage Software Canada.
All of them moved to Scotia Plaza from other locations in the downtown core.
Law firm Miller Thomson LLP, an existing Scotia Plaza tenant, moved up higher in the tower, and will create a brand new space that gives employees an appealing place to come to work post-pandemic.
As downtown Toronto’s only Zero Carbon Performance-certified office building, Scotia Plaza boasts amenities that ESG-minded tenants appreciate, including EV-ready and Tesla charging stations; secured and covered on-site parking for 100-plus bikes; end-ofcommute facilities including showers; free fitness classes; and a direct connection to King subway station.
All of it is helping to attract tenants and create leasing momentum for Scotia Plaza. And there are still opportunities in the building, including more than 100,000 sq. ft. available near the top of the tower in 2025.
“It has been outperforming, and these lease deals speak to a growing confidence in the Toronto office market,” says Byron Ahmet,
who worked on the transactions with teammates Callie Milavsky Osler, Elaine Jenkins and Jeff Friedman.
“Buildings don’t have to be brand new as long as forward-looking landlords like KingSett and AIMCo are doing the right things with their assets to compete with the new builds; namely undertaking ESG initiatives and investing substantially in modernizing the spaces.”
There are plans to create a meeting and amenity space on Scotia Plaza’s top floor, Ahmet says, and this was key to leasing up the building. Half the space will be rentable to outside groups and half will be an amenity area for the exclusive use of the building’s occupants.
It can be more challenging to put together leasing deals in the current economic climate, which Ahmet says makes the leasing activity at Scotia Plaza all the more noteworthy.
“Companies are investing in securing quality spaces for their people as the realization has set in that a physical presence where people can come together is critical to culture and highperformance operations,” he says.
“If you want to know the future of the office market, Scotia Plaza is an example of what works and where more buildings and landlords are headed.”
“These lease deals speak to a growing confidence in the Toronto office market.”
– BYRON AHMET CBRE TORONTO
Canada’s national office vacancy rate recently broke a new record, hitting 19.4% in the final quarter of 2023, according to CBRE’s Q4 2023 Canada Office Figures.
While this might suggest ongoing gloom for the office market, demand for quality spaces and slowing construction of new office projects helped vacancy improve in the fourth quarter in five of the 10 major Canadian markets: Vancouver, Calgary, Edmonton, Ottawa, and Halifax.
“Based on global trends, office utilization and demand are picking up,” says CBRE Canada Chairman Paul Morassutti. “That is helping improve office fundamentals in most Canadian cities.”
Vancouver recorded a drop in its downtown vacancy in Q4, bringing overall vacancy down to 9.4%. Calgary, having introduced an office conversion program, saw both its downtown and suburban vacancy rates decline for the third consecutive quarter. Meanwhile Edmonton registered its second quarter of positive net absorption, driving down overall office vacancy to 21.4%.
Having also launched an office conversion program, Ottawa closed off the year with a simultaneous dip in its downtown and suburban vacancy rates. Halifax also recorded a decline of both its downtown and suburban office vacancy rates, pushing its overall vacancy down for the seventh consecutive quarter. Montreal was the only city to register unchanged office vacancy, staying at 17.8%.
The fourth quarter saw the most widespread surge in suburban office market activity, with eight cities reporting improving vacancy. Top performers were Winnipeg, where vacancy dropped by 1.1%, followed by Edmonton and Montreal.
Toronto was largely responsible for the rise in the national office vacancy rate, having registered 624,550 sq. ft. of new office supply in the past quarter, driving downtown office vacancy from 15.8% to 17.4% in a single quarter. Over the course of 2023, 1.1 million sq. ft. of new office space came to market in Toronto, contributing to the most negative net absorption the city has seen in a year since 2020: -2.7 million sq. ft.
“The office market continues to face challenges, but Toronto’s are particularly acute right now,” says Morassutti, who remains optimistic about the future of the city’s office market. “Toronto will see benefits once new construction comes to an end since it’s new supply that’s had the biggest impact on the city’s vacancy.”
Of the nine other Canadian office markets, seven registered no new supply deliveries in Q4. The national development pipeline continues to shrink, with just 10.9 million sq. ft. of office space currently under construction across Canada – a six-year low. 70% of the active pipeline is due for delivery in 2024, but the impact on the national vacancy rate will be mitigated by strong pre-leasing activity, as 65.9% of these projects are already committed.
Nearly half of the national office construction activity is taking place in Toronto, with minimal development elsewhere in Canada. Six markets report less than 200,000 sq. ft. of activity underway, including Edmonton and London, where no new projects have been started in several years. This drop-off in development activity should help stabilize office vacancy rates over the coming quarters.
Demand for Canadian industrial space continued to dwindle in the fourth quarter, as net industrial leasing subsided to its lowest level since 2009, according to CBRE’s Q4 2023 Canada Industrial Figures. Six of the 10 major markets recorded year-over-year increases in availability of 1.2% or more, pushing the national industrial availability rate up to 3.2% in Q4. This was a record increase of 0.7% quarter over quarter.
The softening availability rate was the result of the adoption of more careful expansion strategies by tenants and the delivery of a quarterly record of 16.8 million sq. ft. of industrial product in Q4. This drove the annual amount of new supply up to a record 42.2 million sq. ft. in 2023. Another 18.2 million sq. ft. of industrial space is expected be delivered in the first half of 2024, of which 43.0% is pre-leased.
Waterloo Region and Vancouver saw the strongest demand for industrial space, with over 1.0 million sq. ft. of positive net absorption in Q4. Meanwhile Toronto, which single-handedly accounted for 40.3% of all new industrial supply in 2023, and Montreal were the only markets to witness negative net industrial absorption in the past quarter.
“Weak economic growth, slower e-commerce sales and new supply additions are collectively slowing industrial market fundamentals,” Morassutti says. “The increase in the availability of industrial space is not necessarily a bad thing. It is still a landlord’s market, but there are more options for tenants than there have been in a while and that’s bringing better balance to the industrial market.”
Greatest office gains being seen in Alberta, B.C. and Eastern Canada while remaining markets grapple with muted activity
If you are an investor who is active in commercial real estate, high interest rates and increased lender scrutiny can make this a tricky time to do business.
That can be a difficult pill to swallow, but it is also a good time to optimize portfolios and take advantage of once-in-a-businesscycle opportunities.
“There are a lot of private investors and businesses that would like to buy commercial property right now,” says Joshua Sonshine, Senior Vice President with CBRE’s Debt & Structured Finance group. “That can be challenging in a slowing economy.”
“Having the relationships and experience to correctly frame your proposal to lenders is essential,” he adds. “This is how CBRE’s DSF group can help you stay in the game.”
It might seem counterintuitive that debt professionals actually get busier in challenging markets. But this is the time when having a
steward providing solid guidance, experience and relationships becomes even more critical.
Debt capital is extremely volatile these days, notes Christos Panagiotakos, CBRE’s Ottawa-based Vice President with DSF.
“Terms and conditions vary greatly, asset types that lenders are interested in vary greatly, and timelines are inconsistent.”
The rapid and sizeable increase in the key overnight rate and government bond yields over the last two years has been a driving factor shaping lenders’ positions on their ongoing exposure in real estate, regardless of whether it’s insured or conventional.
“CBRE can provide more control for our clients to make decisions on their financing when it comes to critical milestones.”
– CHRISTOS PANAGIOTAKOS CBRE CAPITAL
“Let us turn newfound stress around financing into a positive outcome and competitive advantage for your business.”
– JOSHUA SONSHINE CBRE CAPITAL
“The higher the interest rates are, the less amount they can cover in terms of debt servicing,” Panagiotakos says. “Higher rates equal reduced loan amounts, so more equity is required. Ultimately this provides a lower leveraged return for investors.
“Many projects won’t get off the ground because they won’t be able to create the necessary returns to move a project forward. The same goes with acquisitions: they are sometimes not viable.”
Panagiotakos says the federal government’s recent decision to remove the GST component from the construction of multifamily projects has helped to offset both the additional interest, and the higher costs of development for that asset class.
And if provinces follow suit — like Ontario has said it will, doing away with its portion of the harmonized sales tax on purpose-built rental housing — it will make the prospects for multifamily construction even brighter.
Unfortunately there haven’t been similar outcomes for the retail, office and industrial assets, Panagiotakos notes. “They’ve been left to the mercy of increasing bond yields. ”Those property types have also been adversely affected by Canada’s implementation of Basel III reforms. The reforms are designed to mitigate risk by requiring banks to maintain certain leverage ratios and keep certain levels of reserve capital on hand.
“Canada initially held off but is into Basel III for this calendar year,” Panagiotakos says. “So with any conventional lending it will now cost more for tier-1 bank lenders to be able to put money out, because the new rules require those lenders to hold on to more liquidity.”
If a bank has to retain $1 million to have a loan on their book as a liquidity position; they’ll now have to keep a higher percentage of money on their books than before.
“This is really bad news for speculators with debt on the prospective projects as they will see an increase in the spreads for their borrowing requirements on top of the implicit increase that has occurred in bonds,” says Panagiotakos. “Therefore to achieve the same returns they have to charge more.”
The investment calculus has been altered greatly for investors, appraisers and lenders. But debt professionals like Sonshine and Panagiotakos can help make sense of the shifting market. They can triangulate interests and offer access to the capital with the most favourable terms.
Suddenly, closed doors and enviable opportunities become crucial pivots and game changers for the next business cycle.
One of the biggest shifts in capital flows has been out of the office sector and into apartments and residential developments. And that’s a different kettle of fish from a lender perspective. Canada Mortgage and Housing Corp. (CMHC) is available to finance these projects at some of the best rates and terms possible. But good things rarely come easily.
“CBRE can provide more control for our clients to make decisions on their financing when it comes to those critical milestones,” Panagiotakos says. “Our professionals have an unparalleled understanding of the specific CMHC programs and policies, and our platform has been built around these professionals and their knowledge and experience. So we can deliver best-in-class CMHC executions for our clients.”
Another critical shift in capital flow is into the industrial asset class. With rising cap rates, a need has arisen for a more flexible approach to financing the acquisition and development of these assets.
“Our professionals bring a succinct understanding in underwriting and navigating industrial product, and in working with lenders and clients alike to create steady and secure returns for each party,” Sonshine says.
Following years of cheap debt and declining interest rates, market players are going back to basics. Many are also looking to partner in ways they have not had to before, and there’s no shame in that.
“We try to be a hub for clients,” Sonshine says. “They can focus on their business while we provide advice, connections and direction on how to proceed with lenders. “Let us turn that newfound stress around financing into a positive outcome and competitive advantage for your business.”
Your ability to take advantage of this inflection point in property markets likely depends on whether or not you can access capital.
“If you are an investor that has heard ‘No’ or are looking to make a strategic purchase or refinance,” Sonshine says, “CBRE’s Debt & Structured Finance team is here to help.”
If you find yourself strolling around Vancouver’s Mount Pleasant neighbourhood, you’re bound to come across a striking new addition to the neighbourhood: an impressive mural spanning the four-storey façade of the OFISWERKS office project.
More than just an intriguing work of art, the mural, entitled Heritage, carries a deeper meaning.
The idea for it originated when James McKenny, vice president of sales and marketing at FORMWERKS Boutique Properties, a CBRE client, looked up at the exterior wall of their new strata development, OFISWERKS, and saw the potential to create something unique and eye-catching on this sizeable blank canvas.
“We’d never done anything like it before,” says McKenny. “But we knew we wanted to create something memorable while celebrating the local community.”
CBRE’s Ed Ferreira, who brokered the sale of the OFISWERKS building alongside colleague Kevin Nelson, says the mural illustrates some of the changes the neighbourhood has witnessed in recent years.
“Mount Pleasant has historically been an industrial neighbourhood dotted with textile manufacturers, auto repair shops and warehouses,” Ferreira says. “Few of those are left today with Vancouver’s real estate prices being so high, so recognizing their legacy is very important. If we know where we came from, then we have a good sense of where we’re going.”
While traditionally focused on residential developments, FORMWERKS decided to diversify their portfolio and make their first foray into the office market with OFISWERKS. “We wanted to build an office that our people would want to go to,” says McKenny. “It needed to be close to transit, amenities and our employees.”
Mount Pleasant ticked all the boxes, given its proximity to Vancouver’s Seawall and to a variety of shops, restaurants, breweries and transit. And with the upcoming Broadway Subway Project — an extension of the existing Millennium Line – set to be complete by 2026, the OFISWERKS development also represents a promising long-term investment, despite it being brought to market in a challenging time for the office sector.
“Mount Pleasant is a fast-growing neighbourhood that’s attracting a lot of young people, tech firms and life science companies,” says Ferreira. “There aren’t many opportunities to own a flex office in such a central location in the Lower Mainland, so OFISWERKS has a lot of appeal.” And now with its new mural, it’s even more alluring.
The creation of the mural came with its share of challenges. “There’s more to it than just paint and a paintbrush,” says McKenny. “There was a lot of planning happening behind the scenes to make this project possible.”
FORMWERKS collaborated with the Vancouver Mural Festival to orchestrate the artwork, obtain the necessary permits, acquire the equipment, and find an artist who could deliver the desired look and message. FORMWERKS also had to relocate vehicles using the nearby parking lot for the duration of the process.
There were a number of unknowns regarding the final result. Would it turn out as planned? Would the community react favourably? There was no way to know until they got it done. “We took a leap of faith and it paid off,” says McKenny.
The mural was painted by France-based artist Oscar Maslard (who goes by the handle SCKARO), with the help of his brother Arthur Maslard (known as RATUR), who lives in Vancouver. Painted by hand in the August heat, they took 15 days to complete the entirety of the four-storey mural.
“It was an honour to participate in this project and work alongside my brother,” Oscar Maslard says over a video call from Paris. “It was truly a unique experience.”
The mural – depicting the historic Vancouver Salt Co. Building amid a colourful smattering of flowers and marine vegetation – honours the history of the Mount Pleasant neighbourhood while paying tribute to the dynamic spirit of the local creative community.
“The piece makes a statement while telling a story,” says FORMWERKS’ McKenny. “You can see something different every time you look at it; it really makes you think.”
Encouraged by the success of the project and the positive feedback received from the community, FORMWERKS is planning on commissioning another mural for their next development.
“FORMWERKS has taken a lot of pride in every aspect of this building,” says Ferreira. “It’s their first project in the neighbourhood and it’s already become a real centrepiece.”
“It’s FORMWERKS’ first project in the neighbourhood and it’s already become a centrepiece.”
– ED FERREIRA CBRE VANCOUVER
Lenders are signaling optimism in real estate as interest rate hikes appear to plateau and the amount of debt capital available to facilitate Canadian real estate transactions is expected to grow modestly in 2024.
According to CBRE’s recent Canadian Real Estate Lenders’ Report, lenders plan to add 16% of net new capital into the real estate market in the coming year, and 79% of lenders say they plan to expand their outstanding real estate loan books in 2024.
Despite this focused growth in lending for real estate, for the first time in four years a small group of lenders have reported intentions to modestly trim their amount of capital available next year. Lenders unanimously see elevated interest rates as the top challenge facing the Canadian lending market in 2024.
The impact of interest rates on property cash flows and pricing has created uncertainty around property valuations, which ranks as the second greatest challenge expected by lenders next year.
Recession fears have faded and are currently not a top concern for lenders in 2024. Expectations appear to have shifted towards a “soft landing” for the economy, with only potentially moderate or minor impacts on underwriting.
In fact, 12% of lenders do not plan to factor any recession into their property underwriting for 2024. It should also be noted that less than one-third of lenders expressed concern with real estate market fundamentals.
CBRE’s Canadian Real Estate Lenders’ Report surveys domestic and foreign lenders to gauge commercial real estate lending sentiment and offers borrowers insights on what to expect as they look to access real estate financing.
“The challenging conditions in real estate are no longer news and the lending community is starting to look ahead to what comes next,” notes Carmin Di Fiore, Executive Vice President of CBRE’s Debt and Structured Finance team.
“The continual escalation in cost of capital, valuation uncertainty and tightening credit have impinged on the industry’s performance and reduced real estate transactions. That said, the general tone in the market has improved slightly looking ahead to 2024.”
“The challenging conditions in real estate are no longer news and the lending community is starting to look ahead to what comes next.”–
CARMINDI FIORE CBRE DEBT & STRUCTURED FINANCE
Lender sentiment on office assets continues to deteriorate, as 67% intend to cut their exposures next year and none have plans to increase their budgets for office in 2024.
Class B office in the suburbs and downtown core caused the greatest concern, with 94% of lenders expressing concern for each property type. Class A office assets also recorded the largest declines in lender sentiment year-over-year, in both the suburban and downtown segments.
Purpose-built rental and industrial real estate remain the most desired asset classes among lenders, who have expressed strong intentions to increase budgets and expand exposures to both sectors in 2024.
Amid incentives offered by the federal government and some provincial governments for purpose-built rental development, lenders hope for increased multifamily development in Toronto, Vancouver, Montreal and Halifax.
Overall, lenders remain bullish on the industrial sector, with only a small minority expecting a market correction. But debt availability for industrial development is likely to be more nuanced next year as 55% of lenders reported low or no appetite to finance speculative industrial construction in 2024.
The top real estate markets for lender appetite remain Toronto, Vancouver, Montreal and Ottawa. Lender appetite for Hamilton and Waterloo Region increased, and Calgary also saw a notable improvement year-over-year in terms of the combined number of lenders with strong and moderate appetites for that market.
While Saskatoon and Winnipeg have the lowest level of lender appetite, the majority of lenders still operate and offer liquidity in those markets in some capacity.
More than half of lenders (51%) expect inflation to return to its current target of 2.0% by H1 2025, ahead of the Bank of Canada’s current projection for H2 2025. Lenders do not share a consensus on where the policy interest rate is expected to be by year-end 2024; 39% expect interest rate cuts of up to 75 bps from the current 5.00%.
The slowdown in the housing market is having implications on the residential condominium sector and 78% of lenders active in the space have tightened lending conditions on development financing.
The most common adjustment by lenders continues to be requiring greater levels of up-front equity for condo construction projects. The next most common changes include 39% of active lenders requiring greater deposit requirements with shorter payment schedules and 22% requesting the sizes of projects be scaled back.
6. Financed Emissions a Growing Consideration
Environmental, Social and Governance (ESG) and its impacts on real estate lending in Canada continues to evolve, with 68% of lenders saying they expect a property’s carbon footprint to materially impact its ability to secure a mortgage with competitive terms within the next 1 to 5 years; a further 11% of lenders report it is already happening and having an impact today.
Torontonians in search of housing are not the only ones moving west. The latest bit of good news for Alberta? The relocation of De Havilland Aircraft of Canada’s headquarters from Toronto to northeast Calgary.
The aerospace company recently inked a deal for an 80,000 sq. ft. office sublease at the ATB Financial Calgary Campus, close to its new De Havilland Field manufacturing plant. This builds on Calgary’s momentum as a growing tech sector, record migration and downtown diversification attract residents and business alike.
“Having a state-of-the-art office with sought-after amenities is important when hiring new staff,” says CBRE’s Katie Sapieha, who brokered the deal on behalf of ATB Financial.
“By choosing to relocate its head office to a beautiful Class A building in Calgary, De Havilland is setting itself up for success. And the company is achieving this while saving money. Everyone wins.”
Back in 2022, Sapieha and her team were pitching for the ATB Financial sublease when she thought about De Havilland as a potential tenant. ATB had decided to downsize their office to create more vibrancy in their workplace and better suit their needs as they transitioned to a hybrid work model.
They were shifting to activity-based work and updating their space to provide various work settings to support different activities. It was critical for ATB that their sublessee complement their emphasis on dynamic workspaces.
Although her team had yet to win the mandate, she floated the idea to ATB Financial’s Senior Manager for Real Estate and Leasing Murray Kavanagh and connected him with De Havilland’s broker.
“De Havilland had just announced the opening of their new manufacturing plant east of Calgary and they were in the market for a new office,” says Sapieha. “Their timing and requirements aligned with ATB Financial’s offer, so it seemed like a perfect fit. But that doesn’t necessarily mean everything is going to work out.”
The plant, announced last September, is anticipated to create 1,500 jobs in rural Wheatland County. The site will include parts manufacturing and aircraft assembly facilities, a runway and a maintenance and repair centre. It will also feature a De Havilland plane museum and educational spaces to train its future workforce. De Havilland Field is expected to begin limited operations in the first buildings by 2025.
De Havilland announced its plan to bring the DHC-6 Twin Otter – a utility aircraft used for medical evacuations, search and rescue, cargo and commuting – back into production at the new complex. It also intends to resume the production of the Dash 8-400, a regional airliner used by companies such as Air Canada Express and WestJet Encore.
As demand for air travel increases, De Havilland Field will play a vital role in supplying airlines with the necessary aircraft for their fleets, helping to ensure that Canadians stay connected.
The plant will not only manufacture commercial planes; it will also be home to the final assembly of the new DHC-515 Firefighter, an amphibious water bomber aircraft used to fight forest fires. These planes are designed to scoop up high volumes of water from lakes and rivers, eliminating the need to return to an airport to refill between each trip.
After a record wildfire season in Canada and in many other countries, including the U.S., Greece and Portugal, the need for firefighting aircraft is more urgent than ever.
Sapieha and her team eventually won the ATB Financial sublease mandate. By the time the space was officially put on the market in early 2023, they had already toured with De Havilland and were in negotiations.
But they hit some turbulence along the way. “De Havilland’s requirements kept evolving as they reassessed their headcount and space needs and evaluated the best layout and location for their headquarters,” Sapieha says. “They weren’t alone. So many companies were going through this exercise with their office space at the time.”
On the other side, ATB Financial was determining which deal terms they could offer while ensuring that whoever took over the west wing of its Calgary campus would align with their culture. This is one of the overlooked challenges when companies sublease space but remain present on the site or continue to own the asset.
“Subleasing means handing over control of the space to new tenants, but that doesn’t mean there aren’t considerations beyond those walls,” says Sapieha.
In the end the parties reached an agreement. ATB Financial’s fully furnished space and amenity-rich Class A building won over De Havilland. The campus’ proximity to Calgary International Airport and to the new manufacturing facility, along with competitive lease terms, were key factors in the final decision.
“The synergy between Alberta’s long-standing financial institution ATB Financial and a nearly 100-year-old Canadian aviation company is an enormous win for the city and for Canada’s aerospace infrastructure,” says Sapieha. “De Havilland is helping drive Calgary’s economic momentum and diversification by creating new high-paying jobs and bringing a new pool of talent to our city.”
“At a time of challenges for the office sector, this is a welcome success story for our market. It shows how quality physical office space remains important for many of the companies that will drive economic growth in the next business cycle.”
“The synergy between ATB Financial and De Havilland is an enormous win for Calgary and Canada’s aerospace sector.”
– KATE SAPIEHA CBRE CALGARY
CBRE is working with the University of Guelph to educate and inspire the next generation of real estate leaders.
CBRE has been supporting The Lang School at the University of Guelph with a $100,000 donation to the Guelph Real Estate Alliance (GREA) campaign over the last two and a half years. The GREA campaign aims to enhance Lang’s real estate industry collaborations to help advance and grow academic programming at The Lang School, including a proposed graduate program in real estate.
“CBRE has over 60 Guelph alumni across our platform and is a long-time supporter of Lang’s Real Estate Students’ Association,” says Jon Ramscar, President and CEO, CBRE Limited. “The Lang School reflects CBRE’s commitment to innovation, excellence and support for the communities in which we live and work.”
The objective of GREA is to connect the real estate industry with Lang’s real estate faculty, students, and alumni. The campaign is a direct call to leaders within real estate to support the program which, for over 30 years, has developed many prominent leaders within the sector.
The campaign supports an external liaison position that will enhance the student experience, create new learning opportunities, and further improve the program’s connection to the industry.
“CBRE’s donation is an investment in the next generation of real estate professionals and a downpayment on the development of the real estate services of the future,” continued Ramscar.
Lang is one of just a few Canadian business schools that offer a specialization in real estate at the undergraduate level. The real estate program at Lang features a renowned and active advisory board that helps align the program’s academics with the industry.
“We are incredibly grateful to have the support and commitment of CBRE in helping shape the future responsible leaders in the
real estate industry,” says Lang School Dean Sara Mann “CBRE’s investment in Lang will help us continue to provide experiences both inside and outside the classroom for our real estate students, enhancing the quality of professionals entering the industry.”
CBRE has a long history of hiring exceptional U of G and Lang graduates from a wide variety of disciplines.
“The University of Guelph’s respected real estate program provides students with the knowledge needed to succeed in the industry while exposing them to its dynamic career paths,” says Lang alumnus and Senior Vice President at CBRE, Rob Ironside. “I am proud of CBRE’s support of the program as U of G graduates always bring forward-thinking and much-needed fresh perspectives to the workforce.”
CBRE also often hires graduates from other Lang programs. For Lang hospitality and tourism alumnus Nicole Nguyen, the program opened doors to work in the fast-paced real estate industry.
“What attracted me to the Lang Commerce program was the industry-led focus of the curriculum,” says Nguyen, who is a Senior Vice President with CBRE Hotels Valuation & Advisory Services group. “The specialized nature of the program allowed me and my classmates to remain connected and flourish in our careers.”
CBRE joined Allied REIT, Aspen Ridge, Deloitte, Forum Asset Management, and Reid’s Heritage Homes as supporters of Lang’s GREA campaign.
“This donation shows that CBRE is more than just a real estate services provider,” says Ramscar. “We are helping realize the potential in people, businesses and communities.”
“CBRE’s donation is an investment in the next generation of real estate professionals.”
– JON RAMSCAR CBRE CANADA
Distribution centres were the industrial market darlings during the pandemic, as online shopping hit a peak.
For those who thought the DC market might have cooled following a period that had few big splashy transactions, CBRE’s Kyle Hanna would beg to differ.
Hanna, along with his Toronto West colleague Fraser McKenna, closed on a deal that saw their client Lactalis Canada (Canadian dairy leader of brands like Cracker Barrel, Black Diamond, Balderson, Astro and Lactantia) ink a long-term lease on a state-of-the-art new distribution centre in Oshawa, Ontario.
The 379,000 sq. ft. facility – which will consolidate multiple Lactalis shipping locations that are used to service the company’s cheese and tablespreads category – is being developed, built and property managed by Broccolini.
Construction has already begun and the distribution centre is slated to open by Q4 2024.“Broccolini has been tremendous,” says Hanna. “They have moved mountains to get this deal done.”
Located in Oshawa’s Northwood Business Park, Lactalis Canada’s new DC was designed in part by Montreal’s GKC Architecture and Design. It will become the largest distribution centre, capacity-wise, for Francebased Lactalis Group globally, notes Lactalis Canada President and CEO Mark Taylor.
“This bold step exemplifies Lactalis Canada’s growth ambitions in Canada as a dairy leader and more importantly, reinforces our continued commitment and investment in the country and communities in which we operate,” Taylor says.
Hanna says the DC is being built on raw land and that Broccolini had done much of the servicing and zoning work already before Lactalis Canada put pen to paper.
While Oshawa isn’t a distribution hotbed just yet, Durham Region has been growing as an industrial hub in recent years, and Hanna says his team has done a number of deals in neighbouring Ajax and Whitby.
The new Lactalis facility will create approximately 80 jobs in Oshawa and its surrounding region, employees who will join Lactalis Canada’s workforce of more than 4,200 across 30 operating sites in Canada.
“The GTA is the optimal hub for this part of our supply chain network across Canada,” says Eric Seguin, Senior Vice President, Supply Chain, Lactalis Canada. “The Oshawa distribution centre is poised to meet the current needs and future demands of our business and customers.”
The DC’s sustainable design will “transform our company’s network effectiveness and contribute to Lactalis Canada’s ESG agenda in reducing its carbon footprint,” Seguin says.
The building will be zero-carbon ready, with the potential to be Zero Carbon Building certified. Its energy will be fully on the Ontario power grid with no additional reliance on non-renewable sources.
Use of energy efficient lighting controls, equipment and high insulation values will reduce the power load imposed on the refrigeration system. Heat generated from the refrigeration system will be fully reclaimed and used to heat the facility’s offices and the truck apron to melt snow for safety reasons.
A white roof will reduce heat island effect, and solar panels on the roof in a future phase of development will provide renewable power to partially or completely offset reliance on the power grid under certain conditions.
Hanna says the greatest challenge his team faced in getting the deal done was running an extensive search process to find a development site that met his client’s timing and exact building configurations.
“Knowing that Lactalis Canada had a firm lease commencement date it wanted to achieve, the entire team of developer, architect, and tenant worked extensively to move through the design, value engineering and legal process to allow this deal to come together.”
Adds CBRE’s Fraser McKenna: “We had to find a developer that had the full conviction and the wherewithal to get it done on time, and we believe Broccolini will make that happen.
“We’ve done a number of deals with them in the last few years,” Hanna says, “and they are great at executing complex build-to-suit developments as well as finding creative solutions for tenants.”
McKenna notes that the City of Oshawa helped make the approvals process a smooth one. “At a time when so many municipalities are bogged down in red tape, we moved through a lot of the approvals and due diligence quickly, which will provide a straight forward path for the construction of this development.”
There’s still plenty of action in the distribution centre market at the moment, according to Hanna. “We’re doing a lot of deals; it’s been very busy,” he says. “It’s just that we’re coming out of what was an unsustainable peak in the market and going back to more of a normalized industrial market.”
“We are returning to a more balanced market although overall supply levels in the GTA remain the lowest in North America,” adds McKenna. “Conditions are similar to the period from 2011 up to 2019, pre-pandemic. But there are still a lot of larger deals out there.”
In the case of the Lactalis Canada deal, Hanna says it speaks to the fact that bigger users are looking to become as efficient as possible with their operations. “They’re consolidating into a sustainable central DC versus having many different sites spread out across a region.”
“The developer, architect and tenant worked extensively to move through the design, value engineering and legal process to allow this deal to come together.”
– KYLE HANNA CBRE TORONTO
Rapidly rising interest rates have dealt a blow to smaller developers who are attempting to manage one of the most challenging development cycles in a decade, especially compared to well-capitalized larger players.
“We’re seeing a lot more distressed sales through receiverships and power of sales,” says Lauren White, who co-runs CBRE’s Land Services Group, which specializes in such situations. “The velocity is definitely picking up. We’re getting several calls each week from receivers, lenders or the banks, wanting us to review or pitch on an asset.”
“Those smaller developers typically went to B and C lenders, who are now being cautious about what they lend on and watching their book of business carefully,” adds Mike Czestochowski, who along with White, has industry-leading expertise on distressed sales, having handled more than 50 of them over the course of his career.
The speed and extent of the rising interest rates caught many developers off guard, he points out, and it’s initiated a sea change when it comes to property valuations and home sales. “Sales centres got quiet,” Czestochowski says.
“We haven’t had any downturns in the real estate market in recent years, maybe a couple of blips. But not like we’re seeing today.”
While many smaller developers fell into distress sale situations, larger developers who have relationships with the big banks “seem to be doing fine,” he says. “And large institutional and private developers are seeing this as an opportune time to buy up properties.”
LSG saw the writing on the wall two years ago and began to plan accordingly. “We started reaching out to receivers and lenders to make sure they knew about our experience in dealing with distressed sales,” explains White.
Experience counts for a lot here. “Because if a vendor feels their lender or receiver, through their broker, didn’t do a good job of marketing a property or achieving a fair price, they can sue for an improvident sale,” says Czestochowski. “That’s why you don’t want to hire the wrong person or a team that doesn’t know how to deal with distressed sales.”
“We’re getting several calls each week from receivers, lenders or the banks, wanting us to review or pitch on an asset.”
– LAUREN WHITE CBRE TORONTO
Czestochowski and his team know how to market these properties the right way. And for younger sales professionals like Emelie Rowe, who started with LSG five years ago, when the market was red hot, it’s an opportunity to gain a different perspective. “These are interesting times to say the least,” she says, “and I have a feeling this could be just the beginning of court-ordered and distressed sales.”
Czestochowski and team consult on distressed sales throughout the GTA and across Canada, and have the power of the CBRE platform to draw from if they require added expertise in property management, facilities management, brokerage or appraisal, to name just a few.
The team is currently collaborating on listings for distressed sale properties in Gatineau, QC, Calgary, Vancouver and Ottawa, as well as a land portfolio in Florida. “Lenders like the idea that we function as the single point of contact coordinating the CBRE platform and service, anywhere in the country or world,” White says.
Success comes from being hands-on in dealing with distressed sale properties. On the day the call from the lender comes, a visit to the property ensures there’s no cause for concern: Is the site secured if it’s vacant, or if the building is empty? Is the property vulnerable to dumping or vandalism?
Czestochowski went out to a site one Saturday morning to find someone dumping construction debris on it. “This can happen if no one is properly
monitoring the property.” He stopped the culprits in their tracks and called someone to come and secure the property.
Looking at the bigger picture, it’s worth knowing if there are ongoing applications for that site. “If so, any lender or receiver should keep the process going and avoid any expiries of draft plans and permits,” Czestochowski says. “If some of these applications expire this could be detrimental to the property and reduce value significantly.”
Or are there leases rolling for that property? And is there anything with the building maintenance-wise that could be done to prevent costly damage? “When you’re dealing with distressed sales situations,” Czestochowski says, “you have to be there full service for the banks, receivers and the lenders. And we are.”
“It’s really being a consultant for them and walking them step by step through the process and what they need to do,” adds White. “Keeping them up to date and doing things properly to avoid an improvident sale.”
It’s that kind of service that ensures a property’s sale will make a lender whole again. “It’s great when all stakeholders get their money back plus fees and costs, and you have money left over for the vendor,” says Czestochowski. “That makes me happiest.”
“It’s an unpleasant situation, but as long as everyone is helped, kept informed and everything is transparent and there’s fair treatment, we should all end up pleased with the outcome.”
A distressed sale occurs when a property or other asset must be sold quickly.
Distressed sales often result in a financial loss for the seller who, for reasons of economic duress, must accept a lower price. The proceeds from these assets are most often used to pay debts.
With the economy slowing against a backdrop of geopolitical challenges and high interest rates, there is no shortage of worthy causes and people needing a helping hand.
“I am always impressed by the incredible generosity that CBRE employees and the commercial real estate industry as a whole are capable of,” says CBRE Canada President and CEO Jon Ramscar.
“Our ability to give back and make positive change is central to our mission, not secondary to providing real estate services. We transact and advise on commercial real estate for our clients every day, which in turn contributes to shaping the form and function of our built environment. Our mission makes us even better partners to our clients and our communities.”
In 2021, following a company-wide survey, CBRE Canada selected the Canadian Mental Health Association as its national charity. Since then, CBRE has contributed over $250,000 to the cause, thanks to fundraising events such as the Annual Charity Golf Classic and the Not Myself Today program. The CBRE Annual Charity Golf Classic has raised over $1,500,000 for charitable causes since its inception in 1992.
“Real estate is not just about the bricks and mortar, it has always been and will always be about people. We are embracing the roots of our industry and approaching our business more holistically,” says Ramscar. “Partnering with local and national organizations is one way we are living out our goal to be more than just a real estate business and to evolve the company into new areas of growth.”
We spoke to CBRE employees in Vancouver, Calgary, Toronto and Montreal to learn more about some of the organizations and causes our people are supporting.
Chris MacCauley has always been involved in his community.
“It’s our responsibility to give back,” says the Vancouver-based industrial broker. “Every day we work with our communities on the business side, it’s only right that we give back in ways to make our communities and the people in them better.”
For the last decade MacCauley has been involved with Vancouver’s Music Heals Charitable Foundation, an organization founded by Dave Barnett, a Director of Dayhu Group of Companies.
Since its inception in 2012 Music Heals has donated over $3 million to support a wide range of music therapy services to communities in BC and across Canada. Music Heals increases access to music for at-risk youth and for patients in children’s hospitals, senior’s centres, palliative care, AIDS & HIV programs, habilitation and bereavement support.
Every October, with MacCauley’s help, CBRE sponsors the Music Heals Strike a Chord gala. The night features live performances from artists including Grammy and Juno Award winners and raises funds for music therapy programs.
“It’s always sold out and there’s great participation from the real estate community,” says MacCauley. “And being able to see the impact of your donations is very meaningful.”
Sports have always played a big role in Greg Kwong’s life.
“I grew up playing many sports and that’s had a massive positive impact on my life,” says CBRE’s Alberta Region Managing Director. “They’re a great way for children to learn teamwork, let out their energy and create healthy lifestyles.”
Today, Kwong channels his passion for sports into his role as chairman of the board for WinSport, a Calgary-based organization that operates nearby Canada Olympic Park, the Bill Warren Training Centre in Canmore, and the Beckie Scott High Performance Centre on the Haig Glacier. WinSport also runs year-round programs and facilities for athletes of all ages and skill levels. “Canadian sports are underfunded compared to countries like the U.S.,” says Kwong. “Organizations like WinSport make sports accessible to underprivileged children and athletes, giving them a chance to learn and be active in their communities.”
WinSport’s community impact initiatives include an adaptive wheelchair sport program, a female sports development program and a newcomers program introducing new Calgarians to skiing, snowboarding, skating and mountain biking.
Kwong and the CBRE Calgary office have been helping WinSport with financial donations, by raising awareness and volunteering to their programs. “Charities survive on donations and volunteering,” Kwong says. “At CBRE Calgary we get involved in both aspects. Our people are very generous with their money and their time, and it makes all the difference in our communities.”
For Toronto-based broker Mike Czestochowski, giving back to his community starts with its youth.
The recipient of CBRE’s 2022 Change Maker Award, Czestochowski, who sat on the board of Markham Stouffville Hospital for five years, is known for his generosity and his philanthropic efforts.
During the pandemic he purchased 3,500 boxes of Girl Guide cookies and donated them to the staff of Markham Stouffville Hospital. He’s also funded scientific research at the St. Michael’s Hospital and frequently donates to causes such as The Ride to Conquer Cancer and the Blu Genes Foundation.
In recent years Czestochowski has focused his efforts on Covenant House, Canada’s largest organization for helping at-risk youth, providing them with shelter, employment resources and support networks.
“The first time I visited Toronto’s Covenant House, it broke my heart,” he says. “I hadn’t realized how much need there was in our city. It’s a huge place, but their food bank was empty.”
Since then, Czestochowski and his team have helped fill Covenant House’s food bank twice. Each time, they’ve donated more than $1,000 worth of food and toiletries.
As part of his Covenant House efforts, Czestochowski once again participated in last year’s Executives Sleep Out. The Sleep Out is a one-night event that brings GTA executives together to sleep outside and raise funds for Covenant House’s programs. In 2022 Czestochowski raised over $13,000; last year he raised nearly $22,000.
“It’s so important to help our youth get on a better path,” he says. “Too many young people end up on the street through no fault of their own, simply the result of bad circumstances. In such an affluent city, we need to do more to ensure we take care of each other and create a future where nobody has to stay out on the streets.”
In Montreal, Jean-Philippe Daunais and colleague Ryan Cymet also focus their charitable efforts on helping local youth.
Last fall they hosted a cocktail event to raise money for the Montreal Real Estate Foundation for Kids (FIMJ), a group focused on helping young people with difficult lives flourish and grow.
Launched in 2003 in collaboration with BOMA Québec and IDU Québec, FIMJ distributes funds to local organizations that work with Quebec youth. These groups support vulnerable children through programs such as hot meal services, respite care assistance and educational day camps.
Daunais and Cymet were co-presidents of last year’s event, FIMJ’s first since the pandemic.
“We nearly called the whole real estate industry for support,” says Daunais. “We reached out to institutional and private players alike.”
Their efforts paid off. By the night of the event, they had raised a record $200,000 for the cause.
“Even though a lot of budgets were tighter this year, people rallied to create a positive impact on their community,” says Daunais.
“We appreciate the generosity of the Greater Montreal business community.”
Whether you are a CBRE employee, partner or client, a member of the commercial real estate industry or simply someone looking to make positive change, we ask you to join us in doing more, striving more and being more to the people and communities around us.
Premium-casual restaurant Joey is taking the entire 17,000 sq. ft. ground-floor space at the foot of 20 King Street West in Toronto.
CBRE’s Alex Edmison, who along with his Urban Retail Team brokered the transaction, describes it as a “once in a century opportunity” that following an extensive build-out will result in one of the largest full-service restaurants in the country.
Boasting 25-foot ceilings and totally column-free, the space, which had been occupied by the Royal Bank since the building was constructed in the 1960s, sits at centre ice in downtown Toronto.
“This massive new Joey restaurant will not only give people a new reason to come to work, but to come and stay and play in the financial district,” says Edmison. “This is part of a wave of exciting new restaurants opening that are making downtown the place to be.”
It’s not just for business lunches, he notes. “These new restaurants popping up around the financial core are making it a dinner destination for office workers as well as those considering coming from around the GTA for an amazing downtown dining experience.”
Joey Restaurant Group, one of North America’s top restaurant chains, is demonstrating its firm belief in Toronto. “They
have acted decisively to secure one of the premier locations in the country,” Edmison says.
The owners of Joey, with existing Toronto locations at CF Toronto Eaton Centre, Yorkdale Shopping Centre, CF Sherway Gardens, CF Markville and CF Shops at Don Mills (along with 18 other locations nationwide), had been looking for another space in the heart of downtown Toronto, according to Edmison, who guided them to 20 King West.
The Joey deal is the latest in a trend of high-end restaurants betting on downtown Toronto, including Alo Bar at 150 York (another CBRE deal) and Blue & Black at Exchange Tower, a deal that also involved CBRE.
Chinese fine dining concept Mott 32 is coming to the Shangri-La hotel at 180 University Ave and Daphne opened earlier this year at 67 Richmond St W.
“The future of restaurants and great dining experiences in downtown Toronto has certainly never been brighter,” Edmison says.
Ralf Carcani strategically guides his office and lab clients with the deft hands of a chess player, which he is in his spare time.
Carcani’s skill, passion, character and commitment to making a positive impact on the Montreal office helped to earn him CBRE’s Eastern Canada Emerging Leader Award for 2022. We spoke to Carcani about building his commercial real estate career and how he helps office tenants navigate these uncertain times.
What does receiving the Emerging Leader award mean to you?
It’s a great honour, of course, but I see it as the start of something else. It’s a reminder that I have to one day become a full-fledged leader and that I have to put in the work to achieve that objective. So it’s a motivation to do that every day.
Tell us about your career path.
I joined CBRE in 2019 as part of the Montreal office leasing tenant representation group with Jeremy Kenemy and Veronik Bastien. Although I started as team coordinator, I was soon given the opportunity to work on transactions in a more direct way. That made for a steep learning curve. The following month brought the onset of the pandemic. Office leasing became very challenging, and tenants didn’t know what to do with their space. The learning curve got even steeper. My main objectives were to develop business for the team, help close transactions and assist tenants reassessing their office strategy.
What’s your favourite part of your job?
My favourite part of my job originates from my least favourite part of my job, which is doing cold calls and contacting people who don’t have time and are not planning to speak to me. But when I’m successful in securing a meeting and eventually creating a relationship with someone I cold called, it’s incredibly gratifying.
Which deal are you most proud of?
It resulted from one of the first cold calls I ever made, less than a year after joining CBRE. I had tried to reach a particular company by calling and sending them information. One day the woman in charge decided that it might be worth talking to me. She passed me to the right person, after which our team obtained the mandate to relocate their space. The transaction closed recently, almost two and a half years later. It taught me that it’s important to deliver value for people because they’ll eventually see what you can do for them and want to work with you.
What are the current challenges and opportunities in the Montreal office market?
In Montreal we’re faced with a tale of two worlds where some tenants are taking back space that they had put on the sublease market, while others are getting rid of their offices entirely. It’s a real art to try to understand why tenants go one way while others go the other. I believe that my role as a broker is more important than ever because tenants need to meet their business objectives and measure their productivity. The office is a great tool for that. As brokers, we need to be the best resource for companies trying to determine what to do with their office space.
Hands down that would be my colleague Jeremy Kenemy. I started my career at CBRE with him and am still working by his side. From the beginning, he involved me in client communications and activities, calls, meetings and visits. That helped me understand how brokerage works and what clients need. As a result, I feel like I’m a more effective advisor.
What is the best advice you’ve received?
Always be vulnerable and always listen. I have a lot of years ahead of me, so for now I have to listen to those who have been there for longer and absorb everything that I can. I also need to be consistent with my work. A great broker once told me: “Keep your head down, listen, and keep doing your work.”
How are you helping the next generation of real estate leaders?
I try to identify the up-and-coming people in the company and in the industry and create groups to work together to achieve our goals. Recently I’ve done business development with various people who are starting their careers at CBRE. I’ve also worked with the Research team to find creative ways to bring value to our clients.
“Always deliver value. People will eventually see what you can do for them and will want to work with you.”
– RALF CARCANI CBRE MONTREAL
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.
Stephanie Garant considers real estate to be a critical component of economic growth and social development. After several years in marketing and sales, she joined CBRE Montreal’s capital markets team in 2018.
We spoke to Stephanie about her passion for real estate, her involvement in the business community and her take on the future of the Montreal capital markets.
Why commercial real estate?
Commercial real estate is a broad field that affects everything from our economy to our way of life. In investment and capital markets, our work lets us to visualize what the city might look like in the next 5 to 10 years. In leasing, it’s a very concrete pulse on the current mores and the imminent trends of a population. I love how our work intertwines with macroeconomics, politics, and sociology.
What is your role within the team?
I’m mainly focused on the transactional side of things: the negotiation, the drafting of offers and the prospecting. Since our team often works on large-scale transactions, where we average 1 to 2 years before closing, my work leads me to think a lot about the future of our team. We anticipate how to stabilize or increase revenues while mitigating the risks that a transaction succeeds or falls.
How does your previous experience help you in your commercial real estate career?
It’s common for people to find themselves in real estate without having studied in the field. My degree in international commerce gave me a good foundation in business while my work in sales, marketing and production allowed us to properly structure the team as soon as I arrived. But what helped me the most in understanding the intricacies of my work was the purchase of my first investment property. There’s nothing like putting yourself in a buyer’s shoes to
appreciate the psychology of a sale, the stress of a short lead time, the importance of positioning a location and the risk associated with projecting potential income.
Tell us about your mentors and how have they helped you in the early stages of your career.
I have the privilege of working alongside my dad, Daniel Garant, Executive Vice President at CBRE. We have a great working relationship and his experience in architecture and in construction have been extremely beneficial to my learning. I have also surrounded myself with two external mentors, Marie-France Benoit and Anthony Arquin, through the CREW M (Commercial Real Estate Women Montreal) mentoring program. These relationships are invaluable and continue to grow beyond the one-year program. They have helped me expand my professional network and are still often a gateway to new projects.
How have you seen opportunities for women in the workplace and industry evolve in recent years?
It’s no secret that we are still in a male-dominated industry. That said, thanks to hybrid work, family and work can be balanced more easily. Videoconferencing allows us to reach our customers from anywhere and emphasize our content rather than our appearance. There’s still a lot of work to be done to level the playing field. That’s why I’m involved with CREW M, where I’m currently working on developing a directory of female real estate experts who will feature women who want to speak in public or publish articles.
In this new era of hybrid work, how do you develop and maintain your network?
I try to stay very active in my social involvement by participating in networking events and major real estate conferences. I have been a member of the Young Philanthropists’ Circle (YPC) of
the Montreal Museum of Fine Arts for 4 years. My work as president of YPC’s event committee allows me to meet young professionals from all backgrounds and participate in various activities on contemporary art and exhibition openings.
What does the future hold for Montreal’s capital markets?
It will be interesting to see how the market adjusts to very low real estate inventory, given current supply chain challenges, limited labor, and high construction costs. In the medium term, the increase in the overnight and prime rates can be expected to help reduce the money supply in circulation and control inflation. We are starting to see a stabilization and even a decline in real estate values in Montreal and its surroundings. However, this does not necessarily translate into an increase in transactions. There is therefore a risk of recession or stagflation until the market readjusts. In the long term, Montreal will manage very well; we have so much to offer, and our city has always kept up with the economic growth of Canadian cities.
What advice would you give to someone starting a career in commercial real estate?
Daniel always tells me, “It’s not a sprint, it’s a marathon. “ And he’s right. The world of commercial real estate is complex and requires a transfer of knowledge that can take several years. It’s essential to be patient with yourself and with the industry. Rome was not built in a day, nor were the towers that outline our Montreal skyline.
“There’s nothing like putting yourself in a buyer’s shoes to appreciate the psychology of a sale.”
– STEPHANIE GARANT CBRE MONTREAL
London, Ontario’s downtown office market is looking to bounce back after ending 2023 at a record-high vacancy rate of 28.5%.
CBRE’s Greg Harris and Theresa Kimmerly have been at the centre of the effort.
As companies have shifted their approach to the workplace, so have Harris and Kimmerly. They have been working closely with businesses to adapt to the evolving needs of the workforce and new ways of working. They’ve noticed that most companies aren’t looking to forgo their offices, but rather to maximize their benefits by rethinking them.
“Companies are being more intentional than ever and shifting their focus to creating workspace that supports their culture. Despite what people might think, we’re not seeing many companies let go of their offices entirely,” says Kimmerly. “It shows that the office is still important, but it’s taking a different form.”
Harris adds, “So far we’ve mostly seen strategic renewals and smaller deals as companies move through the process of incorporating hybrid work into their office space strategies.”
In 2021, Harris and Kimmerly were contacted by law firm Shillington McCall LLP, which was looking at office space options following a merger.
After going on several tours of different spaces, it was determined that relocating did not make financial sense, since a 10-year lease would be required to offset build-out expenses. So Harris and Kimmerly helped the firm to negotiate a 25% downsizing of their existing office space and an extension of their lease.
The deal included reduced employees parking rates and minor renovations, including new flooring and paint. The right-sizing resulted in a monthly savings of 20%.
“Landlords are willing to collaborate with tenants and find solutions to keep them in their buildings,” says Harris. “It’s more beneficial for landlords to renew tenants with good track records at smaller footprints and with concessions, as opposed to re-leasing the space and risking a long period of vacancy.
“In other words, there’s never been a better time for tenants to renegotiate their leases.”
It was a similar story for the Brain Tumour Foundation of Canada. Nearing the end of its seven-year lease, the London-based organization realized it would need to reduce its footprint as it had adopted a hybrid working model and was no longer making full use of its office space.
The group reached out to Harris and Kimmerly in early 2023. Like with Shillington McCall LLP, they concluded that a relocation would be cost prohibitive, and they would have to commit to a long lease to amortize the renovation costs.
So Harris and Kimmerly negotiated a renewal in the Brain Tumour Foundation’s existing office building. They achieved a 30% reduction of the tenant’s spaces, back to pre-expansion levels, for a 5-year duration. This ensured future flexibility for the Brain Tumour Foundation, while resulting in monthly savings
“Tenants who are proactive about their office use today will reap the benefits in the long term.”
– GREG HARRIS CBRE LONDON
“A lot of tenants are finding it difficult to justify relocating due to the cost of build-outs and the lengthy leases required,” says Harris. “We’re here to show them that there are options.”
In 2022, Neogen Canada, a solutions provider for the food processing, animal protein and agriculture industries, merged with 3M Food Safety and began searching for a new London location. They called on Harris and Kimmerly for guidance.
“They primarily needed office space, but also required a lab component for testing and repairing the equipment they sold,” Kimmerly explains. “The twist was that they were under a time constraint and needed to move in within four months.”
Harris and Kimmerly found a range of potential spaces that could suit Neogen’s requirements. They booked tours of the properties
and Neogen representatives narrowed down the options to two, ultimately securing a move-in ready space that suited their needs, with room to grow.
Office leasing activity in London is a microcosm for business decisions being made across the country. The physical office has a vital future to most businesses, but finding the right fit and location requires even more analysis and planning than ever before.
“The office market is changing quickly and we all have to keep up,” says Harris. “Tenants who are proactive about their office use today will reap the benefits in the long term.”
And with most office leases being 5-10 years long, it’s important to get the guidance to make the right decision for your business.
Investors are waking up to the renewed appeal and strong fundamentals of Canadian hotels.
Morguard Corp. just closed on the sale of a portfolio of 14 hotel properties in Ontario and Halifax to InnVest Hotels and Manga Hotel Group for $410 million.
“This is the biggest hotel portfolio sale since the pandemic,” notes CBRE’s Mark Sparrow, who brokered the transaction along with his partner Luke Scheer.
InnVest acquired 10 of the hotels: Marriott Toronto Airport, Courtyard Toronto Airport, Residence Inn Toronto Airport, Hotel Carlingview, Courtyard Vaughan, Courtyard Markham, Residence Inn Markham, Townplace Suites Sudbury, Cambridge Suites Halifax and The Prince George Halifax.
The purchase “demonstrates confidence in our vertically integrated hospitality organization and the Canadian hotel market,” InnVest CEO Lydia Chen said.
The deal, InnVest’s largest acquisition since 2007, expands its GTA hotel portfolio and grows its Marriott branded franchise and managed portfolio to 14 hotels. Many of the hotels will undergo renovations to “elevate the guest experience,” InnVest said in a release.
With 90 hotels in its portfolio, InnVest is Canada’s largest hotel owner/operator.
Privately held Manga Hotel Group acquired four hotels in the Morguard sale: Hilton Garden Inn Toronto Airport West, Courtyard by Marriott Mississauga, Cambridge Suites Mississauga, and Holiday Inn Express Ottawa West.
“This strategic move marks an exciting expansion for our organization,” says Manga CEO Sukhdev Toor. “This further deepens our presence in Ontario, serving the Greater Toronto Area, and adding to Ottawa where we acquired the 498-key full-service Ottawa Marriott in July 2023.”
The deal increases Manga Hotels’ Hilton portfolio to 14 properties and its Marriott portfolio to seven properties.
In a statement announcing the hotels sale, Morguard said it is making progress in optimizing its real estate portfolio and “sharpening its focus on core real estate investments.”
“The successful conclusion of this deal is a testament to the appeal of our hotel portfolio and the strength of Morguard’s management over the years,” Chairman and CEO K. Rai Sahi said. “We are pleased to have capitalized on the current market demand for high-quality hotels. This positions us well for future growth.”
The liquidity provided by this transaction will enable Morguard to pursue its core business: owning and managing a diversified real estate portfolio of office, industrial, retail, and multi-suite residential properties. Morguard’s owned/managed portfolio is valued at $18.3 billion.
CBRE’s Mark Sparrow says the level of interest in Morguard’s hotel portfolio was “very telling, with strong bidder depth. We received more interest from U.S. and international markets than we have seen in decades.
“We had a dozen bids in the first round, half of which were U.S. buyers and the other half Canadian buyers. That’s hugely significant; most Canadian hotels are traded within Canada to Canadian groups.” Sparrow says the level of interest from U.S. investors has much to do with the dislocation in debt pricing.
“Comparing US debt pricing for the same product in Canada, there’s about a 250 basis point spread lower for Canada. It’s allowing a lot of the U.S. players who look locally in the US to seek assets in Canada. And these players are looking for levered return acquisition opportunities.”
Hotel fundamentals in the Canadian market are strong at the moment, thanks to well-balanced supply and demand.
“In the U.S. they just build hotels whenever they want on spec, whereas in Canada it’s harder,” says Scheer. “The cost of construction has risen so significantly that it’s pushed more groups to acquisition versus development.”
“That’s one of the key reasons why both of these acquisition groups acquired this portfolio. Even post-acquisition the capital needed to put into the properties is below replacement cost.”
The hotel debt market has always been smaller than that for general commercial real estate, largely due to hotel fundamentals going up and down, notes CBRE Debt and Structured Finance group’s Joshua Sonshine, who helped the buyers with funding the transaction.
“But with strong fundamentals versus other sectors of real estate at the moment, it’s attracting both equity and debt to the hotel space,” he says.
Groups that aren’t typically hotel investors are shifting capital towards it.
“That’s a theme we’re seeing across all alternative assets,” says Sparrow. “Many of your typical commercial real estate investors are putting more weight toward alternative investments: hotels, seniors, self-storage, student housing. And hotels leads the pack, given the strong operating results.”
Sparrow expects a continuation of hotel investment activity throughout the balance of 2024. “We should double the transaction volume over last year.”
Hotel investors would do well not to fall asleep on this moment of opportunity.
“We received more interest in this hotel portfolio from U.S. and international markets than we have seen in decades.”
– MARK SPARROW CBRE TORONTO
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