CBRE Canada Advantage Magazine - Fall/Winter 2020

Canada Is Tops For Tech Talent

How the Hub & Spoke Model Could Evolve into the Office of the Future

Data Centres Have All The Power Right Now

ADVANTAGE

Fa l l / W i n t e r 2 0 2 0

Magazine

How COVID-19 Impacted Canada’s Downtown Cores, and What Comes Next It’s a question on the mind of companies around the world, and not one with a simple answer.

www.cbre.ca

A Note from Werner PRESIDENT & CEO

Welcome to our inaugural issue!

The world, our businesses, and personal lives were racing along until COVID-19 hit. Ten months later, we’re all working together to get our bearings and look forward. While we may not be physically moving through the world as we once did, there are no fewer demands on our time and attention.

We’re all juggling day-to-day activities with new safety precautions, many are working alongside their children who are e-learning at home and we’re having to sift through mountains of new information as we try to make sense of the changing world.

That’s why we’re releasing Advantage, our new digital magazine.

Advantage is a collection of dynamic commercial real estate stories and reflections from CBRE advisors and clients. The insights are industry leading, the feature lengths are manageable and the style is engaging.

We love White Papers as much as the next professional services firm, but COVID-19 has taught us the importance of connection, the value of time and the limits of attention spans and energy levels.

This magazine is another way to engage you and your business where you’re at. We hope you enjoy this issue and that the ideas in Advantage will help you in your business planning and decision making.

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CBRE ADVANTAGE MAGAZINE

Contents

FALL/WINTER 2020 Covid Changed Commuting for 04 Has Good?

07 How One CBRE Leader is Keeping Client Connections Alive During COVID-19

HOOPP’s new logistics hub is 08 Why another vote of confidence for surging industrial real estate

10 Canada Is Tops For Tech Talent the Hub & Spoke Model Could 12 How Evolve into the Office of the Future 15 CRE By the Numbers Centres Have All The Power Right 16 Data Now 18 How COVID-19 Impacted Canada’s

Downtown Cores, and What Comes Next

This Broker’s Mindset and Approach 20 How Have Changed Since COVID-19

04 08 12 16

07 FALL/WINTER 2020

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18 3

Has COVID-19 Changed Commuting for Good?

Ask the average office worker for the least favourite part of their daily routine, and you’re likely to get a common response: The commute. Whether it’s an hour in a car both ways or standing in a packed subway car, commuting to the office wasn’t ideal even before COVID-19.

Now with physical distancing and sanitation concerns surrounding public transit, many workers are wondering how they’ll be able to safely return to the office in the coming weeks and months.

It’s a question on the mind of companies around the world, and not one with a simple answer.

At CBRE, the discussion about the safety of commuting is ongoing. Executive Vice President Jon Ramscar has joined other industry leaders in a series of discussions facilitated by the Urban Land Institute (ULI) to discuss potential short-term and long-term solutions. Meanwhile, surveys sponsored by CBRE have examined employee and occupier mindsets around commuting in this unprecedented time.

Whether it’s allowing continued remote work, making non-public transit commuting more accessible or even considering the built-form of our offices, there’s plenty of work through to make the commute possible, if not mundane again.

THE COMMUTING CONVERSATION

One of the most pressing issues we’re all facing is transit: How do we mobilize employees and get people back to work?

- Jon Ramscar, Executive Vice President & Managing Director, CBRE Canada

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Ramscar understands the importance of leading a conversation. As Managing Director of CBRE’s flagship downtown Toronto office, he’s been involved in top-level conversations about the return to the office for months now.

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Those conversations span industries and companies, as he seeks out the broadest perspective on working during COVID-19. In recent months, he’s participated in the ULI’s “Reimaging Recovery” series, including a conversation about “Retrofitting Our Urban Region.” “One of the most pressing issues we’re all facing is transit: How do we mobilize employees and get people back to work?” says Ramscar.

LONG-TERM IDEAS For urban-dwelling employees who rely on transit, biking could provide a safer commuting option. In the long-term, increased cycling infrastructure could make it easier for those workers to get to the office.

“It’s still early to talk about large-scale changes to buildings as real estate by its very nature is not flexible as a built form ,” says Ramscar. “It is possible to create amenities in a building that would accommodate bikes, from lockers to bathrooms with showers and many investors and developers have had success in attracting tenants due to these features in new build developments. We have been witnessing an increase in bike locker and shower facilities in recent years and it will be interesting to see if this trend accelerates moving forward with our city’s devel-

FALL/WINTER 2020

opment inventory. However, it is clear in the short-term, we’ll need to consider more practical changes.”

Cycling is just one alternative to public transit that employees may seek out. According to a recent survey by the Chicago Tribune, 28.0% of workers who use public transit to get to work will look for alternative methods.

SHORT-TERM SOLUTIONS “There’s a lot of discussion around practical solutions that can be implemented quickly, without changing the fabric of a building,” says Ramscar. Increased sanitation and mandatory mask policies are one way to make public transit safer for workers. Employers may also consider implementing staggered start times, to reduce the number or employees taking transit at any given time and removing the crush of the traditional rush hour.

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There’s also the question of which employees should return to the office first. “I firmly believe that when leaders come back to the office first, it increases the confidence of other employees, who feel encouraged to do so,” says Ramscar. “But there’s also the question of demographics. It might be, for personal safety reasons, that you see a younger demographic return to the office first, while the older demographic works from home for longer or more often.”

RETHINKING THE COMMUTE Many employers have signaled that the days of the 5-day morning-and-evening commute may be over. In CBRE’s recent 2020 Global Occupier Sentiment Survey, 70.0% of respondents said that some portion of their workforce will be allowed to work remotely full-time, while 61.0% indicated that all employees would be allowed to work remotely some of the time.

This suggests that a hybrid office model will emerge in the coming months, allowing employees to choose where they work and

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when. In a survey of 1,000 U.S. office workers conducted by The Harris Poll and sponsored

by Hana, CBRE’s flexible space solutions platform, up to 58.0% of respondents appreciated not having to commute. That number rose to 70.0% for suburban workers. Considering this, many may choose to commute less often, and during off-peak hours.

“The reality is we are in a fluid situation that requires a thoughtful and practical approach to see us all through safely and effectively,” says Ramscar. “No one has the answers, and everyone has to be mindful of their own idiosyncrasies. We know from our global clients and our own business at CBRE that teamwork and collaboration are essential to a company’s culture and so the office will continue to play a vital part in a company’s success going forward. It comes down to how we facilitate this in the interim.

“At CBRE, we’re looking to create a best-inclass action plan based on the latest available information from our global platform as our clients continue look to us for guidance.”

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HOW ONE CBRE LEADER IS KEEPING CLIENT CONNECTIONS ALIVE DURING COVID-19 Nine months into our collective work-from-home experiment, and most of us are missing the traditional office experience. Ruth Fischer certainly is despite returning for key meetings or as part of staggered rotations of staff. As CBRE’s Managing Director, Client Solutions, and an active leader in the commercial real estate industry, Ruth thrives on human interaction: Office conversation, impromptu meetings and really getting to know clients. And while nothing will replace the energy, buzz and connection of the office, she’s been trying to introduce more spontaneity into her remote communications.

ON WORKING FROM HOME

ON MEANINGFUL COMMUNICATION

ON WORK-LIFE BALANCE

“I have two small children, and a husband who works full time as well, so it hasn’t been without its challenges.

We’re lucky to work in an industry where we can do a lot of what we need to do remotely, but the benefits of an office have never been clearer. I know benefit from the ability to concentrate, the energy I get from being around others, and a comfortable and ergonomic workspace.”

“While a Zoom meeting isn’t the same as a face-to-face conversation, it is still nice to see someone smile. But sometimes, you just need a break from the screen, so I will do calls where I take a walk around the neighbourhood and that’s really nice.”

“What I’ve found during COVID is there’s a lot less balance, because you’re not working from home as much as you’re living at the office. Being on Zoom constantly, being in constant communication – it’s exhausting. And leaves little time for important, headsdown work. I try my best to say yes to important things, and sometimes say no. There are so many online events and learning opportunities right now, which is great, but you can only do so much. You want to avoid death by Zoom meeting.”

ON LEARNING ABOUT COLLEAGUES “One nice thing about this situation is that it’s humanized our colleagues so much more. You get a glimpse into their real lives; you see their kids and their homes. It gives additional dimension to all of us. And I’ve been so glad when people appreciate that my daughter loves joining my Zoom calls.”

FALL/WINTER 2020

ON CONNECTING WITH CLIENTS “It’s harder to get your personality across remotely, and we all know that people “buy” from people they like. Once the subset of people who can credibly do the job has been established, it’s all about who the client gets the best feeling from and who they want to work with.

I’ve tried to be creative where I can.

We had a meet-and-greet with a client the other week and I suggested to the broker that rather than reciting our resumes, we say what our “superpowers” are to introduce ourselves at the beginning of the call.

And we did it, just to introduce a little lightness. We need to look for those informal, creative ways of engaging wherever we can.”

ON TAKING TIME FOR YOURSELF “We’re staying with my family right now, so we’ve got some extra support. It’s made it easier to get some exercise, even if it’s just walking around the neighbourhood. Most importantly, I try to keep in perspective that, in so many ways, we’ve been so very, very lucky. We have our health, and that’s what’s most important.”

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Why HOOPP’s new logistics hub is another vote of confidence for surging industrial real estate As CBRE’s Mitchell Blaine, Kyle Hanna and Luke Slabczynski work with Healthcare of Ontario Pension Plan (HOOPP) to unveil its grand designs for iPort Cambridge, a state-of-the-art logistics and advanced-manufacturing campus to be located in the heart of Waterloo Region, they recognize that it represents a major development in more than one sense.

Blaine and Slabczynki, industrial brokers in CBRE’s Waterloo Region office, are marketing and leasing the project alongside Hanna’s Toronto West Industrial Team. Comprising more than 4.0 million sq. ft. of industrial space across a 300-acre site at full build-out, iPort Cambridge will be among the largest industrial projects ever undertaken in that market. The development will ultimately represent roughly four per cent of Waterloo Region’s total industrial real estate footprint. iPort Cambridge will be the third and latest of HOOPP’s iPort developments in Canada. The pension fund has a campus already under construction in Delta, B.C. and another iPort industrial facility is being upgraded in Caledon, ON. While iPort

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Cambridge will be sizeable, it is a significant development not just owing to the scale of the project. It also represents a resounding vote of confidence from one of Canada’s leading institutional investors in the rapidly evolving and evermore complex e-commerce and logistics market, which has become increasingly important in the wake of COVID-19.

“The pandemic has accelerated the trend of increased e-commerce penetration across the country,” Blaine says. “And this shift in consumer spending patterns is causing a big spike in the demand for industrial space. So the launch of iPort Cambridge really couldn’t come at a better time.”

INDUSTRIAL POWERS AHEAD The industrial asset class has remained exceptionally resilient through the current economic slowdown. While Canada’s major office markets are seeing vacancy rates and subletting activity increase, the nation’s top industrial centres continue to power forward, with new

space coming online to service surging e-commerce demand.

Toronto, Vancouver, Montreal and Waterloo Region all had industrial availability rates below 3.0% in the third quarter of 2020. Toronto’s availability rate remained the lowest amongst the largest markets in North America at 2.0%, even as 2.7 million sq. ft. of new industrial space was delivered with an additional 10.4 million sq. ft. under construction in Toronto, all of which is expected to be leased quickly. Vancouver’s industrial availability rate was 2.8% in the third quarter, down from 2.9% in Q2, as the market took delivery of 804,000 sq. ft. of new industrial space, with 4.3 million sq. ft. under construction.

“The Canadian industrial market hasn’t missed a beat. In fact, it has unprecedented momentum and is truly the rock star of the commercial real estate world right now,” said CBRE Canada’s Vice Chairman Paul Morassutti. “Investors, tenants and developers recognize that e-commerce and logistics demand are here to stay and they’re making big forward-looking industrial commitments.”

CBRE ADVANTAGE MAGAZINE

Given the surge in demand for e-commerce and logistics we’ve seen during these

unprecedentedly challenging times, it’s

a development that is meeting the market

at precisely the right moment.

For its part, Waterloo Region and Southwestern Ontario industrial market have had lots going on of late. Recent large deals in the area by national and global companies have helped solidify the Region as a destination for industrial investment. Amazon is snapping up as much industrial space as it can in the area, with deals for largescale last-mile fulfilment facilities in Cambridge, Kitchener in Hamilton. And the e-commerce giant is under contract for new spaces in a variety of other locations across the GTA. Toyota recently did a deal for a 250,000 sq. ft. industrial facility in Cambridge, just north of the company’s existing manufacturing facility, to service the assembly of a new Lexus line. And PRIMED Medical Products’ announced in August that it would be establishing a new major medical manufacturing facility in Cambridge to produce surgical masks for domestic requirements.

“Industrial real estate is proving to be a bright light in a challenging period,” says Hanna. “We expect demand to grow and for industrial properties to come out ahead in the wake of COVID-19. That’s true for Waterloo Region and for most industrial markets across Canada.”

- Mitchell Blaine, Senior Vice President, CBRE Canada

MUCH-NEEDED INDUSTRIAL SPACE That confident industrial outlook has helped to bolster HOOPP’s decision to move forward with iPort Cambridge, a distribution hub that will be rolled out in several phases over the coming years, with the first 500,000-sq.-ft. building slated for completion in the second quarter of 2022.

The project is positioned to attract both new businesses wanting to relocate to Waterloo Region and existing local companies looking to expand there. It will also cater to industrial users seeking large space requirements but unable to secure them in the Greater Toronto Area. iPort Cambridge will enable large scale industrial users to benefit from the close proximity to a recently widened Highway 401 and the Waterloo International Airport. The campus gives HOOPP the ability to draw a wide variety of larger scale uses to the area and will help to establish Cambridge as a key driver of economic growth and competitiveness for Waterloo Region.

“iPort Cambridge positions the western fringe of the GTA as a destination for future growth and solidifies the Region’s status as a global technology hub and a centre for advanced manufacturing,” says Slabczynski, noting that Waterloo Region was just named the No. 1 up and coming tech employment market in CBRE’s just-released Scoring Tech Talent report.

The Region’s tech labour force grew by a remarkable 51% over the past five years, for a total tech labour pool of 22,400. “iPort Cambridge will provide our thriving region with a much-needed infusion of top-tier industrial space,” Blaine adds. “And given the surge in demand for e-commerce and logistics we’ve seen during these unprecedentedly challenging times, it’s a development that is meeting the market at precisely the right moment.”

194,000 sq. ft.

New Industrial Space Under Construction

1.1 million sq. ft.

Waterloo Region 2.6 million sq. ft.

4.1 million sq. ft.

Vancouver

5.4 million sq. ft.

10 million sq. ft.

Toronto

FALL/WINTER 2020

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Canada Is Tops For Tech Talent Toronto secured the No. 4 spot in CBRE’s new North American Scoring Tech Talent ranking, having added more jobs than any other North American city over the past five years, bested only by the San Francisco Bay Area.

#1

#2

82.56

67.39

SF Bay Area, CA

Washington, D.C.

Vancouver retained its No. 12 spot in the ranking, while Ottawa rose five positions to No. 14, surging ahead of Montreal, which dropped to No. 16. And Calgary made its first-ever appearance, debuting at No. 34.

Canada’s ‘Next 25’ Up and Coming Tech Talent Markets 1

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9

12

15

10

No. 34

Calgary’s position in its Tech Talent ranking debut

WATERLOO REGION Tech talent workforce grew by a whopping 51% between 2013 and 2018.

QUEBEC CITY Tech labour force totals 35,800 workers, bigger than any other market on the Next 25 list.

EDMONTON Tech labour force grew by 17% over the past five years.

HALIFAX Tech degree completions totaled 1,228 in 2018.

WINNIPEG

What CBRE’s market “With Canada making headway in the effort to contain COVID-19 and U.S. visa changes likely to hurt tech talent attraction south of the border, the tech-mentum of Canadian cities is likely sustainable.”

-PAUL MORASSUTTI, VICE CHAIRMAN CBRE CANADA

Saw its tech wages increase 5% over the past five years.

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#3

#4

#5

66.36

64.34

64.01

Seattle, WA

Toronto, ON

New York, NY

1.5%

Tech employment growth in Ottawa over the past 5 years

13,200

66,900

Number of Toronto tech jobs added in the past five years

The total tech talent labour pool in Halifax, which grew 11% in five years

leaders are saying “This is good news.

Period. Calgary constantly talks about diversifying its economy and we’ve proven our ability to compete with world-leading cities in the all-important tech sector.”

-GREG KWONG, CALGARY

FALL/WINTER 2020

“It’s great to get that global recognition after our market retooled seven years ago.

We’ve long known Waterloo Region’s ability to attract tech workers from around the world and produce a steady stream of homegrown talent.”

- TED OVERBAUGH, SOUTHWESTERN ONTARIO

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How the Hub & Spoke Model Could Evolve into the Office of the Future If the past nine months have made anything clear, it’s that workers want more flexibility from their workplace. Whether it’s long commutes, strict dress codes or distance from family, COVID-19- mandated remote work has left many office workers with the same conclusion – the way we work needs to change.

That realization, along with announcements from some of the world’s largest tech companies that they plan to create permanent remote workforces, has led to a flood of headlines about the “death of the office.”

BUT THE REALITY ISN’T SO SIMPLE. While workers appreciate aspects of remote work, the majority still want to work in an office at least some of the time. As the pandemic drags on, the lack of in-person collaboration is starting to wear on workers, whose days are filled with back-to-back Zoom calls.

All of this means that conversations about more widely distributed workforces, that were well underway before COVID-19, have accelerated. Many companies have been in the process of transforming their office portfolios for years. They want to create physical workplaces that act as a silent partner to the company’s brand and culture. These spaces are intended to drive employee connectivity and innovation and are essential to attracting talent.

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CBRE ADVANTAGE MAGAZINE

When we talk about hub-and-spoke during and after COVID-19, I’d call that version 2.0.

- David Cairns, Senior Vice President, CBRE Toronto

This physical workplace is also meant to work handin-hand with the rise of remote work and flexible workspaces. The “hub-and-spoke model,” where companies rely on a central “hub” headquarters for important meetings and events, and a network of smaller regional offices or “spokes” closer to where employees live, was gaining traction well before COVID-19.

Now, it could be time to re-envision the model for a post-pandemic world, pairing employee preference for remote work with flexible physical workplaces that allow them to connect with their colleagues.

THE ORIGINAL HUB & SPOKE “The truth is, big companies have been doing huband-spoke for a while now,” says David Cairns, CBRE Senior Vice President, Office Leasing. He notes that many enterprise companies have downtown headquarters where they host clients and events, in addition to smaller regional offices closer to where their employees live.

With tight office markets in major city centres, the hub-and-spoke model was also cost effective – companies could distribute their employees in less expensive markets, rather than paying a premium for large swathes of pricey downtown space.

Cairns believes that our current notion of hub-andspoke will have to evolve with shifting employee and employer needs after COVID-19. “When we talk about hub-and-spoke in a world during and after COVID-19, I’d call that version 2.0,” he says. “I think it’s fair to say, when you look at the employee surveys that are coming out, people want more choice,” he adds. “They want to be closer to their families, avoid commutes, and work in a less disruptive environment. All of that means the office as we currently think about it will have to change.”

FALL/WINTER 2020

EVOLVING WORKER WANTS Those surveys are painting a clear picture of shifting worker preferences. In a recent poll of more than 2,600 U.S. office workers by San Francisco architecture firm Gensler, only 12.0% said they wanted to work remotely full-time, while 70.0% wanted to return to the office for three days a week or more. A similar survey from flexible space company iQ Offices found that 93.0% of users didn’t want to work from home full-time.

But even though employees value working in the office, they’re increasingly unwilling to give up the benefits of working from home. In a survey of 1,000 U.S. office workers conducted by the Harris Poll and sponsored by Hana, CBRE’s flexible space solutions

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platform, 62.0% appreciated the money they saved working remotely, 58.0% appreciated not having a dress code and 55.0% liked not having to commute.

Those numbers rose starkly for suburban workers, with 70.0% preferring the lack of commute and money saved by working from home. Perhaps most tellingly, before COVID-19, only 37.0% of employees reported wanting flexible work benefits. Now, that number has risen to 56.0%.

“People are asking themselves, why do I go into the office every day? Why do I structure my time this way?” says Cairns. “You can’t throw away the shared human experience of going into the office, and people don’t want to work remotely all of the time. But more flexibility is needed.”

HUB & SPOKE 2.0 In a world of “hub-and-spoke 2.0,” the physical office becomes a critical component of a hybrid workplace, acting as the central nervous system for a more widely distributed network of employees.

Employees can spend days that require more headdown work at home, adding to their sense of work-life balance and removing unnecessary distractions. Still, a network that is simply a single central office and employees’ own homes won’t necessarily be enough. “To me, flexible space providers will be the partner in a new vision of the hub-and-spoke model,” says Cairns.

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He isn’t alone in this thinking. In May, IWG PLC, the U.K.-based company behind flexible space brands Regus and Spaces, announced plans to raise a $390 million stock offering, in order to increase its already sizeable office space footprint. “The office is not going away. It is changing,” IWG CEO Mark Dixon said in a recent interview with Fortune Magazine. “The workplace [will become a] hybrid.

People can work from home, and people have been doing that. They will work from offices near where they live, and then they go to the headquarters to do important stuff: meet, collaborate, new ideas, business review, the stuff you need to do face-to-face.”

Those “offices near where they live” could very well be flexible space offerings, either from big players like IWG or smaller boutique offerings. “I can see a future where we have street front level, neighbourhood-centric flexible space, bookable by the minute,” says Cairns. “This is space where people can have meetings, collaborate, and just get out of the house and into an office environment. It’s for people like me who don’t want to go all the way down to a downtown office most of the time.”

He adds that local spaces will give employees opportunities to meet customers and clients where they are, which can be difficult in a centralized downtown office. “Right now, companies haven’t been able to lease space in a way that best fits their needs,” says Cairns. “So in the coming months and years, we’re going to see these flexible space offerings catch up with what companies actually want.”

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CRE BY THE NUMBERS 76,200 WORKERS

2.7 M SQ. FT.

Ottawa’s total tech talent labour pool, the highest concentration in North America. The capital leapfrogged Montreal to take No. 12 spot in the continental tech talent list.

Total new industrial space delivered in Toronto in the third quarter, with an additional 10.4 million sq. ft. under construction. Vancouver took delivery of 804,000 sq. ft. of new industrial space in Q3, with 4.3 million sq. ft. under construction.

51% How much Waterloo Region’s tech talent labour force grew in five years, for 22,400 workers, placing it atop the list of ‘Next 25’ up and coming Tech Talent markets to watch.

$1.6 B What CBRE Caledon Capital Management paid for a minority stake in a new platform with 12 Vantage Data Centers, a signal of confidence in this rapidly growing sector. Markham is a data center epicenter, with a recent upgrade of a whopping 4.5MW of cloud hosting power there.

4% How much the Bank of Canada expects Canada’s economy to grow in 2021 and 2022, following a decline of 5 ½ per cent in 2020.

38.0% How many respondents out of 1,000 surveyed

by CBRE reported missing random interactions with office colleagues, while 33.0% missed in-person meetings and 32.0% missed in-person collaboration.

22.1 M SQ. FT.

56.0%

The amount of industrial space that CBRE is forecasting to be absorbed across Canada by 2023; before COVID the projected absorption was 12,570,00 – that’s a difference of +9.5 million sq, ft.!

How many employees surveyed want flexible work benefits in the wake of COVID, versus 37% prior to the pandemic.

FALL/WINTER 2020

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Data Centres Have All The Power Right Now Data centres are the darlings of the commercial real estate investment world right now.

That’s certainly not news to David Cervantes, CBRE’s Montreal-based Senior Vice President who runs the company’s Canadian data centre business along with his colleague Vice President Scott Harper in Toronto. Both men have spent the last eight years building the data centres business into a growing revenue generator.

Harper notes that the inventory of modern data centres in Canada is more than doubling every year.

Sure, industrial is doing well at the moment, as e-commerce surges amid the pandemic. But the smart money is focused intently on data centres. “Since COVID, many articles have been written on the stability and protection that the industrial market offers,” says Cervantes. “But data centres are actually outpacing the industrial sector in most metrics. REIT performance has been very strong in this space,

and asset class allocations are scaling upwards among the large investor groups.”

Harper estimates that while the office, industrial and retail REITs saw between 30 to 40% of their value carved off when COVID hit, investment in data centres was up 7.0% in the second quarter of 2020. “As COVID drove traditionally focused REIT values down,” he says, “capital went looking for more fertile fields.”

The COVID-triggered rise in e-commerce traffic created a small increase in retail data. But the more direct driving force for the data centre sector, according to Cervantes, is actually consumer demand for media. “The recent and rampant takedown of data centre space by TikTok, by example, has been the talk of our industry” he says.

“It’s all about eyeballs and usage rates—it’s the next apps and platforms that deliver media to people and phones in our pockets that drive data centre demand.”

Data centres are counter-cyclical by nature, so, as was the case during the Global

Financial Crisis of 2008, there has been a flight to data centres by the major institutional investors in the wake of COVID. “The secret is out and institutions of all types are investing in this space and projects are becoming very large,” says Cervantes. “These days even a small data centre costs more than $100 million, so cost of capital is the game, and this space is a safe place for it to camp.”

BIG DEALS CBRE Caledon Capital Management Inc. just acquired a minority stake in a new platform with 12 Vantage Data Centers.

“When we look at the digital infrastructure sector, what we see is revenue that’s based on data growth,” CBRE Caledon’s Stephen Dowd said in announcing the deal. “Data growth is uncorrelated with economic cycles, which has been an especially strong point this year.”

Earlier in the year, Compass Datacenters purchased land for its first Toronto

There’s very little risk from investing in data centres. Instead of doing nine transactions to get to $500 million you can do one real estate deal. It becomes an efficient deployment of capital.

- Scott Harper, Vice President, CBRE Toronto

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soft, IBM, Amazon, Google and Oracle. In the process of exploring secondary markets, like Canada, they are chasing higher yields than may be found in America.

For his part, Harper is in the midst of a $45-million sale of an existing data centre, to international interests, and he points to a number of other capital market transactions in Toronto in recent months, including an increasingly scarce brownfield conversion (the bulk of new data centre projects are new greenfield developments, to meet global standards), as well as several mergers and acquisitions.

“PAY WHAT THEY HAVE TO”

campus, in Etobicoke, with the initial building—a $100.0 million investment— expected to be completed in Q3 of this year.

“Our customers see Toronto as an emerging, important hyper-scale market,” said AJ Byers, President, International of Compass Datacenters. “Toronto is the latest step in our effort to expand in key markets across North America,” added Compass’ CEO and industry visionary Chris Crosby.

Harper notes that these firms could be motivated in part by the highly publicized plans by Canada’s major telcos, Rogers and Bell, to expand to 5G networks, which will cost upwards of $7.0 billion. “Then we’ll see an expansion of the data centre footprint for that,” he says. “So that’s going to be a considerable factor.”

It’s not only domestic investors excited about Canadian data centres. Along with other cheaper-power markets such as Sweden and even Iceland, Canada has become a popular destination for global investors as they pursue cloud providers like Micro-

For a decade now, Quebec has become the destination of choice for large or “hyper-scale” data centre deployments, owing to the province’s inexpensive and renewable power. But data centre developers, providers and investors have now grown “agnostic to power costs,” says Harper.

Large cloud operators, the so-called hyper-scalers, are growing at a dizzying pace in order to meet cloud demands, and that means they need to be right where their clients are—Toronto. “They have no choice. That’s the cost of doing business.”

Data centres are the most expensive and complicated of all asset classes to build, Harper explains, because they require twice the infrastructure — all the electrical lines and transformers must be doubled up, for back up. “So say a trophy real estate asset is $450 per square foot to build. Well, a data centre is the building plus all the infrastructure, so it’s closer to $1,200 per square foot.”

Large pension funds and well-capitalized investor groups fit hand-and-glove with data centres as an asset class; They’re able to disperse tremendous amounts of capital in a single transaction, backed by some of the best covenants on the planet, like Microsoft, IBM, Amazon, Google and Oracle.

These wholesale data centre groups can be considered the “Walmarts” of cloud services, a reflection of their dominance, as they represent as much as 75% of current global demand with the other 25% being comprised of “everybody else”, namely thousands of enterprises and firms such as high-frequency traders, retailers, film and game designers, to name only a few.

“There’s very little risk from investing in data centres,” says Harper. “Instead of doing nine transactions to get to $500 million you can do one real estate deal. It becomes an efficient deployment of capital and still offers healthy returns. That’s why the largest players in the capitalization of real estate around the world, are all looking at these deals.”

Data centre deals are typically for 10 or 15 years, as well, which, coupled with AAA covenants, means that “once they’re in there they’re not likely to leave,” says Cervantes. “The asset is very sticky.”

Not surprisingly, new players are seeking to enter the data centre space but it’s not simple, cautions Harper. “There is more capital chasing data centres today than five months ago, but it’s challenging to get into the business. If you’ve never operated a data centre, then a huge enterprise group is not going to trust you…

So the barriers to entry in the data centres world are massive.”

CBRE works closely with the developers who build data centres for the large global end users, and Cervantes knows quite well that these trillion-dollar firms have limited time and patience for smaller-scale data centre operators. “The big players are looking for a safe and consistent partner when they expand within new markets such as Canada.”

It’s all about eyeballs and usage rates—it’s the next apps and platforms that deliver media to people and phones in our pockets that drive data centre demand in our market.

- David Cervantes, Senior Vice President, CBRE Montreal

FALL/WINTER 2020

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How COVID-19 Impacted Canada’s Downtown Cores, and What Comes Next When Canada went into lockdown in March, once-bustling urban centres were left virtually deserted as the populace sheltered in place.

That includes Naz Ali, who heads up CBRE Canada’s Location Analytics and Mapping platform and manages Geographic Information Systems (GIS) for the company. Born in Fiji, this longtime Vancouver resident has a world view and love of data that is empowering clients. Part of her job involves using mobility data to decipher and display human traffic patterns.

If you’re a retailer wanting to know where to locate a store that will attract your target customers, this information is invaluable and can be displayed in a variety of insightful ways, including heat maps.

Heat maps show traffic dynamics through the use of colour—a redder, more saturated spot could indicate dense population, educational attainment or, as we’re all too familiar with today, COVID-19 cases.

Heat maps enable CBRE sales professionals to sharpen their insights and provide more precise real estate guidance than

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ever. The trick, says Ali, is making sense of a ton of variable and different considerations. “We’re most helpful and successful when we come up with a story to tell from the data,” says Ali.

ILLUSTRATING COVID’S IMPACT As she sat quarantined in her Vancouver condo, with the economy frozen and the streets around her empty, Ali had a bold idea: how about creating a heat map that compares foot traffic levels in the downtowns of Canada’s three biggest cities before and after the lockdown went into effect.

She launched into action, pulling foot-traffic data from mobile devices that had been pinged by third-party tracking apps at Dundas Square in Toronto, Robson Street in Vancouver and Ste-Catherine Street in Montreal between January 1 and May 31, 2020. (Not all of the device data is made available for analysis purposes; just a sampling of five to 10% of the total traffic recorded by the third-party tracking apps.)

Ali took this information and indexed it to 2019 traffic patterns, creating a baseline of 100 devices. In Toronto, Dundas Square foot traffic was at just under 140 devices on March 11, the day before the World Health Organization declared COVID-19 a global pandemic. From that point on, things took a precipitous plunge, bottoming out at under 20 devices in mid-April before slowly inching back up in May as some re-opening occurred.

When the data was plugged into a heat map, the results were as eye-catching as they were intriguing: a series of animated GIFs of those heat maps showed in stark relief just how dramatically traffic had fallen off in those urban nodes after quarantine went into effect, with thick splotches of dark red turning dark blue and cold post-quarantine. (See page 19 for the heat maps.) Montreal’s traffic decreased most sharply, by 88%, while Toronto’s dropped by 84% and Vancouver’s by 74%. “It was interesting to see how there was gradual but almost immediate change in foot traffic in those major cores,” says Ali.

CBRE ADVANTAGE MAGAZINE

Vancouver

ROBSON AND THURLOW ST Robson St is one of Vancouver’s premier shopping destinations. From January 1 to March 12, the area saw thousands of visitors a day. As of March 12, that began to fall. From March 21 to May 31 the area saw foot traffic decrease by 71%.

Toronto

YONGE-DUNDAS SQUARE Nestled between the Eaton Centre, one of the city’s most popular movie theatres and Yonge St shopping, Yonge-Dundas Square is reliably one of Toronto’s busiest intersections.

Or at least, it was. From the beginning of the year to March 1, the square saw thousands of visitors per day, flowing through the intersection of Yonge and Dundas and making their way to events in the public square.

Those numbers started to fall on March 12 and have stayed at record lows ever since.

From March 21 to May 31, there was a 84% decrease in foot traffic.

Montreal

RUE SAINTE-CATHERINE SHOPPING DISTRICT Montreal’s Rue Sainte-Catherine Shopping District had high levels of foot traffic from January 1 to March 12, 2020. The map shows an area defined by dense traffic, almost completely red.

From March 21 to May 31, foot traffic dropped a whopping 88%.

FALL/WINTER 2020

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A VISUAL JOURNEY CBRE has taken a big step forward on real estate strategy by incorporating Geographic Information Systems into client work.

GIS-driven applications give CBRE sales professionals a powerful tool to turn mobility data into compelling visual stories. This can help to identify otherwise unseen patterns in the data, transforming how clients select office, retail, and industrial sites.

“The right location is critical and this brings the location story to life,” says Ali. “It takes you on a visual journey.”

The platform can reveal much about customer behaviour at a shopping centre; for example: which types of stores are the most visited at certain times of the day/week, where customers are coming from, and where they’re going once they leave the store.

As such, GIS intelligence can reshape a retailer’s merchandise mix or the lineup of vendors in a shopping centre.

How GIS is giving CBRE a competitive advantage Ali’s team recently did a deep-dive analysis for a national restaurant chain that wanted to better understand its customer patterns. Using the company’s Vancouver and Toronto location data for reference, the CBRE GIS-based analysis was able to show the client where people are coming from for lunch, dinner and happy hour, where they were 30 minutes before, and 30 minutes after. “It enabled us to create a custom trade area for that restaurant which could be replicated for future locations. In the past, restaurants would have been making their best guesses, but this makes a science of it,” Ali says.

She then took an even deeper dive, using consumer segmentation data to show where people living in that target trade area liked to vacation and what kind of cars they liked to drive.

“For one location,” says Ali, “we were able to tell a client that their customers actually liked wine, not beer. That’s a potential menu adjustment that saves money and generates revenue at the same time.”

GIS analysis will be at the forefront of identifying trends and helping our clients stay on top of them.

- Naz Ali, GIS Manager, CBRE Canada

ENHANCING SITE SELECTION Her team was called upon recently to assist a CBRE client who was contemplating sites for a new industrial property. The client supplied her with employee postal codes and wanted to know which locations would still be accessible to the company’s potential labour pool. CBRE created an interactive map that enabled the client to pick various locations and see the average commute times, distance, and costs for their workforce to reach each site.

This data was then incorporated into a labour force heat map to create a breakdown of the age groups in the area. The client could see if those living in their target regions were employed in construction and warehousing and if they had college-level educations. “It enabled them to understand and make a decision about where the best location would be for them to expand to,” says Ali. Now, as Canadian cities transition out of quarantine, Ali wants to undertake new analysis to determine how the re-opening of economies is evolving how consumer habits in Toronto, Montreal and Vancouver change in the wake of the pandemic. “It will be interesting to do a follow up for those areas to see what’s changed with the increases in mobility,” she says. “There’s a sense that everyone wants to go back to normal, but the longer this goes on the more likely we are to see habits become ingrained.”

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CBRE ADVANTAGE MAGAZINE

HOW THIS BROKER’S MINDSET AND APPROACH HAVE CHANGED SINCE COVID-19 We’ve all heard about the importance of communication during the COVID-19 pandemic. But one broker is taking the concept to a whole new level.

Shortly after lockdown began, CBRE’s Kevin Nelson put out an open call to his fellow brokers – he wanted anyone who was struggling with the new normal to reach out. Within hours, he received dozens of calls from across the country.

Kevin has worked in Vancouver commercial real estate for well over a decade and has built a reputation as a broker with unmatched market knowledge. Now, he’s approaching his work differently, by building relationships across Canada. Here’s how he’s doing it.

ON COMMUNICATION “I’ve been reaching out to new faces across the CBRE platform, asking how people are doing and how they’re approaching their work in this time. It helps to know you’re not in it alone.

It’s a great time to make new friends and get to know the CBRE network. I’m always asking myself, what can I learn from this person? What insights can I gain from their market, and what’s happening there?”

ON ADJUSTING TO THE NEW NORMAL “I think what a lot of us have found is that it’s a chance to reconnect and spend time with family. Even simple adventures, like doing an activity outside together, are so much more satisfying than they might have been a few weeks ago.”

ON CLIENT CONVERSATIONS

“I’m setting up calls across the country, especially in our eastern markets, building my morning so that it’s full of conversations.”

“Initially, client conversations were all about our shared experiences, just connecting and commiserating. These days, we’re discussing what it’s like to go back to work. CBRE is a leader in reopening the workplace, so it’s interesting to discuss different ideas and concepts with clients.”

ON SETTING NEW GOALS

ON CONNECTION

“I had to sit myself down and divorce myself of my old goals. We’re in an unprecedented situation, and we have to let ourselves off the hook a little bit. Now I’m asking myself, what am I tackling today? What can accomplish today? That mental shift, and freeing myself from past expectations, has been huge.”

“I turned 50 earlier this year, and I thought it was going to be a total bust.

In the end, I owed about 90 people thank-yous. Instead of getting texts and emails, I was talking to people for hours on Zoom. It ended up being a really meaningful experience.

ON BUILDING MOTIVATION

FALL/WINTER 2020

ON FINDING BALANCE “I’m a person who likes to break a sweat five times a week, so I’ve maintained that by going out for regular runs and bike rides or hitting the trails with my family.”

ON NEW HABITS THAT WORK “I think I will definitely keep up my new level of connection even when the pandemic is over. I thought I was connected before, because I knew a few people in every market. But during this time, I’ve widened out those networks, deepened my relationships and I’ve really seen the benefit of that.”

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