Atlantic Canada Real Estate Roundtable Insights

Atlantic Canada Real Estate

ROUNDTABLE INSIGHTS PUBLISHED: JANUARY 2017

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KEY TRENDS Over the past six to twelve months some important trends have emerged that are driving real estate discussions in boardrooms across the region: GROWING TECH INDUSTRY IN ATLANTIC CANADA: »» Based on the availability of talent, universities and housing affordability.

INFRASTRUCTURE SPENDING: »» Recently announced by the federal Liberals, spending is expected to be within the range of $120 million.

Questions remain on what will be the continued benefit to the region.

E-COMMERCE CONTINUES: »» An exponential growth trajectory for online retail spending will have a major demand impact on the structural make up of industrial, retail and space design markets.

MAJOR PROJECTS: »» With over $1.25 billion in investments approved or in the pipeline for major trans-formative projects across the Atlantic Region from the Energy East Pipeline to the Irving National Shipbuilding Project to the Emera Maritime Link, these projects will influence and drive economic growth in the region and change the overall landscape and improve economic market fundamentals.

FIG 1: Atlantic Canada Mega Projects 8 9 10

Atlantic Canada Mega Projects Total $125B

11 12

DEMOGRAPHICS SHIFTS: »» Changing demographics will continue to impact design on urban assets, specifically multi-residential properties. ▶▶ Millennials postpone homeownership and take up residence beside Baby Boomers who are now moving out of the large suburban family homes and into amenity rich urban condos and apartments. ▶▶ Immigrants and refugees also continue to influence the location, type and size of dwellings popping up in cities across the region.

7

1 4 2

13

6 5

Some projects include:

Halifax

3

1. Proposed Energy East Oil Pipeline . . . . . $4B 2. Irving National Shipbuilding Project . . $29.7B 3. NS Offshore Exploration (Shell & BP) . . . $2B 4. LNG Export Facility (Pieradae Energy) . . . $7B 5. LNG Export Facility (H-Energy) . . . . . $3.5-7B 6. Bear Head LNG Project . . . . . . . . . . . . $4.3B 7. Emera Maritime Link . . . . . . . . . . . . . . $1.6B 8. Labrador Iron Ore . . . . . . . . . . . . . . . . $6.8B 9. Voisey’s Bay Underground Mine . . . . . . .$2B 10. Muskrat Falls Hydro . . . . . . . . . . . . . $9.1B 11. Hebron Oil Field . . . . . . . . . . . . . . . . $14B 12. Other NF Offshore Projects . . . . . . . $10B+ 13. Long Harbour Nickel Plant . . . . . . . . . $4.3B Source: Halifax Gateway

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

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OPPORTUNITIES Among the many trends are opportunities to develop the Atlantic Canadian region into a sophisticated and modern market.

TECHNOLOGY: »» New Technology Story ▶▶ Part of what will fuel the Atlantic economy will be new technology companies growing within Atlantic Canada: • Many of our high growth tech companies are focused on data mining and analytics, risk assessment and mitigation and smart infrastructure development.

»» Technology for Infrastructure ▶▶ A major rethink of the Port of Halifax is being discussed: • The two container cargo terminals at the port, The Fairview Cove Terminal and South End Terminal, are talking about a merger, or at least a partnership.

▶▶ Contemplations include location and overall strategic plan changes: • There has been some speculation of a possible relocation. The Port of Halifax has confirmed that it’s looking at relocating a container terminal across to the Dartmouth side of the harbor, but for now it remains only a possibility.

• Port Saint John, NB is poised to undertake a seven-year $205 million terminal modernization project at its container terminal starting in 2017.

»» Regional Universities ▶▶ Universities are driving partnerships with key technology companies and organizations: • Tesla has entered into a five year partnership with Dalhousie University to increase the energy density and lifetime of Li-ion batteries.

• Dalhousie was selected to participate in the MIT Regional Entrepreneurship Acceleration Program (REAP). Participating regions work with MIT experts and others in their region to develop custom strategies to address economic challenges.

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

• Siemens, NB Power and University of New Brunswick have launched the Smart Grid Innovation Network (SGIN). SGIN allow businesses to design, develop and test smart grid related products and services, and allow them to evolve their product or service to the next level of ‘smart’ so it can communicate with other products and the electrical grid.

• Memorial University’s Genesis Center, an incubator for tech startups, has developed a partnership with Toronto’s innovation hub, MaRS Discovery District that focused on entrepreneurial leadership and culture. The program is open to start-ups and entrepreneurs, as well as corporations, educators, students and government agencies.

▶▶ The technology industry is being driven by the availability of talent through regional universities across the region: • Universities across New Brunswick, Prince Edward Island and Nova Scotia have over 2,000 students a year graduate with undergraduate and graduate degrees from mathematics, computer and information sciences and architecture, engineering and related technologies programs.

• In a recent study on graduates, 82% said that they would remain in their province of study if an attractive job offer was available.

»» Emerging Technology Associated With Smart Buildings/Smart Grids ▶▶ Halifax-based SkySquirrel Technologies offers smart agriculture-focused platforms to monitor crop health, attracting the attention of Vineyard industry veterans in North America and Europe. ▶▶ Smart Skin Technologies based out of Fredericton won the World Beverage Innovation Award in the category “Best manufacturing or processing innovation” for the Quanti feel Line Map.▶

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▶▶ ViTrak Systems Inc. is a PEI-based maker of patented pressure sensitive electronic flooring systems. ViTrak has been awarded a contract from the Canadian Federal Government to supply its Stepscan® gait analysis system to three Canadian hospitals.

»» Ocean Technology ▶▶ With an estimated $350 million in annual sales in Atlantic Canada, the ocean sector advancements have enormous potential to grow the economic sector across the region. The ocean technology sector includes products and services. The range of offerings includes: • • • • • • •

Acoustic systems and equipment, Defense systems and equipment, Imaging systems and equipment, Instrumentation and information systems, Marine communications, Navigation, and Platforms and vehicles.

▶▶ The ocean frontier sector and new exosystems will open doors and allow for increased spending, capacity and growth: • Ottawa announced in September 2016 that it would invest $93.7 million on ocean research centre headquartered in Halifax. The new Ocean Frontier Institute (OFI) will allow Dalhousie to join with Memorial University in Newfoundland and Labrador and the University of P.E.I., along with eight international institutes.

• The Research & Development Corporation (RDC) is investing more than $5.3 million into research and development (R&D) projects at Memorial University of Newfoundland in areas relevant to offshore petroleum, ocean technology, healthcare, aquaculture and other natural resource industries.

rate of 14.5% and with an additional 420,000 sf of new supply expected within the next year; older underperforming buildings will struggle to remain viable and investable if they can’t refurbish themselves into a new utility.

HALIFAX’S PORT DEMANDS ARE CHANGING: »» Master Planning for the Future ▶▶ The Halifax Port Authority has commenced a significant master planning exercise to prepare for the arrival of ‘ultra-class’ containerized vessels of over 10,000 TEU; Halifax has been preparing for the arrival of these ultra-class vessels that can carry 10,000 such containers. The plan involves adding capacity to berth and service two ultraclass vessels simultaneously. ▶▶ Additionally the master planning exercise will provide capacity to adjust to the large scale industrial mega projects within the region, increasing larger cruise vessels; and how the Halifax Seaport District can complement the urban growth and revitalization currently underway in downtown Halifax and Dartmouth.

SUSTAINABILITY: »» Growing Demand for Green ▶▶ Energy efficient buildings (Office, and Multiresidential) continue to dominate tenant discussions and construction agendas. ▶▶ The prominence of LEED and other benchmarking systems have become normalized expectations.▶

REPURPOSING AGING ASSETS: »» New Supply Pressure ▶▶ As the new supply of space hits the market, older buildings are forced to either cut rates or redevelop. Proof of this can be seen across the region’s major cities where some buildings are redeveloped from office space to multi-residential and vice versa. ▶▶ In cities such as Halifax where vacant office space now sits at 1.8 million square feet with a vacancy

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

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RISKS Despite the opportunities, it is important to recognize the risks to realizing these opportunities, and seek to address and mitigate potential threats for success GOVERNMENTAL POLICY

SUSTAINABILITY

»» Government red-tape remains a region wide concern, and although progress is being made through the development of regional planning guidelines, overall the lack of policy focus and coordination continue to frustrate many developers and architectural professionals.

»» Carbon Footprint management has the potential to greatly impact the industry.

ATTRACTING TALENT TO THE INDUSTRY »» Recruiting and attracting new talent to the industry has been top of mind for the last ten to fifteen years, and as an industry we need to get a better handle on how to recruit into the industry and retain young professionals through mentoring and proper succession planning.

»» The federal and provincial government’s plans to implement carbon pricing and cap and trade programs will mean potentially additional needed resources (financial human and technological) to adhere to the new guidelines. »» Tenants demand to better manage carbon footprints are growing.

»»

RETAIL TRENDS »» Retail shopping centres are fundamentally changing. »» Today there is less traffic to the actual centers across the region. »» Consumers are increasingly focusing on pricing and overall experience within the retail space. »» Restaurants within centers are now outpacing grocery store sales in select markets.

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

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REAL ESTATE IMPACT OFFICE »» Workspace design and innovation influence how people like to work; the move has been from individual centered spaces to open collaborative and social spaces. »» Catering to talent and their desires for open collaborative spaces and buildings that provide a wide range of amenities from restaurants, to fitness centres, to retail. »» Increased interest from occupiers in the WELL Building standards addressing how their leased space impact employee health and well-being. »» Real Estate has become a central part of company branding.

FIG 2: Vacant Space Downtown and Suburban with Overall Vacancy Rate 1,400,000

20.0% 18.0%

1,200,000

16.0% 1,000,000

14.0% 12.0%

800,000

10.0% 600,000

8.0% 6.0%

400,000

4.0% 200,000

2.0%

0

0.0%

Suburban Inventory

Downtown

vacancy rate

MULTI-RESIDENTIAL »» Demographic Shift: ▶▶ The demand for rentals over ownership has begun to increase especially in the urban areas as Baby boomers cash in their nest eggs and rent rather than own.

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

▶▶ Additionally, younger people just starting out find ownership out of reach or undesirable with implications that follow: • The number of rental units under construction in Halifax has jumped 78% between 2014 and 2016.

• Absorption of Single Family homes continued to plummet in Halifax and in 2016 is estimated to be 39% below the ten year average.

• In Halifax the Downtown remained the hot bed of multi-residential activity in 2016 there was approximately 1,000-1,100 units built vs 450-650 units in the remainder of the city. Compared to: • Moncton is estimated to add approximately 170 units in 2016, • St. John’s 180 and 200 Multi-residential starts, and • Saint John’s 70-90 units.

»» With the changing demographic comes a change in consumer behaviors and their expectations and demands for amenities. »» What is the tipping point in terms of supply and demand for new purpose built apartments? ▶▶ Focused on tenant retention; the established firms who have built their business here in Atlantic Canada need to widen their attention now to include succession planning through the development and mentorship of new producers, brokers and agents to carry on their legacy. This includes re-evaluating the workplace needs of the millennial generation and creating an environment for them to thrive. Some firms have begun to engage with local University programs and participate in internships while others have focused on the development of sales trainee programs that provide guided mentorship. ▶ ▶ ▶

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▶▶ Managing housing affordability; one of the most attractive features of the Atlantic Region is quality of life and affordability, but with cranes across the downtown skies, the growing demand v for new high quality space has pushed up housing prices and down affordability:

FIG 3: 2016 Apartment starts Total forecast: 1,500-1,750 units

Bedford/Sackville 100-200

• Average rent for a two bedroom apartment built after 2005:▶ 2015

2016

CHANGE

HALIFAX

$1,427

$1,442

1.1%

MONCTON

$904

$967

7.00%

ST. JOHN’S

$1,539

$1,536

-0.2%

$1,031

5.5%

CHARLOTTETOWN $977

Halifax Mainland 50-100

Source: CMHC 2016

• Developers are keeping this in mind as they evaluate their building material options to help keep building affordability within the markets means. ▶ Governments across all four Atlantic Provinces have mentioned that within their first two tiers of priorities is managing housing affordability but with the dreaded rent control policy still lurking in the backs of many government officials minds, finding a palatable solutions seems politically

Dartmouth 230-350

Halifax Peninsula 1000-1100

Source: CBRE Limited

unattractive.

FIG 4: Rental units under construction Halifax Regional Municipality

FIG 6: Rental demand outstripping supply 2000

5%

1600

4%

1200

3%

800

2%

400

1%

5,000

4,000

78% INCREASE 3,000

Units

3,145 CBRE

2,000

1,768 1,000

0

0% 2014

2015

0

2013

2014

2015

2016 (f)

Units

2016 YTD

Source: CMHC Portal

2017 (f)

Vacancy Source: CMHC Market Outlook Q4, 2016 and CBRE Research, 2016

FIG 7: Rental growth - slow and steady Multi-residential, HRM

FIG 5: Young “and totally not buying a house”

$1,200

140

$1,150

120

$1,150 $1,110

100 $1,100

$1,075

80

$1,048

$1,050

60

39%

40 20

$1,005

$1,000

$976

3.5% increase per annum

$950

0

$900

Single Family

Average

$850

Linear (Single Family)

2013

Source: CMHC Portal, 2016

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

2014

2015

2016 (f)

2017 (f)

2018 (f)

Source: CMHC Housing Market Outlook, 2016

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REAL ESTATE IMPACT

CONTINUED

INDUSTRIAL

TECHNOLOGY

»» E-commerce continues to drive demand for warehouse space, and ceiling height especially in a hub like Moncton, New Brunswick as companies involved in online shopping look to get product to customers sooner and faster.

»» Self-driving cars present an interesting development in the changing face of retail in Atlantic Canada and how it will fully impact the market is yet unclear however the potential is undeniable.

Simply seeing how Uber and car share have changed the market of how people get around in tandem and how drones are poised to interrupt the delivery market, mean it’s only a matter of time before the self-driving car phenomenon is seen.

»» Move to increase distribution centres (albeit smaller) in strategic locations to support consumer demand for next day/ same day delivery from e-commerce retail.

FIG 8: Halifax industrial availability rate 2006 to 2016 (TYD) 12.0% 11.1% 10.0%

8.0%

6.0%

4.0%

2.0%

0.0% Year-End Year-End Year-End Year-End Year-End Year-End Year-End Year-End Year-End Year-End Q3 2016 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Availability Rate

Linear (Availability Rate)

Source: CMHC Portal

CONTACTS Chris Carter

Raymond Wong

Canadian Real Estate Forums

Vice President, Halifax, CBRE Limited

Director of Research, Canada, CBRE Limited

General Information

chris.carter@cbre.com +1 (902) 492-2085

raymond.wong@cbre.com +1 416 815 2353

events@informacanada.com +1 416 512 3807 or +1 800 660 7083

You can hear more about all these facts and impacts at the Atlantic Real Estate Forum on June 1, 2017 in Halifax

ROUNDTABLE INSIGHTS: 2016/17 Atlantic Canada Real Estate

A COLLABORATION BETWEEN Canadian Real Estate Forums & CBRE Limited