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VOL. 33 NO. 3

JULY/AUGUST 2018

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TEL: (416) 512-8186 • FAX: (416) 512-8344 Published and printed six times yearly as follows: March, April/May, June, Aug/Sept, Oct, Nov/Dec by MediaEdge Communications Inc. 5255 Yonge St., Suite 1000, Toronto, Ontario M2N 6P4 (416) 512-8186 Fax: (416) 512-8344 e-mail: circulation@mediaedge.ca Subscription Rates: Canada: 1 year, $60*; 2 years, $110* Single Copy Sales: Canada: $12* Outside Canada: US 1 year, $85 International $110 *Plus applicable taxes Reprints: Requests for permission to reprint any portion of this magazine should be sent to info@mediaedge.ca. Copyright 2018 Canada Post Canadian Publications Mail Sales Product Agreement No. 40063056 ISSN 0834-3357

editor’snote THE INSCRUTABLE HUMAN psyche is a perennial theme of literature, a recurrent inspiration for pop songs and the thrust for innumerable seekers looking to find themselves. More recently, though, it emerges that we're really not so mysterious. Humans may struggle to truly know one another, but algorithms have us nailed. Our daily choices, when monitored over time from myriad vantage points, reveal behaviours and inclinations of which we may not be fully aware. Big data's reach to amass and quickly analyze thousands, or hundreds of thousands, of individual sources of such information can paint a larger building-scale, community or societal picture. At the same time, other technologies are poised to respond to these gleanings — to adjust room temperature and ventilation, market products or even present a favourable candidate. As one of the Smart Environments focus stories in this issue notes, an evolution is in progress "from technology-literate people to people-literate technology". Proptech enthusiasts generally consider that to be more promising than creepy. Like commercial real estate itself, the term, proptech, encompasses a range of disciplines — valuation, leasing, project management, building operations — now applying technology to work more efficiently, use fewer resources and/or enable the highest and best use of human skills. Developers and the many public interest groups brainstorming on housing issues are also advocating for artificial intelligence applications that could streamline the planning and development approvals process. For research, valuation and leasing oversight, industry practitioners are embracing technology that can quickly accomplish detail-oriented but relatively rote tasks — relieving them of what Colin Johnston of Altus Group defines as "low-value busy work". Yet, they caution that data analytics must drill deeper and cover more territory before it can be trusted to draw more nuanced conclusions. "The application of artificial intelligence to what we do is still challenging," CBRE's Paul Morassutti mused during a panel discussion in Toronto last spring. "Until the data piece gets figured out, I'm not sure it's going to evolve in the way the financial management industry did where an algorithm can do the job of a 100 managers." We report further on that discussion in this issue. Turning to smart building operations, JLL's Jiri Skopek optimistically outlines the possibilities for deep energy retrofits with convincing returns on investment. Sheila Hayter, the newly installed 2018-19 president of ASHRAE similarly shares her vision of the innovation that's coming with a 21st century smart electricity grid. Shifting back to human productivity, Keith Major looks at workplace wellness and the role building amenities can play in supporting employees and employers. Rebecca Melnyk reports on a rarer office building amenity — childcare space.

Barbara Carss barbc@mediaedge.ca @BarbaraCarss

Authors: Canadian Property Management Magazine accepts unsolicited query letters and article suggestions. Manufacturers: Those wishing to have their products reviewed should contact the publisher or send information to the attention of the editor. Sworn Statement of Circulation: Available from the publisher upon written request. Although Canadian Property Management makes every effort to ensure the accuracy of the information published, we cannot be held liable for any errors or omissions, however caused. Printed in Canada

Canadian Property Management | July/August 2018 3

contents

Focus: Capital Planning, Investment and Upgrades 6

Deep Energy Retrofits: Smart technology is an enabler of greenhouse gas reduction.

8

Proptech Primed: Commercial real estate's fintech equivalent is tagged as dramatic change agent.

12 Buildings & Machine Learning: Technologies are beginning to predict occupants' habits and needs. 14 Grid Opportunities: ASHRAE President sets an agenda for the new energy future. 17 Investment Uncertainties: Valuation experts weigh market fundamentals against the risks of bubbles. 20 Wellness Paybacks: Tenants are looking for amenities that will support a productive workforce.

Articles: 22 Supply Bottlenecks: Development industry calls for streamlining in the planning and approvals process. 24 Atlantic Canada Markets: A year of modest dips and rallies in Halifax, Fredericton, Moncton, Saint John and St. John's. 26 Market Momentum: Montreal enjoys an upward swing, Toronto thrives and Calgary continues the long climb up from the bottom of the cycle. 30 Honour List: KingSett Capital CEO, Jon Love, named to the Order of Canada.

4 July/August 2018 | Canadian Property Management

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THE ROI OF

GHG REDUCTION Smart Technology Supports the Business Case for Deep Energy Retrofits By Jiri Skopek CLIMATE CHANGE is the greatest issue of our time, threatening civilization as we know it. This underscores the urgency to significantly reduce urban greenhouse gas (GHGs) emissions. The commercial real estate industry will be critical in that mission since buildings are responsible for approximately 40% of the emissions. This means net zero targets for new construction and, for existing buildings, GHG reduction targets of about 50% by 2030. Over the past 20 years, the emissions of existing buildings have been reduced by 6 July/August 2018 | Canadian Property Management

only 10 to 17%. Progress has slowed as lowcost/no-cost measures are exhausted. The business case to invest further in deep energy retrofits must be bolstered. At the heart of the problem is the disconnect that exists between lofty corporate sustainability objectives and the day-to-day running of a building. Whereas carbon reduction goals may be positioned as an investment and a future-proofing opportunity, many building managers see carbon reduction initiatives differently: as an unwanted additional burden and cost,

which has a low return on investment and a long payback time, and which will produce, at best, a few dollars in energy savings. INVESTMENT AVERSION While there are numerous government and utility incentives programs for capital expenditure energy projects, they often have limited success. One reason is that government opportunities often relate to technical solutions that owners may not feel comfortable or confident in making. Unless they are repositioning the building,

smartenvironments investors/owners tend to look at the vacancy, terms of current leases or potential disposal of the building prior to making a major improvement decision. When a project makes business sense, owners often prefer to invest their own money rather than jump through all the hoops of a government program. The triple net lease structure, where operating costs including energy are passed on to the tenant, adds to the challenge in rental properties. In what is sometimes referred to as the split-incentive paradox, the building owner has little incentive to reduce energy costs since the tenant is paying the bill. As for tenants, they have limited control over energy especially if they are leasing only a portion of the building. If tenants do make improvements in their leased space, it is the landlord who will reap the full benefit of the improvements over the long term and be able to charge higher rent to the next tenant. Meanwhile, the growing academic research linking health and comfort to an organization’s human capital has had the unfortunate effect of changing the focus of many organizations from energy and sustainability to wellness and human productivity. Few landlords will sacrifice tenant satisfaction and comfort to save a few kilowatts. For corporate tenants, the greatest driver is not carbon reduction but rather to maximize employee productivity by providing a healthy and comfortable workplace. Corporations are also adopting new hiring practices such as temporary contracts, part-time work and internships, which are driving new types of workplace leasing arrangements such as office co-sharing to accommodate a growing number of independent contractors who may be geographically dispersed. At present self-monitoring analysis and reporting technology (SMART) buildings offer the best hope to reduce carbon effectively as well as reduce energy costs and provide good return on investment. This encompasses electronic devices or systems that have their own computing capability that can connect to the internet and be used interactively. As advanced network connectivity enables smart devices to communicate with one another and with other data sources, this gives rise to the internet of things (IoT) and smart systems. MAXIMIZING HUMAN CAPITAL Smart workplace technologies can greatly reduce energy and carbon emissions as well

as enhance productivity. Corporations are looking to smart buildings to maximize human capital — the quantity and quality of knowledge, skill and engagement that employers can extract from employees. Smart buildings can support what’s referred to as a “liquid workforce” with many people working offsite. By 2020, it is estimated that at least 40% of employees will be temporary contract workers. Since it is difficult to predict head count from month to month or even day to day, the workplace needs to be flexible to accommodate a mobile workforce that is in flux, including workers who may be located around the globe. As a result, many companies, large and small, are choosing to co-share office space. This arrangement allows them to set up their operations for short periods of time in a number of locations, where they may occupy a few desks or a closed-wall office. This requires the buildings to be able to detect and respond to the needs of the occupants within the controlled zones, so they will have access to the building and the space, lighting, heat, air quality, cleaning and security. Smart buildings can also address IT challenges such as setting up and maintaining enterprise applications for t emp or a r y employe e s, s e cu r i ng networks, providing the necessary bandwidth, scalability and associated energy costs. In smart buildings, the various systems such as HVAC, lighting, VOIP and access security are integrated, and are continually monitored, selfcalibrating and controlled — in a way that would not be humanly impossible. Because they can be finely tuned, smart buildings also contribute to occupants’ productivity, making it easy to connect from anywhere, or check in and out of workspaces and conference rooms. Smart systems enable the lighting, HVAC and plug load to adjust automatically and be fine-tuned to meet personal preference. Occupants can book rooms, and benefit from streamlined security and efficient way-finding. For building owners and occupiers, these smart features are clearly a way to attract and retain tenants and enhance the human experience within the workspaces. SAVINGS ALIGNED WITH ESG When it comes to energy and carbon, smart building technology offers some of the best returns on investment with as little as a one or two-year payback. This ROI is realized through energy savings from heating, cooling and lighting, automated security

based on tracking of building occupancy and movement. There are also operational efficiencies. For example, smart building sensors and controls can optimize the use of elevators, detect water leaks, enable continuous recalibrating and recommissioning of systems to optimize their efficiency, alert a waste hauler to pick up waste only when a bin is full and so much more. Although many government energy retrofit subsidy programs have floundered, some programs are gaining traction. This includes generous tax deductions for retrofit projects including smart improvements, and long-term financing that is attached to the property rather than an individual and is repaid via the annual property tax bill. Power purchase agreements (PPAs) with renewable energy generators are another option. The energy client strikes a fixed price with a renewable power developer or a utility. The fixed price is typically higher than the current grid price with the expectation of a higher grid price in the future. This aligns with ESG (environmental social governance) obligations building owners/managers increasingly must fulfill for their corporate tenants and investors to reduce carbon emissions and disclose their carbon footprint through global platforms such as GRESB, the Carbon Disclosure Project and the Investor Confidence Project. In many jurisdictions, the cost of clean energy (wind, biomass, solar) and nuclear energy is already on par and soon should be a consistently cheaper source of electricity than conventional fossil fuels. Already, companies with heavy power requirements such as Apple, Google and Amazon employ renewables to run their massive data centres. In light of this, there is advantage in the gross lease arrangement, whereby tenants monitor and reduce their energy use and carbon emissions, and pay only for their actual electrical consumption. Smart technology makes that possible. In the past, progress to meet carbon reduction targets in commercial real estate has been slow, as consultants have pushed for more energy audits and programs often without understanding the owners’ financial and business rationale. Smart building technology could change that for the environment and generations to come. zz Jiri Skopek is Managing Director, Sustainability, with JLL. For more information, see the website at www.jll.com/sustainability Canadian Property Management | July/August 2018 7

smartenvironments

URBAN PRESSURES ARISE IN STEP WITH PROPTECH Technology and Affordability Rank on Commercial Real Estate's Agenda By Barbara Carss

ANALYSTS CAN be simultaneously zealous and short-sighted about the future, suggests the man steering a global association of property and planning professionals. In Toronto for a summit on commercial real estate and its urban context, Sean Tompkins, Chief Executive Officer of the Royal Institution of Chartered Surveyors (RICS), summed up this somewhat contradictory thought pattern. “We do tend to overestimate the amount of change we’re going to see in the near future and underestimate over the long term,” he said, as he guided the closing discussion and overview of the day’s learning. Seminar topics for the RICS conference series — unfolding in six major North American cities and Sao Paulo, Brazil earlier this year — explore shared concerns for real estate operators and urban administrators, focusing on factors that support or threaten economic growth, investment returns, urban liveability and 8 July/August 2018 | Canadian Property Management

sustainability. As the Toronto event wrapped up, panellists reflected on emerging technologies, climate risk, infrastructure deficits and affordability for the diverse workforce that cities need. ALGORITHMS ASCENDANT Proptech, commercial real estate’s fintech equivalent, is expected to be one of the more dramatic change agents, although the full reach of Artificial Intelligence, the Internet of Things, data analytics and other digitized approaches to information management is still far from clear. At one end of the task spectrum, industry players look forward to relief from detail-oriented, but relatively rote aspects of their work. At the other, they see interpretive and predictive capabilities on a scale and at a speed that human cognitive skills could never replicate. “Most of our members are really super interested and most of our members, with a few exceptions, are really super confused about it,” said Michael Brooks, Chief

Executive Officer of REALPAC, which represents Canada’s major real estate companies and institutional investors. Still, new entrants to commercial real estate’s multidisciplinary career track are arriving with a more innate sense of the possibilities. “The graduates today are used to having a lot of tools at their disposal,” observed Colin Johnston, President, Research, Valuation and Advisory, with Altus Group. Some professional upheaval is expected as traditional roles and responsibilities are ceded to algorithms. Brooks speculated about future streamlining of labourintensive tasks such as development approvals or lease abstracts — “There are some areas that I can’t wait for AI to move into,” he said — while noting there would be fallout for, and potential push-back from, planners and lawyers. Johnston suggested proptech’s capacity to perform “low-value busy work” will free up human resources for the work they do best

smartenvironments

PRIMED FOR DISRUPTION By Amie Silverwood

— applying their experiential knowledge and judgement in tandem with new ways of collecting, modelling, sharing and monetizing information. “You want to be able to use that data. That’s where experts are absolutely going to be essential,” he said. Stephen Taylor, Vice President, Real Estate, with the Healthcare of Ontario Pension Plan (HOOPP), foresees enhanced risk management through the melding of data mining, modelling and predictive software. In future, he expects investors will have access to information that will help them to better safeguard their assets and/or make more informed decisions about acquisitions and dispositions. “You are, in some respects, balancing the virtual world with the real world,” he mused. “That could allow you to assess and work on how resilient your portfolio can be, how your portfolio can hold up under different circumstances. That sort of scenario analysis is very important me.”

Proptech panels were a signature of the RICS Summit Series Americas 2018, which, in Toronto, took the form of MetaProp’s Zak Schwarzman discussion of how technology is disrupting the real estate industry. Joining him were Alex Rangel from Ravti, Ryan Freed from hOM, Connell McGill from Enertiv and Bob Courteau from Altus. According to Schwarzman, that disruption is accelerating as proptech companies acquire their peers for product acquisition or market share. Private equity firms are recognizing real economic value in the industry and digital incumbents are noticing the potential in the proptech sector and want to join in. In a market undergoing such rapid transformation, it is difficult to predict how the industry will change in the next five to ten years, but the panel could make some well-informed projections for the audience of RICS-qualified professionals. They suggest the commercial real estate sector is primed for disruption. “I think commercial real estate companies today spend their money the same way my parents used to when they used to travel — through a travel agent to get a travel itinerary,” Rangel mused. “In less than five years, they’ll use Expedia, Kayak, etc.” The rest of the panel agreed. Technology can automate tasks that are repetitive so facility managers or building

However, he suggested there is an even bigger question for the industry to ponder: “What’s the impact of the technology, not on us, but, rather, on our tenants?” TRANSIT AND HOUSING IMPERATIVES Panellists are also wary as they witness other urban pressures arise in step proptech. The flipside of economic growth can be escalating costs and increased competition for suddenly scarcer resources — housing, road and transit capacity, schools, green

owners can focus on the work that will bring the best results. For example, proptech companies are able to monitor a building’s HVAC system to flag inefficiencies or aggregate market data to help building owners make strategic decisions on leases. Freed speculated technology will be able to identify tenants' needs and wants even before those tenants consciously recognize them. His company, hOM, analyzes tenant activity to make those kinds of projections. Current trends point to continued integration of work and living spaces. Altus approaches proptech as a tool to support the valuation and advisory services it has traditionally offered and as a means to build more transparent markets. “We’re investing big time in solutions that allow you to aggregate data and open it up in the cloud, understand risk and create liquidity,” Courteau reported. “People want the benchmarking, risk index, expense metrics. The key is to do it in a way that will never compromise high value strategic data.” Amie Silverwood is a writer and communications strategist with RICS, the Royal Institution of Chartered Surveyors. For more information, see the website at www.rics.org

space, recreational services — for city residents. In turn, that flows through to the employers who hope to tap their talent, and to the landlords who are trying to attract and retain those employers. “The word “affordability’ is quite a challenge,” Tompkins affirmed. “Around the world, almost every major city is grappling with transit and affordable housing,” Brooks said. When transit users in the Greater Toronto and Hamilton Area (GTHA) voice Canadian Property Management | July/August 2018 9

smartenvironments

“Around the world, almost every major city is grappling with transit and affordable housing.” complaints, they typically mention crowding, inadequate service, rising fares and problematic connections between regional providers — stresses that intensify when affordable and/or appropriate familysized housing becomes more difficult to secure and pulls residents farther away from their workplaces. Brooks sees

potential remedies through boosting the supply of mid-rise and higher-density single-family housing formats like row housing, and forging more and faster train connections to cities and towns that are, or could be, in Toronto’s commuter shed. “I’m a GO train commuter,” he reported. “It’s a fantastic way to go to work.”

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Looking farther out — in both time and distance — Ayda Chamcham, Senior Associate with HVS Group, cited the Ca nadia n test project for Vi rgin’s Hyperloop prototype. Proponents of this transport pod technology envision a 39-minute trip from Toronto to Montreal with a stop in Ottawa 27 minutes into the eastbound route. Meanwhile, ridership thresholds pose a longstanding dilemma for the more mu n d a n e va r ie t y of p r oj e c t s. A substantial passenger base is needed to justify transit investment, but many potential users will not take transit until the service level is comparable with other options. “In Europe, 80% of the population uses transit. In Toronto, it’s 24%; in Montreal, 22%,” Chamcham noted. A sluggish approval and construction process, as witnessed in many recent highprofile transit lines, also leaves room for development to rise and flourish in other areas, creating new automobile-reliant communities to compete with transitsupportive development. “The idea of continuous investment into transit rather than defer, defer, and then all of a sudden trying to catch up, is important,” Taylor maintained. “I am slightly wary of projects that take 10 to 13 years to build.” “To be a world class city, we need world class transit, and we need to build fast, and we need to really stay the course,” Johnston concurred. Although panellists unanimously praised Toronto Mayor John Tory’s morning address to conference attendees, Brooks urged him and his Council peers to consider options like selling air rights over Toronto subway stations. “Real estate is the tax whipping boy. We’re the ATM for local government,” he asserted. “I don’t think the city is being very creative at all in terms of infrastructure. We’re not doing some of the things we could be doing to make more money.” zz

Canadian Property Management | July/August 2018 11

BUILDING INTUITION

Machine Learning takes Facilities to a New Understanding By David Karpook

BUILDINGS ARE rapidly gaining awareness of their occupants, including their comings and goings, activities, needs and desires. Complex arrays of technologies that gather data from the environment through electronic devices that "sense" occupants and conditions underpin this intuitiveness. In this sense, buildings are part of a technological phenomenon called machine learning, in which devices are able to develop capabilities they have not been explicitly programmed to have. At the centre, as with so much these days, is an enormous amount of data that can be collected and analyzed. Programming is involved, of course, but at a different level — to support the manipulation of data to yield insight without necessarily knowing in advance what the outcome may be. Through aggregation and analysis of the "sensed" data, the technologies are moving beyond sensing to understanding. These capabilities are becoming highly developed enough that the IT analyst group Gartner Inc. has predicted a shift "from technologyliterate people to people-literate technology." How does this happen? How do buildings 12 July/August 2018 | Canadian Property Management

develop an understanding of the people who use them? How do they learn? The short answer is that machine learning mimics human learning. It accumulates data, recognizes patterns in that data, and then uses those patterns to make predictions. A key difference is that what humans do as a core part of their being, machines must be programmed to do. That programming takes the form of complex mathematical formulas known as algorithms. Algorithms allow machines to recognize patterns, form clusters of similar data and extrapolate from these to reach conclusions or make predictions. For example, facial recognition by machines and buildings uses a set of algorithms to compare measurable characteristics such as the shape of the head, distance between eyes, length of nose and fullness of lips. By accumulating enough distinct measurements, it can determine the identity of a person whose image is picked up by a camera lens. For a piece of building equipment, measurable data might include operating temperature, vibration, fuel consumption, gas and fluid pressures, even noise level. An

a lgor it h m m ig ht a na lyze t hese measurements to make recommendations about the need for maintenance. As with the facial recognition example, actions that humans would otherwise do — taking readings, comparing measurements and correlating measurements to other data such as service calls from occupants — are done instead via automation. Given the complexity of the built environment and the potential number of information sources that might be involved, it is understandable that data governance is close to the heart of the machine learning picture. With signals coming in from multiple thousands of locations and devices, the ability to standardize, normalize and aggregate in meaningful ways is essential to the process. The outcomes may be new, but the path there traverses some very familiar routes. zz David Karpook is a Strategic Business Consultant with Planon Corporation and Vice Chairman of the Open Standards Consortium for Real Estate (OSCRE International). For more information, see the website at www.oscre.org.

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smartenvironments

A NEW ENERGY FUTURE BECKONS Building Innovation Flows on a 21st Century Grid By Sheila Hayter

Sheila Hayter, a professional engineer and Group Manager with the Integrated Applications Center at the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL) is serving as President of ASHRAE for 2018-19. In keeping with the tradition of ASHRAE presidents, she has declared a theme for her term: Building Our New Energy Future. The following is an excerpt from her June 2018 installation address, looking at the opportunities that a new kind of electricity grid will present – Editor.

ELECTRICITY POWERS modern life — our work, our homes, our schools, our health care facilities. Buildings are the electricity sector’s number one customer, and the electricity grid is an engineering marvel. But the model for the electrical grid is about 100 years old. Generally, power plants generate electricity in large quantities at only about 30 to 40% efficiency. They are usually located very far from loads, so electricity travels great distances over transmission lines — introducing more inefficiencies in the system — and the whole system is 14 July/August 2018 | Canadian Property Management

designed for one-way flow of electricity from power plant to loads. The current grid also influences what we do in buildings. Electricity is a big expense, so we design and operate buildings to minimize that expense. We tend to think of a building as a box connected to the grid by a feed from the electricity provider. We drop equipment into the box and put it all together to make the building work to meet client expectations. I’m happy to say, we are really good at the box. Given the way the current grid works, the box is the right way to go, but

we need a 21st century grid and 21st century buildings. So what will a 21st-century grid look like? • Technologies will change and we will see distributed energy resources, like solar and wind systems, that are integrated with improved and less-expensive battery storage and microgrids. • Electricity flow will be bi-directional, not just one way. • Individual building owners and thirdparty providers will own generation.

Building-owner clients might decide to get into the electricity business. • The grid will work with the Internet of Things. These are devices in buildings that communicate via the Internet and have an impact on electricity loads. • To handle all this, buildings and the grid will have to get smarter. We will transition to a future of smart buildings that play a dynamic role on a smart grid. And, we’re going to have to do that without compromising the health and wellness of the built environment. ARISING INTERESTS As the electricity sector moves to a smart grid, if the buildings profession is going to be a bridge to a new energy future, it has to get engaged. Changes will have an impact on the future of bu ild i ng desig n, const r uct ion, com m issioning, maintenance and operation. Building-owner clients may shift from being just building owners to also being providers of electricity and other energy services. There are and will continue to be many other businesses and entire i ndust r y s e ct or s out t her e t h at recognize the opportunities in the energy changes now underway and that are expected to expand in the near future. Think about it. Big players in the technology sector are making their way into home automation and controls — heating and cooling, lighting and ele ct r on ics. Big playe r s i n t h e technology sector are making headway with energy storage and solar PV. The utility sector has been working on issues related to distributed energy resources — solar, wind, battery storage, microgrids — and the smart grid for several years. Data will be the golden key in the new energy future. Any company with an interest in building sector data is already thinking about this energy future. These industries see opportunities in how energy is generated, distributed and stored, and they are starting to mobilize to take advantage of these changes for their own benefit. If buildings professionals aren’t part of the research, development and policy changes, or the conferences, meetings and conversations, other industries will be setting things up for their own benefit — and what they decide and do may, or

may not, benefit the buildings industry. It may, or may not, benefit buildingowner clients, and it may, or may not, benefit building occupants. If buildings professionals don’t become aware and get engaged, the essential, critically important role they play in the buildings industr y r ight now, could change dramatically. SERVING BUILDING OCCUPANTS As we consider all the changes coming to both the electricity and buildings sectors — the challenges and the opportunities — we must not lose sight of the fact that buildings are built for people. Buildings serve people, not the electrical grid. The best building design, const r uct ion a nd op er at ion w i l l achieve two important goals. First, they will ensure occupant safety, wellness and comfort. And, second, they will become a dynamic partner in a new electricity sector. The building that was designed yesterday will have to evolve to meet the design requirements of tomorrow. The building professionals who know how to create and operate gr idresponsive buildings and also excel in delivering indoor environmental quality are the practitioners who building owners need today and in the future. The new energy future will challenge current notions of building design, const r uction, com m ission ing, maintenance and operation. Starting now to develop the solutions to these challenges, moves us ahead of the curve and the competition. Our new energy future could also be good news for the developing world. Instead of being faced with the burden of developi ng a 20 t h- cent u r y g r id infrastructure, these areas may be able to leapfrog technology development. In areas where development is under expansion, any new capacity will reflect the future, not the past. If we start now to lead the way with training, guidelines and standards applicable to the new energy future, instead of the past, we have the potential to support truly positive development and to be even more relevant across the globe. zz

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Protecting Your Property in Summer Summer is a welcome season for building occupants, but the heat and rain can take their toll on the property itself. Consider these maintenance tips: Roofs: Check sloped asphalt roofs for curled shingles, debris and clogged eavestroughs. Always make sure downspouts are directed away from the building. For flat roofs, ensure perimeter flashings are not loose, clear any blockages around drains, remove any construction debris and look for damage from hail or workers. Always use fall protection measures. Exterior: Look for irregular dirt or water staining after a rainfall. If water is getting where it shouldn’t, repairs may be needed. Inspect sealant condition around windows, doors, or transitions between cladding types and review balconies for railing strength, slope, damaged or worn membranes, and signs of moisture staining. Landscaping: Check for proper sloping and ensure the bottom of the cladding or siding isn’t buried by soil. Also make sure sprinklers aren’t spraying against the building and examine curbs, sidewalks, asphalt works for tripping hazards and other deterioration. Overall, says Ryan Coles, P.Eng., Associate with RJC Engineers (RJC), “If something doesn’t look right, and you don’t know what you are looking at, call a consultant or trusted contractor that specializes in that element.” Learn more at www.rjc.ca.

For more information about Sheila Hayter's initiatives for building the new energy future, see the ASHRAE website at www.ashrae.org/ about/leadership/ashrae-president. Canadian Property Management | July/August 2018 15

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CRE SUSTAINABILITY TRAILBLAZERS RACE TO REDUCE

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race A BOMA Toronto Initiative

race2reduce.bomatoronto.org

COMMERCIAL REAL ESTATE INDUSTRY HONOURS SUSTAINABILITY TRAILBLAZERS The first annual BOMA Toronto race2reduce (R2R) CREST (Commercial Real Estate Sustainability Trailblazers) Awards were held this April to honour energy-savings successes in Toronto's commercial real estate community. Redesigned and delivered by BOMA Toronto and with Toronto Hydro and Save on Energy as funding partners, the new program builds on the success of the former race2reduce events by celebrating 18 sustainability leaders across three categories: Energy Management Leadership, Innovative Excellence, and Collaborative Excellence. Winning buildings were able to demonstrate the highest percentage of Save on Energy savings amongst their peer groups. Launched on June 6, 2017, the BOMA Toronto race2reduce program involves participants from 500 buildings and tenant spaces representing over 40 organizations, and spanning nearly 80 million square feet of Toronto commercial space. Participation in any one of the Save on Energy incentive programs (including Toronto Hydro’s OPsaver) is a key eligibility requirement for the CREST Awards. Energy Management Leadership Award winners were selected based on their energy reductions over the 2016 base year, as calculated and verified through Toronto Hydro and the Save on Energy program M&V protocol. Encouraging participants to reduce their energy usage, the program has an aggregate target of 10% reduction from the 2016 baseline. A streamlined process between BOMA Toronto and Toronto Hydro allows 100% of the participants to share their consumption data for

assessment and validation. It’s this partnership with Toronto Hydro that is key to the program’s design and success. In addition to enjoying cost-savings, operational efficiencies and reducing their environmental footprint, all participants also receive the benefit of improving their building's performance and tenant comfort. This year's Innovation and Collaboration award winners were also selected for their energy-reduction initiatives. Each demonstrated the success of a new sustainable program or initiative through holistic and unique approaches to building management and tenant engagement. Looking ahead, BOMA Toronto and Toronto Hydro say they've already seen an impressive uptick in race2reduce participation. To provide future sustainability inspiration for existing and potential participants, new resources have also been introduced. This fall, a R2R Ambassador program is being launched to leverage the expertise of these service providers to benefit race participants. Incentive programs, get started strategies and insightful case studies that document participants’ successes are just a few of the other resources freely available. Coming off a incredibly strong inaugural awards year, BOMA Toronto and Toronto Hydro are excited to see the submissions for next year’s awards, as participants continue to push the envelope. To join the challenge, visit race2reduce.bomatoronto.org

race A BOMA Toronto Initiative

race2reduce.bomatoronto.org

bomatoronto.org

winners

CONGRATULATIONS TO ALL 2018 R2R CREST AWARD RECIPIENTS AND NOMINEES!

ENERGY MANAGEMENT LEADERSHIP < 75,000 sq.ft. 40 Holly Street Colliers International 2323 Yonge Street Colliers International 302 Bay Street Bank of Montreal

75,000 sq.ft. - 250,000 sq.ft. 3080 Yonge Street FCR Management Services LP 45-47 Sheppard Avenue East Crown Property Management Inc. 2 St. Clair Avenue West Colliers International

COLLABORATIVE EXCELLENCE

121 Bloor Street East Colliers International

Royal Bank of Canada Toronto Portfolio

250,000 sq.ft. - 500,000 sq.ft.

Postmedia Place Greenrock Property Management Ltd.

160 Bloor Street East Colliers International 789 Don Mills Road Triovest Realty Advisors Inc. 30 Adelaide Street East Dream Office Management

> 500,000 sq.ft. EUI 10-15 kWh/sq.ft. 400 University Avenue Crown Property Management Inc.

INNOVATIVE EXCELLENCE >500,000 sq.ft. Simcoe Place The Cadillac Fairview Corporation Limited

<500,000 sq.ft. 150 Bloor Street West Colliers International

TD South Tower & 95 Wellington Street West The Cadillac Fairview Corporation Limited 33 Yonge Street GWL Realty Advisors Inc. 2300 Yonge Street RioCan REIT

Title sponsor

Title sponsor

Media partner

Media partner

SPONSORED CONTENT

2018 ACHIEVEMENTS! • BOMA TORONTO’S RACE2REDUCE CREST AWARD: COLLABORATIVE EXCELLENCE • BOMA PLATINUM CERTIFICATION + EARTH AWARD • 11.6% ENERGY REDUCTION, NOW 14% BETTER THAN BOMA AVERAGE! • SAVINGS OF $343,051 IN ENERGY COSTS AND 2,774,234 ekWh OF ENERGY

365 BLOOR STREET EAST Opportunity Greenrock Property Management’s vision is to continue to provide the highest quality service to their tenants including utility cost savings. Implementing energy efficiency measures was only the beginning and combined with the support from Postmedia Place, Greenrock wanted to achieve even more while tracking the impact of their achievements. As a result, from several property manager recommendations, Greenrock was introduced and selected Energy@Work because of their experience, hands on approach and ability to achieve results. Together, Greenrock defined a utility management strategy that included monthly meetings, utility baseline and prioritizing saving opportunities.

Savings To Date $343,051 in energy costs

The Strategy Energy@Work recommended implementing an Energy Management Action Plan (EMAP). EMAP is a ‘collaborative’ approach with operations and management to design, implement, track and continually improve utility use and building performance.

2,774,234 ekWh in energy savings

To help, Real Time Monitoring (RTM) was installed directly to the property’s electricity meter. It provides the key data necessary to understand use, costs and identify new opportunities. Operations can see their usage and demand in real time, every 5 minutes. Energy@Work completed an ASHRAE Level II energy audit to provide a comprehensive analysis of the property and its systems. This created a detailed energy and financial end-use analysis. The results identified additional energy efficiency measures prioritized based on payback, savings, budget year and ease of implementation.

14% better than BOMA Average

Greenrock also engaged Energy@Work to provide a turn-key process that aligned Postmedia Place in a perfect position to achieve the highest BOMA BEST certification; Platinum. The process was seamless in ensuring Greenrock Property Management’s accomplishments were incorporated.

Baseline Year Year to Date (2016) (Current 2018)

Additionally, Energy@Work processed Postmedia Place’s enrollment in the Toronto Hydro OPSaver program. The approved Measurement and Verification (M&V) plan allows the property to obtain incentives based on electricity savings. The EMAP is a continuous improvement process that produces utility savings that can be quantified and tracked through the M&V plan. This ensures target savings are achieved and sustained.

Drop in Energy Use Intensity (EUI)

11.6%

since 2016 baseline year

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Energy Use Intensity (EUI)

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Results Postmedia Place’s CREST Award, winning Collaborative Excellence was the tip of the iceberg. BOMA BEST Platinum Certification was achieved and also resulted in winning the prestigious BOMA Toronto Earth Award for their size category! Postmedia Place was recognized for excellence in resource preservation and environmentally sound commercial building management. Energy@Work’s EMAP continues to help Postmedia Place overachieve energy usage reduction targets and outpacing their targets by 7% on average since 2016.

LEVERAGING COLLECTIVE AMBITION TO REDUCE ENERGY USE and 18,000-plus RBC employees who are helping to lead the charge across the program's seven target locations. As Lee explains, “The main challenge was to create a level of consistency and a standardized focus across seven buildings which were all at various stages of life, under different management, and had unique considerations in terms of their assets and equipment.” The first step towards tackling this challenge was hosting a program kick-off meeting in November 2017 to showcase its R2R program, map out its strategy, and establish a common understanding of goals.

It was RBC's vision and affinity for “I remember sitting in the room with four of my main competitors and thinking collaboration that set the foundation for of the challenges ahead of us,” recalls Michael Manuel, General Manager with its success at this year's race2reduce Cadillac Fairview. “Very quickly, we were able to move past that competitive (R2R) CREST Awards. nature – which is very healthy among us This April, the leading Canadian financial institution took home top honours in the R2R Collaborative Excellence category for uniting a team of landlords, property managers, and RBC leadership for energy-reduction initiatives across seven of its properties. “RBC has always had a very strong culture of collaboration and we're fortunate to have surrounded ourselves with amazing partners,” says Zhen Lee, Director of Operations with RBC Corporate Real Estate. “Having these foundational elements in place allowed us to leverage those relationships and march forward with one vision and one beat when it came to designing, planning, and implementing our race2reduce program.”

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One Strategy. Millions of Square Feet RBC's three-year program is ambitious, to say the least. It's also the first sustainability initiative of its kind to bring competing landlords, corporate leaders, and industry reps together with a single mission to embed multiple energy-saving projects across multiple properties totaling 2.8 million sq. ft. of space. No doubt the success of RBC's R2R initiative has – and continues to – pivot on its winning R2R alliance. Its team includes Oxford Properties Group, Cadillac Fairview, Manulife Real Estate, H&R Reit, Northam Realty Advisors Limited and Jones Lang Lasalle (JLL),

– and focus on helping our client launch this amazing initiative.” “If all of our tenants had the same level of excitement that RBC has, our jobs would be so much easier,” adds Johann Klein, Property Director, Manulife Real Estate. Out of that initial meeting came plans for multiple energy-saving initiatives that would be implemented across the participant properties. They focused on enhancing sustainability on three fronts – operational, behavioural, and capital – and launching initiatives related to lighting and HVAC optimizations and reducing energy consumption on holidays.

John Spano, Director and General Manager with Oxford Properties Group, also remembers taking a seat at the planning table. Reflecting on those early conversations, he notes, “Our biggest challenge was pulling this off while minimizing the impact of the program on our customers. Having all the landlords in one room and working together was key. It really was an opportunity to network with our colleagues, get on the same page, and drive that vision.” Generating “buzz” and employee engagement around the program was pivotal to RBC's vision. To that end, the bank developed an R2R “road show” and presented it at each property from April 2018 to June 2018 to communicate the program and its benefits. The R2R team also worked together to establish “Green Team Champions” within each location, who have since been instrumental to the program's momentum. “Our landlord partners have assembled a robust group of engaged sustainability champions who can assist them in driving their brand initiatives in the buildings,” explains Lee, adding, “This has been immensely important to the success of the program because when tenants feel they are able to drive change in their areas, that empowers them to get engaged and make a difference.” Adds Spano, “The insights and learnings from this process have trickled down into every other aspect of our day-to-day work with RBC. Even though we're only in year one, this program has already been a huge success for us.” Year One RBC's three-year program is still its infancy. Nevertheless, the team is confident in its ability to embed, track, and achieve significant energy savings. RBC continues to meet with its team on a regular basis to share updates and keep the program top-of-mind, and JLL is among the partners taking measures to monitor the impact of the program. The outsourced real estate services partner

“Very quickly, we were able to move past that competitive nature – which is very healthy among us – and focus on helping our client launch this amazing initiative.” is transposing every floor's current consumption hours into a visual template to capture consumption rates and laying data from each business unit’s lights and HVAC requirements over top to gain a holistic view of the program's impact. “This layering of actual consumption versus business hours of operations creates a visual picture that enables us to identify that energy consumption is rightsize, or pinpoint areas where energy is being wasted,” explains Stuart Ross, JLL's Integrated Facilities Management Director, noting the tactic is being leveraged across all seven buildings.

It's been a landmark year for the program. Still, says Beverly Tay, General Manager with Oxford Properties Group, the team isn't resting on its laurels: “By continuing to innovate and improve our participation in this collaboration, we hope to achieve a higher level of sustainability and energy savings.'” As for what's next, Lee adds: “We're using the lessons we've learned through this collaboration to explore even more ways to drive innovation to reduce energy consumption in our office space nationwide, potentially engaging more than 50,000 employees.” www.REMInetwork.com

7

IT TAKES A TEAM AT POSTMEDIA PLACE is a truth that Greenrock Real Estate Big ideas sound great in the boardroom, This Advisors knows all too well. It's also one informed the Toronto-based firm's but without support from tenants, staff, that award-winning sustainability program at and community partners, even the best- Postmedia Place. planned property initiatives won't survive “Our culture is about experience – that of our residents who make their homes in past the front door. our communities, people who work in our communities, and that of our own team and the communities themselves,” says Justin Taylor, Chief Operating Officer for Greenrock. “We believe in treating our tenants, residents, employees and clients like Rockstars, a philosophy we have ingrained into our culture. It's been an incredible transition for us over the past few years and I feel like we are just getting started.” There is no one secret to Greenrock's Collaboration Excellence win at 2018's race2reduce (R2R) CREST Awards. Instead, its success can be attributed to several public partnerships it's leveraged between Postmedia Place and key stakeholders to embed energy-reducing measures at the Bloor Street property that have both helped the community and enhanced the tenant experience. “Teaming up with Greenrock allowed us to create purpose-built, high tech, and energy efficient spaces for our employees to work and collaborate in entirely new ways,” says Paul Godfrey, Executive Chairman and CEO of Postmedia. Greenrock's partnership with Energy@Work Inc. is one collaboration that's proved fruitful for Postmedia Place. In 2016, Greenrock paired with the energy management company to design and launch Energy Management Action Plan (EMAP) to review utility performance, set targets, track

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Challenge, and energy-efficiency upgrades throughout the property. Indeed, adds Taylor, “Without the strong relationship that Greenrock has with the tenants at Postmedia Place, the height of many program successes would not be possible.” Tenant support is fostered in part by Greenrock's 5 Pillar tenant engagement strategy which includes, among other things, a strong focus on using tenant feedback to drive property initiatives. In 2018, for example, Greenrock joined Postmedia Place staff in conducting a comprehensive 2018 tenant survey which gathered vital insights and feedback that played a crucial role in helping management determine the focus of its 2018 energy-reduction program. Throughout the years, tenants have also been linked in to Greenrock's initiatives through a variety of communications (e.g., emails, posters, digital displays, etc.) and on-site engagement events such as tenant breakfasts, summer barbecues, indoor air quality workshops, and bi-monthly GFL recycling programs, to name a few. progress, and drive employee engagement. At last check, the initiative has helped reduce energy consumption by 7% in 2018 – nearly triple the program's initial 2.5% target. Moreover, Greenrock's work with Energy@ Work Inc. and the City of Toronto was critical in helping Postmedia Place achieve BOMA BEST Platinum Certification in March 2018. Postmedia Place has also benefited from its relationship with the Bloor East Neighbourhood Association (BENA), which consists of local authorities, utility workers, volunteers, residents and representatives from commercial offices. In addition to inviting BENA to sit in on Annual General Meetings and planning sessions, Postmedia Place has worked with BENA to ensure its initiatives aligned with community goals. Highlights include funding a mural along Mount Pleasant Road as part of BENA's Mural Project, pledging continued support

to several Sherbourne Bloor redevelopment initiatives, and collaborating with the association during a large-scale exterior lighting project. “The design and end result took into consideration the context of the neighbourhood's needs, including adequate pedestrian lighting and the uses of the buildings adjacent and across the street,” explains Linda Brett, BENA President. “We were more than pleased with the result and have referred to this project as one to aspire to with all the new buildings in our area.” The Tenant Connection Greenrock's collaborations would be shortlived if not for tenant participation. Support from Postmedia Place occupants has bolstered energy-saving initiatives, including a large-scale LED lighting retrofit in 2017, the building's successful 2018 Earth Hour

Carrying the Momentum It's this ongoing collaboration with tenants, community partners, and industry experts that continues to drive results at Postmedia Place. That teamwork is fueled by Greenrock's commitment to providing each of its members with the resources to carry out a collective vision; and a dedication to keeping all partners in the loop through regular meetings, bimonthly Lunch and Learn programs, and a host of awareness and engagement initiatives. Moving forward, Taylor says the goal is to continue leveraging Greenrock's relationships to keep the momentum going: “The excitement generated from BOMA BEST Certification, Earth Award, Earth Hour results and the 5 Pillar 2018 Tenant Engagement programs has created ever greater interest in improving the working best practices with our tenants and our team. We appreciate BOMA’s support and recognition.” www.REMInetwork.com

9

CROWN ACHIEVES DUAL SUCCESS AT RACE2REDUCE CREST AWARDS In addition to a completing an LED lighting retrofit, the team oversaw the installation of gas regulators on all of its boilers and a large-scale Building Automation System (BAS) upgrade. It also kicked off phase two of a large-scale precast panel repair program which triggered additional building performance benefits. Strategies at Crown’s 45-47 Sheppard Avenue East office towers also included a BAS upgrade and LED lighting retrofit, as well as the installation of new, highefficiency fixtures in all the washrooms. In the end, Crown’s initiatives earned 382,643 kWh in energy savings at 400 University and 225,301 kWh at 45-47 Sheppard Avenue East, as verified by Toronto Hydro’s Save On Energy Program.

It was a blend of new technologies and sustainable strategies that made Crown Property Management Inc. a two-time “Many of these projects directly contributed increasing each building's net value while winner at the 2018 race2reduce (R2R) tosimultaneously reducing current and future CREST awards. This year, the Toronto- utility costs,” Stewart reports. based firm received top honours in With advice for future R2R participants, Stewart encourages property stakeholders the Energy Management Leadership to consult with their utility companies at beginning of each year to discuss category for its office towers at 45-47 the each building's capital improvement and identify which projects Sheppard Avenue East and its property plans might be eligible for certain rebates or incentives. With Crown's LED retrofits as at 400 University Avenue. an example, he adds, “both prescriptive “As a value-add organization, one of the pillars of Crown’s methodology is to increase our buildings’ efficiency while simultaneously adding long-term value and creating a healthy office community for our tenants,” says Clarke Stewart, Crown's Sustainability and Operations Coordinator, noting, “With support from this program we were able to achieve both.”

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Crown is no stranger to BOMA Toronto and Toronto Hydro's R2R contest, having participated in the program's past iterations. Nevertheless, taking part in the program's revival meant taking a new strategy. For 400 University, that strategy entailed critical upgrades and sustainability programs throughout the LEED Gold office building.

and custom rebates were applied as a means of maximizing the received rebate, which generally increases the project’s return on investment.” As for Crown's success at this year's R2R CREST Awards, Stewart says the company is proud to be recognized and looks forward to improving upon its results.

Ibis would like to congratulate Crown Property Management for winning the 2018 Race2Reduce challenge. 400 University Ave. & 45-47 Sheppard Ave. have received awards under the Energy Management leadership category. Ibis is proud to be the Base Building Controls Solution provider at both buildings Utilizing our experience and expertise we provide our customers the most scalable control solutions and the simplest means of controlling their buildings. We have been working with Crown Property Management for over 13 Years and share their core philosophy of partnering with our customers to provide flexible solutions to achieve their requirements and vision for their space.

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marketforces

BALANCING THE RISKS

Valuation Experts Favour Fundamentals Over Talk of Bubbles By Barbara Carss

BUBBLE BURSTING potential now lies in an expanded range of risks to commercial real estate. Senior ranking valuation specialists speaking in Toronto last spring, as part of the 2018 RICS (Royal Institution of Chartered Surveyors) conference series in seven major North and South American cities, agreed that new uncertainties around fraying trade agreements, political instability and climate volatility have broadened the scope of their worries well beyond rising interest rates. “What we’re concerned with on value is not what we used to be concerned with,” acknowledged Jim Moran, Executive Managing Director and Global Chief Operating Officer with Cushman & Wakefield. “There are risks attached to the global disarray that we are in right now, all of which come to real estate.” However, panellists tasked with exploring the topic, How does the shifting investment landscape impact risk management?, also rejected ominous labels for current market dynamics. Despite historically low cap rates in some markets, they argue that asset values are

still tied to economic growth and reflect sound investment decisions. “I think the word ‘bubble’, itself, is just a sound bite,” said Michael Hedden, a Director with Houlihan Lokey in New York. “I don’t necessarily see the irrational exuberance.” “In terms of what we’re calling this market, I’m not sure I’m in the ‘bubble’ camp,” concurred Paul Morassutti, Executive Vice President, National Investment, with CBRE. “Bubbles are a sharp incline in asset value decoupled from the fundamentals and that’s not an accurate description of what we’re seeing in Canada. I think the fundamentals here really shouldn’t be discounted.” As one example, Colin Johnston, President, Research, Valuation and Advisory, with Altus Group, cited multifamily rental housing. “On the surface, cap rates of less than 3% in Vancouver sound crazy, but we’ve underdeveloped purpose-built rental for years and it looks like we’ll go on under-building it,” he said. Nevertheless, Canada’s predominant institutional investors are also among its

most active developers — now with an economic rationale that complements the mixed-use projects urban planners have long championed. “You need high densities because you are paying a lot for the land,” Johnston explained. TALLYING THE UNCERTAINTIES The usual suspects — inf lation, unemployment, a liquidity crunch — figure prominently on any list of the threats commercial real estate faces. The unwelcome influence of political events was obvious in the United Kingdom in the summer of 2016 when commercial property funds were forced to suspend trading after a spate of investors cashed out their holdings following the Brexit referendum. Similarly, bumpy NAFTA negotiations and other trade upheavals have real estate players watching with some wariness. “The uncertainty of not being able to predict what’s going to be happening in the next Tweet is driving us crazy in our countries,” Hedden mused. Meanwhile, rising interest rates are identified as a leading probability that could Canadian Property Management | July/August 2018 17

marketforces TRADE WAR COULD RIPPLE TO WAREHOUSE/DISTRIBUTION SPACE A chill in the cross-border movement of consumer goods has potential negative implications for commercial warehouse and distribution facilities. The unfolding Canada-US trade war comes at a time when industrial real estate is delivering impressive returns for investors in both Canada and the United States. MSCI’s recently released summary of 2017 investment results in 25 countries, encompassing 85 regional markets, identifies the United States, the United Kingdom and Italy as the three countries where “outperformance was most notable” for directly held industrial assets. Companies in the U.S. property index saw a 14% return on industrial properties versus an average total return of 7% across all properties. Industrial properties delivered a 10.2% total return, on average, to the portfolios participating in the Canada Property Index versus an average total return of 6.7% across all properties. “The industrial sector has benefited from changing consumption patterns and the growth of e-commerce and logistics. Demand for warehousing and distribution solutions has helped drive industrial

performance,” Bryan Reid, MSCI’s Vice President of global real estate research, concludes. “Consumer goods distribution is the main driver behind the industrial sector’s recent outperformance in Canada,” concurs Carl Gomez, Senior Vice President, Research and Strategy, with QuadReal Property Group. “You can’t help but worry that the spirit of this tariff is a step in the wrong direction for supporting industrial demand’s long-term prospects.” Notably, Calgary was alone among the 85 global cities that MSCI tracks in suffering an overall loss on value in 2017 — registering a negative total return of 0.3%. Yet, industrial properties helped to pull up that average against the far more significant loss of value for office buildings. “One of the only positive aspects of the downturn is that we have emerged as a logistics and transportation hub,” says Lloyd Suchet, Executive Director of the Building Owners and Managers Association (BOMA) of Calgary. “If you drive to the industrial outskirts of Calgary, you really see this surge of brand new facilities.”

“I think investors have been spooked. The retail headwinds are very, very real, but it doesn’t apply to every asset equally.” both undermine values and steer more investors toward other asset classes. “We may not have the capital flows that we are currently seeing,” Hedden warned. The impact on consumers and how that might flow through to the broader economy is also cause for worry. “The Canadian household debt is the highest in the G7,” Morassutti noted, while stressing that government overspending is of equal concern as deficits grow in Canada, the United States and the European Union. “We are sitting on something globally that scares me and governments don’t seem to be doing anything about it.” Liam Brunner, Senior Managing Director with Newmark Knight Frank, 18 July/August 2018 | Canadian Property Management

suggested that’s in line with regulators’ approach to managing economic cycles. “They tend to be lenient on the way up and too severe on the way down,” he said. Drilling down to real estate, panellists sketched out some of the trends they’re monitor ing, along with the r isk management strategies and tools the industry is deploying. Vulnerabilities are easy to pinpoint. “The obvious one to kick at is retail,” Johnston said. “We haven’t finished backfilling Target space and now we’re backfilling Sears space.” Yet, many strong performers remain even if stock prices don’t accurately reflect that. Morassutti pointed to key properties Brookfield is acquiring with

the U.S. based GGP portfolio — “They are some of the best malls in the world,” he said — and argued there are other such gems to be found. “Incredible negative sentiment is pulling all stock down and tarring the entire sector with one brush,” he asserted. “I think investors have been spooked. The retail headwinds are very, very real, but it doesn’t apply to every asset equally.” Retail closures can also free up highly sought locations that are prime for repositioning. “There are going to be some golden nuggets,” Hedden said. READING THE MARKETPLACE The commercial real estate industry may be better equipped to read the signs of a downturn than during past cycles. “We have great data. We’re in real time in terms of analyzing capital flows,” Hedden noted. Moran likewise recalled the days of spreadsheets when analysis was an exercise in looking back in time versus today’s ability to see costs and trends on a daily basis. “It’s going to help the real estate community. It’s going to help the investment world,” he said. Johnston also applauded the efficiencies of consigning tasks he categorizes as “busy work” to automated, algorithmic interpreters. “After you read 10 or 20 leases, there’s not much more to the learning curve. Technology like that can be pretty useful,” he observed. Even so, panellists called for experiential insight and skepticism in tandem with the deployment of data analytics and artificial intelligence (AI) applications. They foresee continued reliance on human judgement, particularly for complex valuations like shopping centres. “Don’t believe the data in your hand is all the data you need. The technology risk might be if it gives you a false sense of what you know about the market,” Brunner cautioned. “The concern for us right now is the veracity of the data,” Moran agreed. “I think five of us could look at the same pool of data and interpret it differently.” Alternatively, looking to RICS’ mandate and expertise, standards provide the structure and discipline for determining how data should be collected, verified and shared. Panellists saluted the RICS Valuation Global Standard as a tool that has harmonized previous varying approaches and eased their job. “We’re down to very minute differences today,” Moran said. It’s one of a suite of RICS standards gaining traction in an increasingly global marketplace. “What’s going to win out at the end of the day?” Johnston reflected. “Professionalism and ethics.” zz

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WELLNESS PAYBACKS

Real Estate Plays Key Role in Productive Workplaces

By Keith Major

HEALTH AND WELLNESS-PROMOTING amenities are no longer just nice-to-have perks in sustainable office buildings. Increasingly, employees are demanding them. As a result, forward-looking companies are seeking out these features because they realize workplace wellness measurably affects employee productivity, innovation, creativity and job satisfaction. In past years, the momentum behind sustainable buildings was driven by opportunities to realize economic and operational efficiencies. Buildings that focused on environmentally sound operations, such as water and energy management, saw lower utility costs and, thus, savings on operational expenditures. However, a growing body of research suggests green design features also lead to healthier, more productive building occupants. A recent Harvard study found that cognitive scores of occupants in green buildings were 61% higher than those in conventional buildings. And research from the World Green Building Council found that workplaces with natural light, thermal comfort and minimal contaminants in cleaning agents help to reduce absenteeism and enhance job satisfaction. More recently, wellness has emerged as a natural extension of green-building initiatives, since many of the features that reduce a building’s carbon footprint, such as HVAC systems that improve indoor air quality and the increased use of natural 20 July/August 2018 | Canadian Property Management

light, are also good for the well-being of those who occupy the space. According to World Green Business Council, companies spend, on average, 1% of their annual costs on energy, 9% on rent and operations and 90% on salary and benefits. Given that employees represent such a significant proportion of company costs, low productivity, sick days and absenteeism can quickly add up. AMENITIES INFLUENCE HEALTH While many factors contribute to a healthy, productive workplace — from corporate culture to fair pay and benefits — real estate has a key role to play. People spend more than 90% of their time indoors, so the buildings where they live, work and play have a clear influence on their health and well-being. Building wellness certifications, such as Fitwel and WELL, provide tools for developing strategies that can boost employee health and wellbeing. Fitwel outlines a framework for improving building design and operations for individual and community health, while WELL provides best practices in design and construction for healthy buildings. In an effort to attract and retain talent, companies are also recognizing the importance of amenities that can enhance employees’ well-being and allow them to function at the top of their game. In this regard, asset managers, property managers and tenants share a mutual interest in creating dynamic and highly desirable spaces that invest in well-being for the long term.

amenities CALLS FOR CHILD CARE By Rebecca Melnyk Some landlords are positioning child care space as an amenity on par with fitness centres or conference facilities. “There’s definitely a continuing growth trend,” observes Tyler Sopik, Principal and lead sales representative with the Retail Services Group at Avison Young and broker for Kids and Company, a national daycare provider with more than 100 locations across North America. “Landlords are beginning to get into mixed-use real estate, which is more prevalent in all markets. With cities like Toronto being more live-work-play, 24/7, having this amenities in a building is a continuing trend.” In Toronto, Crown Realty Partners is about to start construction on a Kids and Company centre in The Link at 300, 302 and 304 The East Mall, a suburban office node in the city's west end. The goal is to attract tenants to the suburbs and cater to young professionals, giving them options they would be more privy to in the downtown core. “We have a very large pocket of vacancy right now in the suburbs of about 140,000 square feet,” explains Scott Watson, Partner of leasing and marketing at Crown. “We see this as putting in many amenities to attract major corporations that will also serve the surrounding residential community.” Child care spaces require a dedicated, exclusive outdoor play area, appropriate pick-up and drop-off areas and accessible ground or second floor space with lots of natural light, among other features. Property managers at The Link had to change the zoning plan, get site approval and licensing. “It’s one of the most highly regulated industries out there,” Sopik says. “What takes these deals so long is the amount of high-level design, expensive buildout and making sure regulations are met to the highest degree and that it’s a safe place.” Obtaining required provincial licensing can draw out the process — “Sometimes it takes independent child care organizations well over a year to operate the daycare. It’s tough for a landlord to sit on that empty space for so long in the hopes they get their license,” Watson acknowledges — but it can ultimately enable landlords to command higher rents. “When you compare Class A office spaces that have or don’t have it there’s compelling evidence you can charge higher rents,” Sopik maintains. “All the buildings we occupy across the country are 60 to 70% office buildings and those landlords claim their biggest amenity is child care.” The Link’s child care centre will be one of Kids and Company’s smallest in the country at 4,300 square feet and a 60-child capacity. Most are 8,000 square feet and accommodate 100 to 120 infants and toddlers. They can be found in Class A office space in cities across the country, but are less prevalent in areas like downtown Vancouver where vacancy is low. On the flipside, the company reports robust interest in Calgary. Recent provincial budget announcements show investment in child care is gaining ground. In Manitoba, a new refundable corporation income tax credit will be available for private corporations that create new child care centres in workplaces. “To open up child care is very expensive; it’s capital intensive, so the more programs that help open up spaces, the better,” Sopik says. Rebecca Melnyk is an online editor currently on maternity leave from the REMI Network.

Creative approaches to adopting wellness amenities that promote an active lifestyle, such as fitness centres and bike storage, often require the ability to re-imagine and repurpose underused spaces. Tenants and property managers are finding dual purpose in conference room space that can double as a functioning yoga studio, or the refurbishment of previously unused space to develop basketball courts and other athletic facilities. Outdoor spaces such as rooftop gardens, courtyards or patios hold high potential for the creation of stress-free zones for tenants to enjoy nature. BUSINESS BENEFITS A Canada Green Building Council study found the top three business benefits of healthy buildings (those with features that promote the health and well-being of occupants) include increased building value, the ability to lease space more quickly and the ability to charge premium rents. For example, 150 King Street in Toronto repurposed a portion of the parking garage to meet changing tenant demands. The space was repurposed into a bike room with full shower and locker facilities and a multi-purpose yoga studio that will be programmed to the building occupants’ preferences. This key element in revitalizing the building has helped to attract new tenants. Ultimately, sustainability and wellness impacts the bottom line for all stakeholders. Keeping employees healthy is both a financial and social imperative, and the workplace provides a profound opportunity to positively impact worker health, happiness, productivity and well-being. zz Keith Major is Executive Vice President of Property Management at Bentall Kennedy (Canada) LP.

From Boiler Room to Boardroom

A professional association focused on advancing and promoting the FM community. Join IFMA Toronto Today at ifma-toronto.org

Canadian Property Management | July/August 2018 21

SIDETRACKING SUPPLY

Development Industry Critiques Systemic Bottlenecks

By Michael de Lint

The Residential Construction Council of Ontario (RESCON) has released a comprehensive set of recommendations to streamline the planning and building approval process, harness innovation and ensure compliance with regulatory and professional standards — all with the aim of reducing housing costs and broadening the range of housing choices for homebuyers and renters. The following excerpt outlines some of the obstacles and/or frustrations commonly identified in the current process – Editor. STAKEHOLDERS POINT to some systemic bottlenecks that make the approvals process slow, unpredictable and costly. Chronic under-zoning is a major impediment. Municipalities lag in keeping their zoning aligned with changes in their Official Plans, causing developers to reject or postpone viable projects due to the uncertainties of the up-zoning process. Many agencies operate as silos, missing opportunities to coordinate required approvals. Some agencies have adopted some very good practices — offering effective pre-consultation, senior municipal staff to monitor applications and facilitate problem resolution, delegation of authority to qualified staff and /or electronicpermitting — but others could be more 22 July/August 2018 | Canadian Property Management

proactive. For example, ensuring that Fire Services have input in plans review for new building construction could avoid conflicts later after building permit issuance. Absence of a sense of urgency to meet mandatory timelines — particularly with planning agencies and municipal site servicing engineering approvals — is one of the most oft cited frustrations. For example: • site plan control approval, because it is largely technical, should take one month, but often takes more than two years; • industry-initiated rezoning to comply with a municipality's approved Official Plan, should take nine months, but often takes more than three years; • municipal updating of zoning to align

with a new approved Official Plan should take three years, but is often postponed or not done at all. • site servicing engineering reviews that should take one month if done by a qualified person receiving a proper engineering plan, often take many months; and • many external agencies, such as Conser vation Author ities, don’t currently have mandatory service delivery timeframes. INNOVATION REQUIRED Builders face market pressures to provide a more sustainable product and carry a growing number of compliance responsibilities, but regulatory agencies are not evolving at the same pace. Ontario's approval and permitting

markethurdles

system has changed little over time and is less innovation-friendly than some other jurisdictions. Notably, it is possible to obtain a building permit that recognizes an "alternative solution", but critics suggest Ontario regulators have been slower to embrace constr uction innovation. Quebec and British Columbia boast more exa mples of ma ss t i mb er construction, for example. Similarly, uptake of comprehensive electronic-permitting has been slow. Singapore offers a contrasting example of what's possible through its system that links all key agencies with fully integrated 3D BIM-GIS capability. Professionals using the Singapore system report a 65% time savings, a 44% reduction in manpower, printing cost savings of 72% and a reduction of hardcopy storage costs of 54%. CONSISTENCY & PROPORTIONALITY Inter-agency cooperation on approving standard or common technical details

would counter the cost and redundancy of municipalities acting largely alone to ver ify development and building compliance, and undertake labourintensive plan reviews and inspections on every project. Efforts such as the BuildRight centralized Building Code information for Ontario's municipal Building Officials are commendable. It helps to fill an information vacuum, as the development industry struggles to find consistent advice and interpretations related to Building Code enforcement practices among municipalities. Delays in municipal engineering approvals of site servicing — water, sewer, water management for new projects — have become particularly problematic. Concer ns have been expressed about inexperienced and under-qualified municipal staff (some a re not tra ined as engineers) or municipalities depending on outside consultants who often re-design site engineering regardless of the quality of the engineering submission. This, in turn, encourages hasty private industry submissions in order to get into the queue for a lengthy plans review process that should take about one month rather than the several months or more that is often the case. Industry professionals, including design professionals and planners, could be more effectively deployed to ensure compliance. If Ontario’s professional engineers and architects, as well as certified and registered professional planners, were viewed more as "partners in compliance", regulatory agencies could shift more to an auditor's role. There is also call for more proportionality. A basic principle of good regulatory practice and risk management is that the robustness of regulatory measures be proportional to complexity and the level of risk. The current Planning Act takes a less discriminating approach to risk — i.e. the impact on life safety, property and the community resulting from a defect or error — with its requirement that all site plan reviews be completed in one month regardless of building complexity. (In fact, however, they often take much longer.) zz Michael de Lint is Director of Building Regulatory Reform and Technical Standards with the Residential Construction Council of Ontario (RESCON). The good practice concepts and action guide can be found at http://rescon.com/news/files/RESCON_ Streamlining_Approvals_Process.pdf.

STREAMLINING IMPERATIVE “Representing Canada, Toronto is 54th out of 190 countries assessed by the World Bank in terms of the efficiency of its approvals process for routine building projects,” says Richard Lyall, President of the Residential Construction Council of Ontario (RESCON). “This ranking isn’t for an 80-storey, mixed-development highrise. It’s for the most basic of buildings, such as a warehouse. We are a G7 nation; 54th for Toronto, Ontario and Canada isn’t acceptable.” RESCON's recently released report, Streamlining the Development and Building Approvals Process in Ontario: Good Practice Concepts and a Guide to Action, suggests how to get much needed development underway more quickly and affordably. It urges the newly elected Ontario government to: • Pass a Transparency Act to improve timelines and support a transparency checklist; • Establish a common data or file platform for electronic permitting to allow the move to a state-of-the-art digital system; and • Require a coordinating professional and supportive documentation to ensure all submissions are complete and accurate, leading to faster approvals. “We must do something about this ranking within the next three years: delays on this scale cost the Ontario government, industry and consumers billions of dollars,” Lyall adds. "If this is not addressed, we will lose out on potential international investors.” “The slow approvals process inhibits the ability of builders to provide the supply of new houses and condos that new home buyers should be able to purchase,” maintains the author of the recommendations, Michael de Lint, RESCON’s Director of Building Regulatory Reform and Technical Standards. “This report can help point the government in the right direction toward less red tape and faster compliance.” –REMI Network

Canadian Property Management | July/August 2018 23

marketprofile

HALIFAX OFFICE VACANCY RATE DIPS MODESTLY Industrial Space Market Looks More Upbeat HALIFAX CONTINUES to suffer the highest office vacancy rate of any major Canadian market east of Alberta. However, a recent comprehensive survey of more than 20 million square feet of commercial space across a wide sweep of the regional municipality finds some relatively strong pockets and at least a modest dip from last y e a r ’s l e v e l s a l m o s t everywhere. The Atlantic Canada real estate advisory firm, Turner Drake & Partners, reports an overall office vacancy rate of 15.25%, representing a drop of

more than 170 basis points si n c e Ju n e 2 017. New occupants moved into about 540,0 0 0 squa re feet of previously empty space over the past 12 months. In the same period, nearly 400,000 square feet of new space was added to the region’s office inventory, to exceed 12.1 million square feet. At the best performing end of the spectrum, vacancy fell nearly 180 basis points to edge below 8% in the suburban Halifax market. This node offers about 2.3 million square feet of typically newer office stock.

24 July/August 2018 | Canadian Property Management

“A decade ago, the vast major it y of new off ice constr uction was in the suburban business parks, driven by the lower costs of land and construction and the ease with which planning permission could be obtained. This head start on capturing tenants looking for modern space has resulted in the lowest vacancy rates of any of the Halifax submarkets,” the Tu r n e r D r a ke a n a lysi s explains. D a r t m o u t h’s c e n t r a l business district sits at the other pole with a vacancy rate nudging above 18.5%. Even so,

that’s in a submarket with just 330,000 square feet of office space. The Halifax central business district accounts for more than 5 million square feet or about 42% of the surveyed office inventor y. Tur ner Drake analysts peg the vacancy rate at 18.35%, down from 19.5% one year earlier. That’s a somewhat more opt i m ist ic pict u re t ha n CBRE’s numbers for the second quarter of 2018, which indicate 19.9% of downtown office space is vacant — up from 19.3% at the end of March. The Class A vacancy

marketprofile

NEW BRUNSWICK MARKETS IMPROVE AS ST. JOHN’S SLIPS

rate is higher still, at 22.1%, in large part due to the arrival of new space in recent years. An average net rent of $19.31 per square foot is lower than the $21.35 per square foot average for downtown Class A space across the 10 Canadian markets CBRE surveys, but is greater than the average rent Class A commands in Calgary, Wi n n ip eg, Wat erloo or London, Ontario. “In 2013, Class A space represented 27.9% of the total gross leasable area (GLA) in the office market, while Class B accounted for 64% and Class C just 8.1%. In 2018, Class A makes up 36.5% of the total GLA, while Class B comprises 57.3% and Class C, 6.2%,” Turner Drake reports. CBRE reports approx i m at e l y 17 0 , 0 0 0 square feet of office space is currently under construction, with 120,000 square feet of that in a new downtown mixed-use project, but it will not be completed until 2019. “Larger scale projects are scheduled to come on stream in the 2 to 3-year projection period, but, in the meantime the steady shortterm inventory will give demand a chance to gain some ground versus supply,” the

Tu r n e r D r a ke a n a lysi s concludes. The Halifax industrial market is already more upbeat. Turner Drake looks more narrowly at 8 million square feet of rentable warehouse space to calculate an 11.5% vacancy rate and average rents of $7.81 per square foot, while CBRE’s average arises from 12.4 million square feet of industrial space. Those numbers show a 1% drop in the vacancy rate, taking it down to 8.7%, since March of this year. Average net rent rose in the same period, from $7.83 per square foot to $7.91 per square foot. Dartmouth, in particular, presents a happy contrast to sluggish office dynamics. It was the best performing submarket, tallying more than 182,0 0 0 squa re feet of industrial absorption in the second quarter. In addition, tenants have pre-leased 80% of the 82,500-square-foot facil it y now under construction, while the newly opened Centre for Ocean Ventures & Entrepreneurship (COVE) is key to envisioned high-tech research, development, innovation and commercialization in the marine sector. zz

Fredericton is the lone office market in Atlantic Canada to boast a vacancy rate below the national average of 10.7%. Turner Drake & Partners Ltd. reports 133,000 square feet of positive absorption in New Brunswick’s capital since June 2017, trimming nearly 170 basis points from last year’s vacancy rate to take it below 9.5%. Class A office supply is even scarcer, with a vacancy rate of 6.3%, allowing it to command an average net rent of $15.38 per square foot. Saint John registers the highest vacancy rate of New Brunswick’s three urban centres, but it also shows the year’s most marked improvement — dropping 370 basis points from 20.7% to 17%. Class A space records a vacancy rate above the city’s average, at nearly 18.2%, but it achieves higher rents than Fredericton’s Class A space, with an average net rent of $15.83 per square foot. The vacancy rate in Moncton has also declined since midyear 2017, from 13. 4 to 12.17%. It dips further still, to about 9.6%, for Class A office space, which garners average net rent of $14.65 per square foot The three New Brunswick office markets collectively offer about 7.9 million square feet of office space in 164 buildings. Approximately 50,000 square feet of new office space was added in the Fredericton market since June 2017, while inventory grew by less than 7,000 square feet in Saint John and less than 4,000 square feet in Moncton. For 2018, however, Saint John will see an influx of 300,000 square feet of owneroccupied space when the new Irving headquarters opens and the company’s employees relocate from five smaller buildings. Looking east to Newfoundland and Labrador, the vacancy rate climbed 200 basis points and now rests slightly above 20% in St. John’s, which is the second largest Atlantic market, after Halifax, with nearly 4 million square feet of office space in 85 buildings. The Class A vacancy rate is even higher, at 23% — more than 7% greater than the 15.9% vacancies in Class B office space. Average net rents declined citywide, from $19.07 per square foot at midyear 2017 to $18.88 per square foot. However, Class A space commands an average net rent of $22.55 per square foot, surpassing CBRE’s second quarter findings for Class A space in downtown Halifax, which is pegged at $19.31 per square foot. St. John’s Class B office stock records an average net rent of $18.11 per square foot.

–REMI Network

Canadian Property Management | July/August 2018 25

marketprofile

MONTREAL

MAKES GAINS

Office Demand Surges Along with Business and Infrastructure Investment

EMPLOYMENT GROWTH and a GDP uptick surpassing the national average underpin healthy office demand in downtown Montreal. Rents are rising, the availability rate remains steady even with the arrival of newly completed space and construction crews are busy on i n -p r og r e s s c om m e r c ia l , mu lt iresidential and public infrastructure projects. Two reports summarizing the first half of 2018 conclude the city is a standout among major Canadian markets. “The outlook for business in Montreal has seldom been stronger than it is now,” maintains Jean Laurin, president and CEO of Devencore. The real estate advisory firm’s newly released ma rket repor t pegs the availability rate at 12.2% across eight 26 July/August 2018 | Canadian Property Management

downtown submarkets and all building classes, and cites an average gross rent of $34.46 per square foot in 52.7 million square feet of inventory. During the past 12 months, 745,000 square feet of new space came onto the downtown Montreal office market, but the availability rate sits just 10 basis points higher, while average gross rents have pushed up more markedly from $32.79 per square foot at the end of June 2017. Class A space along the RenéLévesque Boulevard corridor commands the downtown’s highest gross rent at $47.90 per square foot. Availability in this largest downtown submarket, with nearly 11 million square feet of space, is almost exactly aligned with the overall average. The rent gap between

Class A and B space is most pronounced, at $13.15 per square foot, versus the narrower $6.40 to $7.40 per square foot g a p i n s u b m a r k e t s w it h lowe r availability rates. “The once Flight to Quality trend has now become a Flight to Creativity as landlords demonstrate ingenuity and inventiveness during the redevelopment of space,” CBRE analysts suggest, in pinpointing the key trends shaping Montreal office market statistics for the second quarter of 2018. “This trend extends across all assets/classes, ranging from new construction to the retrofitting of Class C product.” In the broader economic context, 2017 saw a 3.5% increase in Montreal’s real GDP, while the business support agency,

marketprofile DOWNTOWN CALGARY OFFICE VACANCIES EASE The spring of 2018 saw Calgary office vacancies ease marginally in the downtown and beltline markets, while nudging upwards in other suburban nodes. Analysts from Colliers International draw a connection in those two trajectories, pointing to three large former suburban tenancies that relocated downtown during the quarter. Nearly 114,000 square feet of positive absorption in the downtown market shaved 26 basis points from the availability rate, taking it down to 26.8%. Most of this improvement was in Class A space, but it made no impact on the average asking rent which held steady at $14 per square foot. More than 11.7 million square feet of office space remains available downtown. Nearly 32 million square space of occupied space actually surpasses the tally during the 2009 downturn, when occupancy bottomed out at 31.1 million square feet. However, about nine million square feet of space has been added downtown in the intervening years. Although the current total office inventory of 43.8 million square feet is unchanged from the first quarter, the 430,000-square-foot TELUS Sky Tower is nearing completion and expected to add 285,000 of vacant Class AA headlease space to the market by early 2019. Demand for large blocks is muted. “Most landlords are now implementing regular ‘model suite’ programs to keep up with demand for ‘move in ready’ space in the smaller size ranges, 2,500 – 5,000 square feet,” Colliers reports. The beltline offers a smaller range of choices within its office inventory of 7.2 million square feet. There, the vacancy rate hovers just below 22%. Colliers analysts point to two interesting trends. One — closing of a 66,325-squarefoot office building to be converted to residential uses — underpins the slight 8-basispoint decrease in the beltline vacancy rate since March 2018. The other might hint at a slowly transitioning economy as a cannabis-related business, Sundial Growers, leased 13,000 square feet in one of the larger deals of the quarter. Economic forecasters continue to watch oil and gas prices closely, but still see little to trigger an employment boom and surging demand for office space. Rather, Colliers analysts note that tenants in a position to take advantage of current market dynamics can fare very well. “As is the case in most downturns, tenants are looking to capitalize on market conditions by transitioning into higher quality office space,” they state. “The migration to quality continues for most downtown tenants and much to the detriment of B and C class landlords, specifically with buildings located outside the centre core of downtown.” –REMI Network

CONSTRAINED TORONTO MARKET SIDELINES INSTITUTIONAL INVESTORS

Land deals accounted for half the value of real estate investment in the Greater Toronto Area (GTA) during the second quarter of 2018, including the largest single transaction. The Public Sector Pension Investment Board’s $825-million purchase of Bombardier’s 365-acre Downsview site far surpassed the priciest office deal. That was Tigra Vista Inc’s acquisition of the 865,000-square-foot Parkway Place complex from Agellan Commercial REIT for $265.3 million. Altus Group tallies 574 investment transactions in excess of $1 million across all asset classes, amounting to $5.6 billion during the months of April, May and June. Residential and ICI land sales each represent roughly a quarter of that value. Office activity dipped considerably with total investment value at $728 million, down 59% from the previous quarter. Analysts attribute this primarily to the constrained Toronto market, which simply lacks product for sale. That’s keeping institutional investors on the sidelines even though vacancy rates remain tight and rents are climbing. Marcus & Millichap reports a 6.1% rate across nine GTA submarkets, but that drops to 3.4 to 3.5% in Toronto’s downtown and midtown districts. Midtown is enjoying a 5% increase in asking rents since midyear 2017, taking the average to $40.50 per square foot. The downtown average also moved up 1.3 per cent over the past 12 months, to hit $46.60 per square foot. Outlying markets are likewise improving. GTA-wide, average asking rents are up 3.4% to $32.60. The Class C office market has made the greatest gains as average asking rents rose nearly 11% since June 2017, to reach $28.94 per square foot. Class B rents have picked up 5.1% in the same period, with the average asking rate now at $32.43 per square foot. “Robust rent growth and low vacancies in areas such as Peel, York and Midtown will keep investors active through the remainder of the year, though some buyers may find a lack of suitable listings on the market,” Marcus & Millichap analysts project. “Strong Class A demand and years of supply growth will keep institutional investors active in the downtown and financial core areas, while yield-driven buyers will extend searches beyond the urban core.” – REMI Network Canadian Property Management | July/August 2018 27

marketprofile Montréal International, reports 48 foreign businesses established or expanded ventures last year, translating into 5,000 direct high-wage jobs. That’s in line with the investment returns the Canada Property Index recorded in 2017, in which a total return of 6.5% on Montreal-based properties nearly doubled the 3.3 per cent total return of 2016. “We are seeing a lot of interest from foreign capital and domestic capital,” Colin Johnston, President, Research, Valuation and advisory with Altus Group, observed in a panel discussion when those results were released last February. Multi-billion-dollar infrastructure investments in a new Champlain Bridge, highway interchange and light rail public transit are expected to significantly improve transportation networks. The Quebec government has also pledged to suppor t technological innovation a nd the transition to a low-carbon economy. Devencore’s use of the availability rate — which adds available sublease space and space where tenants have

confirmed a pending move-out to the nar rower measurement of cur rent vacancies — complements a market where major downtown projects are slated to deliver nearly 1.5 million square feet of new office space in both si ngle -pu r pose a nd m i xed-use buildings. The vast majority of this is fou nd i n Q ua r t ier I nt er nat iona l, which, due to this construction, is set to become the second largest office submarket downtown. Currently, its availability rate hovers just above 9. 5% w i t h C l a s s A b u i l d i n g s commanding average gross rents of $43.20 per square foot and Class B securing gross rents of $34.05 per square foot. “Because ava ilability rates a re relatively high, this is a very good time for tenants to be negotiating a new lease or renewal, as space options in most office categories are very good,” Laurin advises. “However, brick-and-beam offices, which are highly sought after by the creative class of tenant, are in short supply, as

are larger blocks of contiguous space.” CBRE concurs with that analysis. “The existing loft office space has been unable to keep up with demand from large occupiers and these users are now taking up higher-priced built-to-suit loft offices,” it states. CBR E pegs Mont rea l’s overa ll downtown office vacancy rate at 9.6% — 110 basis points lower than the average across 10 national markets surveyed — with a tightening to 8% for Class A space. Average Class A net rent of $22.58 per square foot likewise outperforms the national average of $21.35 per square foot. Toronto’s 2.9% downtown vacancy rate arguably positions it as Canada’s best landlords’ market, even though the average Class A net rent of $31.36 per square foot trails Vancouver’s $38.11 average. Still, Montreal looks rosy from the perspective of the comparably sized downtown Calgary market. There, the vacancy rate sits just below 28% with the average Class A net rent at $16.51 per square foot. zz

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JON LOVE NAMED TO ORDER OF CANADA KingSett Capital CEO's National Contribution Honoured

JON LOVE, FOUNDER and Chief Executive Officer of KingSett Capital, has been appointed to the Order of Canada. Governor General Julie Payette announced the honour just prior to Canada Day with the accompanying citation: “For his contributions to the Canadian economy as a business leader and for his generosity to numerous health care and educational institutions.” The Order of Canada recognizes outstanding achievement, dedication and service to the community and the nation, and is bestowed to recipients who exemplify its motto, Desiderantes Meliorem Patriam — translating to: They desire a better country. Love is one of 82 new members Canada-wide, who will receive the Order’s distinctive insignia at a ceremony later this year. He has played a notable role in Canada’s commercial real estate sector, serving as President and Chief Executive Officer of Oxford Properties before 30 July/August 2018 | Canadian Property Management

founding the private equity real estate investment firm, KingSett Capital, in 2002. Today, the company has $11.1 billion in assets under management and provides multidisciplinary expertise in real estate acquisition, ownership, development, leasing, management, financing, construction, disposition and lending. “Canada is a phenomenal investment platform. We are blessed with a very sophisticated industry,” Love told attendees at last year’s BOMEX, the national conference of the Building Owners and Managers Association (BOMA) of Canada, where he was part of a senior executives’ panel discussion. He also participates in the wider professional community as a board member of the Chief Executives Organization, and member of YPO and the Business Council of Canada. He holds an Honours degree in Business A d m i n i s t r a t i o n f r o m We s t e r n

University’s Ivey School of Business and was awarded an Honorary Doctorate from Western University in 2016. “Building a high-performance team and a high-performance culture is a core focus of my career,” Love reiterated at BOMEX 2017. “Every CEO, and any manager who’s any good, is interested in what people are saying and thinking.” “Jon Love is an icon of the Canadian real estate industry. He was the first to do so many things or be the best at it,” obser ves M ichael Brooks, Ch ief Executive Officer of REALPAC, the association representing most of Canada’s major real estate companies and institutional investors. “Probably less well known is his philanthropic work, through the Jon and Nancy Love Foundation, and his work with Junior Achievement to name a few. Jon is a principled guy, a world class real estate investor and a proud Canadian — a very worthy Order of Canada recipient.” zz

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s e s u c x e o n i m o b # 32 July/August 2018 | Canadian Property Management