Investor outlook for the year ahead is ‘cautiously optimistic,’ according to industry insiders.Adrien Veczan/The Canadian Press
The bumpy ride that commercial property investors and developers have been enduring for two years may give way to a smoother path in 2023, but it will probably take until mid-year, according to experts who analyze the real estate sector.
”There’s a lot of capital available, and those in the industry who have it are going to be looking for places to invest it,” says Emeka Mayes, head of Canadian capital markets, brokerage, at Colliers Canada.
Experts are calling the new year a time of “price discovery,” as buyers and sellers try to sniff out what the market will bear. Ms. Mayes says that there’s cautious optimism that the year will go well for commercial real estate even though the Bank of Canada raised interest rates seven times in 2022, with more possible rate hikes to come.
“People will be looking to relatively low-risk strategies for buying and trading, rather than rolling the dice,” she explains.
Many investors holding capital are now putting their money into secondary “bridge” or “mezzanine” lending for developers who need more funds than the banks will now provide, Ms. Mayes explains.
“Historically, a developer may have gotten a loan of between 75 and 85 per cent of the cost of a project. In the current economy, the banks are putting in maybe 65 to 70 per cent. That means a developer has to come up with another 10 to 20 per cent, and there are groups of lenders popping up to provide this,” she says.
“Depending on who you borrow from, developers are looking at 8 or 9 per cent rates for this bridge financing,” she adds.
“People will be looking to relatively low-risk strategies for buying and trading, rather than rolling the dice.
— Emeka Mayes, head of Canadian capital markets, brokerage, at Colliers Canada
Repricing and recovery
Despite these escalating loan costs, Colliers’s 2023 Global Investor Outlook, released in early December, predicts that the worldwide real estate market will become more stable by mid-year than it has been since the COVID-19 pandemic began in early 2020.
According to the report, “A recalibration of the global real estate market is under way, and we anticipate the stabilization to take hold [by] mid-2023. The velocity and timing of this stabilization, repricing and recovery will differ across markets and sectors.”
”You’re going to see a time lag between the projects that have been approved and when they actually start digging, because people are waiting to see what happens with the economy,” Ms. Mayes says.
A PwC assessment, Emerging Trends in Real Estate 2023, agrees that there’s both optimism and hesitation, reporting that while the changing environment in 2022 has been a shock for some, the long-term outlook for the Canadian real estate market is positive.
“Lenders … are making it harder for real estate companies to raise capital and move projects forward. This, in turn is leading to reduced competition for deals.”
It noted that many of the Canadian real estate companies interviewed for the report and surveyed in the summer of 2022 are predicting a pause in market activity as they watch how the current uncertainty plays out.
Even if the commercial real estate scene does smooth out buy the middle of 2023, the outlook won’t be equally smooth everywhere, the experts warn.
”Expect the unexpected. The factors influencing decision making are changing hourly and daily, not monthly or quarterly,” Colliers’s report says.
Industrial and office outlook
Nearly 20 per cent of the investors it surveyed said they simply “don’t know” where property values will land in 2023. For investors in retail, hospitality and rental housing, more than 30 per cent said they can’t predict yet whether their property values will be up or down.
In Canadian markets, “industrial real estate remains a best bet,” PwC says. Subcategories like warehousing, fulfilment, data centres and self-storage also rank high, among investment and development recommendations, it adds.
The market for life sciences buildings also looks promising and there may be a surge in multi-residential property, although in Ontario, the outlook for the latter might be hobbled amid a backlash against Premier Doug Ford’s controversial moves to allow building on the province’s greenbelt.
The office market remains a question mark too, as employers seek to encourage or compel home workers to come back, with mixed results. “Many office users are just sitting there and going ‘Let’s just see what the first half of 2023 looks like from a business perspective,” says Alan MacKenzie, chief executive officer of JLL Canada. “Let’s not over-force our work populations back to the office.”
ESG transparency
The other big trends expected in commercial real estate for 2023 are that environmental, social and governance (ESG) considerations will be taken more seriously than ever and that smart technology to monitor and control building functions is increasingly being deployed in commercial property.
”While some real estate companies are still figuring out their ESG and net-zero [carbon emission] strategies, the imperative to act quickly goes well beyond investor expectations,” PwC says. It notes that companies in Canada will soon face “climate disclosure” rules and regulations requiring public reporting of their buildings’ carbon footprints.
The trend toward smart tech is raising concerns too. New research released Dec. 6 from KPMG in Canada, which surveyed Canada’s 17 biggest real estate organizations, found that 80 per cent of these companies that use smart tech don’t monitor their networks or devices for cybersecurity threats.
“Smart building technology is commonplace and holds many benefits, but it also comes with risks,” says Tom Rothfischer, audit partner and national industry leader for KPMG in Canada’s building, construction, and real estate practice. “The reality is that most companies now find they are playing catch-up to seal the security gaps.”
The Canadian construction industry is making strides in adhering to ESG principles.CARLOS OSORIO/Reuters
Canada’s commercial real estate sector is striving to meet increasingly demanding environmental, social and governance standards, but the ESG is still greener on the other side of the world.
For example, experts say Canada is playing catch-up in the use of “green leases” – commercial tenancy agreements in which the landlord and the renter incorporate sustainability, socially responsible management and good governance into their property deals.
According to Tonya Lagrasta, vice-president and head of ESG for Colliers Canada in Toronto, “Canada is behind places such as the European Union. Many Canadian developers are moving ahead anyway – we’re seeing a shift – but the rules and regulations aren’t necessarily in place.”
“In North America we’re seeing more of a push toward stronger ESG standards coming from investors, while in Europe it comes more from regulation,” says Avis Devine, associate professor of real estate finance and sustainability at York University’s Schulich School of Business, in Toronto.
A study last year by Deloitte, Green Leases – in the ESG Context, found that the European Union Commission gave green leases and other ESG measures in the property sector a boost in December, 2019, when it adopted rules specifying what makes these measures green.
“In North America we’re seeing more of a push toward stronger ESG standards coming from investors, while in Europe it comes more from regulation.
— Avis Devine, associate professor, Schulich School of Business, York University
Lenders, developers and tenants can consider deals to be green if they include goals for climate change, protecting and conserving water and biodiversity (on the property), controlling and minimizing pollution and moving toward a circular economy that recycles and reuses materials.
According to the Deloitte report, research by Savills Investment Management found that 73 per cent of the world’s institutional investors expect green lease clauses to be incorporated universally between tenants and real estate investment managers by 2029.
In Canada, the experts say that major commercial developers, such as Oxford Properties, BentallGreenOak and Brookfield Asset Management, are typically ESG leaders. “These tend to be companies that have global assets, including those in places where the ESG rules are more developed than in Canada,” Ms. Lagrasta says.
Developers and institutional lenders in Canada were getting more serious about higher ESG standards before 2019, “but the pandemic set things back,” says Ryan Riordan, finance professor at Queen’s University’s Institute for Sustainable Finance, Smith School of Business, in Kingston.
On the other hand, COVID-19 gave real estate developers the opportunity to look more closely at environmental issues such as indoor air quality, Dr. Devine says.
There’s more interest than ever in commercial property ESG measures, but the challenge now is to make physical changes to buildings, Dr. Riordan says.
“We’re making strides on the construction side of ESG, but it takes a lot of time to retrofit and replace buildings with ones of higher standards,” he says.
Retrofitting is a daunting challenge but one that experts consider necessary because buildings contribute nearly 40 per cent of the world’s carbon emissions that are linked to the global climate emergency.
Canada and other countries are struggling to achieve net-zero emissions by mid-century amid concern that if we don’t succeed, damage to the Earth will be beyond repair.
“We need to retrofit nearly all the standing dwellings in Canada, but we’re doing this at 1 per cent of them per year. If we don’t go faster, it will take about 70 years – we should be going three times as fast every year,” Dr. Devine says.
There’s also a strong business case for retrofitting old office buildings to make them more eco-friendly, Dr. Devine adds. It’s partly good marketing – white-collar employees are still only trickling back to offices in major Canadian cities, and when they do, they want to go back to good quality workplaces, she says.
“There’s a premium earned by environmentally certified buildings,” she explains. It shows up in better occupancy rates, more likely lease renewal and lower costs to finish off rehab work for tenants once the basic environmental work is done, she says.
“And after we account for higher rents or lower water costs, is there a market premium for being a leader in sustainability? Evidence says yes,” Dr. Devine adds.
A study by Smith’s Institute for Sustainable Financing, released in April, shows investing in carbon reduction “more than pays for itself in terms of avoided physical damage alone.”
The Physical Costs of Climate Change: A Canadian Perspective suggests the savings come even before “taking into account the potential economic benefits of transitioning to a low-carbon economy” for Canada’s entire GDP.
But green leases are only a small part of how commercial real estate developers are boosting their ESG credentials, Ms. Lagrasta says. “There’s more attention being paid now to the S [social benefit] and the G [governance],” she says.
Institutional investors are looking more holistically these days at potential risks, for example, the cost of urban sprawl and the potential financial benefits of diversity on corporate boards.
“There is deep corporate finance literature showing that we end up with better risk-balanced outcomes in our real estate [investments] if the management isn’t all male,” Dr. Devine explains.
A new wave of proptech tools are being used to aid in everything from identifying affordable housing to waste management.Chun han
Proptech, short for property technology, is already a growing force in commercial real estate, and now a Toronto tech firm is making it easier for developers to determine where to locate their projects even before they assemble the land.
“Our company is like Google Maps, only it’s for commercial developers. We use technology to help people building projects such as high-rise, multifamily buildings identify new sites,” says Devin Tu, president of MapYourProperty.
MapYourProperty’s technology streamlines due diligence for developers. “It lets them look at issues such as zoning, land use and transit corridors at properties they’re considering buying. A typical developer will look at up to 200 properties per year and only buy one or two to develop; our tool lets them focus on those one or two sites they’ll likely choose,” Mr. Tu says.
“This is the kind of work that can take up to two weeks of research. Our proptech tool can shorten this to 30 seconds,” he adds.
MapYourProperty is part of a new wave of proptech apps and tech tools that are extending the use of technology beyond project management and building maintenance into every aspect of the commercial real estate sector.
“It’s an exciting new industry; it’s early stage,” says Benjamin Shinewald, president and chief executive officer of BOMA Canada, a national umbrella group for building and maintenance operators. “There are new applications and areas of use being created all the time.”
Different areas of the real estate sector are taking notice of proptech’s possibilities. In February, MapYourProperty received a $2.5-million award from Canada Mortgage and Housing Corp.’s data-driven funding program to help organizations – including Habitat for Humanity Canada, Rural Development Network and Toronto Metropolitan University (formerly Ryerson) Centre for Urban Research and Land Development (CUR) – identify affordable housing sites.
Another Toronto proptech company Lane Technologies, which enables building owners and office tenants to manage office life digitally, was acquired by U.S. firm VTS for US$200-million in October, 2021, one of the largest proptech deals to date.
This acquisition anticipates workers returning to offices after COVID-19. Lane’s proptech allows owners to manage leases, while tenants and office workers can use the app to book conference rooms, order food, get through security and connect with nearby restaurants, entertainment venues and other local businesses.
“In our experience, we’re seeing proptech expand to cover a lot of different aspects of the real estate sector,” Mr. Tu says.
“In our case it’s on the predevelopment side; we’re planning to expand our operation to cover areas representing 50 per cent of the population across Canada within the next 18 months. We’re also seeing other proptech being used more to manage office and retail space.”
He says proptech is expanding to areas with programs that use artificial intelligence (AI) to predict housing prices near a development, by factoring in variables such as transit access, nearby prices and infrastructure to come up with ballpark prices in a nanosecond. “But AI can be overhyped. You can use it to predict some things, but not everything,” Mr. Tu says.
Proptech is becoming more important to the circular economy, says Molly Westbrook, executive asset managing director at Cushman & Wakefield Canada. The goal of a circular economy is to minimize waste in every aspect of a business operation, by reducing waste and reusing and recycling materials.
“There are some [proptech] items that are really moving the needle on sustainability,” Ms. Westbrook says. Proptech is already used widely to help buildings increase energy efficiency, enabling operators to manage heating and cooling remotely and to better know exactly where and when maintenance is needed.
Managing waste is the next frontier, Ms. Westbrook says. “Recycling is really key to a building’s operation – how a building streams, diverts and reuses paper, cardboard and plastic can really make a difference to its operating cost and efficiency,” she notes.
“We’ve been introducing AI technology to increase the efficiency of these types of operations,” she explains. Algorithms determine which materials go where to be recycled or reused.
It’s a way to overcome the situation in Canada where, for example, only 9 per cent of plastic waste now gets recycled.
Proptech can also simplify low-tech tasks such as garbage collection, Mr. Shinewald adds.
“In the past waste haulers would remove garbage from the large bins in the ground floors of the buildings on a schedule, say every Tuesday. With proptech, you can put a sensor in the bin to send a message to the hauler when it is full,” he says.
“That way, haulers come on demand rather than on a fixed schedule when the bin may or may not be full. This is not only more cost efficient, but it is more sustainable; it will result in fewer trips to the building,” he says.
As proptech continues to grow in significance, it’s important to reach a common understanding of what it actually is, Mr. Shinewald adds.
“We’re piloting a program that will be the first smart buildings standard for the industry,” he says. This will help current proptech companies, new entrants and potential users know what tools to consider and watch for.
He says BOMA expects to announce the first certified buildings soon, followed by a larger and more public launch of certified smart buildings in the spring.
“This is a made-in-Canada program created by and for the commercial real estate industry,” he says. “It will bring transparency and standards to the sector.”
There’s ample opportunity for proptech to grow in Canada, Mr. Tu adds.
“The field is wide open. In the United States proptech is used more widely, but it’s spreading widely here fast, with new companies and new applications all the time,” he says.
Marion LaRue is an architect and principal at DIALOG’s Vancouver office.Lindsay Elliott
From labour shortages to climate change, the commercial real estate industry continues to face key challenges as 2022 comes to a close. It’s never been more urgent to harness the power of the other half of the talent pool in traditionally male-dominated industries.
We spoke to three Canadian female powerhouses in commercial real estate about their successes, challenges and advice for the next generation of women.
Marion LaRue, principal and architect, DIALOG
Marion LaRue is an architect and principal at DIALOG’s Vancouver office. Her area of commercial real estate design expertise includes sports, recreation, public and institutional projects. Currently Ms. LaRue is working on student residences and dining commons for Simon Fraser University, the Vivo for Healthier Generations recreation centre in Calgary, a student housing facility for North Island College on Vancouver Island and an aquatics/ice arena addition in Edson, Alta. She is passionate about creating environments that inspire people to take ownership of their health and well-being.
What do you like about working in commercial real estate?
I get a great deal of gratification from the improvements the facilities make in people’s lives. I also find public sector clients are fun to work with and they respect and value our expertise as designers. This field provides architects with a tremendous opportunity to be creative.
What are the biggest challenges and opportunities facing commercial real estate today?
Some of the most significant challenges include the exponentially rising cost of construction, lack of women in the work force, labour shortages impacting delivery schedules for both consultants and the construction trades, recession challenges exacerbated by interest rate hikes and increasing carbon emissions that continue to contribute to global warming.
To mitigate these challenges, we need to invest in new design and construction technologies. We need to invest in more affordable housing and daycare for families so more women continue to enter the labour force. We must also focus on repurposing existing infrastructure and limit new building wherever reasonably possible.
What opportunities and challenges do you see where you live?
Vancouver’s opportunities include harnessing the creativity of green building, research at local institutions such as UBC, and embracing vertical farming, given the tremendously high cost of land. Our challenges include growth limited by geography, rise in sea level and the ongoing tug of war to keep agricultural land supplying food to our communities.
Which projects are you most proud of?
My most career-defining project is the design and construction of the Richmond Olympic Oval for speedskating for the 2010 Winter Olympics. The facility is now the vibrant home of community recreation and sports in the City of Richmond, a successful example of a post-Olympics venue that is improving the health and well-being of all users; it was also one of the first projects to robustly engage the local First Nations in meaningfully contributing to its design.
What sacrifices have you had to make as a woman in a male-dominated industry?
I didn’t spend as much time with my children as I would have liked. At times I’ve had to manage my compensation expectations or even the expectations for the types of work. I’ve been careful with how I voice my opinion on some topics at times as it can be a judgmental industry. I’ve waited longer than some men for the same opportunities. Some of my male mentors have been incredibly supportive and provided me with opportunities along the way. But I didn’t have many female role models, which has driven me to focus on mentorship in my career.
What advice do you have for women who are pursuing a career in this industry?
I would recommend that you ask for what you believe you are entitled to, with integrity. Take more risks earlier in your career and know the choices you make matter significantly down the road. Build relationships with as many men and women equally and be self-aware – it’s critically important.
Patricia Phillips, CEO of PBA Group of Companies
Patricia Phillips is the chief executive officer of the PBA Group of Companies.
Patricia Phillips is the chief executive officer of the PBA Group of Companies, a full-spectrum real estate company based in Calgary, which owns and developed the city’s Dorian hotel. She has closed more than $1.5-billion in transactions in her role. Before joining PBA Group, Ms. Phillips was the founder and CEO of three successful private oil and gas companies, served as an economist on trade policy development for the Tokyo Round of the General Agreement on Tariffs and Trade (GATT) in Geneva, and worked on Wall Street as a financial analyst.
Why did you choose this line of work?
I’m immensely grateful to have had the privilege of growing up within a supportive family of business leaders. My father was a local real estate developer and his passion for creating community was extremely formative in my own development. The ability to collaborate and create opportunities speaks deeply to me; it was a natural progression into the hospitality industry, as it provides further opportunities to support the local economy while showcasing Calgary as a world leader in its own right.
What are the biggest challenges and opportunities facing commercial real estate today?
Moving into 2023, we realize supply chains will continue to be challenging; however, the PBA team and I are relying heavily on our local relationships to help cut down on wait times, while ensuring we support local vendors and suppliers whenever possible.
Which projects are you most proud of?
Our most recent development, The Dorian hotel, is the first to be built in Calgary’s downtown core in over a decade and the city’s only female-developed and owned hotel. Less than 2 per cent of hotels are owned and developed by women worldwide. It’s also the city’s only dual-brand lifestyle hotel, which allows us to target specific demand segments, and offer two unique price points with shared amenities.
What do you think needs to change to make the industry more accessible?
I strongly believe and advocate that our industry requires more diversity and inclusion. Unfortunately, for many years commercial real estate has been seen as a man’s world and a “boys’ club.” I’m hopeful this is currently changing. I’ll use PBA as a great example; we prominently feature females within our leadership team and board of directors.
What advice do you have for women pursuing a career in this industry?
Give yourself permission to follow your passions and trust your gut when you have a calling to do something interesting. We spend a lot of our youth living up to other people’s expectations, but in the end, we are the only ones who need to live with our choices. Never shy away from surrounding yourself with people smarter than yourself as this only improves your own skill set. Being self-aware is key and finally, give back to your community any way you can.
Diana Hoang, managing director/broker of record, owner of Spear Realty
Diana Hoang is the founder and managing director of Spear Realty Inc.ERNESTO DiSTEFANO
Diana Hoang is the founder and managing director of Spear Realty Inc., a commercial and industrial real estate brokerage based in Toronto. Ms. Hoang began her career in the industry in 2009 in a publicly traded company that allowed her to work with teams specializing in all facets of commercial real estate. Since starting her business in 2021, Ms. Hoang has led more than $500-million in real estate transactions, including record-setting deals for leading landlord groups.
Why did you choose this line of work?
I’ve always had a passion for marketing and sales; I enjoy being practical, resolving issues and helping groups maximize their rate of return. About 13 years ago as I was raising my two young daughters, I found a position as an administrator with a large commercial real estate firm in Toronto. Then I transitioned into a full-time non-licensed assistant, got my licence and began as a fully licensed adviser in the industrial space.
What projects do you have on the go right now?
Expansion is top of mind to keep up with demand from existing and new clients who want that boutique level of client care and expertise. We’re looking at increasing our numbers of agents who specialize in various areas and asset classes. Within the span of one year, we grew to a team of 10 active associates and plan to expand further to 30 by 2023.
What kinds of sacrifices or concessions have you had to make as a woman in a male-dominated industry?
The day does not stop at 5 p.m. I am still juggling schoolwork and family, managing kids’ extracurricular activities, sacrificing both my personal time and the time needed for career advancement, and working and taking conference calls even when on vacation with the family.
How are you doing business differently these days?
We’re proud to have an equal number of active female commercial agents at our office and plan to keep focusing on hiring, training and retaining more. Our mandate is to move towards 100-per-cent digital and paperless operations.
What advice do you have for women pursuing a career in this industry?
Be flexible, tolerant, always search for alternate solutions, and be creative to achieve your end goal. Perseverance will win the day – you should never take no for an answer.
Damage at the wharf in Stanley Bridge, PEI, on Sept. 25.Brian McInnis /The Canadian Press
As world leaders, diplomats and scientists continue to gather in Sharm El-Sheikh, Egypt, to debate climate change this week the people of Canada’s smallest province are already coping with the climate emergency’s damage.
Prince Edward Island is still shaking off the effects of Hurricane Fiona, which hit the island and its neighbouring Atlantic provinces with ferocious force on Sept. 23. Damage was extensive across Eastern Canada; on PEI, 95 per cent of the population was without power two days after the big storm.
The Insurance Bureau of Canada says that much damage to residential property was in high-risk areas and flood plains where insurance was not available. “As a result, the overwhelming majority [of the costs] for this disaster will be borne by government,” the bureau says. The provincial government announced some storm relief funds on Sept. 30 and proposed a record $1.1-billion, five-year capital budget on Nov. 2, focusing on infrastructure and climate change.
Insurable damage to PEI’s buildings and infrastructure has been estimated at $220-million. “The cost is still being compiled, but early indications point to close to half a billion dollars in damage,” says Vicki Tse, communications officer for PEI’s Emergency Measures Organization.
“There are holes in the roofs on hotels in Charlottetown. It’s hard enough to find someone who can fix the roof on your house, harder to get someone who can go up 10 storeys to do repairs.”
— Jacqueline Desroches, commercial sales and leasing, Colliers International in Charlottetown
Individual islanders were asked to pile up all their debris for pickup by provincial crews before Oct. 31. After that, pickup resumes in the spring, because crews need to get ready for winter, Ms. Tse says.
“Cleanup efforts can be expected to go well into 2023, and this will be supported by additional resources from other provinces,” she added.
One challenge is acquiring the concrete, steel and other building materials needed to rebuild as the resources go beyond what the province itself produces.
Getting these to the island is an obstacle, but the logistics are being managed, says Jacqueline Desroches, commercial sales and leasing representative at Colliers International in Charlottetown.
“Materials come by truck, via ferries and over the Confederation Bridge [which connects PEI and New Brunswick],” she says. “Both were out for a few days, but damage was relatively minimal and they’re up and running. There’s still a holdover of supply chain problems that started during the pandemic, but we’ve gotten used to those.”
Another of the biggest challenges to restoring PEI’s infrastructure after Fiona is finding people to do the work. “There are holes in the roofs on hotels in Charlottetown, for example. It’s hard enough to find someone who can fix the roof on your house, harder to get someone who can go up 10 storeys to do repairs,” Ms. Desroches says.
The biggest concern though, is that Fiona is a harbinger for a future filled with bigger, fiercer and more frequent storms. “This [storm damage] is a direct line to climate change,” said Dominic LeBlanc, federal minister of Intergovernmental Affairs and Infrastructure.
Climate change has loomed in the background as a long-term threat to Prince Edward Island for years, but Fiona has brought home the immediate severity of the threat.
On Nov. 2, PEI Premier Dennis King tabled the province’s capital budget, proposing to spend a record $1-billion focusing on infrastructure investment over the next five years, including $308-million in the coming year.
The five-year plan includes specific climate-related measures, such as $10-million to bolster eroding shorelines and boost defences against extreme weather, and funding to make the island’s school bus fleet fully electric by 2030.
Protecting PEI’s shoreline infrastructure is a long-term need. A provincial climate change risk assessment released in October, 2021, predicts that, “nearly all Islanders are likely to be directly or indirectly affected by coastal erosion in the future.”
It’s also an urgent need, as the province needs to get ready for next year’s tourists.
“The damage is unprecedented,” says Doug Dumais, community engagement assistant for Charlottetown. The $220-million toll compares with the record $500-million in revenues from tourism in 2019, before COVID-19.
As Canada’s smallest province – the Greater Toronto Area is 1.25 times as large in area – PEI arguably has more at stake than other locations in repairing and recovering its buildings and infrastructure as fast as it can. The island’s economy depends almost entirely on agriculture, fisheries and tourism, all of which got hit hard by the storm.
“Fall is usually a big month for golf on Prince Edward Island, and the courses were forced to close in October. If you’re a resort operator and you’re hosting a golf tourist package, you didn’t have anybody come,” Ms. Desroches said.
Getting ready for tourists is complicated by the needs of residents, she added. “The storm hit multi-unit apartment buildings hard, because the residential vacancy rate on Prince Edward Island is near zero and there were few places for displaced residents to go,” Ms. Desroches says.
As the island province continues to repair and rebuild, leaders meeting in Sharm El-Sheikh for the 27th Conference of the Parties (COP27) to the United Nations Framework Convention on Climate Change (UNFCCC) are seeing if they can ratchet up measures to prevent more widespread disasters.
The outcome of their talks is uncertain; the world is already on track to miss the earlier-agreed upon target of keeping global temperatures from rising beyond 1.5 degrees Celsius compared with preindustrial levels, and the consequences for islands like PEI that are barely above sea level will be severe.
“Some of the impacts of climate change could disrupt daily life and livelihoods on PEI,” the province’s climate report warned last year, predicting widespread damage and in some cases, some people having to relocate as the coastline surrenders to the sea. It has taken only a year for the prediction – and the cleanup – to materialize.
Devyanni D had to leave her previous apartment and found rents had skyrocketed, forcing her to spend more of her salary on housing in Toronto.Galit Rodan/The Globe and Mail
Rising rents mean Canadians are devoting a higher portion of their income to rent, leaving them cash strapped and stressed about how much they might have to pay if they’re forced to move in the months ahead.
Inflation, rising interest and mortgage rates, growing utility costs and swelling demand are among the factors combining to lead to increasingly high rental costs across Canada, experts say, a marked change from the start of the pandemic when rents fell for a time.
Until recently, Devyaani D (the name she goes by), 28, a media and communications professional who works at an IT consultancy firm in Toronto, shared a two-bedroom condo with a friend, and paid $2,250 inclusive of utilities, in North York.
Then her landlord said she needed the rental unit for personal use. Though her landlord tried to be subtle, the message was clear – ‘Leave ASAP!’
This meant Devyaani had to start house hunting for the third time since her arrival in Canada in 2019. She decided it was time for a place of her own.
“I couldn’t find anything that was within my budget. I decided to go overboard and shed a good chunk of my salary on rent as I had no choice. It was either that or me moving outside the city,” she says.
She narrowed down her search to a few studio apartments that ranged from $1,400 to $1,600. “The $1,400 rental properties went off the market soon after they were listed. I had no choice but to go for the $1,600 studio.” Those condos are now renting for $1,800, she says.
“I fear what’s going to happen next year. Another email hinting that I leave? Maybe,” she added.
Even though her lease isn’t up for another six months, she regularly checks rental listings just in case. “I wish the rental market was more accommodating towards newcomers and single occupants. It’s hard to budget wisely [with] this inflation and forever rising rental market,” she says.
Devyaani’s tale likely resonates with the millions of Canadian renters – especially those who are stuck somewhere between unaffordable rents and even less affordable home-ownership.
The average condo rents in Toronto were up by double digits annually in the second quarter, according to the 2022 Rental Market Report by the Toronto Regional Real Estate Board (TRREB). The average one-bedroom rent increased by 20.2 per cent year-over-year to $2,269. Over the same period, the average two-bedroom rent was up by 15.3 percent to $2,979. And there’s no respite in sight.
Rent spikes can be seen across Canada. According to data from Rentals.ca, the average rent for all property types across the country was $2,043 a month as of September, up 15.4 per cent annually. The market low in April 2021 was $1,676.
In Calgary, average condo and apartment rents are up 24 per cent year over year to $1,770 in September, says data from Rental.ca. Vancouver is up 29.3 per cent to $3,225. Even Halifax has seen an increase of 13.8 per cent to $2,052.
“Vancouver renters were already shelling out compared to other parts of Canada. Honestly, I was expecting the rents to go down a bit post-pandemic,” says Apoorv Kudtarkar, a Vancouver-based recruiter who is feeling the pinch of high rents and housing prices. “The opposite has happened.”
He says that in 2018 he and his partner paid $2,300 for a two-bedroom apartment in Burnaby. They decided to move closer to downtown and had to shell out $2,400 a month plus utilities for a one-bedroom apartment.
“We are expecting our parents to arrive [from India] next year and stay with us, we are searching for a bigger place but to no avail. We aren’t even in a situation to purchase a house anytime soon,” he says.
Rental market conditions are expected to tighten further in the coming months, says TRREB president Kevin Crigger.
“Higher borrowing costs may have temporarily precluded home buying for some households, but the Greater Toronto Area (GTA) population continues to grow alongside a booming regional economy. This means that an increasing number of people requiring a place to live will turn to the rental market,” he says.
But are rising interest rates and inflation the only reason for the rent hikes? Brampton-based businessman and realtor Raman Angroya, who has two rental properties in Brampton, says high-interest rates constitute only one factor behind the unaffordable rent hikes. Mr. Angroya, who came to Canada as an immigrant in 2011, says the scarcity of rental supply and the influx of newcomers, both immigrants and international students, are leading to an exponential increase in demand.
With the rise in interest rates, Mr. Angroya’s monthly mortgage payments for both his properties have gone up by an additional $1,200 each.
“A basement [apartment] in Brampton rents for $1,300 which used to be $1,000 just a year ago. I won’t mince my words here and say landlords aren’t greedy. They probably are and, let’s be honest, who wouldn’t be given the mind-boggling demand?”
The rental crisis is not only affecting major centres like Toronto or Vancouver. The domino effects can also be seen in other cities like Calgary and Edmonton.
Julius Ogunnariwo, 80, a property manager and a realtor based out of Calgary is taken aback by how the rent prices have gone up in the city. “We have seen an influx of people coming to Calgary from Eastern Canada and Vancouver,” he says.
An average two-bedroom basement apartment used to rent for $1,000 prior to the pandemic but can easily cost $1,300 now. An upper two-bedroom can cost about $1,600, up from $1,300 before, he says.
Apart from the interest rates, “a lot of people bought houses at an expensive price so naturally, they are going to charge higher rent,” says Mr. Ogunnariwo, who owns nine properties in Calgary.
Kayla Andrade, chief executive officer and founder at Ontario Landlords Watch, says potential renters are also going above and beyond to ensure they can rent the place they desire.
“I have been a landlord for 20 years and in recent years I have seen drastic changes in how competitive tenants in Toronto have become because of lack of supply. They are willing to offer money upfront, show their extraordinary credit records and do everything possible to get that accommodation,” she says.
West Edmonton Mall’s Soundwave electronica dance party draws thousands of revelers. Brand exposure can be as valuable as sales, say experts.West Edmonton Mall/Twitter
On a recent day this summer, visitors to Canada’s major malls may have been entertained by some of the most ambitious events ever produced at these shopping centres.
A Latin culture festival with live music and food kept Mississauga’s Square One patrons partying until midnight. At Toronto’s Yorkdale, fans of TV show Friends explored a 20,000-square-foot exhibit devoted to the sitcom. Bayshore Shopping Centre, in Ottawa, hosted an outdoor farmers market and, later that night, a free movie on a jumbo rooftop screen.
West Edmonton Mall, a leader of hosting mall events, featured a mini comic-con for kids, a mass fitness session, and a massive Soundwave electronica dance party featuring the world’s fourth-ranked DJ sensation, Steve Aoki. (With a ticket price of up to $130, the event was 80 per cent sold out.)
Owners can actually increase revenue by treating it as a production centre and charging rent not based on sales but on consumer impressions, just like a media platform charges for brand impressions.
— Doug Stephens, founder of Retail Prophet
As many Canadian shopping malls leverage more and increasingly formidable events and attractions to draw foot traffic, the role of owners of these assets is evolving, says John Crombie, executive managing director of retail services at Cushman & Wakefield.
“The job of the mall landlord has now shifted to be more hospitality-based,” Mr. Crombie says.
“The concept of the mall is changing from a centre of transaction to a hub where community gathers,” Mr. Crombie says. “So, landlords require a greater understanding of that community and what it takes to engage it.”
Shopping centres across Canada were reinventing themselves prior to the pandemic, as expansive parking lots gave way to master-planned neighbourhoods dense with towers. The e-commerce revolution, which accelerated during the crisis – when online spending more than doubled in one month – has further reshaped the function of malls.
Doug Stephens, founder of Toronto-based consultancy Retail Prophet, says with shoppers able to buy virtually anything from the comfort of their couch, “the retail centre in and of itself is no longer a draw.”
Rather than focusing on building space and leasing space, he says, mall owners now have to think more like an entertainment business.
Salsa dancers swing on the plaza at Amazing Brentwood, which hosted 17 consecutive days of events this summer.Stephanie Lee/The Amazing Brentwood
“And that’s not exactly an easy lift for many of them. It’s a different skill set and it’s going to require, in some cases, reaching out to partners or hiring people with event production abilities,” he says.
Mr. Stephens envisions a time when the Eaton Centre in Toronto teams up with concert producer Live Nation to host after-hour concerts “that might spill out onto Dundas Street.”
He suggests malls could take a cue from toy shop Camp in New York, where just 15 per cent of the floor space is for shopping.
“The other 8,500 square feet is a playground for children with admission charged for special events. So, at Camp, they’ve said, we’re in the business of not just selling toys but selling a toy-buying experience: totally different thing,” Mr. Stephens says. “And shopping-centre owners need to look at it that way, too. They have space and they have audience. There’s no reason why the experience needs to be restricted to people coming in to buy merchandise. That’s a narrow way of looking at it.”
Tenants want to see an event crowd at a mall even if it doesn’t translate into sales because they covet brand exposure, he adds.
He compares the mall to a television network, newspaper or other media platform: “It may be that the purpose of mall landlords now is to attract large numbers of visitors so they can simply be exposed to the brands under their roof – just like a TV network’s entertaining content brings in people to watch advertisements.”
Given today’s omnichannel retail environment, the postevent brand purchase then happens anywhere, any time, Mr. Stephens says.
“If a retailer is exposed to 20,000 consumers on a Saturday afternoon at Square One, what is the value of that to the brand? That’s the way shopping centres need to start thinking. Owners can actually increase revenue by treating it as a production centre and charging rent not based on sales but on consumer impressions, just like a media platform charges for brand impressions.”
Maria Holly, senior vice-president in charge of retail leasing at Shape Properties, owner of Metro Vancouver’s newly redeveloped Amazing Brentwood mall, says Shape’s event-focused marketing is a draw for prospective tenants.
“The brands we’ve secured want to be a part of the excitement” that events create, Ms. Holly says.
Shape Properties’ revitalization of the 28-acre mall includes 11 towers but also a one-acre outdoor plaza and stage, which this summer hosted weekend music festivals and 17 consecutive days of events.
“We built the plaza purposefully as part of our leasing scheme,” Ms. Holly says.
“People do want to get together and connect, and these events and attractions provide more reason to go to the centre.” And while attendance can calculate success, website traffic and social-media impressions are also measured, Ms. Holly says.
It all adds up to a lease rate of $70 per square foot, more than double the national mall average of $30 (according to Colliers), and a vacancy rate of 5 per cent, almost half the average Canadian mall rate (with all unleased space under negotiation, Ms. Holly says).
Event planning starts with tenant collaboration, Ms. Holly says. Her work with retailers on the mall’s 2023 marketing plan included receiving “inspiring feedback” from the tenants.
Amazing Brentwood’s summer weekend music festival series featured NaRai Dawn.Stephanie Lee/The Amazing Brentwood
“The landlord-tenant relationship, the wall between it, has broken down,” Ms. Holly says. “We really need to work together to make both the Amazing Brentwood brand and the brands within it successful.”
Amazing Brentwood at times uses third-party event planners to assist with events. And in some cases, the mall’s retailers, aiming to promote their brand, become event partners. TD Bank sponsored the summer’s weekend festival series.
That connection led Ms. Holly to consider approaching the prestigious TD Vancouver International Jazz Festival to offer Amazing Brentwood’s plaza as a festival venue. “In the future, we’d like to become part of these bigger-known Vancouver events,” Ms. Holly says.
Reinvestment in Calgary, Edmonton and Toronto buildings — to keep them competitive — will be essential even as the office market recovers.Getty Images/iStockphoto
A cluster of office towers along Jasper Avenue was the commercial heart of Edmonton for a quarter of a century. But things have changed recently as new office towers are sprouting around Rogers Place, a few blocks to the north.
When major tenants moved to the newer buildings offering more amenities, some older Class A buildings ended up nearly vacant. In the core, vacancy rates were over 13 per cent before the pandemic and they now stand at around 18 per cent, with older A class buildings as high as 21 per cent.
As available space increases, we’re going to see landlords getting much more competitive to offer compelling rate structures but also investing in their buildings and lobbies.”
— Jon Ramscar, national managing director at CBRE
“We’re seeing a flight to quality, to new products that have state-of-the-art HVAC and mechanical systems, larger floor plates and offer lifestyle and amenity-rich environments and social hubs,” says Mark Hartum, principal with Avison Young in Edmonton. To stay competitive, landlords of older buildings are heavily investing in renovations that add collaborative space.
Flight to quality has gained momentum in cities across Canada in the wake of the pandemic, as tenants want amenities that attract workers accustomed to working from home back to the office, says Jon Ramscar, CBRE national managing director based in Toronto.
With vacancy rates at historic lows prepandemic, he says, landlords had less incentive to make investments in fully leased buildings.
“But as available space increases, we’re going to see landlords getting much more competitive to offer compelling rate structures but also investing in their buildings and lobbies,” he explains.
The 103 Street Centre Edmonton features a new social staircase with main floor lounge.Merle Prosofsky Architectural Photography Ltd.
The kitchen at 2680 Skymark was built on spec by Crown.Crown Realty Partners
“Ventilation and touch-free surfaces are big asks because of the pandemic and most quality buildings have upgraded their filtration and air handling and made access points and fixtures in washrooms touch-free in the past two years,” he says.
But now features as simple as coffee houses and bike-storage facilities for those who commute by bike have become significant differentiators as potential tenants consider an office move.
State-of-the-art technology is essential as tech companies are the drivers of office demand seeking out new Class A buildings across North America, he adds. That’s also increasing demand for buildings to consider environmental, social and governance factors to achieve net zero, which will have a huge impact on future investments.
“The market was so tight for space before the pandemic that everyone could lease space no matter what space you had,” says Scott Watson, managing partner, acquisitions and leasing for Crown Realty Partners, whose portfolio includes 70 office buildings in Toronto and Ottawa. “But today when vacancies are in the high teens in many markets, it’s way more challenging,”
With supply outstripping demand, even normally competitive Toronto is seeing double-digit vacancy rates, he says. “The average tenant looks at four spaces before they commit to an office building. And when you look at the financial core of Toronto, there’s a lot more than four buildings competing. It’s tougher to stand out, so you have to offer unique amenities to be attractive.”
Prebuilding suites is a way to get ahead of the curve, Mr. Watson says, as tenants want fully move-in-ready space. Crown has been building suites on spec in its buildings with efficient layouts and new finishes and app-enabled conference centres.
“We want our office experience to feel fresh and inviting from the moment you enter our building doors to the time you sit down at your workspace,” he adds.
In the past, Crown’s prebuilt suites were seldom larger than 3,000 square feet. But “recently we’ve been increasing those sizes; we have one in construction right now that’s a 21,000-square-foot full floor at a cost of about $1.2-million, in the hopes of attracting a tenant and competing with new spaces that are out there.”
Reinvestment in buildings to keep them competitive will be essential even as the office market recovers, Mr. Hartum says. “The alternative is to compete on price alone, which is not ideal [because] if landlords don’t achieve enough economic rent, the result will be less capital available to reinvest in the building and its systems.
“Long term, this is not a good solution, and forces tenants to shop around and continue to empty out these older buildings. That isn’t healthy for the market as a whole.”
Edmonton landlords have been inventive and invested in rebuilds that are attracting new tenants to vacated buildings, he notes. An example is the 22-storey 103 Street Centre near Jasper, built in 1980. It saw most of its space vacated when Enbridge decided to consolidate its offices in a new building.
To bounce back, AIMCo/Epic Investment Services did a rebuild of 103 Street Centre aimed at the growing tech community in Edmonton. The lobby and second floor were connected by a “social staircase,” with bleacher-like seating for people to sit and have conversations or work on a laptop, along with a flexible presentation space for more than 100 people on the main floor.
Other additions include a conference centre, meeting rooms, tenant lounges, a games room and a kitchen and dining area. It’s been so attractive to new tech clients that the vacancy rate plummeted from 95 per cent to just 22 per cent, “which is still high, but it really has been a substantial turnaround,” Mr. Hartum says.
In another building known as First and Jasper, managed by GWL Realty Advisors, Avison Young has been engaged to handle project management of the main floor of the 20-storey building on Jasper Avenue which housed retail tenants that were struggling.
The space was rebuilt into tenant-focused amenities, including a lobby refresh, fitness and wellness centre, conference and meeting centre, parcel storage and concierge desk, Mr. Hartum says. The building is also pet friendly, which isn’t common in Edmonton, he adds.
The intent is to continue adding new tenants similar to the tech companies that recently joined the building, including Google DeepMind which is opening its first AI research labs outside of Britain.
Crown has been building suites on spec in its buildings with efficient layouts and new finishes and app-enabled conference centres.Crown Realty Partners
Edmonton landlords have been inventive and invested in rebuilds that are attracting new tenants to vacated buildings.Merle Prosofsky Architectural Photography Ltd
Leasing interest picked up significantly across Canada as lockdowns have ended, “but we’re still on hold waiting for a lot of large organizations to commit to their longer-term office plans, whether it be renewing leases, reducing their space needs or even increasing their footprint to accommodate new amenities for the employees or business expansion,” Mr. Ramscar says.
Tenants who may have put space up for sublease during the pandemic are now holding on to it waiting to see how quickly workers return to the office.
“Leasing activity is expected to increase throughout the remainder of the year as occupiers make decisions on their office space,” Mr. Ramscar says, “and we fully anticipate a continued focus on the flight to quality.”
On behalf of owner Slate Asset Management, Colliers has leased approximately 180,000 square feet in the newly renovated Stephen Avenue Place to such businesses as WeWork and mCloud. Colliers says vacancy rates for such quality office space in downtown Calgary is much lower than the city’s overall vacancy rate.Slate
In what appears to be a sign of confidence that Alberta’s economy is making a comeback, investors spent a record amount on commercial real estate in the province’s largest city during the first four months of this year.
Calgary’s commercial real estate sales in Q1 2022 topped $1.6-billion, according to The Network research firm. While this can largely be attributed to the $1.2-billion sale of downtown’s iconic Bow skyscraper, the chart-busting quarter was preceded by “a dramatic increase in sales through the third and fourth quarters of 2021,” states The Network’s report, released in April.
Adding to higher sales is a “significant increase in leasing activity for commercial property in Calgary,” says Justin Mayerchak, executive vice-president and partner at Colliers’s Calgary office.
Calgary is in the midst of an industrial real estate boom.
— Adam Grisak, director of valuation and advisory services at Colliers Canada
After enduring seven years of economic lethargy linked to the struggling energy sector, only to be further pummelled the last two-years by the pandemic, “Calgary has finally seen two consecutive quarters of positive absorption of office space,” says Mr. Mayerchak.
The vacancy rate is still the highest of Canada’s 10 major cities, at 28 per cent. But in this city, which has more office space per capita than any other in the country, vacancy has “compressed considerably” – to around 10 per cent – in higher-classed buildings. Occupancy for downtown AA space recently crossed the 13-million-square-foot mark for the first time in recent record.
“A 10-year high in oil pricing is sparking optimism in the energy sector and, by extension, Calgary’s downtown office market,” states Colliers’s Q2-2022 Downtown Office Market Report. “For the first time in several years, Colliers has seen companies in the energy sector looking to increase their overall office footprint, stepping away from the downsizing witnessed over the past few years.”
Meanwhile, Calgary’s industrial property market is “absolutely on fire,” says Mr. Mayerchak. Vacancy rates fell 50 per cent in the past year and now hover around 3.5 per cent – the lowest since 2014. Major players such as Amazon, Lowe’s, Home Depot, Canadian Tire and Walmart have made billions worth of investments in the province as they expand their industrial spaces.
According to Adam Grisak, director of valuation and advisory services at Colliers, “Calgary is in the midst of an industrial real estate boom.”
In a recent article published on Real Estate News Exchange, Mr. Grisack wrote: “Increasing job numbers have sparked renewed optimism in the city, making Calgary an attractive destination for businesses.”
After posting the second-strongest annual economic gain among the 10 provinces in 2021, the Conference Board of Canada projects that Alberta will lead the country in economic growth in both 2022 and 2023.
This optimism has driven more people to the province. According to Statistics Canada, Alberta welcomed 16,690 newcomers in the third quarter of 2021, the most in nearly seven years.
One of Calgary’s largest owners of multifamily buildings is reaping strong returns. Mainstreet Equity Corp., with 3,229 units in dozens of holdings, achieved 12-per-cent growth in Q1 2022, its fourth consecutive quarter of double-digit revenue increase.
The company expects more growth ahead. “Canadian oil production was the highest on record in 2021, and energy companies reaped their largest-ever revenues over the year – $158-billion,” states Bob Dhillon, president and chief executive officer of Mainstreet, in the company’s Q1 2022 report. “We believe this will help propel an influx of migration, extending the positive trend we have seen in recent months.”
Even with the global movement away from oil and gas, Mr. Dhillon remains optimistic about Calgary’s future. That’s because “Calgary’s economic foundation is becoming increasingly diversified,” he asserts, and this is another draw for workers.
Calgary’s commercial real estate sales in Q1 2022 topped $1.6-billion, a
new record for sales in a single quarter.Jeff McIntosh/The Canadian Press
During Calgary Economic Development’s annual Report to the Community event, which took place virtually on April 28, the city’s mayor, Jyoti Gondek, spoke of Calgary emerging as a global hub for innovation in energy transition.
“Shifting our narrative and securing Calgary’s position as a leader in the energy transformation may be the most important thing we do for our city’s economic future,” said Ms. Gondek.
Calgary was recently recognized as a cleantech “ecosystem to watch,” ranking in the top 30 out of nearly 300 cities by the international innovation research firm Startup Genome, the mayor noted.
Greg Kwong, executive vice-president and regional managing director at CBRE’s Calgary office, recalls that only a handful of years ago, “people were saying, ‘I don’t know if I could ever go back there,’ ” referring to Calgary. After all, in 2017, the Conference Board ranked Alberta’s economy third last in Canada.
“Now, you talk to any major economist from any financial institution and all their numbers point to Alberta having Canada’s strongest growth for the next 12 to 18 months,” he says.
“But I’d go further,” he adds. “I’d make that five to 10 years.”
Along with its soaring economy, the city’s low cost of living will continue to draw new business, says Mr. Kwong.
Calgary’s average home price, currently a record high of $605,000, according to the Calgary Real Estate Board, is still less than half of Vancouver’s at $1,374,500, or Toronto’s at $1,254,400.
It’s the same for commercial real estate: According to CBRE, office lease rates in Calgary cost $16.55 per square foot compared to $39 in Vancouver and $28.15 in Toronto. Industrial space is also nearly half the price compared to those two cities.
Mr. Kwong says Vancouver’s university graduates tell him they can’t afford to live in that city. “So, they’re moving here. In fact, [of] the last six people I’ve hired – three are from Vancouver.”
Canada’s average annual salary – $66,800 according to most recent StatCan figures – is not enough to save for a starter home in Vancouver, Mr. Kwong says.
“We’ve got smart, ambitious young people who are moving here. Those people don’t just sit in their heads. They’ll start businesses. They’ll work for people. They’re going to create.”
And when major businesses set up new locations, adds Mr Kwong, “they’re looking at two factors. One: Can they open up shop and hire 5,000 people? Two: What are the overhead costs? Then they look at everything else: logistics, support services, quality of life. But if they can’t find the staff and operating costs are too high, you get precluded from a lot of site searches.”
Mr. Kwong says that record spending on commercial real estate this year attests to investors’ “confidence in the long-term economy.”
These investors, Mr. Kwong concedes, are also following two adages, “that have always proven successful in real estate. Location, location, location; you’ve heard that many times.
“The other is, of course, buy low, sell high.”