The shutdown of Silicon Valley Bank sent shockwaves across global markets and triggered a reassessment of future rate moves by central banks, including that of the Bank of Canada.DADO RUVIC/Reuters
Getting caught up on a week that got away? Here’s your weekly digest of the Globe’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.
Silicon Valley Bank has collapsed – now here’s the good news
The collapse of Silicon Valley Bank, one of the world’s most prominent technology financiers, marked the second-biggest bank failure in U.S. history after Washington Mutual in 2008. The shutdown by California’s Department of Financial Protection and Innovation sent shockwaves across global markets and left governments and tech CEOs scrambling to limit the impact of SVB’s sudden failure. According to David Rosenberg, major banks are continuing to tighten their lending guidelines and boost their loan-loss provisions, and Americans should be prepared for a period of deflation. Meanwhile, bond markets have made a dramatic reassessment of future rate moves by central banks, including that of the Bank of Canada, writes Darcy Keith. For Canadians looking to buy a home, renew their mortgage or borrow money, Rob Carrick says that the demise of SVB is the break you’ve been waiting for.
Flair Airlines has four planes seized for non-payment
If you have a Flair Airlines flight booked for summer travel, you may want to double-check your boarding pass. The Edmonton-based discount carrier had four airplanes seized last week for non-payment of US$1-million to Dublin-based Airborne Capital Ltd., Eric Atkins reports. Working with bailiffs, the leasing company grounded four Boeing 737s: two at Toronto Pearson Airport, one in Edmonton and one in Waterloo, Ont. Flair leases six planes from Airborne – two 737s have not been seized – and another five from Bank of China Aviation. Flair recently paid its arrears to the Bank of China, but failed to come to an agreement with Airborne.
Canada’s real estate correction, in inflation-adjusted terms
February’s housing report from the Canadian Real Estate Association indicated this is the steepest house price correction at the national level in decades. The typical home in Canada has fallen by $132,000, or 15.7 per cent since last February – even worse when you factor in inflation. In inflation-adjusted terms, national house prices have fallen nearly $168,000, a nearly 20 per cent decline. Meanwhile, bigger mortgages and higher interest rates mean ownership costs eat up 60 per cent of average household incomes now, compared with 44 per cent then, according to RBC Economics. Jason Kirby takes a closer look in this week’s Decoder.
Tips for filing your income tax return
Tax season is upon us, and Canadians are urged to file earlier due to an impending strike involving 35,000 Canada Revenue Agency workers. With that in mind, Tim Cestnick offers six tips to help you file your tax return properly. You may be entitled to some new credit or benefits, such as the first-time homebuyer’s tax credit (the base amount was increased to $10,000) or the home accessibility tax credit (eligible expenditures increased to $20,000). You may also want to look into whether you qualify for the new Canada Dental Benefit. Ontarians who booked a staycation in the last year can claim 20 per cent of eligible accommodation expenses, such as hotel or campground stays, up to $200 per person on their taxes.
Volkswagen to set up EV battery factory in St. Thomas
German auto giant Volkswagen announced this week that St. Thomas, Ont., has been chosen as the site for its first battery factory outside Europe, after considering locations in both Canada and the United States. As Adam Radwanski reports, this helps solidify Canada’s effort to position itself as a major player in electric-vehicle manufacturing. While details of the planned investment, including the dollar amount, haven’t been disclosed, a 1,500-acre swath of land near London has been designated for industrial development. Other possible destinations such as Windsor have already reached their capacity to support such projects because of recent EV-related commitments by Stellantis NV and LG Energy Solution. The workforce in St. Thomas, which has struggled to replace hundreds of jobs lost when Ford closed its assembly plant over a decade ago, is not stretched as thin.
Why the U.S. wants to ban TikTok – and what it means for Canadians
The Biden administration has threatened to ban TikTok in the United States if the social media app’s Chinese owners, ByteDance, refuse to sell their stakes. White House officials have grown increasingly concerned about the safety of Americans’ data. But a nationwide ban would face significant legal and societal hurdles, since TikTok is popular with over 100 million Americans and an app has never been banned in the country. We look at the bill currently being considered by Congress, the response from TikTok, how this ban potentially affects American content creators – and whether this could happen in Canada too.
Sign up for MoneySmart Bootcamp: If you want to improve your financial fitness, The Globe’s MoneySmart Bootcamp newsletter course is for you. This new five-part course written by personal finance reporter Erica Alini will improve your personal finance skills, including budgeting, borrowing and investing. Subscribe to the MoneySmart Bootcamp and you’ll receive an e-mail a week to work a different financial muscle. Lessons will land in your inbox Wednesday afternoons.
Now that you’re all caught up, prepare for the week ahead with The Globe’s investing calendar.
The collapse of Silicon Valley Bank and Signature Bank could reverse interest rate trends in U.S. and Canada, potentially bringing down mortgage costsZoon Media
Here are The Globe and Mail’s top housing and real estate stories this week, with the lowest mortgage rates available in Canada today, commentary from our mortgage expert and one home worth a look.
What housing crash? What Canadian markets look like for the spring
Prospective home buyers held their breath in anticipation last year as real estate prices declined across the country, hoping to enter the market as prices would plunge. But the housing crash didn’t happen. A year after the Bank of Canada started raising interest rates, houses remain unaffordable, mortgages cost more, and homeowners are holding on to their properties, making real estate listings scarce. Erica Alini and Rachelle Younglai look at what to expect from the market this spring.
The collapse of Silicon Valley Bank could reverse interest rate hike trends
The U.S. Federal Reserve was widely expected to raise interest rates at its next meeting on March 22, but the sudden failure of Silicon Valley Bank (SVB) – the largest collapse of a U.S. bank since the 2008 crisis – has investors slashing their bets, Mark Rendell reports.
The bank’s failure is sharpening the tensions between fighting inflation and managing risks of financial instability, leading markets to believe the Fed will hold off on further interest rate increases to stabilize the economy.
Why the SVB collapse is the best news for mortgage renewals and homebuyers
The failure of SVB could ripple through the economy, but for now, fear is manifesting itself through a rush of money into government bonds. The rush to the market is raising prices and bringing down interest rates on bonds.
The cost of fixed-rate mortgages is heavily influenced by interest rates in the bond market, which makes this the best news in a while for anyone renewing their mortgage or buying a house, writes Rob Carrick. Plus, the fear of economic instability triggered by the bank’s failure could push central banks to lower interest rates sooner than anticipated.
Mortgage specials start arriving, just in time for spring
This week’s market news could lead mortgage rates to go on sale, writes Robert McLister.
Canadian home sales are up slightly as prices continue to fall in February
Home prices in Canada fell in February for the 12th month, but sales volume is rising slightly in a potential sign that buyers are adjusting to higher interest rates, reports Rachelle Younglai.
The Home Price Index, which adjusts for pricing volatility, reached $704,300 last month, a 1.1-per-cent fall from January and a 16-per-cent loss from last February, when values hit their record high, according to the monthly report from the Canadian Real Estate Association (CREA.)
Decoder: The hit to Canadian house prices is deeper than it seems
While February’s housing report contained signs that the market may be stabilizing, it also cemented this as the steepest house price correction at the national level in decades, reports Jason Kirby.
According to CREA data, the typical home price in Canada has fallen by $132,000 since February 2022, and the drop is actually worse once inflation is factored in. In real, or inflation-adjusted terms, national house prices have fallen nearly $168,000, a more-than-19-per-cent decline.
Home of the week: A Calgary home for the tech lover
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Home of the Week, 530 Crescent Rd. NW CalgaryZoon Media
1 of 30
The Crescent area of Calgary, just a 15-minute walk to downtown, offers stunning vistas and a mix of more traditional and newly built homes. The lot size is 28.9-by-120 feet, and the entire house is oriented toward the view: a modernist building with 13-feet high windows – made in Belgium – and outdoor spaces with built-in fireplaces.
On the very back of the house is a screened-in back deck and an office workspace. Sitting in the office, you can turn around and look straight through to the front terrace and beyond. “The idea was, wherever you are, you have a view to the downtown,” the owner said.
What do you think is the asking price for this house?
a. $995,000
b. $1,899,000
c. $3,550,000
d. $2,350,000
a. The asking price is $3,550,000.
The Alliance of Canadian Cinema, Television and Radio Artists held rallies in front of the Toronto offices of Leo Burnett, on July 11.HO/The Canadian Press
A months-long labour dispute between the Canadian actors’ union and a not-for-profit association representing some of the country’s largest advertising agencies appears to have no end in sight, leaving tens of thousands of commercial actors struggling to make ends meet.
Talks to renew a collective agreement fell apart April 26, when one of its three signatories, the not-for-profit Institute of Canadian Agencies (ICA), walked away from the bargaining table. The National Commercial Agreement (NCA) dictates terms and conditions for actors, securing higher rates, retirement contributions and a multiemployer benefit plan.
The affected actors say they are being locked out from doing commercials with ICA’s lengthy list of clients, which include the Canadian government and corporations such as Walmart, Google and McDonald’s. Their union, the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA), has expressed concerns that this will open the door for advertising agencies to hire and underpay non-union actors for what are typically higher-end productions.
“It’s a pretty horrible feeling,“ said Michael G. Brown, who has appeared in television shows Dark Matter and Nikita. Commercial work kept him afloat financially at the peak of COVID-19, he said, with between two and three auditions coming in each week. Since negotiations collapsed, he said he has been pushed to take less lucrative work with lower budget productions, and may have to find a second job.
“It sets a precedent that I feel like is already really prevalent in our society, which is that we don’t really as a society care about our art or where it comes from,” he added.
Prior to April, the National Commercial Agreement had been in effect for 60 years, held together by its three signatories: ACTRA, ICA and the Association of Canadian Advertisers (ACA). The contract, which must be renewed and ratified every few years, affects any ACTRA member (which has a membership base of 28,000) who does commercial work in Canada.
In May, the ACA and ACTRA agreed to a one-year extension of the agreement without ICA; it will be up for renewal in June, 2023. But without ICA’s client list, actors say, there hasn’t been enough work to go around. The ICA is disputing claims that union actors are being barred from commercial work with their clients, alleging instead that ACTRA is pushing its members away from those jobs.
Representatives from both ICA and the ACTRA told The Globe and Mail they would like to return to negotiations, but they appear to be at a stalemate.
ACTRA alleges ICA came to the bargaining table with proposals that would see wages reduced by 60 per cent, and that eliminated benefits and retirement plans. Scott Knox, chief executive officer and president of ICA, said those proposals were never discussed. According to him, negotiations broke down after ACTRA would not agree to an amendment ICA proposed. It would force foreign advertising agencies to become NCA signatories and follow the contract’s rules when it came to union actors, such as payment requirements and how long an advertising agency could use an actor’s image.
Alistair Hepburn, ACTRA’s executive director, said the union has filed a complaint with the Ontario Labour Relations Board, alleging ICA and several of its ad agencies bargained in bad faith. Speaking to The Globe, Hepburn accused ICA of purposely proposing terms ACTRA would never agree to in an attempt to “bust the union,” which he said would deteriorate working conditions for actors and give advertising agencies the leverage they needed to pay less.
Chyann Garrick, who had been working steadily as an actor since 2019, said the labour dispute ground her commercial career to a halt, and has forced her to consider employment opportunities outside of acting.
Before what is known among actors as the “commercial lockout,” Garrick, who joined the union in 2020, said she was booking at least one ad campaign a month – sometimes two or three, at the height of the pandemic. But since negotiations crumbled, Garrick said, she has had significantly fewer auditions and booked zero campaigns. “I used to get about 20 to 30 auditions per month. I’ve probably had eight this whole year.”
Union actors aren’t paid by ACTRA during labour disputes, so to compensate for her losses she has found work as an operations manager at a photography studio. But Garrick misses acting full-time, and has had difficulty adjusting to the restrictions of a 9-to-5 job.
“For three years, I didn’t have to do any other work to really supplement my income. … Now a lot of my time is occupied with e-mails and meetings and things that I’m not really necessarily passionate about.”
For many actors in Canada, commercials forms the basis of their income during dry periods of larger productions. Without it, said Blake Johnston, a union actor who predominantly does voice work, Canada could see a talent drain as actors look to other industries or move to book productions outside of the country.
Bumping union actors out of commercial work is like “taking away the lifeblood of actors in Canada,” he said. American productions “basically do all the major casting in the States and then they come up here, so we only get scraps of what is possible for castings in these major shows.”
Johnston said he was booking an average of one commercial a month before the contract talks collapsed. He says he has pivoted much of his career to online brand partnerships and voice work for the television show Bakugan.
“I hope there’s a resolution soon. But … it feels like the advertising agencies are trying to bleed ACTRA dry and they’re trying to almost dissolve the union because they know they can wait this out and ACTRA can’t,” he said. “It feels like this is just going to get uglier.”
Canadians who have been able to keep a stockpile of cash are better prepared for the impending recession.Denis Pepin/Getty Images/iStockphoto
Getting caught up on a week that got away? Here’s your weekly digest of The Globe’s most essential business and investing stories, with insights and analysis from the pros, stock tips, portfolio strategies and more.
Are you financially ready for a recession?
The recession we’re heading into may be the most unfair in history. Never has there been such a clear dividing line between those who can arm themselves with savings and those who can’t afford to, writes Rob Carrick. During pandemic lockdowns, many Canadian households were able to stockpile cash, while others eked by and never built cash reserves or have since spent those savings. Keeping a stockpile of cash protects you against the interrupted incomes and job losses that are inevitable in recession as employers react to a weakening business environment.
Higher payments are coming for homeowners with variable-rate mortgages
If you’re a Canadian homeowner with a variable-rate mortgage, you may not be sleeping very soundly these days. With soaring interest rates, banks are contacting many clients to inform them that they’re reaching their trigger rate, signalling higher monthly costs for a growing number of homeowners and a longer payback period. As Salmaan Farooqui reports, the vast majority of Canadian variable mortgages have fixed payments, meaning that payments stay the same even as interest rates rise moderately. But because interest rates have climbed dramatically this year, variable mortgages are starting to hit what’s known as the trigger rate – the rate at which the monthly payment would not be enough to cover the interest owed. So with the Bank of Canada widely expected to announce another outsized rate increase before the end of the month, is it time to switch to a fixed-rate mortgage? Erica Alini explores the pros and cons of locking in a fixed rate versus riding it out.
Renters: Be prepared to compete – and pay more
Bidding wars and bully offers are no longer reserved for homebuyers. After seeing falling rent prices during the pandemic, competition is intense in the Greater Toronto Area’s red-hot rental market as the region continues to struggle with a severe housing shortage – and if you do happen to come out on top, be prepared to pay a premium. According to Urbanation data, a record 36 per cent of GTA condos were leased for above the listing rate in the third quarter, and on average, those condos were rented for a $129 monthly premium over asking, also a record high. The average condo was leased for $2,733 a month, an increase of 18.6 per cent from a year ago. Will this trend continue or can renters expect some relief any time soon? Matt Lundy looks at the data in this week’s Decoder.
Inflation continues to decelerate – but not fast enough
Canadian inflation slowed slightly in September, but not as much as financial analysts were expecting, paving the way for another outsized Bank of Canada rate hike on Oct. 26. The consumer price index rose 6.9 per cent in September from a year earlier, Matt Lundy reports. That was down from 7 per cent in August and marked the third consecutive month of deceleration. Gasoline prices fell 7.4 per cent, but grocery prices rose 11.4 per cent. To tamp down inflation, the central bank is universally expected to deliver another large rate hike – perhaps taking the policy rate to 4 per cent, the highest since 2008, as more economists are now predicting.
Real estate influencers are fuelling Canada’s housing crisis
A growing number of real estate investors are using social media to fund real estate deals, which has helped fuel the investing craze in Canada that revved up when home prices soared and COVID-19 restrictions led people to spend more time online. As Rachelle Younglai and Jessica Burgess report, over the first year of the pandemic, investor buying of residential properties doubled in Canada. By the middle of last year, investors accounted for more than a fifth of the country’s home purchases. But when things go wrong with real estate, they can really go wrong. With rising interest rates and cooling housing markets, promoters may not be able to deliver the profits they promised their investors, which has, in turn, upped the pressure on them to further raise rents, worsening the country’s affordable-housing problem. Regulators don’t seem to be paying attention, and without enforcement, promoters are raising capital with little to no legal scrutiny.
Liz Truss is gone but the U.K. crisis lives on
Liz Truss resigned on Thursday after a brief, chaotic tenure marked by economic and political turmoil, becoming the shortest-serving Prime Minister in British history. Britain’s financial markets were plunged into turmoil on Sept. 23 after then-new finance minister Kwasi Kwarteng announced billions of pounds of unfunded tax cuts. The Bank of England was forced into emergency bond-buying to stem a sharp sell-off in Britain’s £$2.3-trillion government bond market that threatened to wreak havoc in the pension industry and increase recession risks. Mr. Kwarteng was soon fired and his replacement, Jeremy Hunt, scrapped “nearly all” of the economic plan and scaled back Ms. Truss’s vast energy support program, in a historic U-turn to try to restore investor confidence. “The experience in the U.K. underscores that, in an environment of tightening monetary policy, there will be rising tension between various macroeconomic objectives,” Mark Carney, who was Bank of England governor from 2013 to 2020 and a former Bank of Canada governor, said just hours after Mr. Truss’s resignation.
Now that you’re all caught up, prepare for the week ahead with the Globe’s investing calendar.
Construction workers work on the top floor of the Time and Space condominium project in Toronto’s Front St. East and Sherbourne St. neighbourhood on Oct 11.Fred Lum/The Globe and Mail
Rental apartment construction dropped sharply in Toronto in the first half of the year, according to a new government report that suggests it has become “less and less tenable” for developers to shoulder rising building costs.
Housing starts for apartment rentals fell 24 per cent to 1,436 units in the first half of this year compared with the same period last year, Canada Mortgage and Housing Corp. said in a new report released Tuesday. Four of the other five major cities CMHC surveyed showed an increase in apartment rental starts, with Calgary more than doubling over the same period.
Across the country, there has been a push to build more rental housing, also known as purpose-built rental, to help house the growing number of residents who have long been priced out of the real estate market.
But in Toronto, developers have less incentive to put up purpose-built rental buildings because demand is so high from investors seeking to buy preconstruction condos.
As well, many would-be home buyers cannot afford a house, given that the typical selling price is more than $1-million in the Toronto region. Condos are relatively cheaper.
The sharp rise in construction costs has also been a factor for developers. CMHC said costs are up 22 per cent, year over year. Those expenses, along with the jump in interest rates and higher land costs, “appear to make” purpose-built rental construction in Toronto “less and less tenable,” the report said.
Matt Lundy: Why aren’t more homes for sale? They’re being rented
Because of strong demand for preconstruction condos, it is easier for developers to quickly recoup their costs on them. Once a condo building has been completed, buyers close on their units and the developer gets paid.
“You sell and you’re done,” said Dana Senagama, CMHC’s senior specialist for the Toronto region.
With a purpose-built apartment building, however, developers face a longer period to recoup their costs. Leasing a building can take over one year, and still that does not cover all the development expenses. “You kind of have to wait a long time to recover that cost,” said Ms. Senagama. “So, it is just not attractive.”
The CMHC report looked at the proportion of new high-rise units that are rental apartments versus condos, and said Toronto was the only major urban centre where condo building outstripped rental apartment construction in the first half of the year compared with the average of the prior five years. Purpose-built rental starts accounted for 10.7 per cent of the high-rise housing starts in Toronto in the first half. In the previous five years, the average was 17.4 per cent for the first half of the year.
Montreal also showed a decline in purpose-built rental construction over the past year. But overall, rental starts accounted for 67.6 per cent of the high-rise housing starts in Montreal in the first half of this year. That is higher compared with the previous five years, when the average was 61.2 per cent. Similarly, in Vancouver, Ottawa, Calgary and Edmonton, developers are shifting toward purpose-built rentals.
For Toronto, this year’s rental starts marked the lowest level since 2017. The CMHC report said this decline suggests “some builders may be pausing to reassess the feasibility of development.”
The slowdown is occurring as monthly rental rates are soaring. The average condo rental hit $3.57 per square foot in the second quarter of this year, according to condo research group Urbanation Inc. The average monthly rent for a one-bedroom condo was $2,182 across the Toronto region.
Demand for rental units has increased owing to a number of factors. Would-be buyers are either continuing to rent or looking for a place to rent because they no longer qualify for a home loan now the cost of borrowing has spiked. As well, international students and Toronto workers have been returning to the city as most government COVID-19 restrictions have been lifted.
A house on Hillside Ave, in Toronto’s west end that has been sold on May 18.Fred Lum/The Globe and Mail
How far will home prices have to fall before the Bank of Canada eases off on its rate-hiking strategy?
Further than you probably think.
The smart bet, until recently, was that the central bank would stop hiking rates at a level that might correspond to, say, a 10-per-cent decline in home prices. A fall of that magnitude would reverse several months of recent market gains. It would not, however, be a devastating blow to most long-standing homeowners or to the economy as a whole.
That benign outlook is fading. Central banks around the world, including the Bank of Canada, sound increasingly determined to crush inflation, whatever the cost. The recent rhetoric from policy makers in this country suggests that house prices – and the broader economy – could become collateral damage in the battle against persistently rising prices.
“The risk is that the bank will take a more aggressive approach to policy tightening than is ultimately required, driving home prices sharply lower and risking a major recession,” Stephen Brown, senior Canada economist at Capital Economics, said in an interview.
In a report this week entitled “Bank risks sending housing into a tailspin,” Mr. Brown outlined some disturbing numbers. He noted that recent rate hikes have already sent the national real estate market into a deep freeze. Home sales plunged in April and again in May.
Yet the Bank of Canada appears unconcerned. It devoted one sentence to housing in a policy statement last week. That was followed by a speech from deputy governor Paul Beaudry that didn’t even mention the housing market.
Instead, Mr. Beaudry took the opportunity to declare the central bank’s willingness to take “the policy rate to the top end or above the neutral range to bring supply and demand into balance.” Translated from the jargon, his declaration suggests much higher borrowing costs for homebuyers.
The bank considers its neutral rate – that is, the policy interest rate that would keep inflation pinned to the bank’s target when the economy is operating at full potential – to be between 2 and 3 per cent. If the bank were to follow through on its rhetoric and eventually take its policy interest rate, now at 1.5 per cent, to above neutral – say, to 3.5 per cent – the results would be dramatic. Five-year fixed mortgage rates would probably jump to around 4.5 per cent and variable rates to around 4.9 per cent, Mr. Brown estimates.
Both would constitute massive increases from the lows in September, 2021. Mr. Brown calculates that a median-income household devoting a third of its pretax income to mortgage payments at those higher rates would be able to afford a house worth only $525,000. Yet the average house price at the end of the first quarter was $875,000.
Even allowing for wage gains, “an average of those mortgage rates would reduce the maximum house price that a buyer could afford by 23 per cent,” Mr. Brown wrote.
This would constitute the most dramatic hit to affordability since the early 1980s. Back then, former U.S. Federal Reserve chair Paul Volcker took the lead in hiking interest rates to punishing levels. His take-no-prisoners attitude toward inflation was emulated by the Bank of Canada and other central banks and led to a brutal recession.
Could a similar scenario play out again? Mr. Brown thinks the odds are against it. Until recently, he saw the bank topping out its rate-hike cycle at 2.5 per cent. He now acknowledges that 3 per cent seems like a distinct possibility, but struggles to see policy makers going beyond that level because of the dire economic consequences.
The key, though, is what central bankers deem to be the greater danger – a potential recession or the risk that inflation could become embedded in the economy.
If the past year has taught us anything, it is that central bankers are struggling to stay ahead of inflation. In both Canada and the U.S., prices are rising at their fastest clip in decades. The latest readings, on Friday, showed U.S. consumer price inflation rose yet again in May, to an annualized pace of 8.6 per cent, while Canadian wages took an unexpected leap higher.
Markets have so far taken such flashing red lights with surprising equanimity. Look, for instance, at break-even rates, which measure inflation expectations in the bond market by calculating the difference between what inflation-protected bonds are paying and what conventional bonds are yielding.
These break-even rates have bobbed up only slightly. They suggest U.S. inflation will average about 2.8 per cent over the next decade – slightly higher than the 2 per cent preferred by central bankers, but no great reason to worry.
There are at least a couple of ways to interpret this odd lack of alarm.
One is that investors are confident inflation will fade of its own accord over the coming year as pandemic excesses dissipate.
Another is that investors are confident that central banks will do whatever is necessary to put a lid on inflation, even if it means hammering their economies with one rate hike after another.
Mr. Brown leans toward the former interpretation. He sees encouraging signs, such as the recent tumble in lumber prices, which suggest inflation could fade quickly as the economy gets over its reopening stresses. He worries that the Bank of Canada could be on the verge of a policy error if it turns unnecessarily hawkish on inflation just as price pressures are beginning to ease.
The bank itself, though, is talking tough. In its Financial System Review this week, it finally turned its spotlight on the housing market and didn’t pull its punches. It warned that mortgage payments five years from now could be 30 per cent higher than they are now because of rising interest rates.
The bank seems to be signalling that it won’t be deterred by the prospect of pain among homeowners. Anyone in the market for a home should pay attention. So should anyone looking at what the future holds for the Canadian economy.
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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.”