Canadian Real Estate Forum Spring 2019 Issue

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SPRING 2019 / ISSUE 80

THERE IS AN UPSIDE TO EVERY MARKET – IT’S ONLY A MATTER OF TIME VANCOUVER

MONTRÉAL

EDMONTON

Ambitious Plan Aims to Make Housing Affordable

Sound Housing Policy Hinges on Healthy Economics

Vacancies Down in Edmonton Office Market

WeWork’s Positive Snowball Effect on Commercial Real Estate Growing Need to Rethink Traditional Use of Space in Canada’s Global Cities Policies

Montreal Enters New Era of Unprecedented Prosperity PropTech a Massive Opportunity for Savvy Commercial Builders

Balancing High Activity with Budgets, Competing Interests, and Technological Change The Worst is Over in Edmonton Real Estate Markets WWW.REALESTATEFORUMS.COM

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THERE IS AN UPSIDE TO EVERY MARKET – IT’S ONLY A MATTER OF TIME

George Przybylowski Vice President Real Estate Informa Exhibitions

Whether you’re operating in Vancouver’s downturn, Montreal’s rising, or pegging away in Edmonton, figuring out your next steps takes homework and insight, and there’s no better place to gain that insider intel than at the upcoming Canadian Real Estate Forums.

Take Vancouver, for example. Ever the hotbed of inflated housing prices and transactions, rising interest rates, regional taxes on foreign buyers, and federal mortgage stress-test rules for new buyers have put Vancouver’s residential listings in the biggest dive since the great recession, with a 36.3 per cent drop in residential sales in January. This continuous rise in house freefall is expected to last until early summer, creating an unprecedented buyers’ market. Once the second largest housing market in the country, Vancouver is now in danger of passing that title over to a prosperous Montreal. The commercial outlook for the coastal city doesn’t appear much brighter, as sales dropped nearly 20 per cent in the third quarter of last year, to 565, the lowest quarterly level in four years.

Land sales also took a nosedive – 34.8 per cent quarter-to-quarter from 199 to 305. Due to soaring land prices and a decrease in commercial demands, many Vancouver developers are turning to pre-sale and pre-leasing agreements in order to finance purchases.

Unlike Vancouver’s historically inflated marketplace, Montreal has maintained a steady pricing growth, leading to a more sustainable market. While the West Coast city was hit with new regional taxes on

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foreign buyers, Montreal was not, and the new mortgage rules also didn’t negatively impact buyers, since that city’s market was more mainstream than mania. As a result, sales in Montreal shot up 7.1 per cent December over December, compared to Vancouver’s 1.2 per cent rise and a national average of 3.6 per cent. Montreal can also expect to see substantial construction in condo and rental apartment sectors. With more than 1.2 million square feet leased in Q3 of 2018, the city had the strongest absorption since the start of last year, and the months ahead look just as bright.

The new federal mortgage rules, as well as rising interest rates and a still struggling provincial economy, have also negatively impacted Alberta’s capital, but Edmonton’s commercial sector is giving it a new lease on life. While 2018 has been cited as the worst year in the residential real estate in more than 18 years, the downtown office market has seen the highest demand for office space since 2012. But not all developments make the cut. Landlords who have not invested in updating B Class assets are seeing their tenants shift into the newer developments, creating a demand for updating or repurposing to remain viable.

An increase in taxation rates are also causing many developers to look at outlining neighbourhoods, such as Leduc County and Nisku, due to the $1-to-$2-a-square-foot difference in land prices.

Downturn, rising or somewhere in between, if you want to know where to put your efforts and money, there’s no better place to find out than at the Real Estate Forums. Offering high-quality speakers on topical issues, the April 4 Vancouver, April 17 Montreal and May 9 Edmonton Forums will provide thousands of real estate executives with insight needed to determine next steps as well as outstanding networking opportunities.

We look forward to welcoming you!

3

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PropT Pr o Tec T chh Property technology e , also known as Pr P opTech, refers to the inn novation and originaation poised to disrupt thee way commercial real estat ae processes ar a e done. While PropTech is not a new-to-the-industtry concept, a new wave has presented even more opportunities. " (+,4 1% 1 ! 1 + )61& 0Çž /1&Ćœ & ) &+1"))&$"+ "Çž , +! ), ( % &+ will shake up u the way our clients inveest in and occupy real estat a e in the future. That’ T s why we’re taking acction. " "+1)6Çž 4" ) 2+ %"! - /( Č” ,2/ ,4+ Ę?Ç–Ç•Ç• *&))&,+ ), ) Venture Fun nd to discover and foster the t next wave of real estate innovation.. From investing in platform ms such as Dealpath and Honest 2&)!&+$0 1, " ,*&+$ 1%" + !& + " ) 01 1" ,/2*0ȉ /,- " % -,+0,/Çž 4"ȉ/" !,&+$ *,/" 1% + '201 "* / &+$ 1" %+,),$6ȉ0 -,1"+1& ) – we’re drivving it.

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CONTENTS

3

There is an Upside to Every Market, it’s Only a Matter of Time

8 The Altus Report: Low industrial vacancy rates drive rental rates and sale prices to highest levels ever. With limited new supply, users scramble for space.

Office

Land

2017 2018 2017 2018

Industrial

Retail

2017 2018 2017 2018

61 Latest Commercial Market Statistics across Canada

70 REALPAC and Haskayne School of Business at the University of Calgary partner to offer the Real Property Investment Certificate Program in Western Canada 72 Getting Smart about Smart Cities: Early Policy Lessons 73 Governments across Canada Should Ask for Help from the Commercial Real Estate Industry

About Informa BRINGING KNOWLEDGE TO LIFE Businesses, professionals and academics worldwide turn to Informa for unparalleled knowledge, up-to-the-minute information and highly specialized skills and services. Our ability to deliver high quality knowledge and services through multiple channels, in dynamic and rapidly changing environments, makes our offer unique and extremely valuable to individuals and organizations. www.informacanada.com

Sponsorship and Advertising Sales

Canadian Real Estate Forum Magazine

Informa Exhibitions – Real Estate

Frank Scalisi Director of Sponsorship and Advertising Sales T: 416-512-3815 E: Frank.Scalisi@informa.com See full details on page 66

The Canadian Real Estate Forum Magazine is published three times annually. Editions coincide with key Canadian Real Estate Forums and associated markets:

Rick McConnell, President George Przybylowski, Vice President

Conferences For more information on our Conferences visit www.realestateforums.com See our ad on page 64

6

Editor & Associate Editor

Spring: Vancouver • Montreal • Edmonton Fall: Ottawa • Calgary Winter: Canada-wide • Global

Michel Rémy Jean Pickering

E-magazines are available at www.realestateforums.com

Design

© 2019 Informa Canada Inc. Disclaimer: The views, opinions, positions or strategies expressed by the authors and those providing comments are theirs alone, and do not necessarily reflect the views, opinions, positions or strategies of Informa Canada.

Informa Exhibitions Design Studio

Canadian Real Estate Forum / SPRING 2019

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14

30

48

VANCOUVER 14 Thank You to our Sponsors 16 Vancouver: Time for Creative Thinking 18 WeWork’s Positive Snowball Effect On Commercial Real Estate 18 Win-win Relationships 19 Ambitious Plan Aims to Make Housing Affordable 20 Navigating Real Estate in a State of Flux 22 Policies Stymie Rental Construction 22 Patience and Persistence Key to Success for Metro Vancouver Developers 23 Collaboration is Key to Solving Affordable Housing Crisis: No One-size-fits-all Solutions 24 Immigration to Offset Flight to the Suburbs 24 Steady Yields and Top-notch Talent Sustain Strong Capital Influx 26 Vancouver Market Continues to Enjoy Record Growth while Supply Remains Scarce 28 Growing Need to Rethink Traditional Use of Space in Canada’s Global Cities

MONTRÉAL 30 Thank You to our Sponsors 32 Montreal: Building the City We Want & Need 34 Developers: Dream Big and Prosper!

36 Sound Housing Policy Hinges on Healthy Economics 36 The 7 Key Traits of a Quebecer 37 Immigrants Needed, to Keep Canada’s Hottest Market Rolling 38 Record Land Prices Creating Industrial Market Shortage in Montreal 40 Montreal Enters New Era of Unprecedented Prosperity 40 Montreal is Open for Business 42 Office Space Demand Undergoes a Shift as Working Arrangement Evolve 42 Opportunities Abound for Disciplined Investors 43 PropTech a Massive Opportunity for Savvy Commercial Builders 44 News of the Retail Apocalypse has Been Greatly Exaggerated: Personalized Customer Experiences Key to Success in this New Retail Era 46 Mobility to Transform Montreal Landscape

EDMONTON 48 Thank You to our Sponsors 50 Edmonton: Alberta resilience at Work 52 Vacancies Down in Edmonton Office Market 52 Edmonton Tenants Trending Toward Quality and Downtown 54 The Worst is Over in Edmonton Real Estate Markets 54 Balancing High Activity with Budgets, Competing Interests, and Technological Change 56 Today’s Retail Sector all About Survival of the Fittest 56 Industrial: Smaller Spaces, Deeper Markets 57 Redevelop, Reposition and Reap Rewards 58 Alberta Economy to Bolt from Last to First Place Next Year

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58 APPOINTMENT NOTICE

7

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THE ALTUS REPORT LOW INDUSTRIAL VACANCY RATES DRIVE RENTAL RATES AND SALE PRICES TO HIGHEST LEVELS EVER. WITH LIMITED NEW SUPPLY, USERS SCRAMBLE FOR SPACE

By Raymond Wong Vice President, Data Operations Data Solutions Altus Group

In this issue of The Altus Report, we discuss industrial activity across Canada.

Investment demand for Canadian commercial real estate continues to be strong across Canada despite uncertainties over US-China trade conditions, the ratification of the USMCA, and ambiguous future interest rate hikes. Altus Group’s Investment Trends Survey showed that investors remain particularly confident in industrial assets amid land and product shortages. And with rising rental rates, high occupancy rates and consistent returns, it’s a landlord’s market. According to the Conference Board of Canada, Canada’s GDP is expected to move ahead by 1.9% this year, with strongest growth in Atlantic Canada, Saskatchewan and BC. With the continued expansion of e-commerce, cannabis production and growing interest from other potential users, it is expected that demand for additional space will outpace new supply in the next few years across well-situated markets. As a result, we are seeing several transformations occur in industrial space. The rise in logistics and distribution companies has increased the adoption of new technologies to enhance supply-chain delivery, optimize operational efficiencies and drive overall revenue.

By Kruti Desai Manager, National Research Insights, Data Solutions Altus Group

Chart 1: Emerging Industrial Users Compete With E-commerce 2013-2018 New Completions (sq. ft.)

Vacancy Rate 6%

8M

5% 6M

SQ. FT.

4%

3%

4M

2% 2M 1%

0%

M Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2011

2012

2013

2014

2015

2016

2017

2018

Source: Altus Group

Chart 2: Strong Industrial Demand and Land Scarcity Keep Vacancy Rates below 2% in Vancouver and Toronto – Major Market Areas Q4 2017

Q4 2018

8% 7.2% 7% 6.3% VA V ACANCY RAT ATE

6%

6.5%

5.6%

5%

4.5% 3.7%

4% 3.3% 3% 2%

3.0% 2.6%

2.5%

2.3% 1.9%

1.6% 1.1%

1% 0% Vancouver Va

Edmonton

Source: Altus Group *Markets covered by Altus Group

8

Calgary

Toronto To

Ottawa

Montreal

National*

Investors continue to scramble for opportunity amid land constraints More than half of the new supply of industrial product that will be coming to market in the next year has already been preleased. In Q4 2018, approximately 3.8M SF of new supply was completed and almost 2M SF has already been leased leaving an availability rate of 47% in the market. Of total new supply, Ontario alone completed almost 1.7M SF with another 1.4M in Alberta. The overall vacancy rate for Canada’s major markets fell to around 2.6% at the end of 2018, the lowest it has been in almost a decade. In addition to a lack of product, there is also a dwindling supply of developable land, and significantly rising land prices in the last year are putting pressure on the industrial market especially in Vancouver and Toronto. Montreal’s industrial sector comes in second to Toronto in terms of inventory but is vastly aging. The Port of Montreal, however, is showing signs of renewal as older industrial inventory is being snapped up for redevelopment. Like Montreal, geography also plays a factor in development constraints in Vancouver due to surrounding water, mountains and the Canadian Real Estate Forum / SPRING 2019

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Another noteworthy transaction was the Ontario Power Generation sale of its brownfield Lakeview lands for $275M in South Mississauga. The 177-acre site, which will be located near the Hurontario LRT, is being remediated and transformed into a mixed-use community with greenspace.

Chart 3: Chase for Stable Yields in Industrial Product Property Type Barometer – Q4 2018 4.7

4.0

3.9 2.6

2.1

1.9

1.4

1.2

-1.0

-1.3

-1.3

-1.8

-1.8

-1.8 -3.4

-4.0

M

ul

In du st ria tiTe lL na an Su Si nt d bu ng In rb le du an Te st na M r ia ul nt l tip In le du Fo U st ni od r ia tR An l es ch id or en ed tia R l et Ti D ai er ow lS I R nt t ri eg ow p io n na C la lM ss al D "A l ow A" nt ow O ffi n c e O ffi ce D La ow n nt d ow n C H la o te ss l "B "O ffi Po ce Su w er bu C rb Su en a n bu tre O rb ffi an ce C La la nd ss Ti "A er "O Su II f fic R bu eg e rb io an na C En l M la cl a s os ll s "B ed "O C om ffi c e m un ity M al l

MOMENTUM RAT ATIO (BUY % / SELL %

6 5 4 3 2 1 0 -1 -2 -3 -4 -5

Source: Altus Group, Altus Investment Trends Survey, Q4 2018

Agricultural Land Reserve (ALR) leaving a tight supply of vital land in the region and developers continue to scramble to build on any viable land they can manage to get their hands on.

Brownfield sites waiting to be unearthed Although industrial property sales had the second largest investment volume sales in 2018, ICI transactions in Toronto and Vancouver dropped by almost 2%. For Toronto, this may be a result of the new Local Planning Appeal Tribunal (LPAT) process in Ontario. Yet, there is no shortage of buyers. Not only is a lack of new supply not helping the situation, but older supply is being taken out of the equation. In Toronto, the largest ICI land transaction in 2018 was the sale of Bombardier’s Downsview Plant and Airport site to PSPIB Downsview Investments for $825M. It is expected the 371 acres of that land will be redeveloped with a mix of commercial, office and retail.

Chart 4: Featured Industrial Transactions 2018 Source: Altus Group

Chart 5: Featured ICI Transactions 2018 Source: Altus Group

10

With a lack of serviced land readily available, remediation of vacant brownfield sites has gained some attention in the last few years. Many believe it to be a high-risk investment due to a potential lengthy, complex and costly process, but, if all goes well can present major opportunities for new construction, growth in nearby areas and ultimately may increase the value of the land itself.

In Hamilton, one of the oldest and most heavily industrialized cities in Canada with many brownfield sites, is undergoing a large redevelopment plan. In early 2018, 51 vacant brownfield sites were redeveloped in part due to the Environmental Remediation and Site Enhancement Community Improvement Plan (ERASE) grants which began in 2001. About 145 property owners have been approved for environmental studies and 47 projects have been awarded redevelopment grants by city council, which equates to over 380 acres of land. Various uses for the lands have been suggested, primarily cannabis production.

The City of Ottawa’s brownfield redevelopment program also approved a grant for $60M to clean up the Chaudière and Albert Islands/LeBreton Lands for the Zibi mixed-use project. Alberta tells a different story with a history of lands

Market

Sub-Market

Transaction name 86 S.E. Marine Drive, 100 S.E. Marine Drive, & 101 East 69th 4/2/2018 Avenue 6/5/2018 386 Wilcox Street 8/2/2018 2304, 2360 & 2370 Dixie Road

Va V ancouver GGH GT TA A

Sunset Hamilton Mississauga

Parkland County y Leduc County y GT TA A GT TA A GGH

Acheson Leduc Milton Brampton Hamilton

3/8/2018 10/11/2018 4/25/2018 1/16/2018 10/25/2018

GGH GGH

Hamilton Woolwich

12/6/2018 190 Main Street West 4/16/2018 858 & 878 Weber Street North - St. Jacobs Farmers' Market

Market

Sub-Market

GT TA A GT TA A Montreal

Mississauga Brampton Mercier-HochelagaMaisonneuve

Vancouver GT TA A

Richmond Mississauga

Calgary g y

Highfield

Vancouver Ottawa

Vancouver Va Gloucester

Vancouver

Delta

Vancouver

Burnaby

Price (($Millions

Land Area ((Acres))

Hungerford Properties Stelco Inc. Bentall Kennedy

$90,390,000 $69,458,651 $52,000,000

12.5 788.7 24.8

Pure Industrial Real Estate Trust H & R REIT DSV Solutions Inc 2598919 Ontario Inc Greystone Managed Investments Inc.

$48,000,000 $39,861,329 $39,395,750 $32,000,000 $27,083,100

52.5 22.2 42.7 29.9 82.1

Sun Life Assurance Company of Canada RBJ Schlegel Holdings

$20,500,000 $17,233,702

1.9 27.9

Date

27048 & 27286 96th Avenue 3300 70th Avenue Fifth Line 10534 Hurontario Street Aeropark Boulevard

Transaction name American Business Park & 6325 3/27/2018 Northam Drive 11/30/2018 2 Bramkay Street

Purchaser(s) ( )

Purchase er(s) ( )

Date

KingSett Capita Pure Industrial Real Estate Trust

Price

Te T enancy y Ty Type yp Building g Size

$90,600,000 $78,000,000

Multi T Te enant Multi T Te enant

552,675 399,543

Price per sq. q ft. $164 $195

12/19/2018 7101 Notre-Dame Street East

me REIT Summit Industrial Incom

$65,000,000

Multi-T Te enant

609,677

$117

4/30/2018 Savage Road Business Centre 7/4/2018 6625 T To omken Road 720 28th Street N.E., Blackfoot Corporate Centre, 220 & 253 221 62nd Avenue S.E.,, 6227 2nd Street 4/12/2018 S.E., & The Vintage on Ninth

Nexus Real Estate Investment Trust Pure Industrial Real Estate Trust

$57,380,000 $45,050,000

Te enant Multi T Multi T Te enant

117,490 339,502

$488 $133

Slate Asset Management ent

$44,216,867

Multi T Te enant

320,090

$138

11/15/2018 Main Industrial Centre 1/9/2018 1100 & 1101 Polytek Street

Va Value Property Group Morguard Investments Limited

$43,170,000 $42,500,000

Multi T Te enant Multi T Te enant

118,500 242,766

$360 $175

11/2/2018 Delta Link 7303-7315 Meadow Avenue; 12/7/2018 5830-5850 Byrne Road

YM Inc.

$42,500,000

Single T Te enant

161,312

$263

Hungerford Properties

$41,900,000

Multi T Te enant

192,637

$218

Canadian Real Estate Forum / SPRING 2019

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Net Rent

Chart 6: Industrial Rental Rates Continue to Rise Major Market Areas

TMI

$20 $18 $16

$ PSF

$14

$4.85 $4.34

$12

$4.62

$4.66

$5.93

$4.83

$4.65

Source: Altus Group

$4.28

$10 $3.85

$8 $6

$6.10

$11.3 35

$3.28

$13.18 13.1 $9.39

$4

$9.36

$10.00 10.0

$10.38 10.3 $6.97

$8.64

$9.85

$3.75

$10.54 10.5

$2

$6.00

$6.63

Q4 2017

Q4 2018

$0 Q4 2017

Q4 2018

Q4 2017

Vancouver Va

Q4 2018

Edmonton

Q4 2017

Q4 2018

Calgary

impacted by the oil and gas industry.

However, several remediation plans between the municipalities, government agencies and multinational companies have been negotiated for various projects in Edmonton and Calgary.

Toronto’s Eastern Waterfront also presents the potential for redevelopment and is another stretch of land to keep an eye on.

Sidewalk Labs, a partnership with Waterfront Toronto, has proposed a mixed-used “smart city” redevelopment project in the Quayside neighbourhood, which is situated on a brownfield land. In 2017, Imperial Oil’s Port Credit Lands in Mississauga sold for $175M to a joint venture by Dream, Kilmer and Fram Building Group. Kilmer specializes in remediation of brownfield sites and has plans to redevelop the site for mixed-use.

The 18.9-acre site of the former Campbell’s Soup Factory in south Etobicoke sold to QuadReal for approximately $45M. The 87-year-old property dates back to 1931, however as a result of retrofitting complications due to its age and size, manufacturing cuts and a shift in production to the US, the company will be relocating to a new headquarters in Mississauga with a significantly reduced workforce. As of mid-January 2019, no development applications had been submitted to the City of Toronto planning department but there is speculation about a potential mixed-use development and will likely require site remediation. In Oshawa, the GM plant closure will leave behind a hefty plot of land that will require extensive testing and remediation efforts and possibly rezoning for any future redevelopment opportunities to attract interest from various buyers.

Redeveloping brownfield sites to ease land shortages may be an enormous opportunity due to their prime locations and adequate infrastructure. Yet, it is a rather expensive undertaking and some jurisdictions are still www.realestateforums.com

Q4 2017

Q4 2018

Toronto To

Q4 2017

Q4 2018

Ottawa

Montreal

cautious of identifying lands as contaminated for sites they don’t own for fear of being sued or being liable for a decline in land values.

Built-to-Suit activity fueled by demand for newer, more modern product With vacancy rates in Vancouver and Toronto below 2% and ongoing supply constraints, developers are left with little choice, but to get creative and redevelop, densify, or build upwards. Many properties transacting lately have been older properties likely poised for redevelopment. Many lack modern technology and high ceilings above 24 ft, now a basic tenant requirement.

Montreal’s aging inventory predominately has clear heights less than 20 ft, but its North and South Shore markets are growing.

This ongoing trend for clear heights between 24-36 ft has been driving some developers to build on spec as an alternative. Lease terms for built-to-suit projects are often longer than the average 3-5 years for landlords to recover their investments over the entire lease term, preferably 10 years. In Vancouver, the Dayhu Group purchased land in the Delta region’s Boundary Bay Industrial Park in 2013 and built two distribution centres with 36 ft clear ceiling height and state-of-the art racking systems.

TJX Canada leased one of these buildings, which uses specialized systems to guide driverless forklifts.

More developers demolish older properties and construct new built-suit properties typically for a single major tenant. In 2015, PC Urban demolished its property situated on a 0.8-acre site located at 1055 Vernon Drive in Vancouver’s Strathcona district. As a joint venture, PC Urban has plans to rebuild and construct a new 104,000 SF mixed-use strata building called IntraUrban Evolution which will include a vehicle repair shop on the ground floor, light industrial on the second floor and office on the third and fourth floors. The building will include dock

and grade loading doors with a modern freight elevator system to ensure access throughout the building, and a green roof with outdoor amenity space.

Broccolini also ramped up built-to-suit projects. In Ottawa, Amazon commissioned Broccolini to build a 1M SF fulfillment centre in the southeast end which is slated to open by mid-2019. Due to its rural location, several modifications were made to the site such as connecting hydro and a municipal water system, and roadway adjustments to accommodate the increase in traffic to neighbouring properties.

Supply also remains tight in Montreal’s industrial markets with vacancy rates near 3% and rents rising. Broccolini was selected by XTL Transport for a design-build distribution centre in Pointe-aux-Trembles, Quebec, located in Montreal’s east end which was completed in 2018.

The older facilities on the site were demolished and replaced by a 335,000 SF warehouse with a clear height of 32 ft and an office building. A railway also runs alongside the buildings with multiple loading docks to allow cargo trains direct access to the warehouse.

Another built-to-suit project by Broccolini will be a new 1.2M SF IKEA distribution centre in Beauharnois, QC which will include a one-storey three compartment distribution warehouse and an office area with amenities. Two of the buildings will include 65 ft and 43 ft ceiling heights with conventional racking 11

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E-commerce isn’t the only driver of demand for industrial space and competition is getting fierce, driving vacancy rates even lower. Data centres, film studios, grocery and storage facilities and cannabis growers are among some of the sectors triggering additional demand. However, warehouse conversions can come with some risk.

storage and the third will include 118 ft ceiling heights with automated storage bay.

Closing the Last Mile Gap Consumer expectations for same-day or next-day goods are likely to keep growing and the lack of well-positioned industrial space is placing significant strain on retailers and e-commerce giants like Amazon that depend on a network of distribution centres. Amazon Prime alone has about 1M subscribers globally and according to a report on parcel delivery by consulting firm McKinsey, “almost 25% of customers are willing to pay significant premiums for the privilege of same-day or instant delivery”. Retail technology and innovative delivery methods are however gaining strength with the help of automation and robotic technology, self-driving vehicles, third-party fleets or crowd-sourced delivery providers, micro transit and alternative last-mile transport nodes to ensure prompt delivery for customers. The delivery logistics process begins around distribution routes for large-scale movements of goods. The closer the package moves towards its destination, the more dispersed the deliveries. This last stage becomes very costly and inefficient. Companies are now considering investing in multi-tier distribution centres with larger logistics hubs located in the exurbs due to cheaper and available product, and smaller fulfilment centres in denser, urban areas to allow for more efficient deliveries in the city.

Industrial properties near urban centres and transit networks will continue to attract investors and tenants. In the last few years, the 12

industrial sector has seen a lot of new construction activity happen in various urban and suburban markets across the country in the GTA, Ottawa, Edmonton, Calgary and Greater Vancouver’s Pitt Meadows, Delta iPort and Surrey. Amazon will soon have 11 distribution centres in Canada to better service orders from coast-to-coast. Amazon’s newest facility in Orleans, an east end suburb of Ottawa, is strategically located along a major route between Ottawa and Montreal and at a major intersection on the Trans-Canada highway, about 16 km from downtown Ottawa.

In Vancouver’s South Surrey suburb, almost 140 acres of developable industrial land is currently being serviced in the Campbell Heights Industrial Park area. Almost 3M SF of new industrial space is either in the permit-process or expected to be ready early this year. The area will also see owner-occupied built-to-suit facilities such as Walmart’s new sustainable, high-tech fresh and frozen grocery facility scheduled to open by 2022. The centre will be a smaller facility at 300,000 SF but will be a zero-waste facility with more efficient systems and include higher ceilings for automated storage. Walmart’s strategy for an additional node in BC was to better service their BC customers due to capacity constraints at its facilities in Calgary and its third-party warehouse in Richmond.

Competition for industrial space gets intense E-commerce isn’t the only driver of demand for industrial space and competition is getting fierce, driving vacancy rates even lower. Data centres, film studios, grocery and storage facilities and cannabis growers are among some of the sectors triggering additional demand. However, warehouse conversions can come with some risk.

Building retrofits for data centres for example, can have high capital costs and barriers to entry. Film studios seek industrial space with high ceiling heights and because of a lack of supply, older buildings may need to be repurposed and renovated to accommodate these needs

Toronto and Vancouver are some of the largest film and TV production centres in North America. Vancouver has about 2.5 M SF of studio space in Metro Vancouver and due to new supply constraints in the Lower Mainland, many companies are looking to other areas. The Delta city council adopted a zoning amendment about 8 years ago to allow a wider range of industrial uses in the Boundary Bay Airport area. The council also approved a temporary use of a former aircraft storage building as a film studio.

According to Creative BC, a provincial agency that monitors the creative economy, BC’s film industry generated $3.4B for the BC economy in 2017-2018. In Toronto, Cinespace Film Studios sold its property on Eastern Avenue to General Motors Canada in 2016 and has leased space from PortsToronto to build a 165,000 SF studio hub at the former marine terminal in the Port Lands. Recently, Ottawa’s planning committee amended its Greenbelt Master plan and approved a proposed $40M new film and television soundstage campus in its west end that will include 40 ft ceilings and is expected to boost economic activity between $25M-$40M annually.

Do more with Less The intensification of e-commerce and a new wave of alternative uses will spur demand even further. Transformations in manufacturing technology and logistics are changing the minimum requirements for facilities. This trend is creating opportunities for more build-to-suit projects and forcing developers to rapidly move ahead with construction of new supply to meet tenant needs. The amount of readily available land in major centres is also becoming constrained shifting interest towards product in smaller markets due to more availability and better pricing. Overall, the industrial market remains strong with increased demand from developers, investors and users. Yet, at the current rate of product shortages, aging buildings and rising rents in major markets, the market will likely hit an inflection point prompting a reevaluation of existing inventory for conversion and redevelopment. ■ Canadian Real Estate Forum / SPRING 2019

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A NATIONAL REAL ESTATE COMPANY DEVELOPMENT & PROPERTY MANAGEMENT Our team tea of over 320 professionals provides diverse expertise locally and nationally Over 60 million s.f. of owned, developed and managed properties In excess of $15 billion in acquisitions, developments, and management projects

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VANCOUVER: TIME FOR CREATIVE THINKING Michael Hungerford Partner, Hungerford Properties

Real estate in the Greater Vancouver Area is fraught with change. Our government is taking an active role by implementing policies to assist with pressure points around land constraints and affordability, as well as with the industrial land base to make room for the right kind of job growth. There’s no question, these government policies have had a chilling effect on the residential market.

However, industrial real estate remains strong, with rental rate growth and low vacancy rates like we’ve never seen before. Tenants, landlords and governments are grappling with how to better use the commercial land that we have for job creation and to support our growing economy.

As for the retail landscape, it continues to evolve with technology and changing consumer behaviour.

The result is that we’re seeing a certain tension between well intended government policy and market forces that are playing out right now, and it’s happening in a way that we haven’t seen for a number of years. For many of us who have or are looking to put capital in the real estate market, it’s a challenging and uncertain time.

Increasingly, Greater Vancouver is seen as a global city.

Not unlike other global cities we face land constraints, population growth and an economy that has been running at almost full capacity. Our market is challenged by lengthy development approvals, escalating construction costs, tight labour markets and more. The stakes are very www.realestateforums.com

high. Capital is liquid and can come and go quickly.

Land is scarce. That has been an ongoing theme in Vancouver for a very long time. Today industrial land in particular is facing tight supply and, with the economy at full capacity and the need to accommodate this growth, eventually this lack of supply and increased demand will cause land values and rent rates to rise further. What’s playing out is simply the law of supply and demand.

Hence the need to find creative solutions to intensify and densify our commercial land base through vertical development, additional density, more mixed use, and other new product types and forms of development. Our local real estate industry has a reputation for innovation and a great track record for building product that is highly functional and desirable. With a tremendous talent pool upon which to draw, Vancouver will continue to meet the challenge if the policies are in place to enable our creativity to flourish.

I encourage you to be a part of the conversation at this forum. While you will hear inspiring perspectives from industry leaders and learn about the latest trends impacting our business, by all means add your voice to the mix. And as you ponder these opportunities and challenges, keep in mind that Vancouver is not unlike other global cities that face similar constraints. San Francisco, Seattle, New York, and global cities in Asia and Europe are also facing economic growth, population growth, and limited land supply. We’re in very good company.

■ Michelle Morra 17

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WEWORK’S POSITIVE SNOWBALL EFFECT ON COMMERCIAL REAL ESTATE community of close to 500,000 members – we have the ability to build and activate space cheaper, faster and better than anyone else,” says WeWork's Vice President and General Manager for the Northwest, Gina Phillips.

Gina Phillips Vice President and General Manager Northwest WeWork

With more than 425 physical locations in 100 cities and 27 countries around the world, WeWork transforms buildings into dynamic environments for creativity, focus, and collaboration. “With a development team of over 2000 people including experts in real estate, architecture, construction and design – and a global

WIN-WIN RELATIONSHIPS

Michelle Paquet Vice President Shape Properties

Complex development initiatives have obliged cities and developers to rethink how best to collaborate on the most comprehensive, multifaceted projects.

18

WeWork attracts other tenants and businesses to the buildings and neighbourhoods it occupies. The mere presence of WeWork, and the community it creates in and around a building, even has a positive effect on rents and real estate values. According to research by HR&A, WeWork can help generate as much as 29 per cent in rent premiums for building owners, and buildings sold after WeWork moved in sold for 50 to 120 per cent more.

On average, WeWork delivers 1.5m sq. ft. of space every month. As a result, they have a constant feedback loop of what employees and employers want from both the built work environment and the workplace experience, from community to purpose to innovation.

“Landlords might be able to get it largely right some of the time, but it will never be their core business,” Phillips says. “For WeWork, it is our core business and can

“Developers are under a lot of pressure, but so are cities,” noted Shape Properties Vice President Michelle Paquet. “It cuts through all levels, from urban planners and engineers to the city councilors who have to deliver the vision they promised to their community.”

Complicating matters is the speed and scope of coming changes. Many municipalities must update their city core vision on the fly. Shape has responded by opening a dialogue on the design process.

“It’s not about design. It’s about getting city stakeholders’ input in real time, rather than waiting for a milestone like a design panel,” she explained. “We’re in constant communication, so we don’t end up going too far down the road for nothing.”

Since no two municipalities approach approvals alike, that entails understanding the players in each individual city, what they need and their degree of interest and willingness to engage.

thus get it nearly 100 per cent right, 100 per cent of the time.”

WeWork appeals to employees by offering more flexible working hours and flexible working space. And the WeWork model – whereby members can quickly transition from working together in a semi-private booth to conversing in a communal space, or where a large common area can seamlessly turn into an event space – addresses the density issue by freeing up square footage and making office space 2.5 times more efficient than a typical office.

Research shows that 80 per cent of companies plan to increase their reliance on a flexible employee base, and 40 per cent of the workforce will be independent by 2020.

“WeWork can unlock commercial real estate for the shifting structure of the workforce,” Phillips says, “for not only startups but Fortune 500 companies whose workforce will now be more disparate.”

As WeWork experiences “exponential growth,” landlords have an opportunity to share in that growth via participating leases, joint ventures and equity partnerships. “As we continue to expand our physical footprint around the world, we are being more innovative about our efforts to secure space,” Phillips says.

■ Michelle Morra

“It has taken some time to get those relationships and processes in place, but once we get them and build mutual understanding, it really shortens the timelines considerably,” Paquet reported.

Limiting labour shortages Shape has also successfully engaged with construction managers to address Vancouver’s tight labour market.

“The market is changing so quickly that we have to constantly review and update our procurement strategy: How we engage trades and sign contracts, rather than just send out a set of drawings for a quote,” she explained. “We bring them in early for design assistance, or around the table, more like a consultant, to inform the way that some of these systems are being produced.”

Opportunity abounds To address Vancouver’s dearth of development land, Shape has pioneered Canadian Real Estate Forum / SPRING 2019

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AMBITIOUS PLAN AIMS TO MAKE HOUSING AFFORDABLE and indigenous populations,” Ramsey said.

“We’re already witnessing price moderation.

In some places prices have even declined marginally.”

Shayne Ramsey Chief Executive Officer BC Housing Want to put more housing within people’s reach? Invest, streamline, build, renovate, partner and innovate, suggested Shayne Ramsey.

BC Housing’s Chief Executive Officer outlined British Columbia’s broad ten-year strategy to put more living space within the means of the people who need it.

The province has earmarked more than $7 billion to build more than 20,000 housing units during the coming decade.

“We focus on housing for the missing middle, affordable rental, woman and children, homeless

radical redevelopment of legacy shopping malls, beginning with The Amazing Brentwood in 2008.

It turned parking lots into homes and offices, adding new shops and services along the way.

Family housing, often-overlooked dimension in previous programs, now merits more attention.

“Local governments now specify percentages for two- and three-bedroom units in new condo developments,” Ramsay observed.

The province also intends to invest massively in renovation, he noted.

“The government will invest $1.1 billion during the next ten years to maintain housing stock,” Ramsey reported, and not just to improve health and safety.

“We’ll also prioritize cutting energy consumption and greenhouse gas emissions,” he said. “Older properties are energy hogs.

Simply replacing boilers, lighting and reducing water consumption can have a big impact.”

Revolutionary manufacturing, siting strategies To achieve economies of scale, BC Housing has also pioneered high-quality, factory-built

modular housing. It already has completed more than a thousand units on a 50:50 mix of private and city-owned land.

“Tenants can move in as little as 3.5-4 months after the site is available to us,” Ramsey explained. “We call them temporary modular units, typically in 50-unit developments. We site some of them on private land that is part of larger developments but whose owner won’t needed it for 5-10 years, rather than leave the land vacant. Once the developer needs to start work on the site, we will pick it up and move it somewhere else.”

Partnerships in, red tape out The province is also collaborating closely with the private sector, faith and indigenous groups as well as local government to target housing opportunities for residents in the $50,000-$100,000 income range.

“The HousingHub initiative facilitates innovative partnerships that you don’t typically see in big funding programs,” he said. “We’re trying to respond to housing needs that range from homelessness to affordable rental and ownership.”

“We’re also working to expedite local development approval processes,” Ramsey concluded, “to make more housing available sooner.”

■ Robert Frank

“Mixed-use is here to stay. People are so busy that they want to go down the elevator, grab their groceries and jump on the Skytrain. We’re building those communities.”

“Lots of great locations remain to develop, including older assets like the Sears retail box at Richmond Centre,” Paquet said.

“Rather than re-leasing it, we’ll take most of it down and integrate the redevelopment with the existing mall.

“Mixed-use is here to stay,” she concluded. “People are so busy that they want to go down the elevator, grab their groceries and jump on the Skytrain. We’re building those communities.”

■ Robert Frank www.realestateforums.com

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NAVIGATING REAL ESTATE IN A STATE OF FLUX little bit in suspension,” says Shenoor Jadavji, Founder, President, Lotus Capital.

Shenoor Jadavji Founder, President Lotus Capital

The Vancouver market is feeling significant impact from the macro environment in the world. There’s fear of volatile interest rates, financial concerns in Europe, slower economic growth worldwide, record household debt levels, depressed oil and bitumen prices. “Over the last 12 to 16 months pricing just became ridiculous, and with that came tightening government policies. It has left us a little bit blinded and a

Jadavji believes in the multi-family market, an asset class her firm has played in for the last three years. “The problem is the new rental with all the CAC costs, the timing required to get a development done, it’s even creating more pressure on existing stock,” she says. With major office tenants like Amazon and WeWork about to create thousands of jobs, she adds, “You have 20 to 30 thousand new people coming in for all these jobs and they’re all making 150,000 plus. Where are they going to live? We just don’t have that quality of accommodation.”

The situation could be eased, she says, if the government handles it well and new development happened.

An issue that’s particular to Vancouver today is the impact of new taxation after 30 years of tremendous growth in housing prices.

“Over the last five to seven years, that $3 million West Side home became a $6 million house and had liquidity for a person who was elderly who could sell their home, get

the capital gain, pass on those funds to their children, who ended up being first-time condo buyers,” Jadavji says. “It fuelled the condo market with locals. Then we imposed these taxes and took the entire liquidity away from the housing market. We created a stagnation. All of a sudden there was an impetus for the foreigners to buy.

“Something more palatable would be to say, okay, if you come here, you buy a home, but if you sell it in the first or second year you have a much higher taxation level. If you’re going to sell you’ll sell, but meanwhile you buy a $6 million house, you buy half a million dollars’ worth of cars, you’re doing retail therapy, that’s how money gets into the system. And there is definitely shrinkage in that right now. Sales – particularly car sales – are down and people are not talking about it.”

On the whole Jadavji remains very optimistic for Vancouver in the mid to long term. “We still have great in-migration, still have young people who are coming of age and need to rent,” she says. “We’re just at an adjustment point, and anytime there’s an adjustment there’s opportunity. You just have to find it, and you have to figure out where that crux is.”

■ Michelle Morra

“We’re just at an adjustment point, and anytime there’s an adjustment there’s opportunity.”

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Canadian Real Estate Forum / SPRING 2019

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POLICIES STYMIE RENTAL CONSTRUCTION

Cynthia Jagger Principal, Goodman Commercial Vancouver rents will become more affordable when there’s more of it.

“We need more purpose-built rental,” reported Cynthia Jagger, principal, Goodman Commercial.

“We just don’t have enough supply at this point.”

There is no shortage of investors who want to build new apartment buildings, she observed.

However, direct government intervention has made many projects uneconomic. The Vancouver rental market slowed from 32 sales in the first quarter of 2018 to just eight near the end of

“In six months, we witnessed the province roll back rent increases two per cent and implement an extra property transfer tax, a speculation and school tax on land and a further increase to the foreign buyer’s tax,” Jagger recalled. “That has sowed significant uncertainty.”

“Municipalities should fast-track building rental accommodation.

If we could get approvals in six months rather than three years, it would considerably cut the current concept-to-completion times of six to seven years.”

The City of Vancouver had suggested repurposing up to 25,000 condo units saw a mere 117 units converted to rental.

Jagger explained. “Once that critical supply is up and running, then you can add more layers.

We’re not there yet.”

“Bottom line is that Vancouver needs more stable, secure, purpose-built rental buildings,” she said. “Condo conversion isn’t stable, secure long-term rental, because it can be sold at any time. Unlike cities like Seattle, which adds around 12,000-20,000 new units a year, Vancouver saw an increase of only 3,960 rental units built in the last 30 years. We simply don’t have enough, which is why we’re in the mess that we’re in.”

She outlined opportunities for governments to engage constructively.

March 2019, when this edition Canadian Real Estate Forum went to press.

That enabled Seattle to implement inclusionary zoning specifying that 20 per cent must be below market valuation. In contrast, Vancouver’s economic equation doesn’t deliver enough supply to enable a similar restriction.

“We need to complete and bring on stream thousands and thousands more units,”

“If the federal government fulfils its commitment to rebate the goods and services tax on new rental, that would dramatically stimulate supply,” she suggested. “The province could also contribute mightily by doing away with rent controls for new, purpose-built rental.”

Likewise, cities that want more affordable housing need to expedite rental construction authorization.

“Municipalities should fast-track building rental accommodation,” Jagger urged. “If we could get approvals in six months rather than three years, it would considerably cut the current conceptto-completion times of six to seven years.”

■ Robert Frank

PATIENCE AND PERSISTENCE KEY TO SUCCESS FOR METRO VANCOUVER DEVELOPERS A shortage of development sites in Metro Vancouver is inspiring builders to get creative as they navigate both physical and bureaucratic challenges and opportunities.

Dan Diebolt Vice President Development Bosa Development

Case in point: Pier West, a mixed-use community by Bosa Development on New Westminster’s waterfront that’s bounded by critical public infrastructure, key railway routes, and a major working river.

“Half of our site is literally in the Fraser River,” said Dan Diebolt, Vice President of development at Bosa Development. “We’ve done dozens of projects, but we’ve never built in a river. In fact, very few developers in Metro Vancouver have built in a river. In addition to that challenge, we have the added complexity of railways on the north side, a park on the east side that needs to

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COLLABORATION IS KEY TO SOLVING AFFORDABLE HOUSING CRISIS: NO ONE-SIZE-FITS-ALL SOLUTIONS magic solution to the current crisis, what we do know is there has to be collaboration.

Meanwhile, assessment values of older properties that are based on best use are tying owners’ hands. “The best use for a three-storey wood-frame walk-up could be for a high rise, but the owner can’t pass those costs on to the renter because of rent caps.

Taxes have become so high that owners can’t make the money back if they rent out their properties and can’t afford to repair the buildings as much as they would like.”

“What developers are struggling with is the same thing as community stakeholders and local governments are facing.”

“While there’s Greg Moore Co-Founder Livable Region Group of Companies To achieve affordable housing, you need growth to go along with it – which newly elected politicians are just now discovering, says Greg Moore, former Port Coquitlam mayor and the current co-founder of the Livable Region Group of Companies.

“Last October’s municipal election saw the largest turnover of local government politicians in recent memory,” says Moore. “Many were elected on an anti-growth mandate along with promises to create more affordable housing in the community. While there’s no

no magic solution to the current crisis, what we do know is there has to be collaboration. What developers are struggling with is the same thing as community stakeholders and local governments are facing.”

It’s still too early to determine whether taxes on foreign investors and vacant homes have been effective in alleviating the situation. While they have created new revenue sources for the provincial government that will then be put back into affordable housing – Vancouver’s vacant home tax alone gained $38 million in revenue – that was not the ultimate goal, says Moore.

“The point of the tax was to discourage vacant homes, so that they would instead be rented out and put into the marketplace.

There’s no data yet on whether it’s happened or not.”

While the cost of housing has led to a robust rental market, many developers are building stratified units that they can sell at any time. To prevent a rental crisis, municipalities like New Westminster are considering incentives to put in a covenant on rental product so that it can’t be flipped into a condominium for the next 20 or 30 years.

In exchange, developers might be offered density bonuses and parking relaxation, says Moore. “Municipalities are trying to get as creative as they can with the limited toolbox they have. Each local government is looking to the other to see if it works before implementing the same.”

■ Barbara Balfour

“Bosa Development works in cities where people share our vision of creating walkable, vibrant communities. On the flip side, there are municipalities where we don’t do a lot of business because they are not open to it.” remain accessible to the public during construction, and a variety of infrastructure improvements we’ve committed to making.”

partnered with us enthusiastically and proactively,” said Diebolt. “We are fortunate to have the support of the city because this project is unique and complex.”

New Westminster is in the midst of urban renewal along its historic waterfront. Smart projects have the power to transform cities and positively change the way people experience life. Pier West consists of two residential towers – 43- and 53-storeys – a three-storey commercial building that will include a daycare, and almost two acres of public parks and plazas.

In addition to city support, Pier West required coordination with several government and private bodies, including the region of Metro Vancouver, the Department of Fisheries and Oceans, and three railway companies.

“Pier West fits perfectly into the City of New Westminster’s smart-growth vision, and because of that, city staff and council have www.realestateforums.com

Beyond that, many issues surfaced that are outside Bosa’s property line. For example, Bosa had to redesign Pier West’s parkade to keep one lot operational through the majority of construction.

“Several logistical issues came up as we worked with the community, including parking,” said Diebolt. “Community is at the

heart of everything Bosa Development does, so we looked at our construction design and schedule and made a commitment to keep onsite public parking open until a neighbouring project’s public parking is completed.”

As with any project, there must be civic, community and market support. Diebolt says the process is easier when a development proposal aligns with stakeholders.

“Bosa Development works in cities where people share our vision of creating walkable, vibrant communities,” said Diebolt. “On the flip side, there are municipalities where we don’t do a lot of business because they are not open to it.”

■ Barbara Balfour 23

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IMMIGRATION TO OFFSET FLIGHT TO THE SUBURBS

That growth could be even stronger, but remains hobbled by housing, he explained.

“Vancouver is the province’s biggest city, home to many corporate headquarters and its transportation sector serves as Canada’s gateway to the Pacific,” Pastrick observed.

The one area that will weaken is housing, he forecast.

Helmut Pastrik Chief Economist Central 1 Credit Union

Vancouver will continue to prosper in coming years, predicts Helmut Pastrick.

“Growth will generally hold up for 2019,” Central 1 Credit Union’s chief economist anticipates.

“Vancouver’s economy has outperformed British Columbia’s growth rate for several years.”

“We expect a drop in housing starts and construction that will ripple through other parts of the Vancouver economy. It will affect the labour market, the supply of new housing and spending on housing-related goods.”

Several factors – particularly Vancouver’s tight labour market – will serve to cushion the construction downturn and ensure that the city’s economy will continue to grow next year.

“We have lower unemployment than other parts of British Columbia and the current housing correction is temporary,” Pastrick noted. “At some point within the next year or so, the market will stabilize. So medium-term prospects for Vancouver area growth are still very good.”

“We also have a robust and growing technology sector and the low Canadian

STEADY YIELDS AND TOP-NOTCH TALENT SUSTAIN STRONG CAPITAL INFLUX

Jim Costello Senior Vice President Real Capital Analytics Vancouver has what the world wants, said Jim Costello, Senior Vice President, Real Capital Analytics. When real estate investors weigh where to put their money, Vancouver stands out as a strong business hub in several ways that give it a competitive advantage over hundreds of other, similar cities worldwide.

“There is a handful of ones that 24

stand out for having young labour base that is highly educated, as well as good links to the rest of the global economy. Those knowledge hubs will thrive into the coming years,” he explained. “These aspects, combined with the fact that property prices here have remained resilient and continue to rise, make Vancouver attractive to global capital.”

Costello clarified the popular misperception that China is the only major source of foreign capital inflow to Vancouver. Though there was a big spike following the Hong Kong handover and the mainland sent a brief spike here in 2016, “those were both short-term blips, not a permanent feature of capital flows.”

Demand sustains as deals plateau “In the near-term, the deal flow into the region from the rest of the world has levelled off,” he continued. “That has nothing to do with Vancouver or British Columbia. That’s more the direction of the Chinese capital that

dollar has attracted considerable television and film production spending,” he added.

“Education and health care services have also enjoyed ample activity.”

Meantime, despite the housing downturn, the high cost of living in the city centre continues to lead many businesses to locate elsewhere.

“The same applies to the labour force,” Pastrick said. “We’ve witnessed substantial growth in businesses and employment outside the downtown core and in the outer suburban areas. That means that the transportation system needs more improvement.”

Vancouver’s strong immigrant influx more than offsets the flight to the suburbs, he reassured.

“The inflow from other countries swamps that loss,” Pastrick said. “Population increase is closely linked to economic expansion, so the city will continue to grow at a good clip.”

“Some people who need to work downtown and want to live nearby will face compromises on their housing choices,” he concluded.

“Perhaps they’ll remain renters. If they want to own, then it will likely be in a smaller living space than they would ideally prefer.”

■ Robert Frank

came in. When China turned off the spigot, that money stopped coming here. But there is still a lot of capital worldwide that wants a steady yield, and the area is providing it. There is still demand from capital for assets like the ones that are available in Vancouver as well as elsewhere in British Columbia.”

In fact, United States continues to supply most steadfast flow of foreign capital into Vancouver and other British Columbia real estate.

“A big chunk of the capital – not as much money as from China, but nearly – comes from the United States,” Costello reported, “and it is a steadier flow. That makes sense, because we’re neighbours who speak the same language and play the same sports.”

“From 2007-2018, the most Canadian dollar capital flows came from the biggest group: Mainland China, Hong Kong and Taiwan,” he concluded. “The next biggest was the United States, followed by Europe – but of them all, the United States was by far the most constant.”

■ Robert Frank Canadian Real Estate Forum / SPRING 2019

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%

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“Vancouver currently has one of the lowest vacancy rates of any market in North America.”

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VANCOUVER MARKET CONTINUES TO ENJOY RECORD GROWTH WHILE SUPPLY REMAINS SCARCE

Remco Daal President, Canadian Real Estate Division QuadReal Property Group

As a long-term investor, QuadReal Property Group loves doing business in Vancouver.

“There’s just enough scarcity of product and barriers to entry to keep the market in check,” says Remco Daal, president of the Canadian real estate division. “Vancouver is also the home to our global head office.

More than 325 of our 1100-member team live and work in this area and are committed to being active in our communities.”

Healthy levels of demand continue in all asset classes, while average annual downtown office absorption over the past five years has remained strong, at about 500,000 square feet annually, Daal says. In the office market, strong fundamentals and significant positive absorption have contributed to strong rent growth, while demand has also spilled into the suburbs, with about one million square feet of absorption taking place in 2018.

This has caused the overall downtown office market vacancy to decrease to 3.8 per cent, leading to overall rental growth of about 13 per cent, with downtown AAA rent

26

increasing the most at an impressive 26 per cent. About 30 per cent of the downtown office space currently under construction has been pre-leased, says Daal.

“Vancouver currently has one of the lowest vacancy rates of any market in North America,” says Daal. “There are lots of opportunities in office space with demand coming from a diverse group of tenants, across the range of knowledge industries such as tech companies, professional services, and industries related to finance, insurance and real estate.”

As land supply is scarce, if you can find something suitable within the industrial market, “buy it if the math makes sense,” says Daal. Availability was at a historical low of 2.3 per cent last year, while average rental rates subsequently increased by 16 per cent.

While retail is an asset class that continues to remain in transition, residential (rental) income growth continues to outpace inflation. “Well-located rental product will be extremely compelling for a long time,” says Daal, who points out that the average annual return for multi-res properties has move above 9 per cent over the past ten years.

Still, Daal urges investors to exercise caution with land, as prices have been increasing annually between 5 to 10 per cent over the past five years, with double digit price growth in certain submarkets. “At today’s prices, you should only be chasing the best sites,” he says.

With an unemployment rate at about 4 per cent, fueled by growth in trades, construction, transportation and warehousing, Vancouver is also seeing construction cost inflation for both high-rise apartment and office buildings. It’s certainly one of the risks for investors to consider.

“Vancouver is at an interesting point in the cycle,” says Daal. “Strong fundamentals, with a healthy balance of those who see opportunity and those would rather take some chips off the table.”

■ Barbara Balfour Canadian Real Estate Forum / SPRING 2019

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GROWING NEED TO RETHINK TRADITIONAL USE OF SPACE IN CANADA’S GLOBAL CITIES As we enter an era of evolving workplaces and dynamic projects, coworking spaces will play an increasingly important role for office tenants.

Jon Love Chief Executive Officer KingSett Capital

“Vancouver is phenomenally attractive to citizens, employers and investors, which is why you see premium assets so highly sought after.”

“Coworking space is servicing the needs of entrepreneurs has also become an amenity that helps larger tenants manage their population and workflow,” says Jon Love, Chief Executive Officer of KingSett Capital.

“In the past, office amenities, focused on uses like a conference room in a traditional office model where tenants managed their own fluctuations and needs.

“Nowadays, the need to access coworking space is not limited to the individual working at a start-up business. There is also a major need amongst larger, and lead tenants, where to the ability to access temporary co-working space helps them manage both project work and the ebbs and flows of their populations.”

The need to rethink how we use and plan space is magnified further in a city like Vancouver, where demand continues to outpace supply in all asset classes. Big tech has created a large and growing footprint, which, unsurprisingly, further contributes to the city’s housing shortages, says Love.

“Vancouver is phenomenally attractive to citizens, employers and investors, which is why you see premium assets so highly sought after. Vancouver’s housing situation,

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like Toronto’s and increasingly Montreal, sees excess demand because people want to live in these 24-hour global cities,” he says.

“Technology companies have made a significant impact on jobs growth. There is a talent war and tech companies don’t want to restrict themselves to domestic workers.

They want to reach out to highly skilled global citizens, and Vancouver is very adept at attracting them.

“Then, on the supply side, you’ve got an overwhelmed planning regime which can limit new additions to housing supply.”

Scarcity of industrial land is a growing issue across Canada, but particularly in Vancouver. “Because industrial land is in increasingly short supply, users are forced to pay higher prices. Relative to the available alternatives, it's better for them to be in that geographic vicinity than not,” says Love.

As a key distribution center and a port city, Vancouver will likely see some intensification of industrial uses, which is not unprecedented on a global scale, he says.

He points to other land-restricted global super hubs such as Hong Kong, where industrial space takes on a variety of formats including multiple-storey. “I think you'll start to see adaptations to some of these different design development concepts over time.”

■ Barbara Balfour Canadian Real Estate Forum / SPRING 2019

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Montréa l | Tor onto o | Ottawa

LE PO U UVO O OIR DE

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Canadian Real Estate Forum / SPRING 2019

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MONTREAL: BUILDING THE CITY WE WANT & NEED Laurence Vincent Co-President, Prével Group

Martin Galarneau Partner, TGTA

Real estate in Montreal is good news on all fronts. Investors are highly optimistic about the city’s healthy residential and industrial markets, and about the new generation of entrepreneurs and investors that are fuelling demand for office space.

Economic perspectives for Montreal are very good for the next 12 months as they are for the rest of the province of Quebec, whose credit rating – since June of 2017 – is better than Ontario’s for the first time.

While there is some grumbling on the street because so much construction is going on, looking ahead a few years these projects will have added considerable and much-needed heavy infrastructure. This new, healthy infrastructure will position Montreal as a prime city for future development.

Amid high activity, there are conversations we’re not having in Montreal right now that we should be having. One is about the market shift in terms of social acceptability. In talking about sustainable development, for instance, why is the conversation still inevitably centred around LEED certification when there are so many other ways to approach sustainability? The certification process is very expensive, so some developers are opting to meet the standards but direct the funds toward planting more trees, or greening their property in other ways, instead of getting certified. It’s a “Don’t get it, just do it” approach we expect to see more of.

Let’s also talk about social housing and affordability. While Montreal is still affordable compared with other cities, www.realestateforums.com

increasingly we see signs that Montrealers are not necessarily able to buy in the downtown area. What kinds of decisions do we want to make as developers?

How can we contribute positively to that conversation?

Transit and mobility are also on everyone’s minds. While the Réseau express métropolitain (REM) rapid transit system will link several suburbs to downtown, it will also increase congestion on the Orange line. Meanwhile the Blue line is being extended, but clearly we need to come up with other ideas. Is it perhaps time to think about reserved lanes?

How can the city encourage innovation among developers? Might our government consider a model similar to Rotterdam, where the government gives back the taxation for the first few years of development to contribute to the costs of architecture and design, resulting in eye-catching, funky buildings without too high an increase in habitation cost? Or could our government adopt that concept for sustainable development or social housing?

Montreal Forum attendees will quickly pick up on the vibe that something very big is going on here, and it’s for the long term. As our city enjoys the spotlight for its quality of life, political and social studies, universities, and economic growth, we as developers have a great responsibility. How we operate and what we build will have a direct impact on the lives of the people who pass by our buildings, and who live and work in them.

With so many new projects underway in this thriving time, let’s keep in mind that we are shaping a new city. What are our objectives? What type of city do we want to build?

■ Michelle Morra 33

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DEVELOPERS: DREAM BIG AND PROSPER!

By 2050, half the Earth’s population will live in megacities. That mass migration means that cities worldwide must densify.

“You have to go up,” Godber declared.

“That’s why we’re moving to mixed-use.”

He urged developers to unshackle their imagination. Montreal is long overdue for ambitious, imaginative projects. IBM Tower, which rose 1250 René Lévesque in the 1990s, was the city’s last development by a renowned international architect, he observed.

Tom Godber Associate, Avison Young

Now is the time to think outside the vertical box, urged Avison Young associate Tom Godber.

The market is thriving, global capital has awoken to Montreal real estate and huge swaths of land are about to become available on the island.

“We can do better!” he encouraged.

“Not in terms of square feet. Rather, in terms of integrating lessons from other cities.”

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“You should see what we can do and build since then, architecturally,” Godber explained. “We have to push the envelope.

There’s a flight to quality. Intelligent buildings are now just the baseline. Buildings no longer exist in a bubble. They’ll also be ranked by what’s going on around them, going forward.

Prospective residential buyers and tenants want wellness criteria. How close are they to schools? Green space? Mass-transit?

Community services? Wholesome food, not fast food? That’s an opportunity for everyone, especially with large tracts of land coming up, particularly in the East End.” “The city is already a willing partner.

Montreal knows that it has to give more density to pay for the 40 per cent that it

wants. Toronto made space for the community groups that every city needs. A New York hotel-residential project envisions vegetable-growing terraces and drone landing pads all the way up. It’s below net-zero, because the terraces improve the environment. The city conceded density because it’s a vertical park,” he emphasized. “We could emulate such bold ideas and come up with our own. We can afford it. We just need the will on the developer side.”

He cited signature projects like Oxford’s Hudson Yards in New York city which show what can be done.

“That’s a game-changer. They’ve integrated local producers doing their own food,” Godber concluded. “Micro-housing and co-living are another concept ripe for Montreal: You get your own bedroom and bathroom and share kitchen and common areas. Institutional investors are on board. Plus U.S. eco-properties are now generating 30 per cent better returns than traditional residential development. Throw that in the middle of your project together with community services and you can still make money in the mix with family and social housing.”

■ Robert Frank Canadian Real Estate Forum / SPRING 2019

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SOUND HOUSING POLICY HINGES ON HEALTHY ECONOMICS

country are actively engaged in ensuring affordability. It’s in their interest.”

“There is also a clear consensus that such policies have to be well-managed,” he added.

Affordability here still compares favourably to Vancouver and Toronto, despite the steep housing price increases Montreal has seen during the last two years.

“Income-price ratios remain relatively low for potential purchasers,” Boisclair reassured.

André Boisclair President and CEO Urban Development Institute of Quebec (UDI)

Developers recognize the need for sustainable social, family and affordable housing.

“Everyone agrees that ensuring Montreal maintains a diverse housing stock is pivotal to the city’s competitiveness and will give it an economic advantage,” acknowledged Urban Development Institute of Quebec (UDI) President and CEO André Boisclair. “Cities throughout the

Montreal has long employed an efficient give-and-take approach, when developers came knocking to ask for exemptions to zoning or urban planning rules. Typically, the city would ask, in return, that the developer devote 15 per cent of the proposed project to social housing and 15 per cent to affordable accommodation.

“That was a win-win strategy,” Boisclair affirmed.

However, as this edition of Canadian Real Estate Forum went to press, Montreal was widely expected to reveal revamped regulations, April 15, calling for a 20:20:20 per cent commitment to social, affordable and family accommodation.

In advance of that announcement, Montreal had also mooted that the new rules might apply to developers who aren’t asking for any concessions, who hitherto would already have had the right to proceed with

their projects unfettered by such constraints.

Boisclair expressed concern at that prospect.

“We have told the city that the market cannot withstand that approach,” Boisclair cautioned.

“Without corresponding compensation, it will render many projects uneconomic and uncompetitive. We would see overall prices spike, particularly in the heart of downtown.

That will profound impinge overall housing development and could hit pending rental projects particularly hard.”

“That’s just the broad picture, based on our dialogue with the city thus far,” he added.

“We still have to see the final decision and whether it will reflect the ongoing talks calling for compensation, before we can determine details of the overall effect it will have on the residential real estate market.”

In the meantime, UDI has reiterated its call for fair compensation, particularly for projects where developers haven’t asked the city for any concessions. It also wants the city to phase in the new rules over a three-to-five-year transition period, to allow developers to adjust.

“Housing availability isn’t a panacea that will solve the problem,” Boisclair concluded. “If governments don’t complement housing development with public infrastructure like schools and other community services, families will keep fleeing the city core.”

■ Robert Frank

THE 7 KEY TRAITS OF A QUEBECER

Jacques Nantel Professor emeritus HEC Montréal Their origins lie in French culture, but they live, work and play in an English society.

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Who are Quebecers exactly, within the context of a larger nation? Jacques Nantel, professor emeritus at HEC Montréal, holds the insight into the surprising, uncompromising and utterly unique Québec personality based on seven key traits that he has identified.

Those traits should not be viewed independently, but rather as if they are on a wheel, feeding off of each other, says Nantel.

Their first trait is happiness. “Quebeckers are more inclined towards being happy.

They take it very seriously and always want Canadian Real Estate Forum / SPRING 2019

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IMMIGRANTS NEEDED, TO KEEP CANADA’S HOTTEST MARKET ROLLING sectors are doing relatively well at the same time.

Mario Lefebvre Vice President, Research – Global Real Estate Markets Ivanhoé Cambridge By most measures, Montreal dazzled again in 2018. Its 3.6 per cent overall economic growth outpaced all of Canada’s other major cities.

“The stars are all aligned,” said Mario Lefebvre, Vice President, Research–Global Real Estate Markets, Ivanhoé Cambridge.

“Even the fiscal situation in Quebec is among the best of all provinces in the country. Consequently, both the private sector and the public sector are able to provide support to the Montreal economy..”

Moreover, most sectors are doing well. This has not been the case for many years. Of late, Montreal might have a good year in, say, commercial services, but perform less well in manufacturing. Now all

Employment was up 1.9 per cent in 2018, reducing the unemployment rate to 6.1 per cent and lifting household disposable income by 2.7 per cent. As a result, retail sales were propelled and grew a solid 7.3 per cent last year, according to the Conference Board of Canada.

“Quebec has the capacity to welcome more immigrants.

Almost one in four Canadian residents were not born in Canada. In Quebec, that figure falls to one in seven.”

“And for those that think that 2019 was a fluke, think again,” he observed. In 2017, overall economic growth was 3.8 per cent, again top in the country. The city also witnessed the creation of 150,000 net new jobs from 2016-2018. In short, Montreal has a very vibrant economy with an unemployment rate that is (finally) very much aligned with the national rate.”

“It’s exciting news for commercial real estate,” Lefebvre said. “Jobs are being created, consumers are consuming and population growth is faster than ever. This is good for every asset classes.

Montreal has a lot to offer to investors nowadays.

It is well garnished with respect to young and highly educated people. It has become a hub for artificial intelligence projects, which attract hundreds of millions of dollars in investment in the community each year. With pressure on capitalization rates remaining relentless in Vancouver and Toronto, together with the renewed strength in its economy, the Montreal real estate market attracts more interest from international investors with every passing year.

The risk of labor shortage The biggest risk for the Montreal market is that demand for talent outpaces supply, prompting a labor shortage. The recent torrid pace of job creation has outpaced labor supply growth over the past three years, resulting in a drop in the unemployment rate from 7.7 per cent in 2016 to 6.1 per cent in 2018.

Given the aging of the population, Lefebvre argues that the solution to avoid labor shortage over the medium and long term is immigration.

“Quebec has the capacity to welcome more immigrants,” he asserted. “Almost one in four Canadian residents were born outside of Canada. In Quebec, that figure falls to one in seven.”

There used to be a time when investors would build a factory somewhere and people would come. Now, investors build factories where the people are. This is a complete change in mindset”, Lefebvre concluded.

“If qualified workers are in Montreal, so will investors.”

■ Robert Frank

“The moment we have a success, we will tell the whole world about it – which is not very Canadian.” to live as much as possible in a state of happiness. They also want people around them to be happy,” says Nantel.

The second trait is linked directly to the first one, and that’s the importance Quebecers place on living in a consensual society.

“We want to make sure everyone around us thinks alike, because we have a hard time with debate,” Nantel says. “We have a hard time with winners and losers, because we want everyone to be on the same level ground.” www.realestateforums.com

Because of the importance they place on being consensual, Quebecers are detached and hardly ever take a firm position on anything, says Nantel. This third trait feeds directly into the fourth, which is that they often perceive themselves as victims.

“More so than other Canadians, they have a tendency to define themselves as victims who never got to determine their own fate.

We’ve had a lot of things imposed on us: the French regime, then the British regime, the church and now the state,” he says.

Quebecers are also parochial, with a tendency for seclusion and to find refuge

amongst themselves. Thanks to this fifth trait, and their relatively small population and economy, they need to be more creative than the average person. “Look at the art scene, and how Quebecers have developed their economy using different tools than the rest of Canada. We were forced to be this way,” says Nantel.

“Our seventh trait is that we are also extremely proud of our successes. The moment we have a success, we will tell the whole world about it – which is not very Canadian. But when it does happen, it makes us extremely proud and happy.”

■ Barbara Balfour 37

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RECORD LAND PRICES CREATING INDUSTRIAL MARKET SHORTAGE IN MONTREAL

Paul-Éric Poitras Managing Partner NAI Terramont Commercial

In his 30 years of experience, Paul-Éric Poitras has never seen an industrial market this tight. “There's a shortage of available properties for sale. The amount of cash and liquidity in the market only creates additional pressures on acquiring hard assets,” says Poitras, the managing partner at NAI Terramont Commercial.

“As a broker, you're stuck listing the type of product you would not have considered five years ago: remote, distressed properties, and older facilities with low ceiling heights.

For decent industrial properties, you're looking at a hundred bucks per square foot, whereas five years ago it was 50 to 70 bucks a foot.

“We’re like soap salesman who don’t have soap. We get a lot of calls from people inquiring about buying anywhere from 10,000 square feet to 200,000 square feet, but they simply cannot find what they want in this market.”

“There’s been a big swing to the other side that defies gravity. If you don't know the value of an asset until it hits the market, and there's scarcity, people who have been waiting for it for a while will make a big offer.”

As a result, Poitras is selling buildings at much higher than the asking price and fielding multiple offers – including a 12,000 square foot property at a hundred dollars a foot and a 100,000 square foot property for $95 a foot in Boucherville – “and that was nothing special, but we still got six offers on it,” he says.

As land prices continue to soar to record heights, there has also been a rise in off-market deals for properties that never make it to the listings.

“You’re making more unsolicited offers, but it seems like owners don't really want to sell because they don't know where to put their money afterwards,” says Poitras.

Further complicating matters is the issue of zoning restrictions by city municipalities, he says. “They're getting more and more difficult for various users in the industrial parks, where you might not get the heavy industrial zoning with outside storage that you’re looking for. So that makes it even harder to find properties for clients.

“A lot of people have been waiting on the sidelines saying that when the prices come back, they’ll act on it. But they've been waiting for seven or eight years and it hasn't dropped back. The shortages are affecting everyone and I’m sure even existing tenants are going to face rent increases in the next couple of years.”

■ Michelle Morra

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Canadian Real Estate Forum / SPRING 2019

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MONTREAL ENTERS NEW ERA OF UNPRECEDENTED PROSPERITY

Scott Speirs Executive Vice President National Investment Team – Capital markets, CBRE Thanks to historically low unemployment rates and leading GDP growth in Canada, Montreal has entered a period of unprecedented prosperity. In a very short period of time, the city has moved from being a less sought-after market to one of the most desired in the country.

Being in that spotlight also comes with a significant increase in prices, says Scott Speirs, Executive Vice President and leader of the National Investment Team for Quebec at CBRE Limited.

MONTREAL IS OPEN FOR BUSINESS

Josée Chiasson Director, Economic Development Ville de Montréal Montreal is enjoying strong economic growth and an employment rate that’s almost at a record high. There’s a lot of buzz around the city’s universities and highly skilled workforce, its booming artificial intelligence sector, and the fact that Montreal has been ranked top North American city for foreign students.

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“We’re seeing that across the board for all asset classes. It's most pronounced with industrial and multi-res, but also in office space,” says Speirs. The cap rates for best-in-class product are approaching Toronto levels, reflecting the remarkable transformation of Montreal’s economy over the past 18-24 months.

“In the past, there was what was commonly known as the Quebec discount, and that discount has all but evaporated as we enter 2019.”

some of the suburbs and particularly the industrial markets. One of the investment strategies that we're recommending to our clients is to begin looking for well-located, older generation product as holding income for future development.”

As the economy continues to prosper, the finalization of infrastructure projects such as the Champlain Bridge and the Turcot interchange will set the next stage for the city’s growth and evolution, says Speirs.

Once completed, the ability of the new REM to transport high volumes of people from one sector of the city to another in relatively short periods of time will be a major benefit to the economy of both Montreal and Quebec.

Whereas in the past, investors from out West recognized opportunities only up to the Ontario border, this has changed significantly in the past 12 months. Both institutional and private capital is pouring into Montreal, in addition to a growing number of foreign investors from France and other European countries, along with an increased presence from U.S. buyers.

Strong rental growth in loft office and industrial markets in particular mean opportunities for investors abound, says Speirs.

“You can't always put a dollar figure to it, but I think some of the impact will be psychological,” says Speirs. “In the past we'd often hear investors say that the neglected infrastructure would be off-putting, for example the drive from airport to downtown with all the crumbling bridges and highways would be of particular concern. Investor confidence is back and I also get the sense there's a newfound sense of civic pride in Montreal that has been long dormant. It is a new beginning for the city.”

“One of the themes is a scarcity of land, and that is as relevant for the downtown core as

■ Barbara Balfour

For real estate investors, what adds to the attraction of Montreal is its generous supply of available land. “We have over 55 million sq. ft. of land available to attract new businesses and to be developed,” says Josée Chiasson, Director, Economic Development, Ville de Montréal. “Now is also the time where the federal, provincial and municipal governments are working together to invest in infrastructure, sustainable mobility, and land decontamination.”

possible for the investors,” she says. “Also, when an investor comes to us and has questions about electricity power, water, infrastructure, it can sometimes be complicated for the investor to get to talk to someone, so we take charge of that.”

Former landfills, garbage dumps and quarries make up considerable property, particularly in the East end, but Chiasson says Montreal has both the right conditions and the willingness to address the issue. “We have already launched a program,” she says, “a $75 million fund for the private sector to submit projects to receive grants that would partly subsidize decontamination efforts.” This is in addition to the $200 million already earmarked for soil decontamination east of Pie-IX. For Chiasson’s department, gaining an intimate knowledge of the territory has been key “so that when promoters speak to the city we can propose things that are actually

The city is creating “work, play and live” districts to upgrade the quality of life of the territory, especially in the industrial area, adding small parks and green space. In a recently launched program, investors can apply for grants to invest in a green building or green environment. “It’s not about no longer wanting industrial,” Chiasson says, “it’s about changing the outside environment to have better cohabitation with citizens.”

Montreal is highly invested in increasing the effectiveness of logistics, with its logistic hubs situated near the port and the airport.

Meanwhile ecommerce is growing, which is great for business but it’s also challenging for the city for instance, “We have to think about last mile delivery and are exploring different options right now,” Chiasson says.

■ Michelle Morra Canadian Real Estate Forum / SPRING 2019

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OFFICE SPACE DEMAND UNDERGOES A SHIFT AS WORKING ARRANGEMENT EVOLVE Being project-based, these office tenants require flexibility. Turning to coworking space allows them to either hire more staff or reduce the size of their team.

Marie-France Benoit Senior Director of Altus Expert-Services Altus Group Positive economic conditions in Montreal are not just impacting the demand for office space but also leading to the emergence of new trends in the leasing market, says Marie-France Benoit, Senior Director of Altus Expert-Services at Altus Group.

Tenants undergoing fast growth are reviewing their occupancy requirements, particularly those in the IT, high tech and gaming industries who tend to have a more mobile workforce, which in turn changes their need for square footage.

“The game changer is a nomad workforce.

It used to be that if you hired 10 people, then you needed 10 work spaces. Now it's a bit different. Not all office use is from nine a.m. to five p.m., like call centers. Also, instead of one dedicated space per person, you have space for the entire organization, and their need is based on its projects and all the different users who are involved. “The way we used to calculate absorption has to be reconsidered for today’s environment,” says Benoit.

“While most companies still have the old structure of assigned desks and corner office as a sign of status, large corporate users like banks, insurance companies, and government departments have been implementing completely different occupancy strategies. “We see a lot of companies investing in technology to develop paperless workflows, allowing people to work from home or anywhere, and there are no assigned work stations,” says Benoit.

Space is also used as a marketing tool to attract staff by communicating and reflecting company values such as greater transparency and less hierarchy. This is especially important to millennials and generation Z workers who bring along with them their new relationship to space.

Meanwhile, savvy landlords are adapting to the new reality and seeing the shift as an opportunity to partner with their tenants and provide the types of services they are looking for to retain talents.

Currently almost 80 per cent of office space inventory in GMA is concentrated in downtown and midtown, in areas that provide good access to transportation and proximity to residential areas. That said, there is still demand for office space in the suburbs given the large population who live and work there, says Benoit.

There are also a lot of upgrading opportunities in the city, she says. “Montreal is an old city and some of the inventory has a lot of potential for redevelopment. A large share of the new office supply comes from conversion and redevelopments. We see it everywhere around us now.”

■ Barbara Balfour

OPPORTUNITIES ABOUND FOR DISCIPLINED INVESTORS

Brett Miller credits Montreal’s “incredible labour force” for attracting companies to Canada’s fastest-growing metropolis.

“It’s big city with a small-town feel, with universities that graduate top talent, exceptional quality-of-life,” said Canderel’s Chief Executive Officer.

There’s also much less employee turnover here, he observed.

Brett Miller Chief Executive Officer Canderel

“Montrealers want to remain and raise their families here, so employers are less likely to lose them to Toronto or Silicon Valley,” Miller observed. “Companies that invest here can expect to retain their staff much longer.”

Montreal’s office real estate market remains healthy and stable, seeing strong interest in Mile EX and other downtown peripheral districts like Old Montreal and Griffintown.

“Technology will continue to drive strong demand,” he predicted. “Today’s tech

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PROPTECH A MASSIVE OPPORTUNITY FOR SAVVY COMMERCIAL BUILDERS

Eugene Bomba Partner, Technology sector PwC

As technological innovation is changing the world at a breakneck pace, the commercial real estate industry is also undergoing significant transition.

Otherwise referred to as PropTech, the intersection of real estate and technology is affecting how we work, how we take up space and how we’re making

“Montreal’s most exciting market is its most basic: Land. We’ll soon see $1,000 per square foot for higher-end residential.

Developers want and can pay for sites, so we’re witnessing some pretty lofty prices.” workers want to be where they can live, play and work. They like amenities close by, to be able to bring their dog to work and integrate their quality of life with work.”

Likewise, the tall towers in the city centre remain stable. Though new www.realestateforums.com

sense of the information now accessible at our fingertips.

It’s also an advancement that screams massive opportunity for venture capital and commercial builders alike, says Eugene Bomba, Partner in the technology sector at PwC.

Occupancy sensors might help property managers, but they can also help tenants determine how to reduce their carbon footprint, save on energy costs and make the building operate relative to their general needs, says Bomba.

“Take the example of PwC –we’re now in peak audit and tax time, when we’re working much later than usual this time of year, but the building would normally shift into night time mode by 6 p.m.,” says Bomba. “Tenant experience allows them to control the lights and the overall environment on their own floors rather than revert to feels a lot the default shut down mode.”

“The increase in productivity and efficiency on the construction side has been maybe one per cent over the past 20 years – there hasn’t been a lot of innovation on that side,” says Bomba. “PropTech feels a lot like Fintech did five years ago, but back then most of us didn’t really “PropTech understand just how big it would be. like Fintech

did five years ago, but back then most of us didn’t really understand just how big it would be.”

“On the real estate side, commercial developers understand the opportunity and if they show a willingness to adopt and innovate the industry, more so than was shown for Fintech in the earlier years, this will be a huge development in this space.”

The tenant experience is a major theme of new commercial buildings, which help improve the lives of their tenants as they in turn take a closer look at how much space they’re taking on, whether they still need as much square footage as in the past, and how occupancy can be used as a source of data.

construction seems unlikely, “we will certainly see small- to medium-size construction projects planned to serve demand in the areas adjacent to downtown,” Miller continued. Retrofitting older B- and C-class downtown properties will also work if they can accommodate higher employee densities. “Many older buildings don’t have the exit, elevator and ventilation capacity to handle the 125 sq. ft. /worker footprint that employers now want. One has to watch capital yields carefully.”

Meanwhile, electronic commerce and logistics firms’ preference for proximity over height has breathed new life into Montreal’s older industrial properties spurring its fastest growth in three decades.

“We’re seeing very strong demand, absorption and prices from both rental and square foot perspectives,” he reported. “cap rates have hit record lows.”

Companies, whether tenants or landlords, on the cutting edge of technology will track what’s essentially a second balance sheet, which is based on data as an asset, measuring what they own versus what data they pay to have access to, says Bomba.

“But how do you actually scrub all that data to have a single source of truth on which you can base proper models and analysis?

That’s an area where a lot of companies need to invest in.”

■ Barbara Balfour

Miller remains particularly bullish on community service retail, as real estate investors rethink their response to the online-shopping revolution.

“Some people will buy groceries online but it will be a long, long evolution before the majority follows suit,” he forecast. “Strong shopping centres that can attract traffic will fare well, bolstered by densification with mixed-use, seniors and residential or demolishing parts of malls to recover land.”

“Montreal’s most exciting market is its most basic: Land – particularly high-density urban land – which soared last year as condo prices started to catch up with Vancouver and Toronto,” he concluded. “We’ll soon see $1,000 per square foot for higher-end residential. Developers want and can pay for sites, so we’re witnessing some pretty lofty prices.”

■ Robert Frank 43

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NEWS OF THE RETAIL APOCALYPSE HAS BEEN GREATLY EXAGGERATED: PERSONALIZED CUSTOMER EXPERIENCES KEY TO SUCCESS IN THIS NEW RETAIL ERA “In this world of hyper-personalization, copy-paste strategies are not going to work,” says Barrere, the Montreal-based co-founder and co-CEO of POTLOC.

Rodolphe Barrere Co-founder & Co-CEO POTLOC

In France, where Rodolphe Barrere grew up, McDonald's is considered a trendy restaurant. In India, Starbucks is where couples might go on a date. While the difference between the Montreal and Laval markets may not be as stark, if brands truly want to succeed, it’s essential that their offerings vary from region to region, he says.

“If you don’t offer something unique that is adapted to each region, you won’t enjoy the advantage of having a physical presence in that market. If people want a consistent experience, they'll go online for that.”

Although e-commerce is taking up a greater share of the market, brick and mortar stores are not going anywhere, he says. Despite recent headlines of doom and gloom and fundamental shifts in the industry, the retail apocalypse has been greatly exaggerated.

“We actually had more store openings than closings last year, which shows that brick and mortar is still expanding. It represents 90 per cent of all retail sales,” says Barrere.

Savvy retailers are recognizing their

competitive advantage lies in enhancing in-store customer experiences. One example, says Barrere, is the creation of rooms with sub-zero temperatures in Canada Goose stores, where customers can test the effectiveness of their winter parkas. Another trend is the use of space for multiple functions, such as clothing boutiques that also feature a café.

“It used to be that the store was at the heart of the strategy, and the consumer had to go there to buy goods and services. Now we're placing the consumer at the heart of the strategy and using the store as one of many channels with which to reach them, on top of your e-commerce, your apps, and the click and collect,” says Barrere.

“Brick and mortar retailers just have to offer a slightly unique experience in every single store, so each one has its own flavour.”

The next revolution in retail will be based on values and the ability to be community-driven, says Barrere. “Values is the third most important criteria for people after price and quality, which is an amazing increase over the last 10 years,” he says.

“At some point it's even going to eclipse price for this newer generation that expects their stores to listen to the heartbeat of their local community and to adapt accordingly.”

■ Barbara Balfour

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Canadian Real Estate Forum / SPRING 2019

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Roger Plamondon President Broccolini Real Estate Group

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“Unemployment is brushing historic lows, income is rising, outmigration has slowed and economic indicators remain strong,” reported Broccolini Real Estate Group’s president. “The downtown core is getting stronger as people return to the city.”

Massive multi-billion-dollar construction projects will consolidate that advantage, once they are complete, he continued.

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The new trains will whisk commuters from outlying suburbs with unprecedented frequency and speed.

Montreal’s residential real estate market also augurs well, Plamondon anticipated, with the biggest market coming in the submarket for seniors and the 55+ set.

“A train on, say, the South Shore, will arrive every 90 seconds at rush hour and have you in the heart of downtown 15 minutes later,” he said.

“Quebec has the fastest-aging population in the world, after Japan,” he observed. “The big players are shifting from clinical seniors homes to menu-driven models that offer cutting-edge amenity and service options.”

The advantage works both ways. It will also spur development along transit hub nodes in those suburbs which “will reshape the Montreal landscape. We could see a resurgence of suburban office space, and the owners of superregional retail malls are densifying and intensifying their shopping centres. People will want to live, work and play there, once the swift new train service starts.”

Meanwhile, Plamondon predicted, soaring purchase prices will prompt millennials to look at rental.

Downtown, the National Bank’s pending move into the new 1.6 million sq. ft. offices complex that Broccolini has built, will free up city core space in properties that it currently occupies. www.realestateforums.com

“With vacancies at historic lows, there’s a future on the rental side,” he declared.

Industrial real estate is also white hot, with vacancy at record lows.

“On-island industrial properties are trading at historic values,” Plamondon added. “It’s a sustainable mid-to-long-term play: Rapidly changing technology has made modern distribution networks strategic. We’re witnessing companies build 100-foot ceiling, high-volume structures where they spend more for tech than on the bones of the building.”

Broccolini itself is betting on a new, 17-million sq. ft. facility west of Montreal Island in Coteau du Lac, “with quick access to Montreal, North Shore, South Shore, Ottawa, and other Ontario and United States markets.”

Broccolini’s separate construction arms gives Plamondon are rare real-time window to keep a close watch on rising construction costs.

“Forecasting risk remains a challenge now,” he acknowledged. “Risk-profit analysis is very, very sensitive right now.”

Taxes could also dampen development.

Montreal’s new park tax and Quebec’s proximity tax for properties near new train stations make downtown development more uneconomic. Looming social housing strictures could exacerbate the problem – and ultimately prove counterproductive – if it sends capital scurrying to the suburbs, throttling new downtown housing supply, Plamondon cautioned.

“At the moment, these charges are offset by rising prices,” he concluded, “but ultimately the consumer pays. We can’t keep hiking costs indefinitely. At some point, we have to ensure that the elastic doesn’t break.”

■ Robert Frank

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Canadian Real Estate Forum / SPRING 2019

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EDMONTON: ALBERTA RESILIENCE AT WORK Eric Slatter Partner, Omada Commercial

“May you live in interesting times� is an expression that perfectly resonates in the Edmonton market right now. It is a dynamic market. It is a fast-changing market. It is an amazingly resilient market. Most importantly, it is healthier on the ground today in comparison to what we may conclude if we only had exposure to what we see in the news.

The office market was struck a number of years ago with elevated vacancy rates as a result of significant new development the market. This vacancy has begun to subside, with multiple consecutive quarters of positive absorption being reported. Industrial real estate has remained relatively solid and shown signs of continued improvement in Edmonton, despite a softening of rental rates and a slight increase in vacancy.

As for retail, it remains an active and dynamic market that has not materially changed in recent years. Retail is still seeing positive demand from tenants, despite their challenges with increased operating costs. The financial terms of deals have not changed substantially. Despite a slight increase, vacancy rates remain fairly low at around four per cent.

Investment properties that come to market are still competitively bid on and quickly sold.

Where the market is heading is always an unknown, but the general sign is one of optimism. If there is one macroeconomic concern affecting real estate in Edmonton today, it is the uncertainty that exists in the political realm. www.realestateforums.com

Today more than ever in recent history, the worlds of commerce and politics are deeply intertwined in our great City. With both provincial and federal elections coming this year, the big topic du jour in Alberta remains the future viability of our energy sector, with the focal point being pipelines. All levels of government remain adamant that there will be some progress on the Trans Mountain pipeline within the year, however factors external to their control remain as obstacles. Once that plan materializes, general optimism is sure to spread among real estate players. In a sector dependent on outside forces, what is the appropriate message to impart upon Forum attendees at this particular time in Edmonton? It is a simultaneous message of realism, optimism, and tempered enthusiasm. Heading into the balance of this year and into 2020, we can continue to watch as events unfold in the political sphere and determine the impact they might have on us in the private sector.

Our forum is the ideal opportunity for everyone in real estate to come together, interpret the variables of today, and have an honest discussion about where the opportunities exist for Edmonton and Edmontonians.

There are still new projects forging ahead, dynamic new developments coming out of the ground, and exciting new tenants entering the market with big plans.

Enjoy a productive forum, and may you walk away encouraged with new pieces of information that will take you through the balance of 2019! â– Michelle Morra 51

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VACANCIES DOWN IN EDMONTON OFFICE MARKET

Cory Wosnack Principal & Managing Director Avison Young

Stantec Tower, the third of three new office towers in Edmonton, was completed in November.

Now that the tenants have moved in, that shift has been accounted for in the vacancy rate, which has reached its high watermark of 15.2 per cent according to Cory Wosnack, Principal & Managing Director at Avison Young. “We’ll start to see a continual decline in the vacancy rate starting in 2019, and we project a slow increase in the rental rate starting in 2020,” he says.

Wosnack doesn’t foresee construction of more new office towers in the near future.

“Our vacancy is still too high and will remain too high to justify adding significant new inventory for at least three to five years,” he says. “Also, we’re limited in the large tenants who can justify kicking off a new tower – most of the largest occupiers have transacted over the last five years.”

The good news on that front, though, is that conversions of older, obsolete office buildings could speed up the reduction in the vacancy rate. “We’ve seen three buildings get removed from the office inventory and may see another one or two,” Wosnack says. “That will help the numbers, statistically, more quickly than just tenant absorption on its own.”

Wosnack believes retrofitted buildings are “the greatest piece of success” in the market. “Landlords who are modernizing their buildings, adding amenities and renovating their common areas are the ones that are doing the leasing and getting higher rental rates,” he says.

EDMONTON TENANTS TRENDING TOWARD QUALITY AND DOWNTOWN

Phil Milroy President & CEO Westcorp

Not a lot has changed since last year in the Alberta real estate market. If anything, the investor interest in multi-family may have even become stronger. On the tenant side demand, too, is at least marginally stronger according to Phil Milroy, President & CEO, Westcorp.

52

“I’m not 100 per cent sure what’s driving it, but it could have a lot to do with the fact that millennials have a stronger propensity for rental than before, and the mortgage rules are keeping a lot of people in rental,” Milroy says. “But there is no doubt that demand, particularly in the higher end of the market, has increased. There’s more demand for quality accommodation than I’ve seen ever before.”

As the market firms up, landlords have been able to marginally increase their rents. Aside from the move to quality Milroy notes a distinct move to downtown, which might have a lot to do with Edmonton’s new multi-use indoor arena, Rogers Place. “I think the new arena has breathed a lot of life into downtown, and so the amenities that have come along with that new arena have made downtown much more urban and created a vibe and a buzz that a lot of people are buying into,” he says. Westcorp

Historically, the largest occupier of office space in Edmonton has been the Province of Alberta. It occupies 3.6 million sq. ft. of office space of which three million sq. ft. is downtown. That amounts to 12 per cent of the entire office market and 17 per cent of the downtown office market. According to Wosnack, the provincial government has not contributed to positive absorption for seven years – any recent growth has resulted from technology companies, including Google and the UK-based Improbable, as well as professional services firms. “Google deep-mined to choose Edmonton as their second office on the planet,” Wosnack says.

“They believe in the talent of our tech labour force.

“So we’re seeing our market successfully diversify in itself from having a stagnant occupier in the provincial government to new growth in technology companies. There have been upwards of 20 deals done in the past 18 months with technology companies occupying 200,000 sq. ft. of office space.

Most of that is new absorption to the market.

These companies would have occupied potentially 40 per cent of that space five years ago.”

■ Michelle Morra

has more than 50 per cent of its portfolio in the centre of the city.

While Milroy says retrofitting is an ongoing process as retrofits need to be upgraded every few years, he is personally seeing better value in new builds than in acquisitions. That said, he adds that last year may have been a record year for multi-family acquisitions.

Asked what he sees as the greatest challenge in the coming year, he says it’s finding available sites at a price that makes sense. “The entire development cost program just continues to astound me as to how fast it escalates,” Milroy says. “Whether it’s land pricing, what the municipality demands, what the design team demands, or the construction costs, what people are prepared to pay goes up and down but the cost of producing just keeps going up.

“You just have to continue adjusting your thinking. There will come a point where it will be a mistake to adjust your thinking, and I have no idea where that point is.”

■ Michelle Morra Canadian Real Estate Forum / SPRING 2019

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THE WORST IS OVER IN EDMONTON REAL ESTATE MARKETS know what will happen, but for now everyone believes they’ve already seen the worst,” he says. “We won’t see the levels of growth we had when oil was $140 a barrel, but we will see some good take up of space in the city.”

Dave Young Executive Vice President & Managing Director CBRE Limited For most businesses, 2019 will be remembered as the year they were starting to be able to put the worst behind them. Thanks to slow and steady growth, the operating environment in Edmonton is gradually becoming more sustainable, says Dave Young, Executive Vice President and Managing Director at CBRE Limited.

“There are still some political issues on the horizon, federally and provincially, so you never

Institutional capital currently coming into the market is predominantly looking for Class A industrial and new purpose-built, multi-family rental properties in urban areas, while the private sector is more likely to chase retail deals like neighbourhood strip malls – as long as they fall under $15 million, says Young.

“Institutions are cautiously underwriting retail given what’s happening with e-commerce and the changing demands of consumers,” he says. “Unless you’re the best of the best in the retail space – and this is not specific to Edmonton – the institutional demand for it is muted.”

The growth in the city’s downtown core has been encouraging – all three of their new office buildings have been substantially leased, says Young, and the core has seen

some tenants moving from the suburbs to be near the bustling ICE District. There is also more demand from the tech sector given the strong AI research being completed at the University of Alberta.

“The fact that the seat of government is in Edmonton has helped stabilize the general economy, compared to Calgary’s private sector-driven marketplace,” Young says.

A notable trend is the recent flight to quality in the industrial market. Tenants are vacating buildings that are functionally obsolete – whether due to low ceiling heights, inadequate loading, or too high a site coverage – just like tenants who are vacating older vintage offices in favour of more efficient floor plates. In order to attract and retain the best talent, companies need to upgrade their premises and built space to compete, says Young.

“In the office market we’re seeing Class B and C buildings trading significantly below placement getting converted into something else,” says Young. “Professional landlords who reinvest and take advantage of repurposing and repositioning those types of projects will be very successful. It’s exciting to see.”

■ Barbara Balfour

BALANCING HIGH ACTIVITY WITH BUDGETS, COMPETING INTERESTS, AND TECHNOLOGICAL CHANGE desires of new residents in an urban location. “It’s very difficult with a finite amount of money available,” McKee says.

“And how do we spend our money as effectively and as efficiently as possible?”

Kevin McKee Chief Executive Officer Pangman Development Corporation There has been a tremendous focus of civic money in and around downtown Edmonton, and therefore a lot of development.

Kevin McKee, Chief Executive Officer, Pangman Development Corporation, says that as development plans continue, one challenge is how the city will manage competing interests and balance the needs of citizens in the suburbs against the needs or 54

In addition to the LRT system, an ongoing, multi-billion dollar investment for Edmonton, aging infrastructure in the city’s mature neighbourhoods requires reinvestment. The city has received significant investment from all three levels of government in its new arena, in the renovation of the downtown library, in the construction of the new Royal Alberta Museum and in Churchill Square.

Further projects include upgrades to the Yellowhead freeway and Terwillegar Drive.

“Some of it is catch-up, but some of it is positioning the city to grow and prosper for the next 30 to 50 years,” says McKee. The difficult part, he says, is trying to make long term plans in a rapidly changing world where the landscape could be drastically different in two to 10 years.

A case in point – self-driving cars and how they might change demand for space.

McKee says that the impact of self driving cars on Edmonton will depend on the policies it develops, and what it allows. “The municipality might say that if the car isn’t being used it must be parked close to where it last dropped someone off. So is there still going to be a requirement for my parking stall in my office building if I have a self-driving car, or does my self driving car drive around downtown or does it go home?” he says.

Technology can move so fast, making it challenging to foresee – and therefore plan – a city’s future. Meanwhile at a basic level, Edmonton is exploring ways to use technology wisely to process and evaluate permits and applications, whether for rezoning, development or building. “I know that the work is underway and it’s not easy,” McKee says, “but they’re looking at ways to improve and make themselves more efficient.”

■ Michelle Morra Canadian Real Estate Forum / SPRING 2019

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TODAY’S RETAIL SECTOR ALL ABOUT SURVIVAL OF THE FITTEST

Geoff Stollery Vice President of Leasing Primaris Meeting some of the biggest challenges in the retail sector will involve some critical thinking rather than just accepting surface appearances, says Geoff Stollery, Vice President of leasing at Primaris.

“On the surface everything looks equal, but in actual fact deal

structures can be misleading in terms of how healthy the market is,” says Stollery.

“You have to look carefully at the deals being done. You also want to be careful about determining when and whether you give your tenant a break.

“It’s a very opportunistic climate right now for retailers to call and say they’re struggling and dealing with pressure from head office to reduce overhead. Everybody seems to be sitting in a strategy room saying, ‘Hey, landlords are desperate, so go out there and get a rent reduction.’

“I lived it myself, I spent 15 years on the retail side with Best Buy and Future Shop.

You have to sit down and ask the right questions to see where it's legitimate and where you want to call a tenant’s bluff. Right now, as we're in this transitional phase, I think it's one of the biggest challenges facing landlords.”

What the online business is doing is simply exposing weaker retailers that don't have a strong balance sheet or struggle with a lack of proper leadership or capital to develop a new strategy, he says. “Look at what happened to Payless Shoes – that's a company that didn't put the appropriate resources, human and

financial capital to develop a multichannel platform,” says Stollery.

“On the flip side, Best Buy was all but dead, but now it's absolutely thriving, because it figured out the right platform for its bottom line.”

Strong restaurant activity and services remain essential for foot traffic in malls – which doesn’t always have to be brought in by retail or fashion outlets, says Stollery.

“Cannabis is a big topic of conversation right now but we’re treading lightly in that space. But Dollarama is still growing, and liquor and wine is doing well.

“We just relocated a 17,000 square foot Shoppers Drug Mart adjacent to where it was, but with a mall entrance. It was a critical feature for their new store, which features a Beauty Boutique which is their cosmetic section, that they could now enlarge in the high-income area of Sherwood Park.

“So that's just one example of a strong, healthy tenant not wanting to move and willing to invest a bunch of capital so they can improve their offering in an area that was previously underserved.”

■ Barbara Balfour

INDUSTRIAL: SMALLER SPACES, DEEPER MARKETS touch. We’re still early in the game. Amazon Prime’s three-hour delivery standard is driving this demand. However, apart from Amazon’s announcements, there’s not yet a lot of evidence that this approach will snowball.”

Matthew Johnson Executive Director KingSett Capital

While electronic commerce megaprojects might grab headlines, smaller properties still remain the most promising part of the Edmonton industrial real market, suggested Matthew Johnson.

“We will continue to see electronic commerce fulfillment centres emerge in centres that have not hitherto served as distribution hubs,” acknowledged KingSett Capital’s executive director, industrial investments, “but that growth is not enough to say that I will make a bet on last mile, last 56

Since the end state of the industrial real estate market remains an enigma, KingSett prefers to stick to smaller, value-add opportunities where it can recycle capital through an active management program. It generally eschews buying land to build and chase a large tenant. Instead, KingSett prefers to buy a building, reconfigure it and sometimes subdivide to suit smaller tenants.

“If you build a 500,000 sq.ft. fulfillment centre space, you can count on one hand the number of people who might take that,” Johnson explained, “whereas if you build 200,000 sq.ft. and divide it into four or five 40,000-50,000 sq.ft. units in a multi-tenant complex, the market deepens dramatically.

It also offers flexibility. We can tailor it to serve a diverse range of businesses.”

That flexibility makes KingSett more responsive to rapidly shifting market

demands from firms old and new.

“It’s tough to predict what’s coming around the corner,” he observed. “Some startups and some technology groups might have specific needs in terms of air handling, lighting, automation or power. Consequently, we try to remain as flexible in design and generic in space and bespoke the end product to suit the tenant.”

Neither do the majority of prospective tenants need to maximize the stack height of their facilities.

“There a bit of a different dynamic in Edmonton,” he said, “so you really have to tailor it to the largest tenant pool.”

Best-in-class 36-foot clearance often proves counterproductive here.

“Plenty of tenants who have no need for it would leap at 22-24 feet stack space,” Johnson continued. “What they want is more functional shipping and parking: More yard.

More access to the highway system for the oversize loads in the ports.”

■ Robert Frank Canadian Real Estate Forum / SPRING 2019

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Beljan Development: Oliver Exchange.

REDEVELOP, REPOSITION AND REAP REWARDS

Chris Dulaba Placemaker Beljan Development

Most developers look at a legacy building and say: “There’s no market for it. It’s a heritage property.” Chris Dulaba looks at a legacy building and says: “There’s a great market for it. It’s a heritage property.”

Dulaba’s title at Beljan Development is Placemaker, and that’s precisely what he does.

“We look for the silver lining,” he said. “We’re skilled at spotting untapped potential in prestige properties. Then we adapt and reposition them. You can’t reproduce their character. They’re authentic and they convey a strong sense of permanence that attracts marquee tenants. They really want to be there.” www.realestateforums.com

“We’re skilled at spotting untapped potential in prestige properties. Then we adapt and reposition them. You can’t reproduce their character.

They’re authentic and they convey a strong sense of permanence that attracts marquee tenants. They really want to be there.”

Beljan has picked and repurposed a succession of underused prestige properties along Edmonton’s main streets as well as in centrally located neighbourhoods and in its downtown core.

“That’s where we see a lot of opportunity for growth in mixed use and boutique commercial development,” Dulaba said, “as well as in Edmonton’s strong rental market, where we’ve witnessed a flight to quality.

Tenants are younger and are looking for the amenities that they want, otherwise they’ll hold off.”

Seamless, streamlined communication He also considers it crucial to develop a smartphone- or tablet-based app system to enable tenants to facilitate requests or to troubleshoot.

have to call – or even text – a property manager,” Dulaba explained. “They just want to go to the app, place the request and get on with their work and social life.”

Experience matters Working with older properties has endowed Beljan with a wellspring of experience in factoring in the inevitable surprises that they entail.

“Each member of our team now knows a great deal about how to plan for the unexpected,” he said, “and how to set up your pro-formas and budget prudently in anticipation.”

“Things crop up,” Dulaba recounted, as he recalled replacing the roof of a heritage building that Beljan was repurposing, while the main tenant – a clothing store – continued to operate. He slated work on weekends which, unfortunately, coincided with intense thunderstorms.

“Costs have to reflect such contingencies,” he concluded. “Ultimately, the rewards that we gain from repurposing these prestige properties has proved well worth the extra effort.”

■ Robert Frank

“Younger tenants crave a turnkey lifestyle.

Day-to-day nuisances are a turnoff. The last thing that they want to do is to 57

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Appointment Notice To book your appointment notice, contact Frank Scalisi, Director of Sales at 416-512-3815, fscalisi@mmart.com

First National is delighted to announce the appointment of Michael Yeung to the newly created position of Vice President, Commercial Financing, British Columbia. With 25 years of financial services experience in the B.C. market, and a unique customer-centred approach to lending, Michael is ideally positioned to drive the expansion and performance of this important business operation. Prior to joining First National, Michael served in leadership positions at Laurentian Bank, HSBC and Canadian Western Bank. He is recognized for his expertise in real estate financing including high-value commercial construction lending. Michael is a graduate

ALBERTA ECONOMY TO BOLT FROM LAST TO FIRST PLACE NEXT YEAR

Ted Willcocks Global Head of Asset Management, Real Estate Manulife

of Simon Fraser (Business Administration), Dalhousie (MBA, Financial Services) and is a registered Financial Planner and Specialist, Trust and Estate Management.

He is a long-time supporter of the Richmond Chamber of Commerce and the Richmond Community Foundation. First National is Canada's largest commercial mortgage lender and largest non-bank mortgage lender with over $106 billion in commercial and residential mortgages.

After five years of trailing the rest of Canada, Alberta is poised for a forceful comeback.

Overall, Canada’s economy remained healthy in 2018. It shrugged off a fourth-quarter downturn to register growth in the two per cent range for the year.

However, with household spending slipping, global trade weakening, oil prices stubbornly low and ongoing geopolitical uncertainty, that performance will slow slightly. Investors can expect to see Canada’s growth soften slightly to 1.9 per cent in 2019, forecast Ted Willcocks, Global Head of Asset Management, Real Estate, Manulife.

“But when you turn to Alberta, it becomes very interesting,” he added. “The province will jump from last to first place by 2020.

Real GDP growth will go from 1.5 per cent to 3.5 per cent next year.”

The upcoming election should provide Edmonton a boost, spurring substantial public sector activity.

“That will drive public sector activity, and the financial sector will certainly trigger absorption for the first time in several years.

That will give investors more options, which has been reflected in the most recent investment trade activity,” Willcocks said.

Edmonton continues to attract more capital as oil woes abate and challenging pipeline issues are resolved.

58

“Oil activity will continue to improve,” he predicted. “Trading values are keeping pace with markets like Montreal. The market will continue to attract largely domestic and some foreign – mainly American – investors.

While the flight to quality has eroded risk adjusted returns in Edmonton’s office market, the city’s industrial and multi-family residential markets remain quite robust.

“Our focus will be on those two asset classes,” he observed. “They’re in very high demand with limited supply.”

Manulife is also partnering to develop an initial 200,000 SF 32-foot clear multi-tenant industrial property in the northwest, where it plans to implement the multi-phase project in several stages.

“It’s a terrific and very diverse, dynamic market,” Willcocks affirmed. “It’s in a labour hub, it’s in the midst of the logistic supply chain with excellent transportation links.”

Manulife has taken the long view during the past five years, during which it has invested more than $400 million in its Alberta real estate portfolio, with a significant number of assets in the Edmonton area.

“We have about 44 properties between Calgary and Edmonton – of them about 30 are in the Edmonton region,” he concluded.

■ Robert Frank Canadian Real Estate Forum / SPRING 2019

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Developm ment Application t Monitorring

Get your view of the u;vb7;mঞ-Ѵ -m7 1oll;u1b-Ѵ u;-Ѵ ;v|-|; 7; ;Ѵorl;m| l-uh;|ĺ

Search & track develop pment applicatiions in: City of Va Va ancouverr,, Burnaby y, North Vancouverr and City Va of To Torronto

See into the future development market: Gain competitive insight Make smarter acquisitions Mine ffo or opportunities Manage your risk i k

-Ѵ| v]uo rĺ1olņ7-|-voѴ ঞomv

! CREF SPRING 2019.qxp 2019-03-26 9:55 AM Page 60

Hear Industry Leaders x Learn the Latest Trends & Strategies x Build Your Network

Western Canada Apartment Investment Conference May 8, 2019 Allard Hall, MacEwan University, Edmonton

TAKE ADVANTAGE OF OUR UPCOMING LEADING REAL ESTATE CONFERENCES

Edmonton Real Estate Forum May 9, 2019 Shaw Conference Centre

Land & Development Conference

Atlantic Real Estate Forum

May 29, 2019 Metro Toronto Convention Centre, North Building

June 12, 2019 Halifax Convention Centre

Canadian Apartment Investment Conference

RealREIT Conference

September 4, 2019 Metro Toronto Convention Centre, North Building

September 5, 2019 Metro Toronto Convention Centre, North Building

For more information or to register: visit realestateforums.com or call 1.800.660.7083 Sponsorship and advertising opportunities contact: Frank Scalisi x frank.scalisi@informa.com x 416.512.3815 (Land & Development, Atlantic Real Estate Forum, Canadian Apartment Investment Conference and RealREIT Conference) Mike Pelsoci x michael.pelsoci@informa.com x 604.730.2054 (Western Canada Apartment Investment Conference & Edmonton Real Estate Forum)

! CREF SPRING 2019.qxp 2019-03-26 9:55 AM Page 61

Latest Commercial Mar M ket Statistics Across Canada C $_;v; u;vย ัด|v -u; u;ัด;-v;7 0ย ัด|ย v uoย rฤท roย ;u;7 0ย ย oย u ruorub;|-uย -|- "oัดย เฆ omv rัด- oulฤบ ย u bm7;r;m7;m| -m7 11olru;_;mvbย ; 7-|-ฤท -m-ัดย v;v -m7 bmvb]_|v om |_; 1oll;u1b-ัด u;-ัด ;v|--|; bmย ;v|l;m| -m7 u;vb7;mเฆ -ัด 7;ย ;ัดorl;m| l-uh;|v bv 1oัดัด;1|;7 7 -m7 1olrbัด;7 ย vbm] m-เฆ om-ัดัดย 1omvbv|;m| u;v;-u1_ ruo1;vv;v ;v|-0ัดbv_ _;7 bm ฦ ฦ ฦ ฦ ฤบ

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Q4 2018

9 4.9

6

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Montreal

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1.6 1.9 1.9 1.4

1.6

2

1.7 1.7 2.0 1.6

2.4 2.4 2.3

1.9

3

2.6

4 2.8

1 0

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Calgary

-1.5 -1.2

Edmonton

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-2

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-1 -1.4 -1.5 -1.0 -1.4

Momentum Ra o (Buy % / Sell%)

5

-3 Vancouver

Toronto

Quebec City

Halifax

Source: Altus Group, Investment Trends Survey

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20

16.0

16.0

16.0

15

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10

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6.7

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Prop perty Transactions by Asset Class "|uom] 7;l-m7 1omাm†;v |o 7ubˆ; bmˆ;v|l; ;m| -1ŕŚžÂˆb|‹ bm |_; $ $ u;-|;u $o $ouom|o u;-ġ Ć?ĹŠ Ć’ Ć‘Ć?Ć?Ć• ˆvÄş Ć?ĹŠ Ć’ Ć‘Ć?Ć?Ńś

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2017

Res. Lots

2018

OďŹƒce

ICI Land 2017 2018

Industrial

2018 2017

Apartment

Retail

2017

2017

2018

2018

Hotel

2017 2018 $0M

$500M $1.0B

$1.5B

$2.0B

$2.5B

$3.0B

$3.5B

$4.0B

$4.5B

$5.0B

$5.5B

$6.0B

$6.5B

$7.0B

$7.5B

Total Investment | Q1-Q3 2017: $17.0B; Q1-Q3 2018: $16.4B

Source: Altus Group

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2017

ICI Land 2018

OďŹƒce

2017

2018

Retail

2017

Industrial

2017

Apartment

2018

2017

2018

2018

Hotel

2017

2018 $0M

$100M

Source: Altus Group

$200M

$300M

$400M

$500M

$600M

$700M

$800M

$900M

$1.0B

Total Investment | Q1-Q3 2017: $1.7B; Q1-Q3 2018: $1.2B

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m ;v|ou 1omC7;m11; ]-bmv lol;m| l -lb7 7 ;m;u] 7o m| um -Ѵ]-u -uh;| u;-ķ ƐŊ ƒ ƑƏƐƕ vĺ ƐŊ ƒ ƑƏƐѶ Land

Res Land Res. 2017

ICI Land

Retail

Office

2018 2017 2018 2017

Industrial

2017

Apartment

2018

2017

2018

2018

Hotel

2017 2018 $0M

$100M

$200M

$300M

$400M

$500M

$600M

$700M

$800M

$900M

$1.0B

Total Investment | Q1-Q3 2017: $2.3B; Q1-Q3 2018: $2.6B

Source: Altus Group

-m7 v_ou|-];v u;v|ub1| bm ;v|l;m| ]uo |_ -m7 ; r-mvbom (-m1o ;u -uh;| u;-ķ ƐŊ ƒ ƑƏƐƕ vĺ ƐŊ ƒ ƑƏƐѶ

Res. Land Land

2017

ICI Land

Office

2018 2017 2018

2017

2017

Hotel

Industrial

2018

Apartment

Retail

2017

2018

2018 2017 2018 $0M

$500M $1.0B

Source: Altus Group

$1.5B

$2.0B

$2.5B

$3.0B

$3.5B

$4.0B

$4.5B

$5.0B

$5.5B

$6.0B

$6.5B

$7.0B

Total Investment | Q1-Q3 2017: $10.8B; Q1-Q3 2018: $9.7B

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FUTURE FORUMS & CONFERENCES 2019 - 2020 Canada’s Leading Real Estate Conferences Listen to Industry Leaders x Learn About the Latest Trends & Strategies x Build Your Network

MONTRÉAL REAL ESTATE FORUM

Western Canada Apartment Investment Conference

April 17, 2019 x Palais des congrès de Montréal

May 8, 2019 x MacEwan University, Edmonton

SASK ATCHEWAN REAL ESTATE FORUM

May 29, 2019 x Metro Toronto Convention Centre, North Building

April 30, 2019 x TCU Place, Saskatoon

Land & Development

EDMONTON REAL ESTATE FORUM

Canadian Apartment Investment Conference

May 9, 2019 x Edmonton Convention Centre

September 4, 2019 x Metro Toronto Convention Centre, North Building

ATLANTIC REAL ESTATE FORUM

September 5, 2019 x Metro Toronto Convention Centre, North Building

June 12, 2019 x Halifax Convention Centre

OTTAWA REAL ESTATE FORUM

RealREIT

RealTrends September 17, 2019 x Metro Toronto Convention Centre, North Building

October 17, 2019 x Ottawa Conference & Event Centre

CALGARY REAL ESTATE FORUM November 6, 2019 x TELUS Convention Centre

TORONTO REAL ESTATE FORUM December 4 - 5, 2019 Metro Toronto Convention Centre, South Building

VANCOUVER REAL ESTATE FORUM

Montréal Real Estate Strategy & Leasing Conference October 2, 2019 x Palais des congrès de Montréal

Vancouver Real Estate Strategy & Leasing Conference October 29, 2019 x Vancouver Conference Centre

Global Property Market December 3, 2019 x Metro Toronto Convention Centre, South Building

.BSDI 2020 x Vancouver Convention Centre West

Québec Apartment Investment Conference

QUÉBEC CITY REAL ESTATE FORUM

February 13, 2020 x Palais des congrès de Montréal

WINNIPEG REAL ESTATE FORUM

February 25, 2020 x Metro Toronto Convention Centre, North Building

April 29, 2020 x Centre des congrès de Québec (Biennial)

RealCapital

June 2, 2020 x RBC Convention Centre (Biennial)

For details on these conferences and to register online visit realestateforums.com Sponsorship and advertising opportunities available.

For events held in Calgary, Edmonton & Vancouver, contact Mike Pelsoci - michael.pelsoci@informa.com or 604.730.2034 For all other events & advertising opportunities, contact Frank Scalisi - frank.scalisi@informa.com or 416.512.3815 *Dates subject to change without notice.

! CREF SPRING 2019.qxp 2019-03-26 9:55 AM Page 65

TOP 10 1 REALL INSIGHT TS

S FROM INSIGHTS LEADERS INDUSTRY L DURING THE E CONTENT FORMA AT TIION OF PARTMENT QUÉBEC AP MENT INVESTM CONFER RENCE

2019 Québec Apartm ment Investment Conferen nce

ISSUE 20

1

2

3

RENT TA AL L MARKET TIGHTENIN NG DESPITE REASE IN AN INCR INVENTORY

RE ENTER DNA

WHA AT T TENANTS WA WANT HA AT T THEY ARE AND WH WILLING TO PAY Y FOR

R lt fro f om the th Canadian C di Results Apartmentt Renter’s Survey takes a deep dive into the renter

dem mographic.

The 2018 Th 8C Canadian di R Renter’ t ’s Survey sheds s lights on the amenities that are essential to renters.

Overall Québeec rental vacancy n average of lower than the national 2.4% - CMHC

7

6

5

4

NMENT GOVERN REGULA ATIONS AT FRUSTRA AT T MULTI TE RES DEVEL LOPMENT

LA AY YERS BIG PL LOOKING TO ENTER A FRAG GMENTED MARKE ETPLACE

PURPOSE BUILT RENT TA AL DEVEL LOPMENTS UND DERWA WA AY Y

MONTRÉAL GDP NUMBE ERS MAKES IT #1 AMO ONG CANADIAN CITIES

The CD Howe insttitute finds that increasing strictness of building regulations decreeases housing supply.

Prices are beingg driven up due to lack off supply.

New projects concentrated in the Greater Montréal Area will add to the rental stocck to a tight market.

Growingg GDP P,, employment and populaation result in strong demand for f housing pushing

8

9

1 10

AGING BO OOMERS MEANS THA AT T DEMAND NIORS FOR SEN HOUSING WILL W NOT ABA AT T TE

TECHN NOLOGY PERMEA AT T TES EVERY FACET OF MULTI RES

EMB BRACING TECH HNOLOGY AND NE EW TRENDS CRIT TICAL TO COMPE ETING WITH NEW BUILDINGS B

By 2036, seniors aged 65 and over will account for one quarter of Canada’s populattion, compared with 14% in 2011, according to

reents higher.

The constructioon, management and marketing of o apartments are evolving with the advancement of technology. The key is to stay agile in a fast changiing environment.

For fu urther details on the ese top trends please e visit the Real Estate Forums F Portal at realesta ateforums.com

Startups aree helping landlords modernize opperations to appeal to poteential tenants.

CMHC C.

P Powered by

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To access the Real Estate F Forum portal, please visit: ww ww.realestateforums.com We w welcome feedback. Please email: sa arah.segal@informa.com

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SPRING 2019 / ISSUE 80

Include the Canadian Real Estate Forum Magazine in Your Marketing Strategy Now and Reinforce Your Organization’s Message to this Key Audience!

Your Unique Opportunity to Reach Over 5,000 Influential Real Estate Professionals in Canada’s Commercial Real Estate Sector Readers include Decision Makers from: • Public and private real estate organizations • REITs • Federal and provincial governments • Pension Funds and pension fund advisors

WWW.REALESTATEFORUMS.COM

Three Annual Editions Focusing on the Following Key Markets:

• Brokers, law firms and other intermediaries • Banks, trust companies, life insurance and other financial institutions • Corporate real estate executives aligned to many major Canadian organizations

Spring: Vancouver • Montréal • Edmonton Fall: Ottawa • Calgary Winter: Canada-wide • Global

Interested? Connect with Frank Scalisi T: 416-512-3815 E: frank.scalisi@informa.com

BONUS! Receive Ongoing Exposure through the Online Digital E-magazine on the Real Estate Forum Website www.realestateforums.com ORGANISED BY

! CREF SPRING 2019.qxp 2019-03-26 9:55 AM Page 67

TOP 10 1

S FROM INSIGHTS INDUSTRY L LEADERS DURING THE E CONTENT FORMA AT TIION OF APIT TA AL REALCA CONFER RENCE

REAL L INSIGHT TS

ISSUE 21

2019 RealCapital

1

2

3

POSITIVE E MARKET FUNDAM MENT TA ALS MITIGA AT TE RA AT TE HIKES

REAL ES STA TA AT TE FUNDS PROL LIFERA AT TE

Rising interest rates are not seen to have a hugeely negative effect on real estate values when the economy is strong.

The comm mercial real estate debt markeet has become an increasinglyy attractive option for institutionnal investors on the hunt for low w-risk, high-return

RA AT TE E HIKES AND TOUGHE ER MORTGAGE RULE ES PRESENT OPPORTUNITIES IN MULTI FAMIL LY Y SECTOR

inveestments.

With moree people pushed out of the home ownership, average rents inccreased by 3.4% in Canada and a pushed vacancy rates dow wn to 2.4% - CMHC

7

6

5

4

OF GROWING SHARE S NON-BANK LENDERS

SLOWING G GLOBAL OMY WILL ECONO AFFECT CANADA

INCR REASING INSTIT TUTIONAL TARGET ALLOCA TA A AT TIONS RESULTS IN A HUGE QUANT TITY OF DRY PO OWDER

POLIT TICS IMP PA ACTS CROS SS BORDER CAPIIT TA AL FLOWS BUT CITIES C TRUMP CO OUNTRIES

5 out of the 10 larggest originators are non-bbanks.

OECD predicts global economic growth to slow to 3.5% in 2019 amid trade disputes and tightening moonetary policies.

Institutions reemain underinvested in real estate despite increase in average target allocation to real estate among institutional

The top 200 metropolitan areas around thee world representing about 60% % of all activity in first 3 quarters of o 2018 – Real Capital

Anaalytics (RCA).

invvestors.

8

9

1 10

ATORY AT REGULA MENTS REQUIREM NING LOOSEN

FINT TECH LINING THE STREAML UNDERWRITING W PROCESS

SECO ONDARY S ARE ON THE MARKETS RADAR R FOR MANY REA ASONS

Using AI and big b data, Fintech a automating companies are the underwritiing process and

It is really all about strategy with secondary markets. m Some are seeing increased investment while otherss see divestitures.

While the often rig gid regulatory standards that guid de the banking industry are looseening in some areas, fintech com mpanies are far less restricted.

attracting a lott of investment.

P Powered by

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For fu urther details on the ese top trends please e visit the Real Estate Forums F Portal at realesta ateforums.com

To access the Real Estate F Forum portal, please visit: ww ww.realestateforums.com welcome feedback. Please email: sa We w arah.segal@informa.com

! CREF SPRING 2019.qxp 2019-03-26 9:56 AM Page 68

Presented by

Gold ÂŽ

3rd Annual Canadian Multi-Res Tenant Rental Survey Participants The 2019 Canadian Multi-Res Tenant Rental Survey will ask Canadian tenants to answer questions regarding preferences, lifestyle choices, operation issues, technology opportunities and satisfaction levels in their rental units.

Supporting

A detailed Dashboard and Trend Report will be produced offering the market detailed and/or summary level information.

Interested in Purchasing The Trend Report and Dashboard are tools that allows you and your team to conduct simple and complex analysis of the 2019 survey findings.

More Information For more information on purchasing the Trend Report, gaining access to the Dashboard or participating in the 2019 survey, please contact Sarah Segal, Director, Informa Canada at sarah.segal@informa.com

We Want Yo Your Opinion! Participate in the Inaugural Office Survey T To oday Presenting Sponsor Ya Yardi Canada Ltd. along with supporting partner Informa Exhibitions the producers of the Canadian Real Estate Forums are currently surveying offffice users across the country.

Your participation will enter you into a draw for your chance to win 1 of 3 prizes below: $1,500 x $500 x $250 Please complete the survey to be entered into the draw. www.surveymonkey.com/r/MGSpring19 The results will be used to further educate and provide essential information to owners, managers and advisers about what offfice users really want.

Responses must be received before June 5th, 2019. Mid- September 2019, Informa Exhibitions will randomly select three (3) entrants for the prizes as stipulated above, from the completed surveys during the entry period (March 6, 2019 – June 5, 2019) from all qualified entries received. The odds of winning the first, second and third prizes depend on the number of eligible entries.

Presenting

Supporting

! CREF SPRING 2019.qxp 2019-03-26 9:56 AM Page 69

TOP 10 1

REAL L INSIGHT TS

2019 Vancouver Real Estate Foruum

ISSUE 22

1

2

3

OFFICE E DEMAND FUELED D BY TECH INDU USTRY

INVESTMENT ACTIVITY NS STRONG REMAIN

STRIAL LEASE INDUS RATES S SKY ROCKET

Downtown Vaccancy fell to 4.1% - 310 basis pooints lower than a yeaar ago.

Transactions totaled $6.8B in the first half h of 2018.

– Altus Group

Shortage of o industrial space is pushing lease rates up faster than any other global market.

7

6

5

4

VANCOUVER BRIMMING VA TH WIT NEW RE ET TA AIL

BEVY OF NEW N TA T AXES IMPACTING G A SLOWING HOUSING G MARKET

IS ASIAN INVESTMENT WANING? A

New retailers and nnew retail space in the city allay cconcern for a sector in traansition.

School Tax, Em mpty Homes Tax, Speculation Taxx, Foreign Buyers Tax combined with w the Mortgage Stress Test, dam mpening housing saales.

HOUS SING MARKET REMAIN NS VERY Y TIGHT DESP PITE SLIGHT INCREAS SE IN V VA ACANCY

8

9

1 10

RENTER DNA A

% & ·6 6(&21'$5< MAR RKETS RISHING FLOUR

CONST TRUCTION G FORWARD MOVING AT REC AT CORD PACE DESPIITE RISING CONSTRU UCTION COSTS

INSIGHTS S FROM INDUSTRY L LEADERS DURING THE E CONTENT FORMA AT TIION OF VANCOUVE VA ER REAL ESTA TA AT TE F FORUM

Results from thhe Canadian Apartment Rentter’s Survey takes a deep dive iinto the renter demographic.

Attracted byy strong local economies, chheaper land and shorter developpment processes, developers see opportunity in B.C.’s secondarry markets.

P Powered by

A AltusGroup

Are Chinesse and Canadian Government Policies P resulting in slowing intereest in Canadian real estate by prospective investors?

The average vacancy for a rental unit increeased to 1.0% in the Vancouveer CMA in 2018 from 0.9% the year before.

– CMHC. CMHC

For fu urther details ese top trends on the please e visit the Real Estate Forums F Portal at realesta ateforums.com

Although lab bour shortages and tariffs are haaving a big impact on constructtion costs, a record amount of square footage is currently un nder construction.

To access the Real Estate F Forum portal, please visit: ww ww.realestateforums.com We w welcome feedback. Please email: sa arah.segal@informa.com

! CREF SPRING 2019.qxp 2019-03-26 9:56 AM Page 70

REALPAC AND HASKAYNE SCHOOL OF BUSINESS AT THE UNIVERSITY OF CALGARY PARTNER TO OFFER THE REAL PROPERTY INVESTMENT CERTIFICATE PROGRAM IN WESTERN CANADA

“The central western Canada location, the quality of the downtown Calgary executive education facility, the deep bench strength in real estate education at Haskayne, and the excellent and welcoming staff there made it a natural fit for us”.

REALPAC is proud to announce a new Executive Education partnership between Canada’s premier commercial real estate association and the Haskayne School of Business at the University of Calgary.

Canada's only Real Property Investment Certificate (RPIC) program, the new standard in commercial real estate executive education, will now be offered in Calgary. Starting in the Fall of 2019, the first course of the program: Finance & Investment in Commercial Real Estate, combines theory and industry practice to examine current topics and emerging issues in the increasingly complex world of real estate finance. Taking place in Winter 2020, the second course, Valuation in Commercial Real Estate, will provide vital practical information on the valuation process to assist asset managers, leasing and investment brokers, underwriters, mortgage lenders, investors and developers who are faced with complex decisions that impact asset values in all asset classes.

Founded in 1970, REALPAC is the national leadership association dedicated to advancing the long-term vitality of Canada’s real property sector. Developed by REALPAC, the Real Property Investment Certificate is an executive education program that encompasses all commercial real estate disciplines and offers a unique perspective into the different facets of the industry. All of the cost-effective, 2-day, in-class courses provide real-world knowledge and insights, actionable best practices and proven tools participants can apply to their current position.

“REALPAC is pleased to partner with Haskayne School of Business in delivering the RPIC program” says Michael Brooks, CEO of REALPAC. “The central western Canada location, the quality of the downtown Calgary executive education facility, the deep bench strength in real estate education at Haskayne, and the excellent and welcoming staff there made it a natural fit for us.”

Participants will learn from well-known, senior commercial real estate industry leaders in small classes that allow for active collaboration among peers and instructors.

The professional development courses that comprise the RPIC Program allow participants to understand key sectors in commercial real estate like capital markets and investing, finance and investment, lending, development, valuation, asset management, leasing and law. The courses apply academic theory, practical knowledge and strategic insights that will help each organization succeed.

The RPIC Program is Canada’s only real property investment executive education offering, allowing participants to build their networks and advance their careers in a specialized format. REALPAC is thrilled to expand the program to Calgary, providing Western Canada with more local access to this industry asset.

For more information, contact: Kelsey Matthews, Manager, Education & Events, REALPAC, kmatthews@realpac.ca, 416.642.2700 x241 ■

70

Canadian Real Estate Forum / SPRING 2019

! CREF SPRING 2019.qxp 2019-03-26 9:56 AM Page 71

New Partnerrs in Executive Educcation E X E C U T I V E

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GETTING SMART ABOUT SMART CITIES: EARLY POLICY LESSONS about how we are building the smart cities of tomorrow, especially given that government will take an active role in regulating all the facets that make cities ‘smart’.

Brooks Barnett Manager, Government Relations & Policy REALPAC

Like many Torontonians, I am actively following the developing news about Toronto’s innovative city-building project with Alphabet Inc.’s subsidiary Sidewalk Labs.

And like many Torontonians I hope, I am becoming somewhat uncomfortable with the lack of detail, transparency and accountability attached to the proposal – and even more uncomfortable with the precedent this project may create.

Developing tech-enabled and resilient cities that respond to the evolving needs of diverse residents should be the goal of every government. As everyone who has ever visited Quayside – the site of the soon-to-be Sidewalk neighborhood – will tell you, it is a blight and in desperate need of vision and development. Serious questions still need to be asked

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The lack of details about the Sidewalk proposal, coupled with growing concerns over data privacy, equity and tax fairness has led many in the real estate community and indeed government to ask, “how can we get ‘smart cities’ right”? While Sidewalk’s master innovation and development plan is far from being released publicly, Toronto’s smart city experiment has yielded some early and vital lessons for any city looking to build innovative neighborhoods. The following recommendations could serve as a how-to guide for smart city development.

Establish some first principles, ideally within the context of a municipal bylaw or master plan. Part of the reason why there is so much distrust over Sidewalk’s proposal is because it can’t be measured against any municipal expectations for smart cities. This is largely because Toronto has never outlined any rules of the game when it comes to designing and building the kind of neighborhood Quayside will likely become.

This is about the municipality deciding what it’s vision is and finding a provider to fulfill it ─ rather than doing it in reverse. Because as it stands, Sidewalk Labs is leading the charge with some limited input from the public through consultations. The vision is what Sidewalk Labs says it is. Solution providers and developers should ideally find a way to enhance and realize the public’s vision, not the other way around. For example, the City of Los Angeles wrote and

published rules governing the use of scooters for companies interested in locating in the city. They did so in advance of these companies settlement in the city, thus creating publicly-approved expectations for companies and limiting a messy policy fight between government and tech companies.

Standards and regulations for smart city development should be applied evenly and equitably to all development. Building a truly smart city will generally mean realizing several aspirational goals relating to resiliency, mobility, accessibility, affordability, internet connectivity, safety, convenience and sustainability. In all of these categories, developers, planners and builders will need to re-invent the very concept of a neighborhood including all the facets that make it work. How is it planned?

How is it taxed? How are people housed?

How do people move around within it? To re-engineer communities, and integrate them with technology requires an aspirational view of what our communities can be. New standards may be created. If these communities become a model for how new communities should be planned and developed, it only makes sense that the standards we make for them eventually apply to all communities. For example, if a case is to be made that buildings within Quayside be exempted from height or density rules, that parking requirements be eliminated or scaled back, or that building applications be fast-tracked, and that doing so is vital for the smart city project, then a case can also be made that those standards should apply to all communities and areas in the city. If smart cities are about goal-setting, then the goals should be applied to all communities. Similarly, any suggestion that Sidewalk Labs is somehow

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The gathering of data should be subject to disclosure and public approval, particularly around facial recognition.

It is in everyone’s best interest to ensure data is used ethically and that doing so does not create conditions in which residents feel surveilled.

entitled to a share of property taxes or development levies in perpetuity for in essence front ending infrastructure cost is inconsistent with the cost recovery model in existing legislation. Conventional developers have never made similar requests on the basis that their developments are responsible for the uptick in adjacent land values.

Lastly, have a clear and reasonable understanding of how data is to be collected, sorted and used. The concern over potential misuse of locally collected data is considerable. Many privacy advocates have justly pointed out that Sidewalk Labs is, at the end of the day, a subsidiary of the one of the world’s biggest data companies – Alphabet Inc. While the head of the Sidewalk Labs has declared that data is not how the group will turn a profit, and that any data collected should be held

in a public trust, not all smart cities players may think the same way, some may not see the point of holding public data at all. The gathering of data should be subject to disclosure and public approval, particularly around facial recognition. It is in everyone’s best interest to ensure data is used ethically and that doing so does not create conditions in which residents feel surveilled. As reported by the Globe and Mail, Sidewalk Labs described options to send residents of the Quayside neighborhood ‘alerts’ if they threw out too much garbage. Big Brother is watching. So, it’s easy to see how poorly devised rules on data privacy can become a larger problem.

While it may be premature to evaluate the Quayside project in its entirety at this point, the time is right to consider some of the fundamental questions underlying smart cities and their design. ■

GOVERNMENTS ACROSS CANADA SHOULD ASK FOR HELP FROM THE COMMERCIAL REAL ESTATE INDUSTRY American insurance giant Farmers Group, has for some time used the slogan “we know a thing or two, because we’ve seen a thing or two”. Underneath the made-for-tv marketing, is an important clue about the company’s competitive advantage: experience.

Brooks Barnett Manager, Government Relations & Policy REALPAC

www.realestateforums.com

This slogan could also be used to represent a key attribute of the Real Property Association of Canada’s (REALPAC’s) approach to industry intelligence and public affairs. REALPAC is simultaneously leading several multi-faceted advocacy projects in which deep industry experience is driving public policy development in provinces and major cities across Canada. As the business of commercial real estate investment and development is highly sensitive to public policy risks, REALPAC takes an activist approach to working with government,

providing policymakers with strong industry-driven research, and building consensus around effective policies that will grow the economy, create jobs and build homes. We are the government’s trusted public policy partner and have been for many years. We know a thing or two, because we’ve seen a thing or two.

As we know, governments come and go and policymakers within those governments don’t always have knowledge, expertise or even interest in the areas they are influencing. Drawing on senior industry knowledge is a surefire way to shore up government’s regulatory strategy, identify better ideas overall and road-test innovative approaches to mutually-shared problems and challenges. Governments shouldn’t be afraid to ask for help or ideas from this industry. Ask and ye shall receive.

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As we know, governments come and go and policymakers within those governments don’t always have knowledge, expertise or even interest in the areas they are influencing. Drawing on senior industry knowledge is a surefire way to shore up government’s regulatory strategy, identify better ideas overall and road-test innovative approaches to mutually-shared problems and challenges.

For many years, Ontario made few meaningful efforts to engage the industry in policy development.

Policies were rolled out with seemingly little input from the industry and had few positive effects in areas of housing development, enhanced investment or buy-in from stakeholders. Today, the Ontario government is actively engaging the commercial real estate industry on a multitude of consultations and evaluating ideas from diverse stakeholder groups connected to the industry.

It’s a night and day difference. In Q1 alone, REALPAC has been engaged in upwards of eight official consultations in Ontario and we look forward to seeing meaningful policy announcements through 2019, especially relating to housing and land use planning.

The governments of British Columbia and Alberta should consider the merits of engaging the commercial real estate community in the kind of robust

consultations that Ontario has executed recently. All Provinces continue to build strategies to grow revenues, improve investment outlooks and house growing populations, and this industry’s input is vital to those objectives.

Like Ontario, British Columbia is grappling with a shortage of housing necessary for a growing population, as well as crushing affordability that results in many Canadians being priced-out of the housing market.

Further, changes in property valuation have made business taxes unreasonably high.

And on the environmental side, B.C. continues to evaluate strategies that will deepen its sustainability success, including whether to implement energy benchmarking. In all cases, the commercial real estate perspective would be helpful in better understanding and evaluating policy options. It is encouraging that recently the Government of Canada and Province of British Columbia have announced a joint committee on housing challenges, which would presumably try to solve some of the underlying issues driving prices. What is also needed however, is a meaningful role for private industry.

In Alberta, where a provincial election is on the horizon and the struggles in the oil and gas sector have had negative consequences for real estate in major cities, the timing is very good to hear from real estate leaders on how to put some economic development points back on the board. There is some evidence that this is happening. It is encouraging to see Calgary municipal tax authorities engaging industry tax professionals to identify effective ways to address assessment-related issues that are driving higher business taxes. Later this year, the provincial election will determine which direction the province will take. After the election, what better opportunity is there to bring real estate investment leaders together to share ideas on how to help Alberta get back on its feet. I have a hunch those leaders are eager to share their ideas.

Good public policy requires a willingness to engage and co-operate between levels of government, industry stakeholders and citizens. Good ideas can come from anywhere and the perspective of Canada’s commercial real estate industry generally comes from a need to think and act consequentially with identifiable results in economic terms. This is a natural fit for policymakers of every political stripe. ■

THANK YOU TO ALL OUR ADVERTISERS AND SPONSORS Reach a Targeted National Audience. For more information on how you can advertise in Real Estate Forum Magazine, contact: Frank Scalisi at frank.scalisi@informa.com or 416-512-3815 • realestateforums.com Altus Group

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CMLS Financial

21

Groupe Montoni Inc.

Broccolini Real Estate Group 31

Concert Properties

27

Informa

Canadian Urban Limited 76 (OBC)

Cushman & Wakefield

49

JLL

Canderel Management Inc

15

CCIM Institute

55

Chicago Title Insurance Company Canada

74

13

DE GRANDPRÉ CHAIT S.E.N.C.R.L./LLP

39

First National Financial LP 75 (IBC) Fonds immobilier de solidarite FTQ

41 60, 64-69 4-5

REALPAC

71

Romspen Investment Corporation

25

KingSett Capital

29

Stewart Title Guaranty Company

47

MNP LLP

53

TREZ Capital

45

Morguard

2 (IFC)

Peoples Trust Company

Yardi Systems Inc.

9

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Empowered lenders make powerful borrowers It’s about getting to know you, your business and your goals so that our advice is grounded and specific.

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