Canadian Real Estate Forums Fall 2020 Issue by Real Estate Forums

FALL 2020 / ISSUE 84

CHANGED WORLD, INNOVATION THRIVES OTTAWA

ALBERTA

Amid Upheaval, Investors Drawn to Stable Multi-Res

Resilient Alberta, Could Very Well be a Diamond in the Making

Pandemic Prompts Wholesale Look at the Workplace

Balzac is Buzzing as One of Albertaâ&#x20AC;&#x2122;s Busiest Industrial Corridors

Change is Upon Us: Let the Most Adaptable Players Win

Pandemic Prescription: Pivot. Reset. Invest.

Industrial Demand: Over the Top

Keep an Eye on Your Assessments WWW.REALESTATEFORUMS.COM

TAKING ACTION. GETTING RESULTS. Morguard actively creates opportunities to acquire, enhance and develop properties. To find out more visit morguard.com.

CHANGED WORLD, UNIQUE FORUM

George Przybylowski Vice President Real Estate Informa Connect

At the inaugural Real Estate Forum in 1992, no one in their wildest dreams could have imagined that twenty-nine years later - as a result of something invisible to the human eye – we would be driven to mobilize a virtual platform to keep the industry informed and connected! The magnitude of this invisible enemy has been all consuming. It took away a large part of our freedom, changed the way we live, the way we think, the way we communicate, the way we work, and the way we shop. While it’s not business as usual – our industry is resilient, it’s made up of innovators and high achievers, those that adapt and establish new ways to deliver, survive and thrive and one that I personally am honoured to be part of. We’re pleased to offer the Ottawa and Alberta Real Estate Forums packed with reimagined content and creativity, using the time effectively and efficiently to explore thought leader insights and to connect and network in safety. At the Ottawa and Alberta Forums, we will take a deep dive into some unique 2020 perspectives on market trends, issues, strategies, and opportunities, as well as the ongoing impact of COVID-19 on real estate in all sectors. The program for the 26th annual Ottawa Real Estate Forum will focus on both Ottawa and Gatineau. Experts will discuss the transformational office market, the federal government’s real estate strategies, and ongoing development. Participants will receive insights on the significant challenges facing retail, and how the industrial, multi-residential and office markets are performing. What’s creating job growth and real estate demand in the nation’s capital region? Even during COVID-19 there is evidence of much activity and optimism. Why is the Ottawa housing market the hottest in the country? The Alberta Real Estate Forum has been renamed for 2020 only and designed to represent the provinces gateway cities Edmonton and Calgary. Next year will see us move back to the Edmonton Real Estate Forum (spring 2021) and the Calgary Real Estate Forum (fall 2021).

www.realestateforums.com

Following several years of instability in the oil and gas industry, Albertans in the real estate industry are turning challenges into opportunities and are widely celebrated for their resiliency. We’ll explore how Albertans are navigating the unique challenges thrown their way by COVID-19. What has been the impact on Calgary as compared to Edmonton and across each property class? Have Alberta’s two major cities fared differently and, if so, what has caused the different outcomes? Both these virtual events offer the same high-quality content that real estate executives, brokers, developers, investors, asset managers, and other professionals have come to expect from the in-person Real Estate Forums. Anyone who is active in real estate—whether in the areas of acquisition, leasing, financing, management, or marketing of office, industrial, retail, and multi-unit residential real estate—will find valuable market intelligence as well as opportunities to connect with owners, developers, investors, lenders, lawyers, brokers and other intermediaries. The real estate sector, not unlike other industries, has found that the pandemic has accelerated the evolution of digital solutions. There are organizations that have proved that fast thinking, quick reactions and pivots have resulted in not only taking back control of their environments, but for some seizing opportunities brought by the impact of this fast-moving virus has proven to be extremely profitable. The fitting theme of the Ottawa and Alberta Forums this year is Challenging Times Require Creative & Innovative Responses. On behalf of our team, we wish you insightful and successful Forums, as well as good health, courage and fresh optimism for your endeavours for the remainder of 2020 and beyond. Be well and stay healthy and safe.

George Przybylowski

CONTENTS

EDITORIAL 3

INFORMA CONNECT – REAL ESTATE Andrew Mullins, Chief Executive George Przybylowski, Vice President

Changed World, Unique Forum

ALTUS GROUP REPORT 6

EDITOR Michel Rémy

Transitioning into the New Normal: Pandemic Effects See Office Sector Struggle while Industrial Thrives

ASSOCIATE EDITORS Kelsey DeLuca Jean Pickering DESIGN Informa Connect Design Studio SPONSORSHIP & ADVERTISING SALES Frank Scalisi, Director 416-512-3815 frank.scalisi@informa.com

REALINSIGHTS 15

Top 10 RealInsights from the Ottawa Real Estate Forum

Top 10 RealInsights from the Alberta Real Estate Forum

FOR MORE INFORMATION VISIT realestateforums.com ABOUT THE CANADIAN REAL ESTATE FORUM MAGAZINE The Canadian Real Estate Forum Magazine is published three times annually. Editions coincide with key Canadian Real Estate Forums and associated markets:

COMMERICAL MARKET STATISTICS 59

Latest Commercial Market Statistics Across Canada

Spring: Montréal • Vancouver • Edmonton Fall: Ottawa • Alberta Winter: Canada-wide • Global E-magazines are available at realestateforums.com 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 Connect.

Canadian Real Estate Forums / FALL 2020

REAL ESTATE FORUMS OTTAWA 14

Sincerest Thanks to Sponsors for their Ongoing Commitment

Although Things are Changing, the Market Remains Steady In Ottawa

Less Repurposing, More Partnership: Ottawa Stakeholders Taking the Middle Ground Post-Covid-19

Pandemic Prompts Wholesale Look at the Workplace

Change is Upon Us: Let the Most Adaptable Players Win

Amid Upheaval, Investors Drawn to Stable Multi-Residential

Prioritizing People Proves Profitable in Pandemic

Ottawa to Grow Both Up and Out

Trends in the Growing Industrial Market

Strategic Location & Large Labour Pool Fuels Ottawa's Ongoing Industrail Boom

Construction Costs Balloon as Competition Spikes

www.realestateforums.com

ALBERTA 34

Sincerest Thanks To Sponsors For Their Ongoing Commitment

Resilient Alberta, Could Very Well be a Diamond in the Making

Alberta Always Comes Back: Thriving ServiceBased Retail Spurs New Development Project in Calgary

“Just The Beginning” as Alberta Industrial Demand Revs Up

Balzac is Buzzing as One of Alberta’s Busiest Industrial Corridors

First Comes the Exodus, then Comes Reinvention

Pandemic Prescription: Pivot. Reset. Invest.

As Real Estate Adapts to COVID-19, any Incentive Helps

Keep an Eye on Your Assessments

COVID Changing Lifestyles and Buyer Demographics

Future of Alberta Office Space Hinges on Energy Sector Rebound

THE ALTUS REPORT In this issue of the Altus Report, we discuss real estate investment trends in the Calgary and Ottawa market areas.

TRANSITIONING INTO THE NEW NORMAL: PANDEMIC EFFECTS SEE OFFICE SECTOR STRUGGLE WHILE INDUSTRIAL THRIVES

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

Erika Siegert Senior Analyst, National Research Insights Data Solutions Altus Group

With the COVID-19 pandemic hitting the Canadian economy this year, the commercial real estate industry continues to adjust to mass closures, physical distancing measures, and the evolution of remote work. While retail and office assets have been hit the hardest, the industrial sector has maintained a strong position with the immense rise in online consumer demand prompting distribution and fulfillment centres to open across the country. Office vacancies are beginning to surge in downtown markets, creating an increase in sublet space, as companies strategize how to best utilize office space while balancing productivity and employee safety. As unemployment levels reached a record high in May, the fallout will likely continue to impact market conditions through to the end of the year. In the first half of 2020, Canadian investments totalled $19.7 billion in transaction volume, marking a drop of 20% compared to the first half of 2019. Investors are cautiously optimistic that the second half of the year will fare better as the market

Chart 1: National Investment Volume, Property transactions, all sectors by year TOTAL DOLLAR VOLUME (BILLIONS) / # OF TRANSACTIONS 10,000 Total Dollar Volume

# of Transactions

56.0

8,000

42.0

6,000

28.0

4,000

14.0

2,000

0.0

0 2016

2017

2018

Source: Altus Group Investment Trends Survey

2019

H1 2019

H2 2020

# OF TRANSACTIONS

TOTAL DOLLAR VOLUME (BILLIONS)

$70.0

recalibrates in response to pandemic changes. However, decreasing national cap rates still indicate a risk-averse attitude. With strong momentum carrying over from 2019, the Ottawa market began this year with a positive outlook, but transaction volume in the first half of 2020 reached only $820 million, a 27% decrease from the $1.1 billion recorded in the same period last year. According to results from Altus Groupâ&#x20AC;&#x2122;s Investment Trends Survey for Q2 2020, although momentum is down, Ottawa multi-tenant industrial is the top preferred product-market combination. Investment volume also declined in the Calgary market, with $1.2 billion recorded in the first half of 2020, dropping 9% from the nearly $1.3 billion recorded in the first half of 2019. Pandemic effects on oil and gas companies are taking a toll on the already struggling Calgary office sector, with Q2 2020 office investments reaching only $1.5 million in volume, a drop of 97% compared to Q2 2019. Although Calgary remains one of the least preferred markets nationally by investors, it is the only market that saw an increase in the buy-sell momentum ratio in Q2 2020 according to the Altus Group Investment Trends Survey results. Unemployment and the rise in remote work drives increasing ofďŹ ce vacancies With the gradual reopening of select businesses in the retail and entertainment sectors over the recent summer months, office assets now face the brunt of pandemic challenges. Between technology-enabled work from home and the ever-changing average sq. ft. per employee factor, the pandemic has accelerated the need to re-consider the use of office space. The national range per employee has fallen to 70-135 sq. ft., which Canadian Real Estate Forums / FALL 2020

Weathering the challenge together

Keep business moving, improve online interactions, support your residents and implement new safety protocols with technology designed to help — even in the most di cult circumstances.

YARDI CANADA LTD. Maintaining business continuity and preparing for the future

30.0% 25.0 20.0 15.0 10.0 5.0 0 -5.0 -10.0 -15.0

Although the bulk of Canadian offices will likely remain closed through to at least the end of this year, employees still seem to be divided in their preference for working from home on a permanent basis or returning to offices when it is safe to do so – the decision of which will ultimately define the office market moving forward.

has caused challenges in productivity. Although this depends on the sector and the market, COVID-19 has now accelerated the need to consider increasing the average sq. ft. per employee in order to maintain physical distance and successfully implement new safety protocols. Although the bulk of Canadian offices will likely remain closed through to at least the end of this year, employees still seem to be divided in their preference for working from home on a permanent basis or returning to offices when it is safe to do so – the decision of which will ultimately define the office market moving forward. Meanwhile, although employment took a hit earlier this year due to pandemic-induced closures, Canadian unemployment fell to 10.2% in August 2020 as restrictions were lifted and businesses began to reopen over the summer, following a record high of 13.7% in May as reported by Statistics Canada. Where Ottawa has seen stable employment levels, partly attributable to federal government jobs in the area, Calgary’s oil and gas sector has faced recent challenges that are being exacerbated by the pandemic. As a result, some companies are starting to sell existing office space as a means to save money, while others are

Ottawa - Enclosed Community Mall

Quebec City - Enclosed Community Mall

Vancouver - Enclosed Community Mall

Edmonton - Suburban Class "B" Office

Edmonton - Downtown Class "B" Office

Vancouver - Tier II Regional Mall

Calgary - Downtown Class "B" Office

Halifax - Tier I Regional Mall

Calgary - Suburban Class "B" Office

Quebec City - Hotel

Edmonton - Power Centre

Edmonton - Tier II Regional Mall

Calgary - Tier II Regional Mall

Toronto - Enclosed Community Mall

Halifax - Downtown Class "B" Office

Montreal - Multi-Tenant Industrial

Montreal - Single Tenant Industrial

Montreal - Food Anchored Retail Strip

Montreal - Industrial Land

Toronto - Industrial Land

Vancouver - Industrial Land

Vancouver - Food Anchored Retail Strip

Toronto - Food Anchored Retail Strip

Montreal - Suburban Multiple Unit Residential

Quebec City - Multi-Tenant Industrial

Halifax - Single Tenant Industrial

Toronto - Suburban Multiple Unit Residential

Source: Altus Group Investment Trends Survey

Vancouver - Single Tenant Industrial

-25.0

Vancouver - Multi-Tenant Industrial

-20.0 Ottawa - Multi-Tenant Industrial

MOMENTUM RATIO (BUY % / SELL %)

Chart 2: Product/Market Barometer, all available products (Q2 2020) Top 15 preferred/15 least preferred MOMENTUM RATIO (BUY % / SELL %)

stuck in the wait-and-see period and are re-considering how current spaces can meet new safety and physical distancing needs. Throughout these unprecedented times, employee health and safety remain a top priority for all. While the Ottawa office market saw strong momentum in 2019 with the recent tech boom contributing to reduced office vacancies, some companies are now transitioning into permanent work from home structures following mandated office closures in the wake of COVID-19. Earlier this year, Ottawa-based Shopify announced the closure of its offices until at least 2021. Now, the company is said to be putting their office space on the sublease market and re-locating to a newer and more compact office in a neighbouring building that will be better meet the needs of their now “digital by default” working model. Other companies are contemplating similar strategies, including the Conference Board of Canada, that has also shifted entirely to remote work and is considering whether to put their Ottawa head office space on the market as well. At the same time, Ottawa office availability remains tight as vacancy fell slightly from 7.9% in Q2 2019 to 7.1% in Q2 2020, marking a 6-year low according to Canadian Real Estate Forums / FALL 2020

While the Ottawa office market saw strong momentum in 2019 with the recent tech boom contributing to reduced office vacancies, some companies are now transitioning into permanent work from home structures following mandated office closures in the wake of COVID-19. Chart 3: Ofﬁce Vacancy. Q2 2019 vs. Q1 2020 vs. Q2 2020 VACANCY RATE (%)

The struggling downtown office market in Calgary continues to face challenges with COVID-19 battering the energy sector. Office vacancy rates in Greater Calgary are the highest compared to all other Canadian markets, although decreasing slightly from 22.1% in Q2 2019 to 21.8% in Q2 2020. On top of this, Calgary saw the most completions in Q2 2020 compared to other markets, with 431,988 sq. ft. of new office space that is only 57% leased. As the drop in oil demand and plummeting prices were amplified by the onset of COVID-19, multiple companies announced mass layoffs which wiped out any positive momentum that the rising tech sector brought about in recent years. With that, Calgary’s unemployment rate is now the highest in the country, sitting at 14.4% at the end of August, according to Statistics Canada. Energy companies also made cuts to expenses in an effort to remain afloat during these economic hardships, including Murphy Oil closing their Canadian headquarters in downtown Calgary. Since the energy sector has faced a slowdown in momentum over the past few years, the Calgary market will need to pivot to offset further losses moving forward.

25.0% 22.1%$ 21.8% 21.8%

20.0

VACANCY RATE (%)

Altus InSite. The overall shift to work from home will continue to impact the Ottawa office market as companies grapple with the decision of whether or not to vacate their offices permanently, the results of which could free up some space within the already tight market.

15.7%

15.0 13.4%

14.3% 14.4%

13.9%

12.7% 10.9% 10.0%

9.4% 9.3%

10.0 7.9% 6.9%

5.0

6.5% 6.7%

9.5% 9.6%

7.3% 7.1%

4.8% 4.3% 4.6%

0 Vancouver

Edmonton

Calgary IQ2 2019

Toronto IQ1 2020

Ottawa IQ2 2020

Montreal

Halifax

National*

*Major markets covered by Altus Group

Source: Altus Group

With drastic changes to the office market, the prevalence of subleases has grown dramatically. While this has been seen most notably in Toronto and Vancouver markets, the trend could grow to transcend other major markets as well. Office sublet space in Ottawa saw an increase to almost 225,000 sq. ft. in Q2 2020, up slightly from nearly 172,000 sq. ft. recorded at the same time last year. Although a slow increase, a continued rise in subleases following the footsteps of Toronto and Vancouver could result in further increases in office vacancy rates. While there has been a recent dip in sublease availability in Calgary, the sweeping challenges in the Alberta economy have created a more long-term pause in which space is vacant but may not on the market yet. Thriving industrial sector needs new supply to meet heightened demand The industrial sector continues to sustain strong momentum carried over from 2019, now with the added boost of physical distancing measures increasing demand for the delivery and distribution of goods. Even as in-person stores began reopening after pandemic shutdowns, Statistics Canada reported a nearly doubling of retail e-commerce sales. This increase has impacted leasing activity as companies re-configure storage and distribution

strategies to meet new levels of demand. Despite construction slowdowns earlier in the year due to governmentmandated closures, industrial projects persisted with a total of 5 million sq. ft. of industrial space completed nationally in Q2 2020, at an availability rate of 27.6%. With rising demand, single- and multi-tenant industrial remain the top two preferred asset class by investors according to the Property Type Barometer comparing all available products in Altus Group’s Investment Trends Survey results for Q2 2020. Some companies have already begun industrial expansions, including distribution giant Amazon announcing plans for the development of multiple new fulfillment centres this year across the country. As such, the fight to quality continues as companies, investors and developers lean into this spike in demand and consider neighbourhoods just outside of city centres to maximize efficiencies and minimize spend.

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Chart 4: Industrial Completions and Availability Q2 2020 COMPLETIONS (SF) / COMPLETIONS AVAILABILITY RATE (%) 80.0%

6.0M 70.0%

COMPLETIONS (SF)

60.0 40.0 50.0 43.9% 40.0

30.0

27.6%

30.0

20.0 20.6% 20.0 10.0 10.0 0.0%

COMPLETIONS AVAILABILITY RATE (%)

70.0 50.0

0.0% 0

0.0 Vancouver

Edmonton

Calgary

Total Completed Area

Toronto

Ottawa

Availability Rate

Montreal

National*

*Major markets covered by Altus Group

Source: Altus Group

Although industrial supply continues to remain tight, the second quarter of this year saw 140,000 sq. ft. of industrial completions in the Ottawa market with an availability rate of 70%. While availability is inching upward, more space will be needed in order to sustain further increases in demand. As mentioned previously, Ottawa’s multi-tenant industrial is the top preferred product-market combination according to Altus Group’s Investment Trends Survey for Q2 2020. With that, multiple new developments are on the horizon in Ottawa, including a potential new Amazon facility, which would be the second Amazon location in Ottawa. Amazon’s growing footprint is setting a precedent for additional industrial developments in the Ottawa area, with one example being Ottawa-based investment firm Avenue31 proposing a 100-acre industrial development on federal land. Located in Ottawa’s East end, the development would add immense value to the industrial park

adjacent to the existing Amazon fulfillment centre in the Cumberland neighbourhood. Cumberland has seen high industrial availability rates recently compared to other sub-markets in the Ottawa area, leaving room for companies to expand warehousing or logistics operations here. Despite strong performance in 2019, the Greater Calgary market is seeing a slow decrease in industrial availability, down slightly from 7.2% in Q2 2019 to 6.8% in Q2 2020. With only two industrial completions totalling 98,267 sq. ft. recorded in the second quarter, supply remains tight with both developments being fully leased at the time of completion. This also marks a drop in completions of 87% compared to the same time last year, which could be partly attributable to construction halts due to the pandemic. Still, with the growth of e-commerce and with Calgary being a strategic location for delivering goods to western Canada, investors are responding to this rise in demand. In the second quarter of this year, Skyline REIT acquired a four-property industrial portfolio in Calgary, totalling over 385,000 sq. ft., as a strategic move to continue expanding their footprint in Western Canada. Located just north of the Calgary International Airport, the majority of tenants among this new portfolio are in

As a result of COVID-19 changing market dynamics, companies, landlords and investors are pivoting to overcome these unprecedented challenges. While government support has sustained the economy thus far, the ultimate progress of the pandemic and its impact on both office and industrial markets remains to be seen. 12

distribution, and less than 1% are associated with the Oil and Gas industry. Pockets just outside Calgary also pose strong development potential, one of which being in East Balzac, with multiple developments recently set in motion to be competed in 2021. The area includes east access to the provincial highway leading North to Edmonton, as well as convenient proximity to the Calgary International Airport. Changing market conditions require creative solutions in order to move forward As a result of COVID-19 changing market dynamics, companies, landlords and investors are pivoting to overcome these unprecedented challenges. While government support has sustained the economy thus far, the ultimate progress of the pandemic and its impact on both office and industrial markets remains to be seen. The potential second wave of increasing case numbers leaves many weary of making concrete decisions pertaining to the short- to medium-term future. In the office sector, landlords are searching for ways to offer attractive measures for tenants and their employees in order to draw them back into in-person work, without sacrificing safety. While some are considering the use of technology to bring tenants back, others contemplate the use of cohorting and staggered schedules to maintain physical distance. As many predicted earlier this year, the industrial sector outperformed other assets with demand for goods being intensified by stay-at-home measures. With what many are dubbing “the Amazon effect,” the development of new warehousing, distribution and fulfillment centres with state-of-the-art technologies and capabilities will continue to rise. While this has bolstered the overall commercial real estate market, additional supply will still be required to meet demand. Overall, previous strong performance in the Ottawa market leaves office supply tight although vacancies are starting to grow, whereas Calgary’s struggling economic circumstances have led to skyrocketing vacancies, creating further uncertainty in both markets. Although both markets are positioned well in terms of industrial development potential, the economic downturn in Alberta points to further challenges ahead. ■ Canadian Real Estate Forums / FALL 2020

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TOP 10

2020 Ottawa Real Estate Forum

REAL INSIGHTS

ISSUE 51

RESILIENCE IN OTTAWA’S ECONOMY

OFFICE VACANCY UP 100 BPS AS DEAL VOLUME TAKES A DIVE

COVID-19 ENDS BUSINESS AS USUAL

INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF OTTAWA REAL ESTATE FORUM

The Federal Government, the tech sector, and significant infrastructure projects buffet the city against the worst of economic fallout.

RETAIL SPENDING SURPASSES PRE-PANDEMIC LEVELS

DEBT AND LIQUIDITY LEVELS REMAIN STRONG

MILLIONS OF SQUARE FEET OF TOD IN THE WORKS

OTTAWA EMERGING INTO A DISTRIBUTION HUB

Some stores that are thriving and expanding amidst rampant closures and bankruptcies.

Institutional investors are bullish on Ottawa.

Office space along the new Confederation Line LRT attracts interest from government tenants.

The new LRT is a catalyst for major new mixed-use development projects in the GOA.

OTTAWA APARTMENT VACANCY RATES LOWER THAN NATIONAL AVERAGE

NCC HALTS PROGRESS ON LEBRETON FLATS DUE TO PANDEMIC

POWER OF PROPTECH

Ottawa has seen three consecutive years of sub 2% vacancy rates despite substantial increases to rental stock.

The RFP process is expected to proceed in the next 12 months.

CRE harnessing the power of technology to streamline operations and create efficiencies.

As offices reopen, new protocols, new tech and new office designs are being implemented to prevent infection.

The region’s stock of available industrial land is growing scarce.

for further details on these top trends please visit the real estate forums portal at realestateforums.com

To access the Real Estate Forum portal, please visit: www.realestateforums.com We welcome feedback. Please email: sarah.segal@informa.com

Canadian Real Estate Forum / FALL 2020

ALTHOUGH THINGS ARE CHANGING, THE MARKET REMAINS STEADY IN OTTAWA Michael Waters Chief Executive Ofﬁcer Minto Group and Minto Apartment REIT

When COVID-19 quite suddenly changed our world, it had an immediate impact in terms of the operation of our communities. Those of us in multi-family real estate made the health and safety of our residents and staff our very first priority. We then had to rethink cleaning procedures, how to grant access to our properties, and how residents could continue to enjoy amenities in a safe way. In addition to these obvious and immediate impacts, COVID-19 has accelerated a shift from the leasing perspective to more of a digital process. While marketing and lead generation had already fully moved into a digital space, the process of viewing an apartment and converting to a lease was still stuck in tradition. COVID-19 has provided the impetus to move to countless leasing options, allowing customers on the rental side to view a suite virtually just as, for years, purchasers have been comfortable with purchasing homes from drawings, 3D tours and other digital tools. In a similar vein the execution of lease documents, which historically has been very paper based, is now increasingly done electronically as a direct result of the pandemic. Will the risk of COVID-like pandemics change the way that people use space, or how space gets developed? It may be too early to know for sure, but planners, architects and developers are already having those conversations. www.realestateforums.com

Suite layouts and amenities might look very different in a new world that must accommodate work from home, as well as heightened emphasis on health and safety. If the Ottawa market has fared quite well in 2020, it is probably a function of the stable employment base here. Real estate has performed very well in the residential sector, whether for sale or for rent. In our city’s industrial sector, which was long bypassed in favour of either Montreal or Toronto, we have seen a number of very significant industrial investments made over the last several years, most notably the two Amazon fulfillment centres. Some real estate sectors, including retail and hospitality, will hit a rough patch in this ongoing pandemic. I am optimistic, however, that because of Ottawa’s fundamental strengths, those sectors will rebound more quickly than they would in a different market. I encourage all participants at this unique Real Estate Forum to keep in mind the stability of the Ottawa market, even as COVID-19 will most certainly have far-reaching effects. We have a lineup of great speakers from the City of Ottawa on the planning side, as well as from the National Capital Commission. This is a rare opportunity to hear directly from notable speakers such as Tobi Nussbaum, chief executive officer of the National Capital Commission. Many of us will be listening closely for nuggets of wisdom and insight. ■ Michelle Morra 17

LESS REPURPOSING, MORE PARTNERSHIP: OTTAWA STAKEHOLDERS TAKING THE MIDDLE GROUND POST-COVID-19

Ashley Hopkins Chief Executive Ofﬁcer Paradigm Properties Getting investors to slow down and take a breath in the face of what awaits post-COVID-19 is perhaps the biggest challenge for Ashley Hopkins these days. “The knee-jerk reaction has been that all offices need to be repurposed to residential and all retail needs to move towards services so they can survive. Although some of that is required, the past five months can't dictate the entire reinvention of our lives and how we’ll operate,” says Hopkins, the chief executive officer at Paradigm Properties. 18

And I'm guilty of that thinking as well. But as soon as you're facing a reality of nothing or something, it inevitably set in and you choose the logical option. And while that brings us down to 50% occupancy, it’s better than zero. So, I think that's a lot of our focus right now.”

A self-described calculated risk taker, “I do agree that services will get us through Hopkins says she is not opposed to the retail setting right now. But that doesn't changing some offices into residential units mean that people are going to stop wanting – but not all. “Some people would love to to shop and that we live on the top three floors shouldn't be creating “Now's not the time to of those buildings and more of a balance have a penthouse suite. make finite business between those two.” But that doesn't mean the

decisions when it's not necessary.”

In her quest to find a absolutely solution on middle ground, Hopkins is asking retailers who complement each other to join forces and make themselves viable in the longer term by sharing rents and spaces. An example might be getting a jeweler and a clothing store across the hall from each other to split their costs. “When you show them the bottom line and explain the benefits and the boundaries around liability, within a week or two of giving them time to think about it, you can see their cogs start to turn,” says Hopkins, who currently has several smaller brands in negotiations with each other. “There's always a knee jerk reaction of, ‘I've built my brand and it’s better than theirs.’

middle floor shouldn't remain in office capacity and the ground floor shouldn't still remain in retail. “When you're asking people to do this work/life balance thing - live there, play there, do all these fun things - if everything that's an office turns into a residence, where are they going to work? Not everybody wants to work from home. “I'm really shying my clients away from all this repurposing. There's awesome opportunity, but let’s not throw the baby out with the bath water and completely reinvent absolutely everything because that's the latest fad. Now's not the time to make finite business decisions when it's not absolutely necessary.” ■ Barbara Balfour Canadian Real Estate Forums / FALL 2020

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PANDEMIC PROMPTS WHOLESALE LOOK AT THE WORKPLACE

Shawn Hamilton Senior Vice-President & Managing Director, Ottawa CBRE

If you’re a large employer like the federal government, rather than make your employees come downtown, maybe you move the office out into the community. It can be spaced out by neighbourhood. That’s exciting, because it challenges us to have a wholesale look at how we’ve been working.” Shawn Hamilton doesn’t downplay the uncertainty and transformational change that the current coronavirus pandemic crisis has precipitated. However, he counsels the real estate community to remain calm, and to wait for the facts to make its decisions. “I want our community to avoid going into knee-jerk panic reaction mode, when we should be using this time to remain safe, assess, challenge—and then respond,” urged CBRE’s senior vice-president & managing director, Ottawa. While work-from-home strictures have turned downtown Ottawa offices into a ghost town, the impact upon real estate remains a fraction of what the city has weathered during previous crises like the 1990s recession, the tech crash (2000) and the subprime crisis (2008). 20

“We’re slowly starting to see the first sublease waves wash across the market,” he reported. “Shopify followed its digital-by-default announcement by putting up a large block of space for sublease.” “Right now, about a half-million sq. ft. of sublease space is available in the Ottawa market,” Hamilton continued. “That’s nowhere near the 2.5 million sq. ft. that flooded the market in the wake of the tech crash.” Look before you leap Absorption will, for the time being, remain more important than availability, he asserted, until we gain a greater understanding of the long-term impact of work-from-home. “That’s the real test. What lies ahead is still unfolding. The midst of a crisis is not the best time to make a definitive decision,” Hamilton counselled. “Technology might have saved us in the short term, but we still don’t know the long-term ramifications of work-from-home: What are the mental health and ergonomic effects? Are there productivity or culture issues?”

The 20-year trend to shrink employee space didn’t empty Ottawa offices, he observed. “Once footprints shrunk, the tenant mix diversified, more tenants arrived and we witnessed growth,” Hamilton noted. “Everything on the table” “We won’t see the death of the office,” he predicted. “Though companies will diversify their organizations over time, the office will remain the foundation of the work experience, though perhaps not to the same degree as today.” “Absolutely everything is on the table right now,” Hamilton concluded. “If you’re a large employer like the federal government, rather than make your employees come downtown, maybe you move the office out into the community. It can be spaced out by neighbourhood. That’s exciting, because it challenges us to have a wholesale look at how we’ve been working.” ■ Robert Frank

Canadian Real Estate Forums / FALL 2020

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CHANGE IS UPON US: LET THE MOST ADAPTABLE PLAYERS WIN

As the old adage goes, change is upon us. And COVID-19 has only accelerated it, says Hugh Gorman, chief executive officer of Colonnade BridgePort.

Hugh Gorman Chief Executive Ofﬁcer Colonnade BridgePort

“Some sectors like retail and office space have been affected worse than others, while industrial has been positively impacted by COVID-19. I think we're all trying to figure out what's next,” says Gorman. “With the pandemic extending into the new year, government support cannot go on forever. It's not an infinite pot of money. So we're going to have to show our resiliency as business owners and leaders, and adapt our business model to pull through this.” The functions provided by core real estate and the way it is used by its occupants has changed forever, he adds. “We need to rethink everything we know about how we use and manage space. These days, you’re not going to load up a downtown financial district tower with 4,000 occupants, and people won’t be cramming their way onto public transit like they did in the past. “I don't think this means the death of office, though you probably won’t have any real growth in demand in the short term. What you are going to see is a repurposing of those spaces.”

Gorman says landlords must embrace the role of service provider to tenants, making sure to provide not only a safe physical place to do business, but also a flexible space that employees will want to visit. “When people come back to work, we want protocols in place that give confidence that we have their safety at the forefront. That’s going to be the emphasis for the next 12 to 18 months,” he says. Despite turbulent economic times, Gorman says they haven’t had much trouble collecting rent. “The analogy we use is that the economy is like a bike chain. And when one of those links in that chain becomes weak, everybody has to do their part to support it,” he says. “So the message we sent to our tenants was, if your business is functioning, you're generating revenue and you're not seeing a significant economic impact, then do your part, keep your link in the chain strong and continue to pay your rent. “We look at tenants as our partners and, without them, we don't have a business. I’m hopeful that working cooperatively and keeping in constant communication pays dividends, and I suspect it will coming out of COVID-19.” ■ Barbara Balfour Canadian Real Estate Forums / FALL 2020

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Aik Aliferis Senior Managing Director Investments, Canada Institutional Property Advisors (IPA) A Division of Marcus and Millichap

The resiliency of multi-res has certainly prevailed during the precarious 2020 market. The sector remained stable through the second and third quarters and, at the time of writing in early October, collections were virtually at 100 percent. Except for some softening in the occupancy of vacant units due to COVID-19, Aik Aliferis, senior managing director, investments, 24

canada, Institutional Property Advisors (IPA), A Division of Marcus and Millichap, says the multi-res space is doing extremely well overall, even to the extent of attracting investors who are brand new to the space. “The investment community continues to gravitate to that space because of its stability,” Aliferis says. “It had never had the test that it just had for the past few quarters, and it passed with flying colours. I’ve had calls from clients that were only in other spaces, that never were really multi-res players at all, now saying, ‘We’re going to move five percent of our holdings into multi-res. Put us on the chart. We want to start buying.” Demand for multi-res product has increased not only in Ottawa but across Canada, he adds. As all sectors have incurred extra costs for tenant safety during the pandemic, senior housing has felt the impact acutely. Even so, Aliferis says there is good demand in the market to build more seniors facilities in the Ottawa region. “I haven’t heard of any

projects on the board that are not going ahead.” Same goes for student housing and other types of multi-res properties. Development timelines tend to be long enough to allay concerns. “Developers believe that by the time they get there, things will be back to normal to some degree. They haven’t been unhinged just yet.” While multi-res seems unaffected by the pandemic, many companies in that space are also exposed to different sectors that haven’t fared as well. Times have been tough for office and, as Aliferis points out, companies that are exposed to multiple sectors will have more challenges than others. Many of IPA’s major office landlords across the country have been proactive, even before COVID-19, by intensifying their sites and adding multi-res—again, to capture that stability. “We’re seeing some pretty strong market metrics for the buy side,” Aliferis says. “The guys that are already in that space are enjoying it, and the guys that are wanting to get into it are prepared to pay pretty good cap rates to get into that space.” ■ Michelle Morra Canadian Real Estate Forums / FALL 2020

“Remodeling office space is a no-brainer,” he added. “Distancing desks, partitions, hand sanitizer, signage—we’ve done all the common-sense stuff. We invested in seating technologies and implemented a hoteling system which permits lots of seating flexibility. That’s the low-hanging fruit.” “The more important stuff is soft around the edges,” Wallace underscored. “How do you help an employee who has a working spouse and two children when their school doesn’t reopen? How do you retain people who are valuable to your organization when they’re compromised? That people piece is very important to us. We’re committed not to rush it.” “We deemed everyone essential services—all 200 employees across six real estate revenue streams,” Wallace explained. “We pushed hard for protective equipment for our people, prioritizing field staff like building managers and construction crews.” The company, which had already invested in improving its business processes, pushed the accelerator pedal at the outset of the pandemic. “We had gone mostly paperless; we went 100% paperless. We had implemented electronic funds (EFT) transfers to some extent; we went 100% EFT,” Wallace recalled. Sounding out staff ultimately proved pivotal.

PRIORITIZING PEOPLE PROVES PROFITABLE IN PANDEMIC “Sometimes you have to bet with your values,” suggested The Regional Group CEO Dave Wallace. “We made a deliberate effort to put people at the forefront of our business model.”

Dave Wallace Chief Executive Ofﬁcer The Regional Group

The approach has paid off for his firm amidst the ongoing pandemic. “Remote work has proved every bit as effective and profitable as it was in an office setting, even though we miss the social dynamic,” he reported. “It put our culture of caring, accountability and teamwork to the test. Our people never abandoned those values. Rather, they rose to the challenge and bonded in ways that we never expected.” The Regional Group prioritized preparing its people to withstand the coronavirus crisis over preparing its physical plant.

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“Employee engagement surveys identified if people were having money or family issues, whether they could work remotely and how they were faring with it,” he said. “We talked to both sides of the remote work equation: employees and managers. “The shift to remote work has required us to compel our people not to work all day—yet they’re still getting a ton of stuff done,” Wallace recounted. “We discovered that there’s a tendency not to step away from your work when you’re at home. People were sitting in chairs at their keyboards for four hours straight without standing up.” “To ensure that we bracket that, so they don’t burn out, working between noon-1 p.m. is off-limits in our organization,” he concluded. “We work hard to ensure that people put in a full day of work, but no more than is necessary to get the job done.” ■ Robert Frank

“A more flexible official policy to even-handedly establish the basis for higher height rules would be better than to continue to proceed ad hoc.” Polowin asked. “Too often the response is: ‘Intensification is a great idea—just not near me.’” Ottawa has already advanced its transit-oriented development ambitions, clustering tall buildings close to its new rapid-transit railway stations. “They’re not yet finished with that work,” he noted, “With the planned expansion of the light-rail network, Ottawa needs to consider other development nodes near the new stations.”

OTTAWA TO GROW BOTH UP AND OUT

Unfortunately, projects have proceeded somewhat haphazardly of late. Developments at Dow’s Lake and LeBreton Flats achieved extreme heights, despite a policy vacuum pertaining to what was permitted. “That’s not to say that intensification is not a good idea,” Polowin said. “It would be better, though, to craft a more flexible official policy to even-handedly establish the basis upon which those higher height rules would be attainable for anyone to adhere to, rather than to continue to proceed ad hoc. For the time being, Ottawa applies the same policy constraints to ten-storey buildings as it does to structures of fifty stories or more.

Michael Polowin Partner and National Municipal Group Leader Gowling WLG

“It’s a problem to consider both high-rises and adhere to the same policies for them,” Polowin asserted. Ottawa is about to pull on its big-city boots, as it prepares to welcome 400,000 more residents during the next 25 years. “The city has invested a great deal of thought about how best to develop its urban plan and policies,” credited Michael Polowin. “It is dealing with how best to extend its urban boundaries and grappling with the question of how much intensification is appropriate.” Residents and developers now await the outcome of studies that will guide to how that land will be 26

employed and how to develop existing parts of the city. “Intensification—by its very nature—requires height increases,” observed Gowling WLG’s partner and national municipal group leader. While there’s consensus that Ottawa needs sufficient housing and infrastructure development to address anticipated growth, it still risks running headlong into not-in-my-back-yard resistance from residents who oppose easing height restrictions in their neighbourhood. “Can we count on the politicians who voted to restrict expansion of the urban boundary to support intensification in their ward?”

He urged urban planners to incorporate some flexibility to permit organic growth to help shape ongoing development. “Market conditions change. What people want, also changes,” he reminded. “This year, we’ve witnessed demand shift from condos to single-family homes.” “Why?” Polowin concluded. “Because no one who bought a condo thought that they were going to be stuck inside it for six months or more. They want green space. They don’t want elevators and common spaces. That’s a perfect example of organic change in the marketplace that no one could have envisioned.” ■ Robert Frank Canadian Real Estate Forums / FALL 2020

TRENDS IN THE GROWING INDUSTRIAL MARKET

James Beach Real Estate & Business Development Broccolini For five years now, the small bay industrial market in Ottawa has experienced growth, record low vacancies, and increasingly high rental rates. Recent large-scale fulfillment and e-commerce growth in that sector has directly correlated with the massive growth in the area, with close to four million sq. ft. in new e-commerce generated development in the last two years in Ottawa alone.

percentage of the interior space is used for that last mile, in terms of warehousing, shipping and logistics, and the balance is used for parking.

Another trend is volumetrics. “Measurements are not as relative as they used to be with the footprint of the building,” Beach says. “It’s now cubic—we’re measuring in three dimensions now, the James Beach, director, real estate & metric that determines the building’s business development, Broccolini, says that efficiency and the building’s the logistical last mile of the e-commerce capacity—literally how much can you put in supply chain is seeing a definite transition the building.” Clear height is of course into the core smaller getting higher. Broccolini “Last mile delivery stations is currently working on a buildings being very desirable again. project in Montreal typically have a smaller “Buildings are being where the building is building footprint and a downsized and more than 120 ft. clear large area for shipping and height. converted to allow additional room for receiving and the Ottawa has significant transportation, for van thousands of vehicles that industrial development in movement, for truck the pipeline, including move into it every day to movement,” Beach says. what Beach refers to as While historically, urban load and unload.” “a little bit of a halo industrial properties effect” on Boundary would be largely covered Road with Broccolini’s development of the with actual structure and a very small first Amazon building in Ottawa. The amount of parking, “with the last mile challenge in the surrounding area, he says, delivery stations those are typically a smaller is a lack of civil servicing for their buildings. building footprint and a large area for “That’s an area specifically that will need a shipping and receiving and the thousands little love from the city,” Beach says. But the of vehicles that move into it every day to market is strong. “I would not be surprised if load and unload.” there were a few half-a-million sq. ft. He says it has become difficult to find sites buildings developed in the next two years that are proportionately balanced with that are directly related to a certain giant parking and building footprint. One trend is who is coming to town.” to convert buildings so that only a small ■ Michelle Morra 28

Canadian Real Estate Forums / FALL 2020

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Nico Zentil Senior Vice President, National Investment Team CBRE

Ottawa’s white-hot industrial market is about more than mere geography. While the city’s proximity to Toronto, Montreal and United States markets has made it a magnet for electronic commerce companies and just-in-time firms, it’s another factor that has cemented its success: its talent pool. “Location checks a box,” acknowledged Nico Zentil, senior vice president, national investment team, CBRE. “But more and more, we hear that it’s about access to labour.” “We’ve seen a number of big bombers go up elsewhere, along the Highway 401 corridor in locations like Cornwall and Prescott,” he observed. “The reality is that those developments suck up all the local labour. There are no more bodies left to work in those places, when you pull from a small pool of prospective employees.”

“We haven’t seen fundamentals as strong as the one’s we’ve witnessed during the past 12 months,” he reported. “We’ve added 15% of our entire inventory in the Ottawa market during the past 18 months alone.” The Ottawa-Gatineau region, in contrast, continues to grow rapidly. Its population reached 1.4 million population in 2020. “You pay marginally more rent to locate 45 minutes north, where you can pull on a massive labour pool,” Zentil explained. “That has been the biggest driver.” Beyond Boundary Road That demand plus a severe shortage industrial development land available has kept Ottawa rents among Canada’s top three cities. “We haven’t seen fundamentals as strong as the one’s we’ve witnessed during the past 12 months,” he reported. “We’ve added 15% of our entire inventory in the Ottawa market during the past 18 months alone.” The demand spike has driven industrial development into hitherto unexplored areas, like the million-sq. ft. building on Boundary Road that CBRE sold to Amazon.

“Their newest one—a 2.8 million sq. ft. facility in Barrhaven—is not in a traditional node,” Zentil noted. “Another 700,000 sq. ft. fulfillment centre is in for site plan approval in North Gore. Shopify has been vocal in seeking a source fulfillment center to serve its needs, as well. “Beggars can’t be choosers,” Zentil explained. “Barrhaven’s proximity is as good as any. It’s immediate connection to Highway 416 gives it excellent access to the city as well as Toronto and Montreal. You wouldn’t have been able to find that land anywhere in the East End proper.” Ottawa’s imminent land use plan adds promise for future industrial development. “If the city redesignates land to permit industrial development in non-traditional locations like Barrhaven, it could spawn further development,” he concluded. “Despite the global pandemic, the future looks very bright indeed for Ottawa.” ■ Robert Frank

Canadian Real Estate Forums / FALL 2020

The federal government appears poised to ramp up that pressure even further, if it continues to promote stimulus packages. “A federal request for proposals currently calls for 1.4 million sq. ft. of office space at Tremblay road,” Tremblay noted. “If that proceeds, expect yet more pressure on trades and materials. It’s clearly a concern.” “The commuter train network expansion might be the biggest thing in town, but with federal stimulus packages, Ottawa will also see more road construction, and bridge replacement,” he added. Rentals rule Demand for large-scale residential rental properties remains paramount for Fotenn, Ottawa’s largest land-use planning firm. “That has, by far, been driving everything that we’re doing,” Tremblay said. “We used to do a fair amount of condominiums, but we’re now undertaking a lot of big residential projects in proximity to transit stations or transit priority corridors.” “Some were originally slated to be condos before our clients had a bit of a rethink,” he continued. “Now they’re looking for the larger, three-bedroom units that the city wants and other, different distributions. Some of our out-of-town clients have also adopted different approaches with more amenity space and more features.

CONSTRUCTION COSTS BALLOON AS COMPETITION SPIKES

Miguel Tremblay Partner Fotenn Consultants Canada’s capital has seen construction industry competition hit historic highs, in the wake of a swift startup that followed hot on the heels of a severe, six-month slowdown. “Materials costs are going through the roof,” reported Fotenn Consultants partner Miguel 32

Parking moves up, before moving out Planners are also putting less emphasis on parking than before, while prioritizing places for services to residents.

Tremblay. “All materials have increased in price and declined in availability. We’re also witnessing never-seen-before competition for tradespeople. Trade schools aren’t qualifying enough of them, a strategic concern.”

“Designing places for Uber Eats and Amazon services is changing how these projects are done,” Tremblay explained. “They’re no longer exclusively car-driven with below-grade parking that will always remain below-grade parking.”

While phase two of Ottawa’s commuter rail network will drive development, other prospective projects promise to intensify those pressures.

Fotenn clients are now exploring above-grade podium parking that they can later convert into more units, amenities or offices.

“You might think that it might just entail building train stations, but the construction around those stations also consumes a great deal of time, effort and money,” he observed. “It’s not just building the station. It’s all the infrastructure that surrounds it: Pedestrian bridges, multimodal pathways and connections to neighbourhoods like the new bridge over the Queensway at Queensview station in the West End.”

“We recently received approval to put in podium parking on a project where First Capital has been very candid that that parking space might go away,” Tremblay concluded. “It can reconfigure, as residents grow more amenable to the adjacent, mass-transit network. That’s very exciting.” ■ Robert Frank Canadian Real Estate Forums / FALL 2020

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TOP 10

INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF ALBERTA REAL ESTATE FORUM

2020 Alberta Real Estate Forum

REAL INSIGHTS

ISSUE 52

PANDEMIC + PLUNGING OIL PRICES: ALBERTA DEALT A DOUBLE BLOW

FLIGHT TO QUALITY CONTINUES

ALBERTA CONTINUES TO LURE LARGE INDUSTRIAL TENANTS

Alberta to lead the way in a 2021 economic comeback.

Abatements and availability induce tenants to move to Class AA, A buildings.

APARTMENT RENTAL RATES RECEDE

PANDEMIC HAS NOT HALTED DEVELOPMENT

Migration and substantial new rental supply in Alberta’s largest cities impact vacancy rates.

Billions of dollars worth of development occurring in Alberta’s two largest cities.

ALBERTA’S SECONDARY MARKETS ATTRACTING ATTENTION

CAPITAL FLOWS INTO ALBERTA SLOWS TO TRICKLE

Lower costs attract new businesses to smaller cities.

Quality product attracts buyers, but no discount in pricing.

REASONS FOR OPTIMISM GROW WITHIN RETAIL SECTOR

DOWNTOWNS INVIGORATED BY NEW ARENAS

New stores are opening and retail centres are being redeveloped as this sector continues to evolve amid economic challenges and shifting consumer behaviour.

New state of the art arenas act as sources of civic pride and catalysts for downtown revitalization.

INFRASTRUCTURE INVESTMENT IS A KEY COMPONENT OF ALBERTA’S ECONOMIC RECOVERY Unprecedented infrastructure spending grows as billions of dollars promised to boost the economy.

Rise in e-commerce will supply a degree of resilience to the industrial sector.

for further details on these top trends please visit the real estate forums portal at realestateforums.com

To access the Real Estate Forum portal, please visit: www.realestateforums.com We welcome feedback. Please email: sarah.segal@informa.com

Canadian Real Estate Forums / FALL 2020

RESILIENT ALBERTA, COULD VERY WELL BE A DIAMOND IN THE MAKING Rohit Gupta President Rohit Group of Companies

From a socioeconomic perspective, Alberta remains the “Wild West” of Canada. With its significant weighting to the oil and natural gas sector, it has historically ridden staggering bull markets to a level of prosperity most provinces could only dream of. Yet it has been fighting for its survival against a vicious commodity bear market since the end of 2014, further aggravated by pipeline constraints and now by COVID-19. This once prosperous and debt-free province is scrambling to reinvent itself in the face of some of the most significant challenges in its history – and we have complete confidence it will succeed. Albertans have been on an economic rollercoaster for the past 50 years, with commodity price volatility, regulatory changes and at times fiscal policy driving explosive economic “booms” and “busts”… but this battle-hardened province has always managed to foster entrepreneurism, continuously innovate and identify market opportunities to help propel it forward. It has consistently been the third largest contributor to our national GDP, generating over $300Bn per annum in each of the past 8 years (with less than 30% of that being attributable to oil and natural gas development). Alberta is home to ~12% of Canadians. Its two largest cities (Edmonton and Calgary) have some of the youngest populations nationally, among the highest incomes per capita and offer an incredible quality of living. However, Alberta has been a political lightening rod Federally for some time now, increasing the perceived risk for investors considering existing or future investment and likely dissuading many from moving here. In response to that, Alberta is now leading the charge on the ESG front with significant new initiatives tied to alternative forms of energy and recycling. www.realestateforums.com

Matt Rachiele Managing Director, Calgary Colliers International

Why invest in Alberta? The recently created agency Invest Alberta points out that we have the most competitive taxation system in Canada (8% corporate tax rate; no payroll, sales or capital taxes); the highest GDP growth nationally in the past 10 years; 700 projects totaling over $160Bn proposed or under construction; investment per capita nearly double the Canadian average; and 71% of our workforce has a post-secondary education. From an operator’s perspective, the low investment cost base, expedited approval process and favourable tax regime minimize the tail risk and position Alberta favourably relative to other jurisdictions. Almost exactly a year ago, the Economist ranked Calgary, Canada’s youngest city at 37.4 years old, as the “Most Livable City” in North America and 5th Globally. To the North, Edmonton has realized among the highest population growth rates of any major Canadian city over the past 10 years. Both are ideally situated with their abundant high class office availability and affordable housing to capitalize on the impending transition of technologically savvy foreign nationals exiting the USA due to the H1B visa crises developing. Kissinger once said that “a diamond is merely a lump of coal that did well under pressure.” We believe Alberta is already churning out diamonds and that many investors will ultimately regret sitting on the sidelines for too long, similar to the space and asset acquisition scramble we’ve seen playing out in Montreal. Our main message at this year’s Forum is that Calgary, Edmonton, and rural Alberta have much to be proud of and our provincial economy is far more resilient than people give it credit for. And while the optimists, pessimists and realists are still arguing over the proverbial Alberta “glass of water”, we believe disciplined opportunists with the foresight to see past the current market turmoil will start drinking it up. ■ Michelle Morra

ALBERTA ALWAYS COMES BACK: THRIVING SERVICE-BASED RETAIL SPURS NEW DEVELOPMENT PROJECT IN CALGARY

Jeremy Thal President & CEO Royop Development In the last five years, Alberta’s retail tenants have faced three strikes; a hike in minimum wage to $15 per hour; municipal tax increases to offset politicians’ overspending; and last but not least, the carbon tax. Throw COVID-19 into the mix, and it’s no wonder the retail sector is struggling so much, says Royop Development president and CEO, Jeremy Thal. Still, with a 97% occupancy rate within their retail portfolios, Thal remains optimistic. “Alberta is made up of resilient people and we always come 38

back. We're smart and hard-working and building the largest, a 300,000 sq. ft. because of that the entrepreneurs of this mixed-use development called Township. province are surviving, but you've got to It’s only the first phase of a $125 million remember, it's not just project that will include “Alberta is made up of COVID that we’re 1.5 million sq. ft. of retail, dealing with right now,” hospitality, entertainment, resilient people and we says Thal. food and beverage, office always come back.” and residential space. “Calgary was never overbuilt with the retail sector. And with 1.4 As part of redefining the onsite experience million residents, we’re almost such a big for shoppers, in addition to dedicating areas city now that we can withstand a recession.” for curbside pickup and creating Instagram-worthy spaces, they’ve invested Service-oriented retail, from grocery and over a million dollars on art. They’re also liquor stores to hair salons, dental offices involving local community members to help and cannabis shops are all thriving, says create dynamic experiences throughout the Thal. But although traditional retail has center. faltered, they’ve still been able to collect rent from more than 90% of their tenants, he “We want people to come down to the adds. center to check out all the new art and then stay to shop,” says Thal. Meanwhile, a 7,000 sq. ft. vacancy from an Urban Barn furniture store that didn’t renew “Only a few projects like this exist in Canada their lease with Royop has already been – Park Royal in Vancouver and Dix 30 in backfilled. “A 7,000 sq. ft. vacancy sounds Brossard are a few examples. By creating pretty awful in this market. But we have a that additional experience, we’re trying to dermatology clinic out of Edmonton that’s get people to stay and hang out, just like taking the whole thing,” says Thal. when you were a kid, you would just go hang out at the mall.” Of all the real estate projects under construction in Calgary right now, Royop is ■ Barbara Balfour Canadian Real Estate Forums / FALL 2020

The path ahead

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“JUST THE BEGINNING” AS ALBERTA INDUSTRIAL DEMAND REVS UP

Phil Brown Vice President Acquisitions & Leasing, Industrial Hopewell Development

“The shift away from oil and gas hasn’t really dented Calgary or Edmonton. We see few such tenants. We’ve already seen more 50,000+ sq.ft. users in 2020 than we did throughout 2019.” Surging electronic-commerce driven demand for industrial development continues to boost Alberta’s economy, despite the coronavirus pandemic. “Expect industrial tailwinds like we’ve never seen before, during the next few years,” predicted Phil Brown. “Electronic commerce had already made industrial the best asset class. Then COVID-19 came along and multiplied that demand.” “This is just the beginning,” explained Hopewell Development’s vice President, acquisitions & leasing. “Large global commerce groups and retailers had long planned this. The pandemic accelerated their plans. Smaller groups will jump in next—local retailers who were forced to create electronic commerce platforms and swiftly add warehouse capacity.”

Lots of land, less red tape Alberta’s abundance of available land and dearth of development constraints gives Calgary and Edmonton an edge over Vancouver, Toronto and Montreal. Here, it typically takes just 18 months to buy land, establish entitlement, gain approval and complete construction. “We can turn the taps on quite quickly for industrial—as well as for other products like office and multi-family—unlike other major markets, where timelines typically take three years and occasionally up to for six years,” he observed. Consistent absorption of new industrial properties continues to buoy Brown’s enthusiasm. “The shift away from oil and gas hasn’t really dented Calgary or Edmonton,” he reported. “We see few such tenants. We’ve already seen more 50,000+ sq.ft. users in 2020 than we did throughout 2019. “We’re constructing a new building in Calgary and aiming for another in Edmonton,” Brown continued. “Both our buildings are about 200,000 sq.ft., generally aimed at mid- and large-size distribution warehousing and electronic commerce fulfillment users who want more capacity.”

Larger users prefer the swifter entitlement timelines in peripheral locations like Leduc and Balzac, where they gain greater tax savings, while smaller users like the amenities that Calgary and Edmonton offer. Despite the shift to higher ceiling heights during the last five years, Calgary remains competitive. “You wouldn’t build 300,000 sq.ft. today with less than 36 ft.,” he declared. “We’ve considered 40 ft., which we’ve witnessed in Toronto. Construction continues apace Another plus is that the pandemic hasn’t dented Alberta construction activity significantly. “It has affected HVAC supply, and slowed delivery of steel and other products,” Brown acknowledged. Elsewhere, in the United States, Hopewell has seen costs fall, as construction slows. “Building an industrial property is very different from an office cubicle farm,” Brown concluded. “We’ve seen very little inefficiency on our work site. We have a very strict COVID workplace safety program. Everyone has remained very respectful.” ■ Robert Frank

Canadian Real Estate Forums / FALL 2020

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BALZAC IS BUZZING AS ONE OF ALBERTA’S BUSIEST INDUSTRIAL CORRIDORS

Thanks to plentiful plots of land for the big box users who need them and the associated savings they get on operating costs, the industrial corridor of Balzac, Alberta is buzzing with action. “With regards to property tax, depending on whom you talk to, there could be a much as a dollar per sq. ft. in savings,” says Marshall Toner, who leads JLL Canada’s Industrial Group. “So if you've got a 500,000 sq. ft. warehouse, and you're saving a dollar a sq. ft. on taxes, that adds up very quickly.”

Marshall Toner Managing Director & National Lead, Industrial JLL Canada

Currently the Balzac corridor is the busiest node outside Calgary’s city limits, eclipsing the industrial markets of Airdrie and Okotoks. “Lowes Canada just signed a deal for a 1.25 million sq. ft. warehouse that's being constructed right now for a delivery of Q4 in 2021,” says Toner. “Walmart has two warehouses in that area at 500,000 sq. ft. each, Amazon has a 600,000 sq. ft. center out there, and you’ve also got Gordon Food Service with 250,000 sq. ft., among others.”

“If you had told me on March 13th, ‘Hey, Marshall, don't worry about it because this is how busy you’re going to be in July, August, and September’, I'd be very happy with that answer.” In the past 25 years, Calgary’s industrial market has doubled to 150 million sq. ft., says Toner, who also lists current statistics including a vacancy of 7.8, an average rent rate of 9.98 and average land cost ranging from $650,000 to $950,000 an acre. These figures are similar to those of the Edmonton market as well, he says, noting that continued growth in e-commerce is good news everywhere from an industrial perspective, since bricks and mortar are needed to house products. When it comes to requirements for the next generation of warehousing, Toner says larger e-commerce players such as Amazon will be looking to fulfil last-mile delivery directly from the distribution centre to the consumer. However, several issues could arise related to the larger employee count at fulfillment centres, he points out. “Employee parking has become a bigger issue for people working in e-commerce. The power supply to the building has also become an issue because they're driving a lot of the robotics and material handling on the premises,” says Toner. While March and April were very slow in all facets of commercial real estate, including industrial, as people waited to see what would happen, they’ve been on a steady climb upwards since May, he says. “If you had told me on March 13th, ‘Hey, Marshall, don't worry about it because this is how busy you’re going to be in July, August, and September, I'd be very happy with that answer.” ■ Barbara Balfour

Canadian Real Estate Forums / FALL 2020

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FIRST COMES THE EXODUS, THEN COMES REINVENTION buildings, be it hallways, lobbies, or elevators,” he says.

Daniel Eggert Vice President Property Development North Melcor

The inner-city exodus has begun. Fuelled partly by germaphobia, partly by a desire to stretch their real estate dollars even further, more and more people are flocking to the suburbs. It’s a trend that will continue long past COVID-19, predicts Daniel Eggert, vice president of property development north at Melcor. “I don't think the same degree of restrictions will continue, but I do believe that some of the phobia around germs will grow dramatically. People will want to spend less time around the high-density, common areas of 44

“And as changes to office dwellings make people less inclined to be closer to the downtown core, many are going to say, ‘For the same dollar figure, given I don't have to come downtown anymore, I can have a barbecue in my own backyard. I don't have to smell my neighbours’ cooking anymore. Instead of living in a condo with a 100-sq. ft. patio, I can have a walk-up townhome.’” But while secondary markets may seem alluring due to their affordability value proposition, not all are created equal, says Eggert, who notes the satellite communities around large urban centers are a different breed than those that are independent of other communities. “For example, Kelowna is doing well because people who live in Vancouver are realizing they can have a better quality of life if they move out there and just commute to the office when they need to. But Red Deer, which has historically been a service-oriented market for the energy sector, is struggling, because the energy sector is struggling. “Fort McMurray, which is more of an oil town, is in a similar category. It doesn't really matter

that these markets are in Alberta or that they're close to Calgary and Edmonton. It's that the driver of these secondary markets have suffered.” As people continue to eschew public offices in favour of working from home, there will be a reduction in absorption of office space. New industries could be the exception – Eggert points out that Calgary has the second highest concentration of tech workers in Canada – but those in the tech sector don't need to be downtown, either. “I think downtown is down in the medium term because real estate is a follower, not a driver. The last five to 10 years have seen a wonderful upswing for downtowns across North America but that doesn’t last forever,” he says. “We’ll see less new development and more retrofitting of space currently on the market. The hotel sector is hemorrhaging, and the nightlife and culture aspect have been hurt, but some of that will come back. Some of it won't. “Overall, I think we will see a bit of reinvention downtown. There will have to be, because there’s been so much bleeding.” ■ Barbara Balfour Canadian Real Estate Forums / FALL 2020

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PANDEMIC PRESCRIPTION: PIVOT. RESET. INVEST.

Blair Welch Founding Partner Slate Asset Management

“Given where it is starting from, Alberta already has a leg up on the rest of Canada. Albertans have shown just how resilient they are. The province remains resource-rich. It retains a very attractive tax régime.” Elizabeth Di Staulo A&D Manager Burovision 46

Blair Welch agrees that luck plays a certain role in how any firm fares in a crisis, as owners of some asset classes can attest. However, added Slate Asset Management’s founding partner, fortune also favours the prepared. “There will always be an upside to a crisis,” he underscored. “To realize it, you need to be able to pivot strategy swiftly and have sufficient capital as well as the right team to implement it.” “Technology helps. Agile pivoting has a lot to do with how you communicate with people and how you convey and implement ideas. Clear communication is a competitive advantage. That’s the game-changer.” “For the past 15 years, we have invested significantly in technology to develop our own, proprietary systems,” Welch continued. “We have programmers on staff. In March, we adapted our cash collection systems to give us insight into how our thousands upon thousands of tenants around the world were faring. That gave us lots of valuable insight, which guided our response very precisely.” Value, opportunity, technology Slate has prospered by adhering consistently to its three-pronged strategy: Focus on basic value; go where the competition isn’t; and employ technology proactively. “First, we buy properties when interest rates are low like now and calculate their rent potential,” he explained. Compelling prices here mean more opportunities.”

“Second, we take on assets that others aren’t seeking. When everyone wants the same thing, prices outstrip fundamentals. We’re looking at assets that might be mispriced because of COVID.” “Third, we strive to achieve efficiencies through effective management, largely through technology, which ought to serve us very well in the coming year.” Advantage Alberta Paradoxically, a half-decade of energy sector hardship has toughened Albertans in a way that could offer an edge, once the pandemic subsides. “I’m optimistic,” Welch affirmed. “Given where it is starting from, Alberta already has a leg up on the rest of Canada. Albertans have shown just how resilient they are. The province remains resource-rich. It retains a very attractive tax régime.” The biggest cloud on this front is the political headwinds coming from the federal government, he conceded. “The pandemic should not blind us to other needs,” Welch urged. “There is a middle ground where we can harness some of this country’s resources to achieve a set of sensible social goals. Our leaders need to work together to tap this potential—and help Alberta prosper.” ■ Robert Frank

Canadian Real Estate Forums / FALL 2020

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AS REAL ESTATE ADAPTS TO COVID-19, ANY INCENTIVE HELPS

Harrison Zivot Vice President Investment and Strategy Ronmor Holdings During the COVID-19 portion of 2020 in Alberta’s real estate market, Harrison Zivot, vice president, investment and strategy, Ronmor Holdings, hasn’t seen much difference in activity between the primary and secondary markets. What he has seen is activity in certain niche markets. The sought-after Balzac industrial area, for example, is a lot more economical for businesses than the city of Calgary and is driving the growth rate of Airdrie. “There’s a lot more employment now in Balzac and northeast Calgary that is taking away from some residential growth and is giving it to Airdrie,”

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Zivot says. “We have a site in Airdrie that we just completed about a year or two ago, and that site has been holding up strongly during this time.” Balzac is appealing for new home buyers because it is a little less expensive than Calgary and offers plenty of employment opportunities. It’s also a convenient location from a commuter standpoint. Investors are on the lookout for lower taxes, infrastructure, favourable municipal planning, and anything else that might make a venture more appealing. “Right now, the margins are so skinny on pretty much anything you do that any sort of advantage is going to drive you somewhere,” Zivot says. “If your approval process has more certainty and is faster, your return on your investment is a lot more predictable and that will drive investors, in my opinion.” Zivot adds that lower property taxes can also make a difference particularly for a big retail developer like Ronmor Holdings. “Property tax is something the tenants end up paying. The landlord will collect gross rent. We’re finding we have a few shopping centres in these secondary markets, and taxes can be sometimes half of the cost in Calgary or Edmonton. That will help a tenant dramatically during these tough times.” Zivot describes the early days of the pandemic as a time of panic. “It was one of the most difficult circumstances myself and my teammates had dealt with,” he says. “It was scary because no one knew really what was going to happen with this virus and tenants didn’t know if they would ever be able to run their business the same way ever again.” As much as possible, Ronmor Holdings participated in the Canada Emergency Commercial Rent Assistance (CECRA) program, a program announced in April to help small businesses struggling to pay rent due to the economic effects of the COVID-19 pandemic. “We feel that even though we had to abate 25% of our rent, it was a good investment for our tenants because we’re able to alleviate a lot of their pain,” Zivot says. “I think they were very appreciative that we participated in CECRA, so it improved a lot of our relationships.” ■ Michelle Morra

Canadian Real Estate Forums / FALL 2020

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KEEP AN EYE ON YOUR ASSESSMENTS

Kyle Fletcher Executive Vice President Prairie Region Altus Group Calgary and Edmonton have had a tough go in recent years. Add the COVID-19 pandemic to these already cash-strapped cities and you have commercial property owners struggling with expectations for a tax break. Realistically, however, tax breaks are unlikely according to Kyle Fletcher, executive vice president, prairie region, Altus Group. “During these difficult times people are losing tenants,” Fletcher says. www.realestateforums.com

“They’re re-leasing space at lower rates than before and a lot of their tenants are hurting, especially in retail and office, the expectation is that the value of the property is going down, which should mean the assessed value goes down, which should mean lower taxes. The fact is that cities are not cutting their budgets in any material way and the tax burden is not easing for businesses.” Although there will be a slight reapportionment, with the hardest hit getting a break, Fletcher says that in general property taxes are not what people might expect during a pandemic. As difficult as it is for businesses, he feels that there isn’t widespread sensitivity to this at the civic level. What if businesses simply cannot pay? Where does that leave these cities? Taxes that were deferred for the last six months are now coming due. In Fletcher’s opinion, the system of having an annual reassessment is good. What trips it up is when cities fail to react to changes in the market. “Are we appropriately representing the market shifts in these annual reassessments?”

2020-09-29 12:12 PM 2020-09-29

he says. “That’s the question. Cities are often slow to recognize value drops, not only because it can be challenging to quantify with little in the way of sales, but because material drops to the assessment base can produce spikes in tax rates. The execution of the system is very challenging for the cities because, if they were to drop the overall assessment base by any significant amount of money, “the tax rate would go to the moon,” Fletcher says. “They’re both intertwined.” He compares this situation to when the oil price dropped in 2014. It took a year before properties began to sell, and two or three years for the cities to respond to how dramatically the market had changed. His message to property owners is to be responsible about reviewing their assessed values for 2021. “If that value’s not right, people need to meet with the city or have a representative meet with the city. And if it’s still not right when assessment notices are officially released next year, they need to get that property appealed so they have a chance to ensure they are only paying their fair share of tax.” ■ Michelle Morra 49

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Industrial assets take the lead in investor preference as pandemic stay-at-home measures led to a surge in demand for the storage and delivery of goods

MOMENTUM RATIO (BUY % / SELL %)

Property type barometer | All available products (Q2 2020) 10 5 0 -5 -10 -15 -20

Source: Altus Group Investment Trends Survey

Downtown markets face challenges as o ce vacancies escalate due to pandemic stay-at-home measures Product/market barometer | Downtown class “AA” o ce (Q2 2020) (Q

)

MOMENTUM RATIO (BUY % / SELL %)

-2

-4

Vancouver

Edmonton

Source: Altus Group Investment Trends Survey

altusgroup.com/data

Calgary

Toronto

Ottawa

Montreal

Quebec City

Halifax

Property transactions by asset class Vancouver o ce transac琀ons sustain massive drop as rise in remote work results in low demand

Office Retail

2020 2019

2019

Hotel

Res. Land ICI Land

2019

Apartment Industrial

Land

Vancouver Market Area | H1 2019 vs. H1 2020

2020

2020 2019 2020 2019 2020

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$$BILLIONS BILLIONS

Total investment | H1 2019: $5.2 B; H1 2020: $3.7 B

$2.0

$2.2

Source: Altus Group

With a strong jump in apartment transac琀ons, Edmonton market remains stable amid economic di cul琀es in Alberta

Office Retail

2020 2019

2019

Hotel

Res. Land ICI Land

2019

Apartment Industrial

Land

Edmonton Market Area | H1 2019 vs. H1 2020

2020

2020 2019 2020 2019 2020

$0.0

$0.2

$0.4

$0.6

$BILLIONS $ BILLIONS

Total investment | H1 2019: $1.0 B; H1 2020: $1.3 B

Source: Altus Group

Calgary o ce transac琀ons persist despite increasing vacancies due to a downturn in the energy sector Res. Land ICI Land

2019

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

Calgary Market Area | H1 2019 vs. H1 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.1

Total investment | H1 2019: $1.3 B; H1 2020: $1.2 B

$0.2

$0.3

$ BILLIONS $BILLIONS

$0.4

$0.5 Source: Altus Group

Property transactions by asset class Long-term remote work leads to new challenges for the o ce sector in the GTA, while industrial performs well in response to rising demand 2019

Res. Land ICI Land Res. Lots

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

Greater Toronto Area | H1 2019 vs. H1 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$BILLIONS $ BILLIONS

Total investment | H1 2019: $10.2 B; H1 2020: $7.9 B

$4.0

$4.5

Source: Altus Group

A昀er strong performance in 2019, the O琀awa market saw a slight drop in investment ac琀vity in the face of pandemic challenges Res. Land ICI Land

2019

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

O琀awa Market Area | H1 2019 vs. H1 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.1

$0.2

$0.3

$$BILLIONS BILLIONS

Total investment | H1 2019: $1.1 B; H1 2020: $820 M

$0.4

Source: Altus Group

While the o ce sector remains stable, Montreal investments slow overall Res. Land ICI Land

2019

Office

2019

Retail

2019

Apartment Industrial

2020

2019

Hotel

Land

Montreal Market Area | H1 2019 vs. H1 2020

2019

2020

2020 2019 2020

2020

$0.0

$0.2

$0.4

Total investment | H1 2019: $4.0 B; H1 2020: $3.3 B

$0.6

$0.8

$BILLIONS $ BILLIONS

$1.0

$1.2

$1.4

$1.6

Source: Altus Group

altusgroup.com/data

COVID CHANGING LIFESTYLES AND BUYER DEMOGRAPHICS

Andie Daggett Manager, Rental Market Data (Alberta & Ontario) Urban Analytics Inc.

In the heat of the COVID-19 lockdown, sales centres were closed, and some would-be buyers were not leaving their homes. While the Calgary multifamily real estate market saw a decrease in sales during that time, according to Andie Daggett, manager, rental market data (Alberta & Ontario) with Urban Analytics Inc., Edmonton saw an increase in the second quarter of the year compared to the first quarter. “The overall trend we’re seeing is that it’s not as bad as we were expecting,” Daggett says. “The rental market has remained resilient in both Calgary and Edmonton throughout the COVID-19 pandemic. Due to uncertainty in

Alberta’s economy, many people are opting to rent rather than buy due to the financial security of a one-year lease rather than a mortgage. We did see decreasing occupancy rates in Calgary throughout 2020, however this was largely due to new project launches throughout the year adding new supply to the market. In Edmonton we saw an increase in occupancy throughout 2020 even with new projects launching, showing consistent demand for purpose-built rental product. In both cities rental rates decreased throughout 2020 as a result of developers offering tenants rental rate incentives, such as one to two months free rent on 12-month leases. “ Canadian Real Estate Forums / FALL 2020

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“In Q2 we saw the first-time homebuyer, young professional, taking advantage of the historically low interest rates and the fact that price points are really at an all-time low for new product.”

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Price is a big difference between the two markets says Daggett, “You can get a bit more of an affordable product in Edmonton.” Daggett added people tend to move further outwards in Edmonton in search of more space, whereas in Calgary, though the downtown core is expensive, there’s higher demand for inner city living.

weddings, and world travel, many have chosen to spend the money they’ve saved on a down payment instead. “In the five years of Urban Analytics, Q2 was the most drastic quarter in terms of changes as to who the buyer type was in the market,” Daggett says, “and it prevailed across both markets.”

COVID-19 has had an impact on the multifamily sector and made a definite shift in buyer type. “In the last couple of years, we saw the downsizer/rightsizer demographic really leading the force in terms of sales activity—they were the most active buyer,” Daggett says. “But in the last quarter updates for both Calgary and Edmonton we saw that demographic type sit on the sidelines, and we saw the first time homebuyer, young professional, taking advantage of the historically low interest rates and the fact that price points are really at an all-time low for new product.”

Both Edmonton and Calgary have seen much of the current supply be converted to purpose-built rental. Daggett says there’s currently between 5,000 and 6,000 units under construction, and over 20,000 units in the planning stages. “Those units that are under construction will be coming to market within the next two years,” Daggett says. “I’m not too concerned about those 5,000 to 6,000 units in both markets, but if we do see the numbers creep up to the 20,000 that are in the talks, that might be a bit of an oversupply for rental.” ■ Michelle Morra

The trend is likely due to changing lifestyles. As COVID-19 forced people to cancel or postpone big life events such as vacations, www.realestateforums.com

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• The Future of the O ce with Wendy Waters (GWL Realty Advisors)

• R eturning to the Workplace with Mark Rose (Avison Young)

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FUTURE OF ALBERTA OFFICE SPACE HINGES ON ENERGY SECTOR REBOUND

office two to three days per week and allow them to work from home the other days of the week,” says Kwong. “I can say that 100 per cent of companies out there, whether in retail, industrial, or office, are looking at how they can become more efficient going forward.”

Greg Kwong Executive Vice President Regional Managing Director CBRE

With the future of office space hanging in the air, some people are resigning themselves to permanently working from home. Others believe they’ll be returning to business as usual once the pandemic is over. What’s probably more realistic is a scenario that falls somewhere in between, says Greg Kwong, regional managing director of CBRE. “Flexibility seems to be the keyword here. Employers are more likely to have staff work from the

While flexible working arrangements might infer a slight reduction in office space, some corporate tenants are saying they might need more room to replace cubicles and desk-sharing arrangements with individual offices. “No one expects COVID-19 to be around forever, but the longer it exists, the more indelibly etched work patterns become,” says Kwong. What’s of greater concern to the Alberta landscape than COVID, however, is how quickly it can bounce back from a severely downtrodden oil and gas sector, Kwong says. “The key to the Alberta economy is access to Tidewater and the United States. The Keystone XL pipeline and all these LNG pipelines that are being proposed need to actually get built.”

And transitioning to a tech-based society in the interim isn’t the solution, says Kwong, because almost every city in every market is trying to do it. “There's close to 70 million sq. ft. of office space in Calgary and the tech sector still represents not even 3 per cent of that that. “I would suggest that even if they were to go up to 10 per cent, they are not the controlling sector. Traditional companies adopting new technologies are more likely to force landlords to alter their way of doing business rather than the actual tech sector.” Kwong remains optimistic that the oil and gas sector will go through a rebound at some point. “I'm on that bandwagon that there just is no other alternative that can replace oil and gas at this point,” he says. “I truly believe there will be a rebound, within three to five years. So will that spell another boom for the office market? I think it'll help.” ■ Barbara Balfour

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Canadian Real Estate Forums / FALL 2020

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Canadian Real Estate Forums Fall 2020 Issue

Articles inside

Balzac is Buzzing as One of Alberta’s Busiest Industrial Corridors

As Real Estate Adapts to COVID-19, any Incentive Helps

Just The Beginning” as Alberta Industrial Demand Revs Up

Future of Alberta Office Space Hinges on Energy Sector Rebound

Alberta Always Comes Back: Thriving ServiceBased Retail Spurs New Development Project in Calgary

Resilient Alberta, Could Very Well be a Diamond in the Making