Canadian Real Estate Forum Spring 2020 Issue

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SPRING 2020 / ISSUE 83

Highlights on Office, Retail & Back-to-Work Strategies • Special Insert on Québec City

MANAGING IN UNPRECEDENTED TIMES...

FOR NOW! VANCOUVER

MONTRÉAL

EDMONTON

Competing forces clash in post-COVID office market

Real estate wrestles with a reopening riddle

When COVID hits in a resource-based economy

Through the noise, some rumblings of hope

Retail represents ripest recovery opportunity

Skyrocketing industrial demand is here to stay

Major changes in insurance, leasing & operation lie ahead

Pandemic puts property management centre stage

Move forward, manage expectations

WWW.REALESTATEFORUMS.COM

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MANAGING IN UNPRECEDENTED TIMES...

FOR NOW!

George Przybylowski Vice President Real Estate Informa Connect

2020 has been quite the year to date! COVID-19 crept up on us and by mid-March was shaking the world – a global pandemic, the likes of which not seen in our lifetimes.

Canadians being urged to stay home, wash hands – then came the quarantine and life as we knew it, ended. A new normal began to emerge — one where we realized the debt owed to front line workers, and how much we miss meeting with extended family, friends, colleagues, clients and peers.

Many lost their livelihoods, we were working from home (WFH), retail closed, taking with it in-store shopping, e-commerce accelerated, and parents became teachers.

These represent just some of the changes to everyday life; for others our most sincere condolences go out to those who have lost loved ones to this dreadful virus.

The country pulled together, united in a quest to “flatten the curve” and, despite our social distancing and isolation fatigue, we felt that we were starting to achieve just that, when deeply shocking acts of violence and racism in the US appeared across the media. This mobilized people to bring an end to social and legal injustice and through a growing mindset to encourage greater human equity and inclusion.

“Justice will not be served until those who are unaffected are as outraged as those who are”.

Benjamin Franklin We have a shared obligation to listen, reflect, learn, and manifest change through action.

From a business perspective during WFH, the Informa real estate team has been actively leveraging over 30 years of market intelligence and community building expertise to deliver an opportunity for you and the industry to stay informed and connected with others.

To that end, we are delighted to launch this month a new, exceptional offering - the Real Estate Forums Club (REF Club). Built on three pillars, the REF Club will deliver MARKET INTELLIGENCE, BUSINESS, DEVELOPMENT and COMMUNITY in real time to owners, managers, lenders, brokers, appraisers, lawyers and more with a focus on office, retail, industrial and multi-residential real estate.

From gateway cities and mid-markets to development and investment – we’ve got the entire space covered.

In regard to the Real Estate Forums, despite our hoping that COVID-19 would ebb away as quickly as it came, the www.realestateforums.com

answer initially seemed to move the Edmonton, Montréal and Vancouver Forums from the spring to the fall. This proved unrealistic and after receiving feedback to move forward, we will bring the same face-to-face benefits you expect from us in a virtual environment on the following two days; Vancouver (Sept 30 & Oct 1), Montréal (Oct 6 & 7) and Alberta (covering Edmonton and Calgary on Oct 21 & 22).

All Forums will provide dynamic sessions that will equip attendees with valuable insights to plan their post-pandemic recoveries through conversations spearheaded by industry insiders, leaders and game-changers.

Greater Vancouver’s thriving economy meant it already had a strong foothold in all real estate sectors when the virus struck, leading to a balanced real estate market and maintaining strong property classes particularly in industrial and multi-residential real estate.

Montréal also entered the pandemic on a high note. Being the center of commerce, finance, post-secondary education, tourism, and industry has given the city an advantage in recovery that many others do not have. Despite COVID-19, the commercial real estate sector is thriving, being home to some of the world’s most innovative companies.

Not as fortunate was Alberta; already dealing with an oil-and-gas-price downturn when the virus reared its ugly head. However, the shrinkage in GDP in March and April is expected to rebound to a pre-COVID state by next year according to the Conference Board of Canada. In addition, industrial real estate is benefitting from companies servicing a growth in e-commerce. We must not forget that Albertan's are resilient and creative, they will recover from this.

The first half of 2020 has shown us fear, appreciation, anger, and a realization and openness to change together with a determination to shake that status quo. I for one hope that this will be instrumental in bringing us a better future.

Networking. Market intelligence. Education.

The pillars that the Real Estate Forums were built on, together with the Real Estate Forums Club resource, provide the information, networking and tools necessary to construct the new road ahead.

George Przybylowski

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CONTENTS

EDITORIAL 3

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

Managing In Unprecedented Times...

For Now!

ALTUS GROUP REPORT 6

Business As Slightly Unusual: The Canadian Industrial Sector Faces Its Own Challenges And Triumphs Amid COVID Pandemic

ASSOCIATE EDITORS Kelsey DeLuca Jean Pickering DESIGN Informa Connect Design Studio SPONSORSHIP & ADVERTISING SALES Frank Scalisi, Director 416-512-3815 frank.scalisi@informa.com FOR MORE INFORMATION VISIT realestateforums.com View upcoming conferences on pg 73 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: Spring: Montréal • Vancouver • Edmonton Fall: Ottawa • Calgary Winter: Canada-wide • Global E-magazines are available at realestateforums.com

SECTOR OVERVIEWS 12

OFFICE: Office Remains Best Place For Business

14

Do You Think There Will Be More Demand For Office Space Or Less? Why?

18

Workplaces Of The Future: Survey Reveals Most Workers Want To Go Back To The Office

20

Economy: Lives, Livelihood And Liquidity

22

RETAIL: Chaos, Recovery, Re-Emergence, Survival: How Retail Will Weather The COVID-19 Storm

COMMERICAL MARKET STATISTICS 59

Latest Commercial Market Statistics Across Canada

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.

© 2020 Informa Canada Inc.

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Canadian Real Estate Forums / SPRING 2020

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REAL ESTATE FORUMS VANCOUVER

QUÉBEC

24

Sincerest Thanks To Sponsors For Their Ongoing Commitment

54

Post-COVID World: More Attention To Detail & Greater Connections

26

Vancouver Goal: Emerge As Strong As Ever

56

28

Competing Forces Clash In Post-COVID Office Market

Already A Month Of Progressive Deconfinement For Québec City's Real Estate Market

30

“Cash Is King” In Coronavirus Crunch

32

Through The Noise Some Rumblings Of Hope

34

Emerging From A Post-COVID Era: Major Changes In Insurance, Leasing And Operations Lie Ahead

35

Risks And Rewards Of Vancouver Markets: Cost Of Living, Lack Of Diversification Stumbling Blocks To Long-Term Growth

MONTRÉAL

EDMONTON 62

Sincerest Thanks To Sponsors For Their Ongoing Commitment

64

Edmonton: The Alberta Resilience Will Prevail

66

Real Estate Deals Trickling Along Despite COVID-19

66

Ready For The New Normal?

67

Lessons From COVID-19: Alberta Retail Market Not As Dire As Reported

36

Sincerest Thanks To Sponsors For Their Ongoing Commitment 68

Technology, Closeness, And Other Takeaways

38

Montréal: COVID Will Bring Change, Good & Bad, But Remember The City Entered This On A High Note

70

When COVID Hits In A Resource-Based Economy: The Alberta Conundrum

40

Real Estate Wrestles With A Reopening Riddle

71

Skyrocketing Industrial Demand Is Here To Stay

42

Tenant – Landlord Business Relationships.

Adjusting To A New Normal In A Post-COVID World

74

Move Forward, Manage Expectations

42

Designing The Workspaces Of The Future

44

“Massive Opportunities” Multiply In Retail

46

COVID-19 – Very Different Prognoses For Different Sectors

48

Retail Represents Ripest Recovery Opportunity

50

Poised To Recover

52

Pandemic Puts Property Management Centre Stage

52

Crises Highlight What Works And What Doesn’t

www.realestateforums.com

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THE ALTUS REPORT BUSINESS AS SLIGHTLY UNUSUAL The Canadian industrial sector faces its own challenges and triumphs amid COVID pandemic

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

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

Chart 1: Industrial Completions Q4 2019 vs. Q1 2020

Chart 2: Single and multi tenant industrial market barometer Q1 2020

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In this issue of The Altus Report, we discuss industrial real estate investment trends in the Canadian market.

The recent COVID-19 pandemic has changed many aspects of commercial real estate and, in many cases, accelerated some trends and reshaped entire sectors.

The industrial sector has, however, remained resilient during these times of instability despite challenges with the global disruption of supply chains, mainly from China being the largest global exporter of goods, manufacturing plant closures from the automotive, electronics and pharmaceutical industries, and logistics constraints. Vacancy rates, however, continue to remain low. New supply deliveries face modest setbacks with construction moratoriums in place in certain provinces, and in some cases, companies have considered delaying their leasing commitments as they remain cautious in an uncertain global economic environment. It is expected that these conditions will further impact the labour market structure and unemployment rates in Canada and across the border and will likely influence leasing activity and affect the supply of industrial real estate.

Despite a modest uptick in the availability rate for existing supply to 2.9% from 2.7% in the previous quarter, and from 2.8% in the same quarter last year, we expect demand to continue to be rampant, supply will remain tight, and new industrial supply completions will likely remain on target unless stated otherwise. Nationally, the total number of completed buildings almost doubled from the same quarter last year. 22 industrial buildings were completed in Q1 2020 totalling approximately 2.9 million square feet with an availability rate of about 24%. Toronto and Vancouver had the highest number of completions, followed by MontrÊal, while Calgary and Ottawa had no completions (Chart 1). According to Altus Group’s Investment Trends Survey industrial market barometer for Q1 2020, single- and multi-tenant supply held positive momentum across all markets, with Vancouver and Ottawa at the top (Chart 2). This trend indicates that the industrial sector remains healthy despite some headwinds. Almost 25 million square feet of industrial supply was also under construction at the end of Q1 2020, representing 128 industrial buildings.

16.7 million square feet had already been leased, leaving an availability rate of about Canadian Real Estate Forums / SPRING 2020

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Table 1: Featured industrial transactions

33% compared to 119 in the previous quarter and 118 in the same quarter of the previous year.

CANADIAN SUPPLY CHAIN VULNERABILITIES Demand for industrial space will continue to accelerate and gain traction in the coming months from short-term warehouse spaces or industrial flex-spaces to longer-term, dependent on the pandemic situation. As a result of government containment measures, many companies are working aggressively to adapt to the influx in demand for food and consumer goods deliveries, which have resulted in order fulfillment and shipment delays. At the same time, the pandemic has posed other challenges for the industrial market, mainly from the disruption of international supply chains, further contributing to the slowdown in deliveries with much of Canada’s finished goods imports coming from China. The shutdown of several manufacturing plants in China also led to a decline in container shipments to Canada, particularly in Vancouver and Toronto.

From a manufacturing standpoint, Canada’s direct supply-chain exposure, although significant, may still be limited, according to a report by Royal Bank of Canada. The report states that “only 10% of unfinished or intermediate products are imported from China, which matter more for production… [however,] the longer the outbreak lasts, the more impact intermediate goods shortages could have on industrial output in Canada.”

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Therefore, we may see a slight softness in certain industrial sectors as some companies considering halting their leasing commitments for larger and small bay warehouse spaces due to manufacturing plant closures from the automotive, pharmaceutical and electronic sectors.

WAREHOUSE CAPACITY CONSTRAINTS DUE TO SURGE IN DELIVERIES On the contrary, some companies will have to assess their warehouse capacities for a sudden inflow of inventory once measures have softened and the surge in demand for online shopping grows. Retail has been one of the most vulnerable asset classes during this pandemic. This sector is facing some unprecedented challenges with the closures of retail stores, restaurants and shopping centres. However, many retailers from larger online retailers to small and medium-sized businesses have rapidly transitioned their businesses online, while companies already catering to e-commerce have ramped up their logistics capacities. According to Canada Post, there has been a significant increase in incoming parcel volume and they are experiencing a backlog in parcel deliveries, similar to the number of deliveries during the Christmas season. Many businesses were not acclimatized to these types of increases during a spring market, ultimately affecting customer delivery expectations.

It is the landlords with tenants providing necessity-based products like Loblaws or Walmart that are at an advantage as they Canadian Real Estate Forums / SPRING 2020

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The pandemic crisis has likely opened up vulnerabilities and capacity constraints for certain manufacturing businesses. As current health concerns continue to push consumers away from in-store shopping and towards e-commerce, warehouse space requirements will likely expand to relieve some of the pressure from the growth in inventory reserve and new consumer demand.

From a logistics standpoint to meet the surge in demand, Amazon recently announced in March that it would add about 100,000 workers to its fulfillment and delivery network in the United States.

remain open for business. These types of necessity-based businesses, including Amazon and Shopify, are facing huge spikes in online traffic as well as online and pickup orders. Yet, they have also had their own set of challenges. Pre-pandemic, many grocery stores had already started introducing delivery services or click and collect options such as Instacart, Grocery Gateway and Voilà, to name a few, but grocery deliveries were once a non-essential or luxury service. Now, due to containment measures, the grocery delivery business has seen a boom and demand has seen tremendous growth. The spike in orders has been overwhelming, resulting in longer delivery wait times, limited stock and, in some cases, order cancellations. As a result, it is expected that demand for cold storage facilities and larger warehouses will likely increase. The two largest industrial completions in Q1 2020 were: a 330,000 square foot food distribution facility for Gordon Food Service located at 200 Salem Road North in Ajax, directly adjacent to Highway 401; and a 295,610 square foot customer fulfillment centre by Sobeys in Pointe-Claire, Montréal for its e-commerce brand Voilà which is expected to service the Québec and the Ottawa area.

Many businesses are now faced with a large number of their products in pre-order due to a lack of warehouse capacity, supply chain disruptions and labour constraints as a result of physical distancing measures.

Companies like Amazon have also halted many of their non-essential products as the pace of imports from global manufacturers slows down. Canadian manufacturing production has sharply declined from a reduction in production capacity, with almost half of Canada's manufacturing output coming from Ontario. The province lost 316,000 jobs in March, more than any other province according to Statistics Canada. In January, grocery distribution www.realestateforums.com

chain Loblaws decided they would consolidate their Laval and Ottawa distributions centres to Cornwall, ON by the end of 2021 in favour of automation practices. The move will put nearly 800 employees out of work once the two centres close. The new automation centre is also expected to service its subsidiary companies Shoppers Drug Mart/Pharmaprix. The pandemic may drive more companies to invest in automation to reduce labour costs and safeguard workers, speed up processes and better manage operations in their warehouses and distribution centres. Montréal-based Metro Inc. is already investing in automation since it announced a $400 million investment to modernize its Toronto distribution centres in 2017. Recently, Metro announced another $420 million investment in building and expanding its facilities in Québec over 5 years. It plans to build a new 600,000 square foot fresh and frozen automated distribution centre, which will be located north of Montréal in Terrebonne, QC and expected to open by 2023. The investment also includes plans to expand an existing produce and dairy facility in Laval, QC to a 50,000 square foot facility and expected to be completed by 2024. This trend was already on the rise before the pandemic as a way to eliminate redundancies, improve processes and meet the needs of e-commerce, but the crisis is now accelerating these plans which are critical to keeping manufacturing in operation to meet the new wave of demand.

The pandemic crisis has likely opened up vulnerabilities and capacity constraints for certain manufacturing businesses. As current health concerns continue to push consumers away from in-store shopping and towards e-commerce, warehouse space requirements will likely expand to relieve some of the pressure from the growth in inventory reserve and new consumer

demand. From a logistics standpoint to meet the surge in demand, Amazon recently announced in March that it would add about 100,000 workers to its fulfillment and delivery network in the United States. The same strategies may be employed in Canada. The momentum for industrial asset transactions, particularly for logistics and food manufacturing facilities has been relatively stable in the last six months with a few notable recent transactions in some major markets across Canada (Table 1): • Crombie REIT took a 50% in an almost 800,000 square foot single-tenant warehouse facility in Vaughan, ON fully occupied

by Sobeys. The property transacted in December 2019 for $$95,900,000.

• In February of this year, Mid-Valley Investments purchased an estimated 87,000 square foot improved manufacturing facility in Abbotsford, BC for $12,500,000. At the time of sale, the building was fully occupied

by Nature’s Touch Frozen Foods.

• Also in February, Larco Investments purchased a 252,883-building complex for $146,000,000 in Burnaby, BC with Golden Boy Foods and Swiss Water Decaffeinated Coffee Co. as the main tenants at the time of the sale.

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Many businesses are also facing sold-out packaging products for their own products as several of these types of product manufacturers have transitioned into making antiseptic sprays and sanitizers, while other manufactures have shifted their focus to making personal protective equipment (PPE), testing kits, and ventilators. The federal government has allocated upwards of $2 billion to the private sector to ensure more protective gear can be purchased to support frontline healthcare workers. The government has also awarded close to eight contracts with Canadian firms to help produce the goods.

• In Richmond, BC, a private Canadian investor purchased an almost 50,500 square foot warehouse for $15,650,000 and fully occupied by Fine Choice Foods, a local food manufacturing business prior to the date of sale.

• DSV Canada opened its new head office at 2200 Yukon Court in Milton, ON, which is a state-of-the-art logistics facility to serve B2B and B2C markets, which also includes a three-story office building. The building was purchased for $180,100,000 in December.

• Also in December, Pure Industrial purchased a 569,000 square foot single-tenant warehouse for $89,250,000 in Caledon, ON, with DHL as one of the main tenants.

• In Calgary, AB, a 125,280 square foot building was purchased by Summit Industrial Income REIT for $46,917,800 in November 2019 and completely occupied by TFI International Logistics Company.

• In Candiac, QC, a private Canadian investor purchased a 110,300 square foot property in February 2020 for $13,000,000 fully occupied by Lussier Transport, a trucking transport and logistics company.

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MANUFACTURING SECTOR MOBILIZES TO PRODUCE PPE Many businesses are also facing sold-out packaging products for their own products as several of these types of product manufacturers have transitioned into making antiseptic sprays and sanitizers, while other manufactures have shifted their focus to making personal protective equipment (PPE), testing kits, and ventilators. The federal government has allocated upwards of $2 billion to the private sector to ensure more protective gear can be purchased to support frontline healthcare workers. The government has also awarded close to eight contracts with Canadian firms to help produce the goods. For example, InkSmith, a 3D printing company in Kitchener-Waterloo, recently launched a new company named “The Canadian Shield” to focus solely on PPE. The company, which occupies a new 50,000 square foot facility, has been contracted by the feds to produce ten million units of face shields by August and is expected to double its workforce to 300 providing a boost to the region’s manufacturing sector.

The company also plans to expand internationally after that and is considering expanding to a second facility. General Motors (GM) already began manufacturing ventilators and face masks in the United States. Upon receiving Health Canada’s manufacturing approval, GM Canada recently announced its plan to manufacture one million masks a month at cost at a portion of its GM Oshawa plant. The GM Oshawa plant was selected due to its capacity as well as its clean room capacity.

Since the federal government announced its strategy, about 3,000 Canadian companies

have offered to meet the country’s need for PPE. While these figures may sound promising, the Canadian industry can’t produce them fast enough to meet the demand due to rigorous inspection and testing required to meet medical standards to avoid recalls. These challenges have put into question the consequences of the dependency on overseas manufacturing showcasing flaws in global supply chains and understanding the need for Canada to diversify suppliers across the globe and become more self-reliant to produce necessary health and safety products.

INDUSTRIAL SECTOR WILL REMAIN RESILIENT Overall, the industrial asset class is still expected to weather the storm as trends accelerate precipitated by the pandemic and the overall sector evolves, with a few exceptions. The availability rate will continue to remain low and likely cause rents to increase. In the medium-term, the surge in demand from e-commerce will require more warehouse, logistics, and distribution centre space to process, fulfill, and deliver orders to customers at an expedited rate. From an investment standpoint, industrial properties remain a top preference for both investors and users. It will be interesting to see how industrial users transform their operations and the type of protocols they implement based on social distancing and for the health and safety of their employees to return to work. The current pandemic crisis has been a wake-up call for many businesses and the overall real estate sector across the globe, and many lessons are to be learned from the current situation moving forward to better prepare for the next disruption. ■ Canadian Real Estate Forums / SPRING 2020

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Navigate Uncertainty

Everyone has a role to play during the COVID-19 pandemic. Ours is helping you make sense of government programs and tax policy, and providing insights and strategies to guide you forward.

Visit our COVID-19 Business Advice Centre

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office

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Canadian Real Estate Forums / SPRING 2020

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OFFICE REMAINS BEST PLACE FOR BUSINESS

Jon Love Founder & CEO KingSett Capital

“There will be some pushback on the 20-year office densification trend. But there can’t be a lot, because there isn’t enough space.”

Every crisis is unique, but all have one thing in common: They all end.

“Until then, it’s hard to see through the fog to the other side,” reminded KingSett Capital Founder & CEO Jon Love, recalling the ill-placed despair and disillusionment of the early 1990s recession and other crises that seemed to put paid to the office market.

“Several pension fund officers told me that they would never invest in real estate again. Next, the dot-com bust was billed as the end of office as we know it. Then, after September 11, 2001, we wondered whether anyone would ever again occupy a tall office building. Then after 2008, many thought the financial world as we knew it was ending. Today, we’re in the COVID cloud.”

“It will end,” Love predicted.

“Global investors will reaffirm their commitment to real estate, which has shown through a difficult period of time to maintain value and returns.”

With the end of the longest growth cycle in history, many overdue rationalizations are now getting a COVID tint.

www.realestateforums.com

“When a CEO announces ‘I’m closing these office facilities due to COVID’, it was often already on the close board before coronavirus. It’s good cover, because for tough decisions are currently criticism-proof,” Love observed.

“There’s a lot of truth to the saying: ‘In the room, in the deal.’ If you put half the people in the office and half elsewhere, which half will be making the decisions?” he asked rhetorically. “The half in the room.”

High demand meets low vacancy Pent-up demand will revive economy and restore most of its pre-COVID vigor, he forecast.

Return, reassemble, rebuild Social isolation currently works, he conceded, because everyone is isolated, but most people are champing to get back to the office.

“This is a health crisis, not a financial crisis.

It is not supply-and-demand based,” Love underscored. “The machine will get going again and the next normal will look more like the last normal than most people anticipate.”

“The banks, our tenants and professional services firms all across the country are pretty unanimous in wanting to return, reassemble their teams and start rebuilding their businesses.”

He dismissed the prospects for dedensification.

Love suggested that some distance work will remain useful in the margins, for its flexibility.

“There will be some pushback on the 20-year office densification trend,” Love acknowledged. “But there can’t be a lot, because isn’t enough space. You can’t say that instead of 100 sq.ft. per person, it will be 110 sq.ft., because there isn’t 10% more space available.”

Either way, human dynamics demand the proximity that offices offer, he asserted.

“Culture, connection and communication all foster productivity,” Love said. “Office workers need that interaction. Heading into the crisis, Toronto had 2% vacancy, the lowest on the planet. Technology, finance and professional services have all consolidated in the city core to bolster productivity. We are social animals.

Gathering is fundamental to that construct.”

“It will help a parent to stay home with a sick child, and keep you connected on sick days,” he said. “But people will gravitate back to the office where they can connect more readily.”

“The whole reason that people drew together in offices in the first place was to enable knowledge workers to come up with solutions for our customers,” Love concluded. “That’s the raison d’être of business. Gathering in one, common office space will continue to be the prime way to accomplish that.”

■ Robert Frank

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DO YOU THINK THERE WILL BE MORE DEMAND FOR OFFICE SPACE OR LESS? WHY?

Coronavirus kiboshes co-working Office offers opportunities for alignment and synergy that can’t be achieved from home, and the office energizes and motivates workers to be their most productive.

“Though a few companies will unfortunately shut down, the remaining occupants will need more space than pre-COVID, albeit with a lower budget. So, while there will be a drop in what tenants are willing to pay for rent, office demand will remain very, very strong,” he predicted.

One casualty will be co-working, “It’s a great concept, but it will raise a lot of questions and concerns about whether people are willing to share space now,” he said.

Jeffrey Soliman Principal Consultant Soliman Real Estate

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After the pandemic, will offices require more space than before, or less?

“I expect a similar amount of space, but the math of how you get to that demand is going to change. Pre-COVID, it was about maximum efficiency, densification of office space, more people per 1000 sq. ft. We’re seeing a shift from there to say, ‘How do we create office space that allows people to feel the most comfortable?’

My belief is that there is an exaggerated suggestion in the media that companies are going to ‘permanently’ keep their employees working from home, that the demand on their office premises is forever changed. That couldn’t be further from the truth. The reality is that this is all about being fluid and adaptable to the need for space today, and the emotional need for safety. There is nothing permanent about this. Everything about this is about the strategy for the foreseeable future – months, not years.”

Cory Wosnack Principal & Managing Partner Avison Young Edmonton

Social side of office needs post-pandemic rethink Some people, who longed to resume their social interactions at work, have returned to find that the office is not as warm or welcoming as they expected.

“Social distancing has imposed are so many restrictions on what you can and can’t do,” explained Lorne Burns. “Traffic patterns on floors. Removing coffee machines, microwaves and kitchens. All these things that were done to make workplaces safer coupled with a sense of uneasiness have actually made some workplaces seem less hospitable. Employers thought through the health risks, but not the social dimension, which will also need an adjustment.”

Lorne Burns Principal KPMG Do you think we’ll need more, less or the same amount of office space?

I think the impact on the office is going to be neutral because we’ll end up having to provide more space for employees, not less.

It will be balanced out with allowing staff to work from home and rotating their access to the office environment as they will need to maintain that anchor and sense of belonging to the organization.

Bernard Poliquin Executive Vice President Cominar

Canadian Real Estate Forums / SPRING 2020

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Distance work to offset demand for safer office space Until 2020, the world was winding its way toward the popular WeWork collaborative, shared-space paradigm.

“That trend has hit a wall,” observed Gil Kastner. “For the next year, it will be very dangerous to share desks. At the same time, we won’t witness personal space increase overnight by 50%.”

In the short term, the pandemic has proven remote work not just feasible, but desirable, to staff who squandered two hours a day of family time to commute.

“Once you have given someone a taste of that, it’s hard to take it away,” he said. “Office demand will stabilize because of the comfort that people have achieved with remote work.

Gil Kastner Former Vice President, Leasing & Marketing with a major brokerage

Do you think we’ll need more, less or the same amount of office space?

The answer to this question is twofold: During COVID-19: At the time of writing, with the exception of essential services, all employees work from home. Once the government eases restrictions to return to work, however, due to physical distancing requirements, offices will only be able to operate at 40-50% of their normal occupancy and will need a plan in place for the other portion to be able to work from home. For some occupants, office layouts will have to be modified to respect distancing. Overall, the demand will remain the same.

Taking up more square footage per person would have a significant impact on the profitability of the business.

After COVID-19: At this time, nobody knows when a cure or vaccine will be found and the 16

virus will be under control, but it is likely to take 12 to 18 months. After COVID-19, although distancing will no longer be required, “working from home” will be common, so tenants will need less square footage. As an example, a 10% reduction in square footage will produce an additional 9.0M sq.ft. in the Greater Montréal Area.

Sylvain Leclair Executive Vice President Altus Group Pandemic to hasten, entrench the advent of tech-driven office The last few months of lockdown have proved an epiphany for work-from-home disbelievers. “The general perception out there is to cut back on office space,” said Tom Godber. “The majority of users are surprised at how well they’ve coped without it. They now accept that you don’t need a permanent office for each person.”

In the short term, social distancing will offset the smaller numbers there.

“But employers are working hard at coming up with ways that people will no longer be in the office five days a week,” he said.

“Technology will usher these changes in at a speed that we have never seen. If you have not figured out the technology piece you won’t make it through the pandemic.”

Avison Young is energizing it’s backbone to centralize its service delivery platform. Not only will it enable cloud access, it will dramatically improve the firm’s productivity and client experience, Godber predicted.

“Every company is saying ‘I have to put more money into technology because my workforce won’t be sitting in the office most of the time,” he concluded, “so I have to give them the tools.’”

Tom Godber Principal, Chartered Real Estate Broker Advisory Group Avison Young Do you think we’ll need more, less or the same amount of office space?

I think it's still too early to make a call on how much office space we might need. But on the pendulum going from “no office space will be needed” to “we’ll be completely back to normal,” we’ll fall somewhere in the middle.

Dave Young Executive Vice President & Managing Director CBRE Limited

Office offers better efficiency While working from home has helped the world to withstand the pandemic, office workplaces will remain more productive for the foreseeable future, insisted Vincent Chiara.

“The whole purpose of the workplace is to promote interaction. When people are together, they talk about work. That makes them more efficient,” he said. “In the past 20 years, we’ve gained 10-20% productivity from employees by improving quality of their workspace: The air. The lighting. The places where they interact. Will the pandemic reverse two decades of gains?”

“For corporations, that productivity gain outweighs the 5% of their operating costs that represents rent,” Chiara added. “I don’t envision any major changes to the office real estate market. The average 85 square feet per person will probably go back over 100 square feet, offsetting the minority of people who will continue to work from home.”

Vincent Chiara President Mach Group Do you think we’ll need more, less or the same amount of office space?

That will likely depend on whether there is a second wave of COVID-19 or not, and how brutal that second wave might be.

Most of the bigger players are telling their employees they won’t be back to work until at least September 1st, or in some cases the end of the calendar year, no matter what the government says. The longer people stay away from the office, the more we will have to adapt to a new reality, the more the technologies will improve, and the more people will grow accustomed to the new ways.

If a second wave of COVID-19 turns out to be much more potent than the current one, further burdening the healthcare system and keeping people at home longer, the impact on offices would likely be permanent and would include a complete redesign of office spaces. With new measures like one-direction corridors, plexiglass, and boxed lunches, these spaces might not seem nearly as inviting as what we’re used to.

Roger Plamondon President Broccolini

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WORKPLACES OF THE FUTURE: SURVEY REVEALS MOST WORKERS WANT TO GO BACK TO THE OFFICE

While many of the effects of COVID-19 are still unfolding, the experience of working from home during the pandemic has given organizations an unprecedented opportunity to envision the offices of the future.

Some key findings that could inform what physical workspaces will look like have emerged from a recent US study by Gensler, a global design and architecture firm.

The firm conducted an online survey of more than 2,300 U.S.-based workers spread across a range of industries, roles, and generations, who were currently working from home.

What the study found was that 70% of employees want to return to the office, while only 12% want to work from home full-time.

These statistics are particularly telling, said Gensler co-CEOs Andy Cohen and Diane Hoskins, because prior to the pandemic only one in 10 U.S. office workers had worked from home regularly, while less than a third had the choice.

unscheduled encounters that the innovation and idea flow happens. While it is possible for workers to get a lot of tasks done at home, they're missing a lot of what they were getting in the office in face-to-face.”

Another important finding is that millennials, who now comprise more than 50% of office workers, are less productive at home and less satisfied with their work. In part, this is because of their lifestyle compared to older generations, said Cohen. “They're living in smaller units. They have roommates, or children who are now home from school. So they have to provide daycare and homeschooling for their kids while they're also working. In addition to all the distractions and interruptions at home, there’s also a lack of consistent technology.

“Younger workers are also less aware of how their work connects to the larger organizational vision and mission. This is really important, because culture matters.

They want to be part of that specific organizational culture and to make a

difference. And working from home doesn't satisfy that need of being in a purpose-driven career.”

While open to adopting a shift schedule or a wider variety of working hours, workers remain wary about reducing any investment in shared amenities or of being discouraged to use public transit.

Broadly, the study found that workers expect to return to a different workplace and are receptive to a wide swath of policy and design changes when they do. The most important changes include stricter policies about staying home when sick, increasing opportunities to work from home, and more vigorous efforts at cleaning as well as social distancing practices.

Click here to access the survey: https://www.gensler.com/uploads/document/ 695/file/Gensler-US-Work-From-Home-Surve y-2020-Briefing-1.pdf ■ Barbara Balfour

The top reason employees want to come to the office: the people Respondents were asked to rank what they believe to be the nost important reason(s) for coming into the office.

“The longer we work from home apart from colleagues, the more being together matters. And the top reason employees said they want to come to the office is based around their interactions with other people,” said Hoskins, who presented the findings with Cohen in a recent webinar.

“They want the scheduled meetings with colleagues and clients. They want the socializing, especially the impromptu connections, that are not happening online. In fact, years of research and data show it’s during the impromptu and 18

Gensler Institute

“They want the scheduled meetings with colleagues and clients.

They want the socializing, especially the impromptu connections, that are not happening online. In fact, years of research and data show it’s during the impromptu and unscheduled encounters that the innovation and idea flow happens.”

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economy LIVES, LIVELIHOOD AND LIQUIDITY

Benjamin Tal Deputy Chief Economist CIBC World Markets

“The emphasis will be on maintaining enough liquidity in the system. It is working very, very well.”

Benjamin Tal starts with superlatives. “For the second quarter, we estimate that the economy will decline by 40%, on an annual basis. Never before have we seen anything like that.”

“What we do in terms of policy is crucial.

Crucial,” he emphasized, “in terms of determining the nature of the recovery. If we make mistakes now, we will feel the pain for years.”

There’s a bright side though, he underscored, also unlike any other economic plunge.

Tal praised efforts to inject an unprecedented tsunami of liquidity into the financial system to ensure that it continues to function.

“Demand is still there. Jobs are frozen, but they have not disappeared,” noted CIBC World Markets’ Deputy Chief Economist.

“When you look at the trajectory of the economy, this is very different from a depression. Because in a depression, you are in free fall and there is nothing beneath you. Here, there is an end game.”

“The Bank of Canada is buying about 15% of the economy with quantitative easing,” he observed. “The fed is going to 30%. It is working very, very well. The Bank of Canada is in the repurchase agreement market. The bankers’ acceptance market. In commercial paper, doing extremely important work there.

Full scale quantitative easing, buying $5 billion of bonds a week. They are involved in corporate bonds and they are involved in provincial bonds – something that has never happened before. Spreads are going back to semi-normal.”

The end game hinges on medical science: A treatment and a cure for coronavirus infections. In the meantime, expect volatility, as successive waves of the global pandemic wash over the world, as they have already done in Singapore, Japan and – to some extent – in China.

“Until then, is a zig zag economy. An up and down economy. An on and off economy,” Tal explained.

“It is naïve to think that there will be no long-lasting damage after this kind of economic shock,” he warned. “The move of unemployment from 5.5% to 8% means that we will be recovering into a recession. It will be a recessionary recovery – and that is something that we can deal with.”

Tal credits the government and the central bank with having already made the right moves to stem most of the worst the damage.

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Basically, The Bank of Canada is printing more money. Will all that cash sloshing around create a moral hazard? Tal retorted that it is prudent, to keep the financial system from seizing up.

“Free riders – people who get income that they don’t need – are something that you have to deal with later,” he explained. “For now, there is more room to spend if needed – and it will be needed.”

While The Bank of Canada has so far spurned high-yield, junk bonds, Federal Reserve Board is helping high-risk companies through the exchange traded funds market, arousing accusations that it is bailing out risk.

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“Low-income Canadians actually pay their rent. Any damage to evaluation is probably overstated reflecting unrealistic expectations that the rental market will collapse.”

“I don’t see it that way,” Tal countered. “I see it as controlled burning. Those bonds will be repriced. Some of these companies will not survive. That is a good thing. We have to ensure that there is a price to the risk taken. The Fed is just controlling the speed, to avoid free-fall.”

He allayed inflation concerns about central banks printing money flat-out.

“I am not losing sleep over inflation. What we are trying to do is to get out of a deflationary cycle,” Tal explained. “Also, the velocity of money changing hands needs to rise.”

emergency payments and rent and payroll support as greasing the skids for recovery.

“If you maintain the employer-employee link, you’re ensuring a faster recovery than otherwise,” he advised. “Who will pay for this? Nobody. The debt will be recycled.”

The public sector portion of the economy will grow significantly to attenuate the worst ravages zig-zag recovery, Tal predicted.

“People will still need help,” he said. “We will continue this kind of assistance and establish a universal basic income system, without even knowing that we’re doing it.”

Although income tax remains unlikely to change, he expects that a capital gains tax increase, mooted during the federal election, might materialize.

Stock market signals that foreshadow a swift recovery are the most out of touch with economic fundamentals in history, he added.

“We have to be careful not to tax capital too much, because we will need self-employment, microbusiness and small business to restart the economy, when the time comes” Tal warned.

“The gap has never been wider,” he warned. “If there’s another wave of the virus, there might be another wave of selloffs.”

In terms of trade, Canada’s reliance on the United States is set to increase, as the world coalesces around two trading blocks.

Energy prices will likely remain low due a 30% drop in demand, despite supply cuts by Saudi Arabia and Russia. Though that has hurt the Canadian dollar, Tal sees the flight to safety as the main driver.

“The US dollar going up is not inflationary because many other countries are experiencing the same phenomenon,” he asserted.

“We don’t have to worry about inflation.”

On the government side, Tal views the projected $200 billion budget deficit as “just a down payment”, with the feds’ $2,000 www.realestateforums.com

“We could be net gainers, as the United States repatriates production from China,” he suggested. “Some of that will go close to home, and Canada stands to benefit.”

Strong real estate demand to return by 2022 Dire short-term conclusions about the real estate market are unfounded, cautioned Benjamin Tal. He urged circumspection, because misleading signals bias the market based on very few transactions.

completion delays, particularly in high-rises, and materials aren’t arriving from Italy and China, and increased social distancing cuts productivity in half. Even in 2021, don’t expect a return to normal, due to those delays.”

On the rental side, prospects remain brighter than the market currently gives it credit. Despite the downturn, the $2,000 federal payments, payroll subsidies and rent controls have helped the rental market to sustain 85-90% payment rates.

“Low-income Canadians actually pay their rent,” he said. “Any damage to evaluation is probably overstated reflecting unrealistic expectations that the rental market will collapse. Demand will decline, but reduced supply because of non-completion means that this market will not collapse. By 2022, immigration will introduce demand that will return the rental market to semi-normal.”

The office market is also sending out misleading signals about the prospect of collapse. Though rents might soften, space per employee will have to rise and Tal rejects the notion that most employees will henceforth work from home.

“The trend toward working from home won’t be as dramatic as anticipated, due to the productivity dimension,” he asserted. “After you work from home for a year or two or three, your productivity won’t be as great as during the past few months.”

On the retail side, the virus will ramp up the long-term trend toward online shopping accelerating the repurposing of retail real estate and stoking already-strong demand for industrial and logistical property.

“Demand for real estate will remain very strong after we recover in 2022-2023,” forecasts CIBC World Markets’ Deputy Chief Economist. In the meantime, expect volatility.

“Demand will increase for high-quality retail,” he forecast. “Low-quality retail will suffer significant damage. Repurposing retail will be the name of the game.”

“The housing market started the crisis in a very good position,” he observed. “The resale market is down 70%, we’re seeing

■ Robert Frank

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retail

CHAOS, RECOVERY, RE-EMERGENCE, SURVIVAL: HOW RETAIL WILL WEATHER THE COVID-19 STORM

The Unknown Retailer

As economic growth slowly picks up, the retailers and brands who survive in the post-pandemic world will be those who adapt the most quickly to new demands.

At the beginning of the COVID-19 response phase, businesses focused on solving immediate issues with sometimes knee-jerk reactions. Some found themselves overwhelmed by surges in demand, such as Instacart, who sold over $700 million in groceries in the first two weeks of April – figures that were up about 450% from December.

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E-commerce, home improvement and home goods thrived, while in-store spending on non-essential items nearly ground to a halt.

Retail sales showed the biggest drop on record, according to the US Census Bureau, with apparel and department stores among the hardest hit by COVID-19. Luxury goods, a sector that has been slow to embrace online shopping, is now being forced to make the shift to survive due to steep declines in tourism.

As the second recovery phase began, stores started to reopen with skeleton crews and businesses looked at revamping their distribution channels as the usual buyers, such as schools, remained closed.

Retail re-emergence truly begins in the third phase, as companies refocus on new priorities such as digital skillsets, cost savings, and adopting new ways of doing things so as not to be caught off guard next time.

But it’s not until the fourth phase that we’ll see the most resilient businesses weather the crisis, thanks to employees who are comfortable with change at the most fundamental levels and the embracing of new approaches to concepts such as experiential retail, which for now has taken a backseat to safety.

Even though policy makers and individual businesses are setting the rules and guidelines, it will be consumers who dictate how quickly retail returns to normal through their behaviour. As the adoption and acceptance of e-commerce has skyrocketed over the past few months, how much of this will stay permanent in the long-term, versus shifting back to physical retail as stores reopen, remains to be seen.

Behind the scenes at a lot of retailers right now is the re-imagining of the traditional role of the bricks-and-mortar store and what that store is going to look like in the future. Safety measures will remain the ultimate priority for both consumers and store associates.

Ultimately, consumers will flock to retailers who can provide trusted inventory availability, safe shopping environments, and convenient shopping experiences, which will also incorporate an accelerated shift towards technologies such as augmented reality and contactless payments.

■ Barbara Balfour

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Sincerest Thanks To Sponsors For Their Ongoing Commitment

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TOP 10

REAL INSIGHTS

ISSUE 40

2020 Vancouver Real Estate Forum

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INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF REALCAPITAL CONFERENCE

B.C. IS EXPECTED TO LEAD THE PROVINCES IN GDP GROWTH IN 2020.

INVESTMENT LEVELS SOFTEN FROM RECORD HIGH LEVELS

INDUSTRIAL VACANCY AT ROCK BOTTOM LEVELS

A surge in non-residential construction will help propel provincial expansion.

Con昀dence remains unshaken as investment activity reverts to historic norms.

Vacancy rates in the Vancouver Market Area won’t budge despite 3.2 M sq. ft. under construction as supply cannot keep up with demand.

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NO SHORTAGE OF NEW DEVELOPMENT IN VANCOUVER

GOVERNMENT POLICIES AFFECTING GROWTH

VANCOUVER OFFICE VACANCY LOWEST IN NORTH AMERICA

TECH GROWTH APPEARS UNSTOPPABLE

Millions of square feet are either planned or under construction in the GVA.

The status quo will stunt supply and lead to further affordability problems, developers assert.

Rental rates surged by 20% in 2019.

Vancouver continues to attract major tech 昀rms as its tech talent rating makes a big jump in CBRE’s rankings.

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DEMAND FOR RETAIL SPACE SWELLS

PROPTECH INTEGRATION GAINS TRACTION

HOME SALES ACTIVITY SLUMPED IN 2019 WHILE PRICES DECLINED

New trends are emerging in PropTech for 2020.

Activity picked up towards the end of the year buoyed by population growth and lower mortgage rates and is expected to carry on through 2020.

Despite a fundamental shift away from traditional retail uses, Vancouver has one of the lowest vacancy rates of Canada’s major cities.

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VANCOUVER GOAL EMERGE AS STRONG AS EVER

Chuck We Senior Vice President, Western Canada Hudson Pacific Properties

Bentall Centre in Vancouver has 175 office and retail tenants. The building has remained open every business day during the COVID-19 pandemic, so that tenants offering essential services can continue to operate. As the concern over the spread of COVID-19 increased, many Bentall Centre office workers stayed home and retailers elected to shut down.

“People did the right thing to help flatten the curve,” says Chuck We, Senior Vice President, Western Canada, Hudson Pacific Properties. The company has been working closely with its retail tenants “to make sure they can emerge from this as strong as ever.” As for office tenants, We says approximately 95% across Hudson Pacific’s portfolio have continued to pay rent in April, and they are maintaining their work space while working from home, whether full time or part time.

With so many businesses affected by the pandemic, one might think lenders would be nervous, though that hasn’t been the case for Hudson Pacific Properties.

“We have constant dialogue with our lenders, and they’ve been nothing but positive,” We says. “They understand that all of their clients are going through this right now. The real strength for us is we have a trophy asset in downtown Vancouver, and it’s got a world class rent roll, with great quality tenants that are well positioned to survive and even thrive in the current environment. When you have that kind of a tenant base it’s easy to have an open and clear dialogue with your lenders.” www.realestateforums.com

On the leasing side, the current environment might prompt extra clauses in future leasing agreements, though We cautions that would come at a price. “I think the reality is that tenants and landlords will have to balance out the desire to embrace new clauses with the cost of doing so. As an example, tenants may want added protection from an insurance standpoint. That comes with more premium and will just impact deal economics.”

Bentall Centre has shifted its attention to return-to-work scenarios. When Hudson Pacific Properties welcomes people back into the building it will engage “a number of the strategies recommended by health authorities,” such as physical distancing. This might involve spacing people out on the common areas and in the elevators, and considering staggered work schedules, with workers starting their days at different times. Until 100% of the workforce can return, tenants are also embracing plans to bring employees back 20 or 30% at a time.

While We applauds business continuity measures that have worked well for many tenants, he says collaborative work is essential to many businesses.

“Many tenants are looking at ways to adjust their space and culture to allow employees to physically space themselves out so they can work a little more collaboratively, but in a more spread out fashion.”

■ Michelle Morra

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COMPETING FORCES CLASH IN POST-COVID OFFICE MARKET

Lorne Burns Partner KPMG Canada

While the global pandemic means more people will henceforth work from home, social distancing demands more space per employee, which will offset fewer workers in office space, suggested Lorne Burns.

“The drive to densify during the last few years put more people into smaller spaces, as we dispensed with paper processes and files,” observed KPMG Canada’s Partner, Audit and National Industry Leader, Real Estate. “Now, the countervail is that you are going to need more space per person. The two forces will oppose one another.”

So, which will win in the long run?

“There will be a balance there,” he predicted. “One will moderate the other.”

People who longed to resume their social interactions at work have returned to find that the office is no longer the warm, welcoming workspace that they once thought of it as, he noted.

“There are so many restrictions on what you can do,” Burns explained, and cited some examples. “Traffic patterns on floors. Taking away microwaves and kitchens. All these

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Canadian Real Estate Forums / SPRING 2020

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Frontline Workers The Canadian Real Estate Forums Team is donating a portion of our proceeds to the Frontline Fund.

This fund represents Canadian hospital foundations dealing with COVID-19 across Canada. Together we can help arm frontline healthcare workers with what they need to defeat COVID-19.

To donate visit: frontlinefund.ca

things that were done to make workplaces safer have actually made them less hospitable.

Employers thought through the health risks, but not the social dimension, which will also need an adjustment.”

Value enigma As feeble volume leaves valuation ambiguous, market uncertainty has gridlocked transactions, leaving little basis for audit, transaction and portfolio assessment.

“Any valuation that is assessed right now includes a material uncertainty clause, because there are no transactions to benchmark it to,” Burns stated. “There is insufficient information to see how the market reacts.”

Most recent transactions now proceeding to completion were negotiated months ago. The ensuing pandemic has widened the gap between counterparties, pushing sellers to price higher and buyers to bid lower. www.realestateforums.com

“Buyers are looking at projects through an enhanced risk lens,” he reported, “and the sellers won’t necessarily agree with that, unless they are distressed.”

It’s still too early in the crisis to see whether a stampede of selloffs will ensue, Burns underscored.

“In 2008, it took a while before prices plunged and it took a long time to recover,” he recalled, adding that Canada was a rare exception. “We never dropped that much and didn’t have to recover that much.”

“Any valuation that is assessed right now includes a material uncertainty clause, because there are no transactions to benchmark it to. There is insufficient information to see how the market reacts.”

Financing remains relatively easy for established players, but newcomers will find it “extremely difficult.”

“Banks are prioritizing people they know and trust,” he concluded. “They’re not trying to establish new relationships.”

On a personal note...

Lorne Burns and his wife are empty-nesters who consider themselves lucky still to live in a single-family home.

“The two us have space. We have date nights. I’m not out on business dinners.

We’re home a lot watching a movie or a television show. It’s really being together,

the two of us, that helps us get through the crisis.”

Burns also works out to keep in shape through this stressful time.

“I have a small gym in the basement with a stationary bike, an elliptical machine, weights and a bench,” he said. “Every other day I work out for an hour-and-a-half. I’m already down five pounds!”

■ Robert Frank 29

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“CASH IS KING” IN CORONAVIRUS CRUNCH

Michael Hungerford Partner Hungerford Properties

“We have to think beyond the crisis. When things return to ‘normal’, we’ll be sitting in a Vancouver market with a lack of industrial and residential product.”

Michael Hungerford’s first thought when the global pandemic hit was concern for the health and safety of his staff and stakeholders. Second step was how to shore up Hungerford Properties’ business operations, which turned out to be well-positioned to withstand the short-term impacts of the crisis. Third, was to figure out how to come out of it stronger than before.

Clearly “cash is king,” he underscored. “We have to think beyond the crisis. When things return to ‘normal’, we’ll be sitting in a Vancouver market with a lack of industrial and residential product. The question as always, is timing. ” “The long-term fundamentals have not changed and going into the COVID crisis we were very short on supply. We can’t lose sight of that,” Hungerford urged his staff. “We have to think in terms of what the world will look like in the medium and long term and identify and address the opportunities that await us.”

How long? How deep?

As tenants struggle with rent and debt, valuations and capitalization rates remain volatile in the short-term, and their outcome unclear.

“Fortunately, we’re not in that bucket, because we have very conservative lending practices, but that has a significant impact on the landlord side,” he acknowledged.

British Columbia has already mooted residential and commercial rent relief, and has barred eviction for non-payment of rent.

“I’m quite certain that there will be a reduction in short-term rental receipts from all asset classes,” Hungerford predicted. ”It’s a matter of degree.”

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Development also faces immediate challenges on many fronts, with different provinces imposing different restrictions, uncertain supply chains, productivity and safety constraints — plus many municipalities’ inspection and planning review services have seen delays.

“Some cities are closed for business and some are open,” he observed. “Besides the blow to productivity, it stretches out the time that it takes municipal authorities to review proposals.”

Some asset classes have suffered more severely from distancing and isolation that hobble high social interaction businesses.

“Most layoffs have hit retail, hospitality/tourism, as well as certain types of recreation and health care facilities.”

“Preferences could shift from apartment buildings to townhouse-type accommodation, where you don’t have to share elevators and common areas,” he suggested. “It might lead to a resurgence of suburban residential real estate. We’re not there yet, though.”

With few clues as to how long the crisis will persist, real estate leasing, acquisition and disposition decisions have been delayed, leaving valuation in limbo.

“What will rents be going forward? Where will capitalization rates go? In the near term, it’s certainly not going to be stronger than it was before” Hungerford concluded. “The question is: How much weaker? And for how long? In the medium/long run will investors see a new risk/return on assets? We will be looking to invest with long term conviction on these questions.”

■ Robert Frank Canadian Real Estate Forums / SPRING 2020

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THROUGH THE NOISE SOME RUMBLINGS OF HOPE

Brian McCauley President & CEO Concert Properties

“There will be a little bit of a preferred client relationship with your lenders for sure, which will make it a little bit more difficult for new entrants and upstarts.”

Asked where the current pandemic has most impacted his business, Brian McCauley, President & CEO, Concert Properties says the company’s office and industrial portfolio did very well through April and May, but construction activities were certainly impacted by the adoption of new safety protocols due to COVID-19. “In early weeks we were probably down 40 or 50% of the workforce,” he says, adding that today the construction workforce is back to at least 90% now that people have adapted to safety protocols.

McCauley says the condo market is being impacted, though not as dramatically as the CMHC has projected. He mentions another asset class of note – seniors housing – which has its own challenges today. “Given the devastation that has happened in long-term care and nursing homes and the attention that seniors housing is now getting from the federal and provincial governments, I think we’ll definitely see new legislation that will impact how those businesses are run.”

Which asset class will weather the storm better than the rest? “That may be industrial.

Not heavy industrial manufacturing necessarily, because those certainly in Alberta have been hit by oil and everything else, but all the supply chains distribution, warehousing, have all done really well in this,” McCauley says.

Pandemics are new to most Canadians, so this one has brought many fears, rumours and predictions, including the demise of cities and offices as people no longer want to live or work in high density spaces. “I think that’s just a bunch of noise,” McCauley says. “Not everybody’s going to continue to work from home. Not everybody will want to.

I think you’ll see continued demand for

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appropriately designed office space to meet our employees’ needs.”

Speaking of predictions, McCauley says the lending environment might take us back to 2008-2009, when lenders had to be more discerning. “There will be a little bit of a preferred client relationship with your lenders for sure, which will make it a little bit more difficult for new entrants and upstarts,” he says. “But established companies should get the support and the financing.”

One thing is certain: the COVID-19 pandemic is the most extreme event in many people’s lives. “If you look at where we are today, I don’t think there’s anybody, whether CMHC or an economist or anybody in our business, that thinks we’re somehow going to miraculously rebound to pre-COVID performance numbers,” McCauley says.

On a personal note...

What really has got me through this, even while working from home for nine of the last 12 weeks (I’ve been back the last three) has been to ensure there is kind of a natural flow to the day. For me, that is getting up every morning at the same time and exercising.

Since I was putting in endless hours of work, figuring out how to keep a normal rhythm in the day was really important.

Communication has also been key. We’ve instituted weekly and now bi-weekly CEO chats with the entire organization to make sure people, even while working remotely, feel they are remaining connected to what’s going on. My biggest lesson learned through this is the importance of direct, frequent and honest communication, if not on a daily basis, certainly several times a week, with the people that I touch. That’s something we take for granted when we can walk the halls of our office and chat by the water cooler.”

■ Michelle Morra

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To date, the retail portfolio has been affected the most dramatically by COVID-19, while logistics, manufacturing and industrial categories seem to have been affected the least, with the exception of film production.

EMERGING FROM A POST-COVID ERA: MAJOR CHANGES IN INSURANCE, LEASING AND OPERATIONS LIE AHEAD circumstances. Pandemic coverage is going to challenge the insurance industry for years to come.”

Richard Weir Executive Vice President Bosa Development Corp.

Seismic shifts in the insurance industry, operational changes in buildings and a reversal of previously seen trends will all be par for the course in the post-COVID-19 world.

“I think there'll be some profound changes in leases as we emerge from this,” says Richard Weir, Executive Vice President at Bosa Development Corp.

“The legal community is going to have a field day for the next five years, trying to define what constitutes force majeure and what remedies both landlords and tenants have in extraordinary 34

And while the trend for the last number of years has been an increasing densification of office spaces, expect to see that go the opposite direction, says Weir. “In buildings, we’re going to see much more emphasis on sanitizing, social distancing, and reducing densities in common areas by staggering work hours where possible and providing more space per employee.”

To date, the retail portfolio has been affected the most dramatically by COVID-19, while logistics, manufacturing and industrial categories seem to have been affected the least, with the exception of film production.

“That has been brought to a standstill because of the restriction on large gatherings,” says Weir. “Film production is a very significant industry in British Columbia and the industry and government are working very hard to have a roadmap in place to bring it back.”

While construction projects have been allowed to continue and the food, drug and liquor sectors have never been stronger, the hospitality industry has faced significant challenges.

“We own a major hotel and like many of our peers, we've elected to close it temporarily,” says Weir. “Our focus is on how quickly we can get it back open by catering to domestic travelers and creating opportunities for a local vacation. But that is going to depend on the willingness of the general public to resume travel, and we can’t say how quickly that sector's going to rebound.”

In the meantime, community retail has continued to struggle since the shutdown came into effect. “We've been working with all of our tenants and helping where we can,” says Weir.

“But we’re also trying to have them understand that our obligations continue unabated. We still have mortgage payments and property taxes to pay, operating costs to cover, buildings to maintain and staff to employ. And so we're looking to our tenants who can pay rent – and for those who cannot, we're working with them to come up with solutions to them bridge this period of time.”

On a personal note...

“I've certainly never cooked more. I've never been a great cook, but I'm now beginning to develop the odd culinary skill. I’ve been trying to move though this by focusing on week to week solutions, operating our business the best we can, making sure that people are safe, and listening to and working with tenants who are facing challenges. I’m trying not to focus too much on the long-term because it is so uncertain.

■ Barbara Balfour Canadian Real Estate Forums / SPRING 2020

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RISKS AND REWARDS OF VANCOUVER MARKETS: COST OF LIVING, LACK OF DIVERSIFICATION STUMBLING BLOCKS TO LONG-TERM GROWTH “Right now, Vancouver has the benefit of a lot of tech growth, most of which is fueled by US and foreign investment, venture capitalist funding, and the desire of talent to live there.

If that investment market shrinks just a little, I think that growth is susceptible to slowing down, due to lack of infrastructure,” he says.

Kevin Leon President Crestpoint Real Estate Investments Ltd. Despite its continued appeal as a place to work, live and do business, Vancouver faces several key obstacles to sustaining levels of growth.

One of these obstacles is a lack of market diversification compared to other cities, says Kevin Leon, President of the Toronto-based firm Crestpoint Real Estate Investments Ltd. www.realestateforums.com

Ironically, what makes Vancouver a challenging market is also what makes it a good investment; while there’s a lack of supply, it’s also expensive to build new product, says Leon. “If I look for the growth factors in that market, residential housing is certainly one of them. But as land gets more and more expensive, we see industrial tenants starting to move to Calgary versus Vancouver.”

Leon hasn’t seen much of this with office tenants yet – in fact, it’s been the opposite with the low Canadian dollar at play. “Five to 10 years ago I don’t think people saw demand on the office space side of the

business. With the burgeoning tech sector in Silicon Valley and along the West coast, and all the successful companies coming out of Seattle, Vancouver has become a natural extension. As office rents are going up, it’s cheaper for tenants to be in Canada,” he says.

While the exchange rate is helping to lower tenants’ occupancy costs, they still need to keep attracting talent to move there, Leon points out. “So at some point, does that talent say, ‘It’s not worth paying $4,000 a month for a 500 square foot apartment’? Whether it's the cost of building or the cost of living that drives talent away, there is a risk that other markets will eventually become more attractive.”

Despite these risks, Vancouver remains a must for anyone investing in the Canadian commercial real estate market, says Leon. As the busiest port in the country, Vancouver is particularly appealing to Asian markets, he points out. “From both a lifestyle and an international perspective, it continues to be a very attractive city.

“Of course, some of that long-term growth could definitely be stalled by what's going on in the world today with Coronavirus.”

■ Barbara Balfour 35

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Sincerest Thanks To Sponsors For Their Ongoing Commitment

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TOP 10

REAL INSIGHTS

´ Real Estate Market 2020 Montreal

ISSUE 44

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MAJOR INFRASTRUCTURE INVESTMENT UNDERWAY IN THE GMA

DEMAND FOR OFFICE SPACE SOARED IN 2019

WAAS IN THETTIME OF COVID-19

Montréal has been the recipient of billions of dollars in investment to improve transportation infrastructure.

Absorption of over 3 M sq. ft. of of昀ce space the highest rate in almost 20 years.

Pandemic will likely thin out a crowded 昀eld of 昀exible of昀ce suppliers.

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COVID-19 CHANGING CONSUMER BEHAVIOR

MONTRÉAL IS A HUB OF DEVELOPMENT

CAPITAL HAS BEEN FLOODING INTO MONTRÉAL

MONTRÉAL INDUSTRIAL VACANCY RATE AT RECORD LOW LEVELS

Disruption to the retail sector continues as the pandemic sweeps across the globe.

Vigorous demand for space across sectors has resulted in increased development across the city.

Investment volumes were up signi昀cantly in 2019 as institutional investors and REITs chased yield and solid market fundaments.

Montréal has become the third tightest major industrial market after Toronto and Vancouver.

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HOUSING RENTAL VACANCY AT A 15 YEAR LOW IN THE GMA

2019 REPRESENTED FIFTH CONSECUTIVE RECORDBREAKING YEAR IN THE GMA HOUSING MARKET

WEST ISLAND ATTRACTING MAJOR NEW DEVELOPMENTS

The apartment sector expected to continue to perform well in the face of COVID-19.

Momentum Continued into 2020 – March represented 61st consecutive month of sales growth.

New REM stations are resulting in millions of dollars worth of new commercial and residential construction underway in the West Island submarket.

INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF ´ MONTREAL REAL ESTATE MARKET

Powered by

AltusGroup

3

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

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MONTRÉAL COVID WILL BRING CHANGE, GOOD & BAD, BUT REMEMBER THE CITY ENTERED THIS ON A HIGH NOTE Roger Plamondon President, Real Estate Broccolini

Looking at the real estate market today, it’s like we’re frozen in space. No transactions are happening. No one can truly assess the value of an asset right now because nobody knows.

In my own business, we remain confident and bullish on the industrial sector, which happens to be among the first where governments are allowing people to return to work. Governments, both federal and provincial, have certainly voiced that they want to bring manufacturing back home. As for the state of the office sector, it will depend on people’s ability to return to work.

How the Canadian economy will look when we come out of the COVID-19 pandemic will depend on one question that looms large: how many people will have lost their jobs, and for how long? If unemployment stays anywhere near the record levels that it’s at today, in the coming year government will be under an incredible amount of pressure to try and get those people back into the workplace. As a result, we can likely expect a drastic drop in immigration numbers – a sobering thought given that immigration has been the big motor driving the housing sector.

As everyone waits to see what will happen next, pension plans are weighing the value of their portfolios. Some may be trying to rebalance their assets. Will there be “prior sales” or “distressed sales” in the marketplace? What will happen to interest rates?

One thing that seems clear is that GoCs are quite low, but spreads are higher. If GoCs go up, spreads may come down, so perhaps the rates will stay somewhat stable for a while. It’s impossible to know for sure.

We at Broccolini have been in contact with trade associations and are trying to relay the message to governments that measures that were in place pre-COVID will be somewhat different post-COVID. Regarding laws that would have been coming into place now, we are asking governments if they could put those on pause, defer, and see if we can adjust later. www.realestateforums.com

This is a good time to review important documents. Some of us might find that our construction contracts, insurance policies and leases already contain pandemic clauses as a result of Ebola or other pandemics, but some will not.

What is on your quarantine bedside reading list?

If there is a silver lining, it is this: There are always some great things that come out of any pandemic. The sewer systems and sanitary conditions enjoyed by recent generations throughout the developed world are the direct result of past pandemics. Expect an even cleaner future after this one.

One more saving grace today is technology. It has not only softened the blow of physical distancing in these trying times, but could also contribute to innovative solutions. Case in point, this Real Estate Forum which, though it looks and feels nothing like past events, offers the essential elements of sharing information and ideas, broadening horizons, and some much-needed hope, inspiration and connection with peers.

On a personal note...

My wife has been keeping me sane. She is an amazing person. Also, I’ve never eaten as well as I am now. There is breakfast, a 10:00am break, lunch, a 3:00pm break, supper... and I even get delivery, right to my office!

On a more serious note, we have one daughter who works for the federal government in Ottawa and is an acute asthmatic. While following everything that’s going on, I’ve been feeding her every piece I find of interest that may help her, to make sure that in her work environment she can then voice that health measures have to be put into place. We certainly don’t want to risk her catching the disease.

Finally, my motorcycles have been like a godsend. In the initial part of the confinement, it was cold outside, you didn’t really feel like going out, so it wasn’t that bad. As time wears on and now it’s nice and sunny, I can hop on the motorcycle or on the electric bike or go for a run. I’m not contributing to the greenhouse effect – speaking of which, the views downtown are amazing. Everything is clean and crisp. That’s a positive.

■ Michelle Morra

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REAL ESTATE WRESTLES WITH A REOPENING RIDDLE “I repeat, this is not a financial meltdown. There is money out there for good quality real estate. Lenders will dwell on cash flow over the next six months. They won’t necessarily dwell on occupancy rates. They’ll ask: ‘”How your receivables and delinquencies?’”

Tom Godber Principal Chartered Real Estate Broker Advisory Group Avison Young

As owners start to reopen their properties, they’re seeking common ground to standardize safety protocols for real estate operations.

“The industry is talking about how to get back safely,” said Tom Godber, Principal, Chartered Real Estate Broker Advisory Group, Avison Young. “No question, everyone is being positive.”

“They are going full-bore. In our Edmonton, Calgary and Vancouver offices right now, 98% of our staff want to return to work right away,” Godber said. “Ontario and Québec will lag. In Québec, 92% said that they’re not ready but are getting tired of working from home.”

Avison Young, Ivanhoé Cambridge, Cadillac Fairview, and Oxford Properties have brought their international experience to bear on relaunching their Canadian shopping centre, office, and other properties, he said.

“Hotels will be in trouble for sure for two-to-three years,” he anticipated. “Athletic clubs will come back, slowly. Until people think it’s safe, they want alternatives to gyms and sport clubs.”

“Conferences remain important but people will be fearful until the vaccine comes out,” Godber added, “because business gets done on who you run into in the hallways.

We still need the human interaction so the big question is how will we do this?.”

The need to keep occupants at a safe distance has also prompted a range of responses.

Alberta’s and British Columbia’s office markets are the farthest ahead, he reported.

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The uncertainty has halted valuations, he said. “No one wants to talk market pricing, because it’s too early. For example, apartment rent collection is still very high certain community retail not so well… We have not seen any real fire sale pricing and may not in the near term. So there hasn’t been an impact yet.”

Godber echoed widespread bullish sentiment toward industrial. The pandemic has prompted more retailers to replace their retail footprint with technology, logistics, and warehousing”.

“The big towers are going to be handled differently from buildings that don’t have elevators,” Godber explained. “You have to consider HVAC system cleaning, wait times for elevators, staggered entry, and exiting. Tracking who enters and what PPE they are required to wear. The list is endless.”

“High-rises will be really complicated,” he anticipated.

“There will be lineups in the lobby.

Some people say that you can squeeze four people in an elevator. Others say two.”

setting in,” he observed. “The balancing act of how to do this safely is the focus.

Employee angst and stress means many, if not a majority of staff might not return to the office until January.”

As Québec presses to reopen, concern remains that the pandemic is not yet under control in Canada’s hardest-hit city.

Godber wondered whether Québec might reopen while Montréal will re-open in stages and over a longer time.

“We can see that work from home fatigue is

Everything finance, he said, has tilted toward “Relationship, relationship and relationship.”

Risk-averse banks now prefer proven borrowers with a consistent revenue stream with good management, a shift that will surely stress lesser capitalized companies.

It could even begin to affect some of the smaller real estate investment trusts.

■ Robert Frank Canadian Real Estate Forums / SPRING 2020

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LE POUVOIR DE

RÉALISER WE MAKE IT HAPPEN Montréal | Toronto | Ottawa

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TENANT – LANDLORD BUSINESS RELATIONSHIPS. ADJUSTING TO A NEW NORMAL IN A POST-COVID WORLD As the expense of sanitizing common areas and high-touch surfaces on a regular basis goes up, so too will the cost of operations for office space. It’s just one of the many changes tenants and landlords can expect as they adjust to the new normal of COVID-19.

Two weeks before the federally mandated shutdown, Cominar leapt into action to ensure the safety of their office buildings for both tenants and visitors. This involved a complete overhaul of their security operations and significantly increasing sanitization protocols for all high touch surfaces.

Bernard Poliquin Executive Vice President Cominar

“Tenants are going to demand near perfection from landlords, in terms of, ‘Prove to me that you're doing everything you can to keep me and my employees safe.’

We're going to have to make sure that the premises are secure, safe, and those who need to can access them 24 hours a day,” says Bernard Poliquin, Executive Vice President at Cominar.

DESIGNING THE WORKSPACES OF THE FUTURE

With thousands of office workers packed into high-rise towers, social distancing protocols will be of utmost importance when it’s time to go back to work. But as long as working from home continues to be an option, experts predict the amount of office space required will stay the same.

has dedicated assigned seat. So the work from home aspect, at least in the short- to mid-term, isn’t going away unless you’re having to downsize significantly and no longer need to accommodate as many people,” says Elizabeth Di Staulo, A&D Manager at Burovision.

“When you have a very dense floor plan, you may have to consider working in shifts to space people out and ensure that everyone

Employees who do work remotely will need to be equipped with the proper tools to

Those new standards are easier to navigate within the industrial asset class, says Poliquin, as most properties are occupied by tenants who control access to their premises and don’t typically share common areas other than parking space. But as operating expenses increase across the board to meet the expectations of tenants, so too will the costs of occupancy.

Elizabeth Di Staulo A&D Manager Burovision

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Poliquin says they’ve found the best way of navigating the impact of the pandemic was to approach it as a business issue rather than from an accounts receivable perspective. “We've had conversations on a case-by-case, tenant-by-tenant, building-by-building basis,” to find mutually acceptable solutions he says.

“With the majority, we came to arrangements that did not require rent relief, but rather rent deferrals for when things are back to normal. We looked at it as more of a ‘Let's find a solution together, because we’re all in this together,’ rather than, ‘You owe us money, so you must pay.’ Also, we are supportive of the Federal program

for rent relief for our tenants that qualify and have made the request to participate.

Cominar’s approach to working with tenants in crisis to achieve sustainable solutions has strengthened their relationship. It’s a strategy that has also increased the potential for future partnerships, compared to a hard-line approach.

“We need to find solutions that are ultimately the least damaging to us all because there will be an afterwards. And we all want to move forward together as landlords and tenants,” says Poliquin.

And as they move forward, physical workplaces will remain integral to organizations’ branding and culture. “People need to belong to an entity. And that entity is represented by the office where you go to in the morning,” he says.

“Architectural firms keep innovating how they design space in ways that is attractive to the workforce because we are in a war for talent. People need to recognize themselves in the values of an organization. Those values are in a large part conveyed by the physical space.

“For that reason, the office is not dead. It's going to remain a very strong cultural and branding point of anchor for both organizations and their employees.”

On a personal note...

I have a fantastic relationship with my wife.

Psychologically, it's very important to have an attentive and supportive ear, to share and unload from the reality hitting us all.

Being at home is also giving me the chance to regain my physical health. When you're able to exercise, your mental health also improves.

■ Barbara Balfour

ensure proper ergonomic settings, she says, cautioning, “Working at your counter or dining table on a plastic chair can only be sustainable for so long.”

In workplaces where seating is unassigned and employees might be at a different workstation every time, they will need personalized, portable work kits as well as storage space in which to keep their belongings. “Office spaces often have open coat rooms, but those may need to be reconsidered, at least temporarily, because people may feel uncomfortable mixing their personal belongings with those of others.

Personal storage, whether it be at each workstation or in a dedicated locker room, becomes more important and can also contribute to how we create delineations within the workplace” says Di Staulo.

Another issue affecting the return to work is the need to build planned routes around the office, she says. “It will no longer be a free for all where everyone goes in all directions; instead, you might have to impose a clockwise circulation path with one-way traffic to avoid bumping into someone in the hall.”

Screens, dividers and other types of partitions will be used to modify office space in creative ways while protecting people from getting too close. In the short- to mid-term, overall partition horizons may likely rise to as high as 64 inches while seeking as much www.realestateforums.com

“We still need that human interaction. Zoom is not quite the same experience – it works, but you don’t get the same feeling as when you gather in a room full of people to share your best ideas.”

translucency as possible. Spaces will require surfaces that are anti-microbial, wipeable and bleach-cleanable, and will need to integrate sanitation stations into floor plans and at individual workstations.

While cleanliness and safety are top of mind, those are not the only important factors in designing the workspaces of the future, says Di Staulo. “We still need that human interaction. Zoom is not quite the same experience - it works, but you don’t get the same feeling as when you gather in a room full of people to share your best ideas. So, I think we’re going to have to really keep that in mind and be creative with how we roll all these changes out.”

■ Barbara Balfour 43

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“MASSIVE OPPORTUNITIES” MULTIPLY IN RETAIL Despite the short-term constraints, he remains optimistic over the medium- and long-term prospects for retail properties.

Jeffrey Soliman Principal Soliman Real Estate

“Buyers will experience massive opportunities in retail,” he emphasized, “which entails buying a distressed building with significant land. And that’s the core of real estate – to maximize your land holdings.”

Distressed opportunities will arise when the time comes to refinance mortgages on assets that were priced under pre-COVID conditions.

“We’ll definitely experience some mortgage defaults when pre-COVID short term loans come due,” he predicted, “leading to very cheap retail acquisition opportunities.”

Enclosed malls and B-class hotels will continue to suffer, nonetheless.

“We closely monitor monthly rent collection,” Soliman explained. “For retail, COVID was the final nail in the coffin, pushing prices down significantly – as much as 20-40% on some files.”

lenders for mortgage relief and fresh financing for acquisition and development.

“Relationships are the key,” he said. “Banks have signaled that they remain open to existing clients.”

Soliman credited them for being extremely cooperative – though not for everyone or every asset class – plus the process has slowed significantly.

“Lenders have to keep doing what they’re doing because that’s the only way to keep the market from crashing,” he observed.

“They might opt for slightly lower leverage.”

Due diligence has dragged since the start of the crisis, putting counterparties on steep learning curve.

“At one point, extensions became so ambiguous that they read ‘30 days from the lifting of the lockdown,’” Soliman acknowledged. “That didn’t mean anything.”

Ultimately, he expects the real estate market to track the post-COVID economic rebound.

The passing of historically low capitalization rates in the wake of the pandemic has pushed most institutional buyers out of the real estate market, specifically for retail properties, opening the door to value-driven private buyers, said Soliman Real Estate Principal Jeffrey Soliman.

“Multi-residential assets have proved to be somewhat COVID-proof,” Soliman pointed out. “Landlords across the board are collecting 95-100% of rent.”

“Every industry drives real estate. From tenants and their businesses, to interest rates and capital markets. Every company will focus on less overhead and more liquidity, whether it’s from fewer staff or lower rent,” Soliman concluded. “Many of us will nurse COVID battle wounds for a long time.”

Industrial overpriced Industrial is poised to take a hit, though, over pricey rents that will push tenants out of the post-COVID market.

On a personal note...

Jeffrey Soliman has found solace in family and friends since the start of the coronavirus crisis.

“Depending on the asset class, the market hasn’t weakened but the buyer profile has changed,” he said. “Institutional buyers are asset allocation driven. We’ve witnessed a withdrawal there.

They have enough to digest with what they have already taken on.”

“Electronic commerce remains a driver,” Soliman acknowledged, “but not at a loss.”

“Staying close to your loved ones is essential for morale and positive energy, as well as lifting other people’s energy,” he said. “Friends tell me that I have spoken to them more in the past month than ever before.”

Residential properties, though, will retain their value, he suggested.

“We witnessed multi-residential deals at close to 3-3.25% capitalization rates. Class-A office buildings also traded at all-time highs. We witnessed some industrial deals close over $165 per square foot. Those deals were not private buyers,” Soliman noted.

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“When industrial inventory suddenly dried up, tenants had no choice but to pay higher rents if they wanted to operate. Now they’re reflecting upon whether their business is sustainable at those rents. They can’t pay $10/SF net when, five years ago, they were paying $5/SF. It doesn’t make business sense.”

Renegotiation the name of the game “Active investors are hungrier than ever and benefiting of the crisis to revise terms,” Soliman said.

Soliman has also found day trading a useful pastime – and not just as an escape.

“Besides injecting some excitement into my day-to-day life, it keeps me informed. With that and work and loved ones, it has gotten me through the last few months.”

■ Robert Frank

Coronavirus has complicated cash flow and borrowing, as owners simultaneously ask Canadian Real Estate Forums / SPRING 2020

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Invested

coast to coast When it comes to developing, building & managing properties and partnerships across North America we’re committed to doing so sustainably, creatively and collaboratively. We look forward to partnering with you on your next commercial or residential real estate venture.

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COVID-19 – VERY DIFFERENT PROGNOSES FOR DIFFERENT SECTORS

Sylvain Leclair Executive Vice President Altus Group

Managing requests for rent deferrals is an important challenge faced by landlords of commercial, office and industrial tenants during COVID-19.

“Unfortunately, these deferral requests will, in some cases, result in bad debts and hasty closures, especially for non-essential businesses,” says Sylvain Leclair, Executive Vice President, Altus Group.

Several commercial chains have filed for bankruptcy protection, notably Sail, Sportium, Best Sellers, Jack & Jones, Aldo, Reitmans, Coalision and Lolë. For many, closure will be imminent and, if the pandemic continues, other retailers will inevitably be affected.

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Not all sectors will suffer equally. Mr. Leclair points out that the hotel industry has also been hard hit with an average occupancy rate of approximately 20% and will recover “mainly once the COVID-19 pandemic is controlled.” He echoes the popular sentiment that the office and industrial sectors will be less affected. In the majority of cases, he says, rent deferrals should be honoured.

“Lenders are still active but remain cautious. They will be more interested in the well-located premium product especially with long-term leases.”

Residential “is not expected to be affected at this time,” Leclair says. “People need housing, and the government offers support to employees in case of job loss. In times of crisis, investors are more interested in this type of product, which will help keep some pressure on yields. Lenders are also active for this type of product.”

Asked how all of this upheaval has affected the owner-lender relationship, Leclair says that in general it appears to be good, especially if debt service is honoured. “It is always a question of inherent risk,” he says.

“Lenders are still active but remain cautious.

They will be more interested in the

well-located premium product especially with long-term leases. Second class assets or risky products are not being looked at for the moment.”

COVID-19 will bring long-term changes to the world as we know it. Public transit may be less popular, which would lead to more widespread use of satellite offices and an accelerated exodus to the suburbs. This, in turn, “could have an impact on the concept of transit-oriented development,” Leclair says. “And with the closure of stores and shopping centres, there has been an increase of online shopping. This will have a direct impact on the demand for square footage.”

When the situation does improve, whether in the near or distant future, different real estate sectors will recover at different rates.

Industrial is poised to emerge relatively unscathed while retail, which was already in repositioning mode before COVID-19, could face a long road ahead. Somewhere in the middle is the office sector, which can only recover when people can return to offices.

Even then, it won’t be business as usual.

On a personal note...

Since confinement greatly limits our activities, I believe that this situation has allowed us to go back and appreciate core values, which are family and friends. We connect virtually with family and friends, though this is not as good as the real thing.

Also, this is an opportunity for going for walks and cycling, which keeps our spirits up!

■ Michelle Morra Canadian Real Estate Forums / SPRING 2020

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WHAT’S NEXT WE’RE MAKING AN IMPACT With nearly 53,000 employees in 60 countries, Cushman & Wakefield proudly puts our people at the centre of everything we do. As COVID-19 continues to affect our clients and communities, we want to thank our essential employees who are making an impact on the front line across all of our services. That’s why the firm has launched the Global Employee Assistance Fund and is committing $5 million* to assist our employees facing hardship.

Our employees create meaningful value for our clients, our business, and our communities around the world.

We are all in this together and will continue to support each other through this unprecedented time. *USD

cushmanwakefield.com

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RETAIL REPRESENTS RIPEST RECOVERY OPPORTUNITY

Vincent Chiara remains bullish on retail, the real estate category that has borne the brunt of the pandemic, because it has the biggest upside potential.

“The strong retailers will come out of this stronger,” predicted Mach Group’s President.

The worst-hit businesses – like people – suffered from pre-existing conditions, he suggested.

“Obviously the weak ones will get beat up.

Those retailers had been struggling for some time, though, and the virus outbreak was simply the last straw.”

Vincent Chiara President Mach Group

He exuded confidence that surviving retailers will bounce back.

“The day that our Carrefour de l’Estrie mall reopened, we witnessed lineups out to the parking lot,” Chiara reported. “Shopping remains one of the most popular forms of entertainment. People want to touch. They want to feel. They want to see people. We are social creatures. We want to interact.”

“Yes, malls will change,” he acknowledged.

“They will evolve. They will comprise more facilities for recreation and relaxation like aquariums. But shopping as we know it will not disappear.”

48

The most pervasive part of the pandemic is the uncertainty that it has provoked, Chiara suggested, as most deals are put on ice.

“Other than that, we can’t really detect any economic impact,” he noted. “We’ve just taken our foot off the pedal and are coasting in neutral for a while.”

“It’s going to take some time to fix it, but we went into this with the economy on fire,” Chiara reminded. “There’s no reason that we can’t go back to that.”

Already thriving, online retail went into overdrive at the onset of the pandemic, pushing demand for industrial real estate assets through the stratosphere.

“It has been Black Friday every day since the shutdown,” he observed.

Mach has continued to collect more than 85% of its industrial and office rents, though on the retail side, the figure is below 40%.

“Most strip malls anchored by food, pharmacy, finance and Dollaramas weren’t shut down,” Chiara said, “though closed malls replete with fashion outlets proved a challenge.”

Chiara is concerned that well-meaning but misguided government aid programs give owners influence over who survives. He Canadian Real Estate Forums / SPRING 2020

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“Shopping remains one of the most popular forms of entertainment.

People want to touch.

They want to feel.

They want to see people.

We are social creatures.

We want to interact.”

warned that the short-term relief could prove divisive and spawn long-term problems by giving landlords leeway to opt-in to the subsidies for one tenant while letting them opt out for another.

“That’s short-sighted,” he cautioned. “I’m not worried about being paid my rent in 2020.

I’m concerned about 2022.”

“Don’t give the landlords the money,” Chiara urged. “Don’t give us the option. Give the money to the tenants. They’re smart. They want their business to survive. Ultimately, if you help the tenant and keep them alive, they’ll pay us.”

Lenders are likely to look more closely at prospective borrowers’ balance sheets going forward.

2020-04-15 11:33 AM 2020-04-15

On a personal note...

Vincent Chiara has kept his hand steadily the tiller since the outset of the COVID crisis.

“I enjoy what I do so much that I don’t want time off,” he smiled. “I have been at the office every day. I don’t want time off. I’d rather be here than on the golf course.”

Chiara has instead concentrated on motivating his 150-member team and instilling confidence.

“It’s important that I be here. That I remind them that the business is going well. That everything is going to be ok. My trophy asset is my team,” he insisted. “Without them, we wouldn’t be able to accomplish the great things that we do.”

■ Robert Frank

“Banks are definitely going to ask: ‘Can this asset sustain some storms?” he said. “They will remember those who stood up and said ‘I’m not collecting my rent, but I’m going to respect my end of the bargain’.

“Lenders have a long memory,” Chiara concluded.

www.realestateforums.com

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POISED TO RECOVER

Scott Speirs Executive Vice President National Investment Team Capital Markets CBRE Limited

Is it possible that some cautious optimism about the evolving pandemic may be in order? While the market is effectively on pause, Scott Speirs, Executive Vice President, National Investment Team, Capital Markets, CBRE Limited is getting a sense that investors are getting closer to doing transactions again.

“Canada benefits from a commercial real estate industry that is globally recognized for its thought leadership and ability to make bold, yet responsible

investments, setting the stage for us to emerge from this crisis from a position of strength,” he says. “We have been in a period of price discovery for the past few months, as investors have been carefully assessing the market. That said, the capital is now forming across the country and

During challenging times there is a flight to safety which, according to Speirs, makes Canada appealing to investors and businesses. To a certain degree he expects we might see a reversal of globalization, with the most significant impact on the manufacturing side. “As global supply

“Canada benefits from a commercial real estate industry that is globally recognized for its thought leadership and ability to make bold, yet responsible investments, setting the stage for us to emerge from this crisis from a position of strength.” investors are becoming increasingly poised to move off the sidelines and seize new opportunities.”

As investors begin to look to place capital, they are also dealing with unprecedented asset management and operational challenges. “Landlords are dealing with multiple challenges at the moment, including rent collection, and tenant requests for rental abatements. Retail is the most significantly impacted asset class, but really no property type has been immune.”

“One of the biggest challenges for landlords is assessing which tenants are truly in need and which tenants are going to be viable going forward,” Speirs says. “The second challenge of note for virtually all landlords, from owners of enclosed malls to industrial manufacturing facilities, high-rise office and multi-residential, is the logistics of reopening real estate in a safe and pragmatic manner that allows tenants functional use of their space, and also the ability to respect the new norms of social distancing and enhanced safety protocols.”

On a positive note, he adds, “the consolidation of institutional ownership in Canada likely results in a highly coordinated and standardized response to these new safety protocols.”

Montréal’s real estate and economic fundamentals remain remarkably robust given the current context. Not only have the past two years positioned the city as a core Canadian market, but society’s shift towards an online reality during COVID-19 has led to a technology boom, which bodes well for a tech hub like Montréal. “One factor I think really plays well for Montréal is that it is the most cost-effective market in North America for the tech industry,” Speirs says.

chains are being disrupted and the trend of onshoring gains traction,” he says. “Canada, with its rich history as a major manufacturing hub in North America, is very well positioned to put its expertise and inventory to good use going forward.”

As a result of COVID-19, will we need more office space, or less?

“There are two opposing dynamics at play as a result of COVID-19 that are impacting demand for office space: social distancing, and work from home.

“On the positive side for demand, social distancing will push employers to increase their footprint and square footage per employee, reversing some of the trend of densification that has gained traction over the past decade or so.

“On the negative side for landlords, the work from home movement will likely continue beyond the current pandemic but, in my view, in measured doses. Humans are social by nature and there is no technology that can replace the importance of human interaction. Most clients and colleagues I speak with are clamouring to get back to the office.

“So in the medium term, I don’t see any major change in demand for office as a result of the current pandemic.”

On a personal note...

I have been doing my best to stay positive see the silver linings and the opportunities created by this change, both personally and professionally. It is not always easy, but one thing I have found grounding is spending time in the outdoors, getting reconnected with nature. I have greatly appreciated the opportunity of spending quality time with my family embracing a simpler life.”

■ Michelle Morra

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Canadian Real Estate Forums / SPRING 2020

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The pandemic has only accelerated longstanding growth in demand for industrial real estate, and its corresponding decline in retail.

PANDEMIC PUTS PROPERTY MANAGEMENT CENTRE STAGE Overnight, the coronavirus crisis has differentiated quality property management houses from smallholders with limited resources.

Gil Kastner Former Vice President, Leasing & Marketing with a major brokerage

“Real estate firms had to deploy the means and the methods to run their properties,” recalled Gil Kastner. “The industry had to immediately invent new property management standards: Legal documents;

CRISES HIGHLIGHT WHAT WORKS AND WHAT DOESN’T

Emeka Mayes Vice President Investments First Capital REIT

52

“The most severe impact of COVID-19 on real estate will be the fact we’re collecting only a portion of rents on the dollar,” says Emeka Mayes, Vice President, Investments at First Capital REIT. “You’re just not collecting as much rent. However, I think there are some good things.”

Mayes says she is proud of how her business was able to “pivot quickly” by, within two days of having to shut down its offices, having everyone set up and fully operational in their home offices. She credits the pandemic for really shining a light on the company’s strengths and weaknesses. “We had very little downtime,” she says. “It was almost like a shot of adrenaline to realize that the things we do well and how well positioned we were to address the rapidly changing environment. I am also very proud how quickly we launched our Small Business Support Program for smaller tenants needing rent relief. It was a

government assessment and intervention; tenant leasing. Owners and asset managers were building a new plane – while they were flying it!”

“Organizations with deep talent pools swiftly implemented or outsourced such provisions,” he observed. “If you were a one-man show, that was another matter.

Without sound cleaning, care and safety protocols, occupants are entering a dangerous space.”

While Kastner remained confident that office demand will remain stable, buildings with

significant challenge to develop our online portal and approval process, but it worked out very well.”

She adds that while First Capital always strives to be innovative and on the cutting edge, the real estate industry in general has lagged. “Roughly 5 years ago, First Capital made the commitment to completely overhaul our technology. As a result, we were in a very good position to transfer to a work from home environment almost overnight, which would not have been possible a few years ago.”

Asked what long term changes the real estate industry might experience as a result of COVID-19, Mayes says underwriting fundamentals will become much more important. “I think when you’ve had so many consistent years of an up market, people get a little lazy with the pencil – it gets a bit dull,” she says. “I think those landlords, like First Capital, who have underwritten their properties properly and have been very accurate in their assumptions are going to do very well.” On the lending side, she expects to see a definite tightening in the Canadian Real Estate Forums / SPRING 2020

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poorly managed climate systems stand to suffer, he suggested.

“Tenants who already considered the air bad at the office are now saying ‘if the air is not good, you’re taking your life into your hands,” he said. “People are going to take that into account.”

Pandemic pushes accelerator pedal The pandemic has only accelerated longstanding growth in demand for industrial real estate, and its corresponding decline in retail.

“The same thing is going on with food distribution, as well as immense, unanticipated demand for personal protective equipment,” Kastner added, “while retail might evaporate more rapidly than before.”

Residential might see a shift from ownership to rental, owing to price sensitivity.

“It was almost like a shot of adrenaline to realize that the things we do well – wow, we do really really well.”

“Residential will decline as personal incomes decline from the economic crisis, but demand will return rapidly when the economy rebounds,” reassured Kastner, who expects a return to normal if the coronavirus goes away next year, albeit with a greater accent on property management.

Prospects bright Kastner, who until recently served as Vice President of a national property brokerage and management firm, remains optimistic.

“I’m one of the COVID-19 economical victims,” he acknowledged. “I don’t mind, because the world is changing and I’m part of that change. As we enter the next chapter, changes are taking place that we can’t ignore.”

When the Spanish flu struck a century ago, people eventually returned to normal life.

“That will happen to us as well,” he predicted.

“I was working in New York during the crash of 2008. People said that the financial system was finished. And New York came back.

After 9/11, people called to say that they had fled the country and left the keys under the mat. ‘Sell my apartment,’ they said. ‘I’m never coming back.’”

market, with banks preferring to lend to their core clients.

First Capital, Mayes says, is known as a grocery and pharmacy anchored landlord.

She doesn’t share the pessimistic view some people have on retail, even in a post-COVID world. “I’m going to be curious to see,” she says. “People keep saying the Internet is the death of the retail business and it’s not. I think this pandemic has forced some people to change their habits, but I think it’s also going to prove out that good retail is even better retail now.

“At the end of the day, people still want to go out and get their goods. Anybody who has ordered online in the last two months knows that those veggies that got delivered are not as good as when you go to get them. That steak is not the cut that you wanted. I don’t think it’s going to change.

Online shopping may increase because of convenience, but I think people are going to realize it’s not a long-term solution and we expect the curbside pick-up trend to continue, which requires not only an online platform, but a superior physical location.”

www.realestateforums.com

“That mentality exists in the moment but, as things stabilize, they drift back to normal,” Kastner concluded. “People want to get back to normal.”

On a personal note...

Closeness with adult offspring proves a blessing.

Gil Kastner used the time gained working from home to finally put up the punching bag that for seven years had lain idle in his garage.

“At least once a day – sometimes twice – I open my garage door, put on my boxing gloves and go wild on that punching bag,” he recounted. “My neighbours are probably terrified of me now, but I’m really fit!”

His son returned from the University of British Columbia to finish his studies from home at the outset of the crisis.

“Having four adults now in the house has proved unexpectedly enjoyable,” Kastner smiled. “We’re laughing. It has been quite nice.”

■ Robert Frank

On a personal note...

“I think that in the first couple of weeks I was trying to continue to work the way I was working before. What has really helped me is to realize that we are in a “special space” and I have to be a bit flexible in how I manage my time. I also have to embrace it, so carve out time for work, carve out time for my family, and carve out time for myself and maintain that balance.

“So I make sure that I work out, eat healthily, spend time with my kids. The way that I carve out my day may be different than it was before because I’m physically always in the house. There are needs on my family now, and I’ve had to embrace the change and just say, ‘Okay let’s just go with it and let’s figure out a new schedule.’ We sat down as a family and looked at that. And when we did that I said, ‘Look, I don’t know how long life will be different, but it will be. Let’s make the best of it instead of focusing on the negative.’ That has really made things a lot more manageable.”

■ Michelle Morra 53

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QUÉBEC CITY POST-COVID WORLD: MORE ATTENTION TO DETAIL & GREATER CONNECTIONS government or major insurance companies; markets that remain stable.

François Pelchat Partner & Vice President Sales & Marketing Immostar A few short months ago, real estate in Québec City was thriving. With an unemployment rate rivalling the rest of the country, widespread construction on the south shore and a tramway project about to launch, the future looked rosy. Stores, restaurants, and hotels were in full swing — and then this happened.

“With COVID-19, I think that retail and commercial have taken the biggest hit,” says François Pelchat, Partner & Vice President, Sales & Marketing, Immostar.

“If we lose tenants, to just go and get someone else will take time and be a major expense, and we will need tenants that will be ready to open for business. This is where we’ll have a problem.”

Fortunately, Immostar has found that most of its tenants have been able to pay their rent, though some have asked for deferrals and are being assessed case by case. In the City’s office and multi-residential sectors, many occupants work for the 54

Pelchat believes industrial is the asset class that will weather the storm. “It will remain a prime product for sure,” he says. “And as retailers might need to downsize, they will need a place to put all their inventory, which could bring some opportunities.”

Immostar had four major developments underway in Québec City pre-COVID and has decided to proceed. And though Pelchat says commercial development will slow down, prior decisions, such as qualifying for WELL certification on its Le Huppé and L’lot Lapointe rental buildings will serve the company well.

Pelchat stresses that post-COVID real estate will require greater attention to detail. “Every mechanical system will be important,” he says. “How is the water? How is the air filtration? When you leased an apartment before you didn’t ask these questions, but I think now people will ask.” Immostar is also reviewing its legal documents, namely leases, to better protect all parties in the event of another pandemic.

Pelchat intends to work more from home and spend less time commuting. As others do the same, he expects Québec will have fewer traffic and parking problems, as well as a reduced carbon footprint. While people will still need to spend time at the office, he says, “I think there will be a mix between the old life and the new life.”

The City of Québec was among the first to start lifting COVID-19 restrictions in some businesses. “Now the experience is not

great,” Pelchat says. “When you go shopping there are lineups, you waste a lot of time, and it’s complicated inside.

“We will need to adapt the way we do business, the way we connect with our clients, and the way we connect with our tenants.

Nowadays I’m always talking with my tenants, getting information, trying to encourage them, give them some breaks, because they are the real heroes. These are the people that we need to work in their spaces. If we’re able to build these relationships, I’m pretty sure we’re going to be stronger after this pandemic.”

On a personal note...

“Change can be for the better, so I am optimistic. We are young developers, young promoters, so we have time to adapt our business and show the world that we’re going to become stronger after this.

“Things that were maybe not so important in the past will be important now. What this pandemic is bringing to us is that we try to engage our people more. We are actually moving all our business on a new electronic platform, so we decided to take this time to train our employees, improve the protection of our confidential data and move forward with new IT and telework tools. These changes keep me happy; I love when things are changing and moving toward a better future.

“It was great to be at home every day with the kids. It was great to take breaks and not have a specific schedule. I was always in meetings before the pandemic. Now I have both my hands in operations and I talk more with my people on the floor.

“The business is gaining something it didn’t have before. We’ll be more engaged, more present. And I think people won’t be so shy about working from home when there’s a big snowstorm or when someone is sick. I think we’ll get some great stuff after this pandemic.”

■ Michelle Morra Canadian Real Estate Forums / SPRING 2020

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ICI, L’AVENIR SE CONSTRUIT. BUILDING A BETTER FUTURE.

INVESTIR ET BÂTIR ENSEMBLE Le Fonds immobilier de solidarité FTQ, en partenariat avec des leaders du secteur, réalise des projets immobiliers rentables, créateurs d’emplois et socialement responsables. C’est en participant financièrement et stratégiquement à leur succès que le Fonds immobilier contribue à l’émergence d’une vision moderne du développement urbain et À BÂTIR UNE MEILLEURE SOCIÉTÉ.

INVESTING AND BUILDING TOGETHER In partnership with industry leaders, the Fonds immobilier de solidarité FTQ invests in profitable, job-creating and socially responsible real estate projects across Québec. Through its financial and strategic involvement in the success of these projects, the Fonds immobilier is shaping a modern vision of urban development and helping to BUILD A BETTER SOCIETY.

P ROJ E T / P ROJ ECT:

MAESTRIA, MONTRÉAL

PA RT E N A I RES / PA RT N E RS:

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ALREADY A MONTH OF PROGRESSIVE DECONFINEMENT FOR QUÉBEC CITY'S REAL ESTATE MARKET Marie-France Benoit Senior Director Strategic Development Altus Expert Services

While the COVID-19 pandemic has forced the Québec government to extend several emergency health measures for the hard-hit Montréal region, phased deconfinement has been progressing as planned over the last month in the National Capital Region, giving us a glimpse of what recovery of activity looks like.

Faced with a curve of cases under control, non-essential businesses have been able to reopen since May 4th. One week later, elementary schools and daycare services welcomed schoolchildren on a volunteer basis. Also, on May 11th, non-essential retailers with direct access outside opened their doors. On June 1st, shopping centres and personal services businesses were able to resume their activities, applying the physical distancing and disinfection measures that we will have to get used to in order to regain a semblance of our pre-COVID life.

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One month later, the different steps towards deconfinement have not spurred a surge in new cases. Since the beginning of the pandemic, the provincial capital region has accumulated less than 1,700 cases of contagion and 140 lives have been lost. In the administrative region of Chaudière- Appalaches, which includes Lévis on the south shore of Québec City, the number of confirmed cases is approximately 500 and the number of deaths was 8. The two regions account for only 4.1% of confirmed cases and just under 3.0% of deaths, which is low considering their combined demographic weight of 13.5% of the Québec population.

Three months into the pandemic, these relatively low number of cases seems to be giving the population a (false?) sentiment of safety and economic activity has been recovering more enthusiastically than many would have expected a couple of months ago.

Canadian Real Estate Forums / SPRING 2020

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Renewal probabilities are over 90% and revenues will remain stable or increase. In addition, many survey respondents anticipate more cap rate compressions, which are already at historically low levels.

Impact of deconfinement on the real estate market As elsewhere in the country, victims who succumbed to COVID-19 virus are over-represented in the 80+ age group, and the main outbreak sites are in CHSLDs, senior residences and intermediate care centres. And this psychological trauma may impact demand for the senior housing market, especially in the assisted-living category. On the Independent living segment, there were no significant surge in cases and the current slowdown in rental activity is expected to be temporary. On the other hand, the labour shortage in this industry, which was already problematic before the pandemic, is being exacerbated and the rising costs of this valuable labour force will have to be taken into account by Seniors Housing owners.

For projects that target an independent clientele, competing directly with high-end multi-unit housing for the 55+ segment, the rising costs will be more modest.

As shown by the most recent Altus Group survey on the impact of COVID-19 on real estate investment market, the multi-residential market is the least affected by containment measures. Renewal probabilities are over 90% and revenues will remain stable or increase. In addition, many survey respondents anticipate more cap rate compressions, which are already at historically low levels.

The multi-residential segment is impacted mostly on the supply side, with delays due to construction being halted for several weeks. Financing conditions could tighten for projects that have yet to be launched and the impact of the new health measures on the www.realestateforums.com

productivity of construction sites remains to be seen. The decline in immigration flow, which has a significant impact on demand for multi-res in major Canadian cities, will probably be less of a concern in Québec City. Population growth attributable to newcomers, while increasing in recent years, has not reached desirable levels despite a clear political will to attract new workers and students.

For the industrial market, given the pre-COVID shortage of sites and spaces, market is still tight. For the many leaders in the technology and biotechnology sectors, such as Medicago or GSK, as well as Laval University spin-offs, advances in the search for a solution to the pandemic can serve as an accelerator in their areas of excellence.

As for the office market, as everywhere else, working-from-home is now a reality. Most office workers are still teleworking, but elementary schools and daycare centres being functional has given a breather to many young parents. Day camps will also be available this summer. In a society where both parents working is more the norm than the exception, and where the labour market participation rate of women aged 15-44 years exceeds 80%, this certainly has an influence on the ability to work from home.

Little change in vacancy will be observable until leases approach expiry date. It should be noted, however, that 25% of the leasable space in Québec City is occupied by the Government of Québec or government agencies. The pandemic could accelerate the 5-year strategic plan for more efficient office-space use the provincial government had already started with a clear objective to save tax payers dollars. The shift towards densification will most likely reverse in favour of hoteling and flexible WFH policies. Since the beginning of the crisis, 70% of public servants have abandoned their cubicles to work from home, speeding up their employer’s digital shifts.

When excluding government-owned office buildings, it is worth noting that nearly 25% of the office inventory in the Québec City metropolitan region is owned by large financial and insurance companies.

Desjardins’ head office, in Lévis, SSQ

Financial (currently being merged with La Capitale) on Laurier Boulevard and the head office of the Industrial Alliance in Sillery, all of which have already taken an avant-garde turn towards densification and the development of collaborative spaces, will probably face the current situation with agility.

That leaves the small tenants, who occupy between 3,000 and 5,000 sq.ft. on average in the Québec City office market. Are they ready for a massive shift towards teleworking, which requires significant investments in IT. And unlike workers in the big city centres, Québec City workers are much less likely to be crammed into high-rise buildings accessible by metro. The car remains the main means of transportation for many. The most appropriate solutions will be adapted to each company's situation.

As for shopping centres, the asset category hardest hit by the forced closure of its tenants, the opening of non-essential businesses with exterior access since May 4 and of all businesses since June 1 augurs well. According to centre owners, customers are returning, at levels above expectations (even if below 100% pre-COVID). The pandemic will have had the positive effect of accelerating the shift of many local businesses to online shopping and delivery services. Vacant spaces will mushroom, but landlord see it as an opportunity to redevelop centres and convert excess retail spaces into more profitable use.

However, there are still several clouds on the horizon; many fashion retailers have or will go bankrupt, restaurants and entertainment-based business models may not survive the ordeal of physical distancing.

Not to mention accommodation and tourism.

The cancellation of the Québec City Summer Festival and several cruises, the closing of borders to international travellers, represents a huge loss of revenue for tourism, hotels and retail. On the other hand, the number of Canadian and Québec tourists looking for a change of scenery could partly compensate for this loss. Too soon to tell, as we are now accustomed to say. ■

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INTRODUCING THE ALL NEW

Altus Data Studio

Channel your inner data scientist with our next-generation platform for real estate data visualization.

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! CREF SPRING 2020.qxp 2020-06-24 4:50 PM Page 59

Latest commercial market statistics across Canada These results are released by Altus Group, powered by our proprietary Data Solu琀ons pla琀orm. Our independent and comprehensive data, analyses and insights on the commercial real estate investment and residen琀al development markets is collected and compiled using na琀onally consistent research processes established in 1995.

Plumme琀ng oil prices and COVID-19 market disrup琀ons create turbulence for Calgary’s o ce market Downtown Class “AA” o ce vacancy barometer (next three months) (Q4 2019 vs. Q1 2020)

2.5

Q4 2019

Q1 2020

MOMENTUM RATIO*

2.0 1.5 1.0 0.5 0.0 -0.5 -1.0

Vancouver

Edmonton

Calgary

Toronto

O awa

Montreal

*Posi ve indicates vacancy decreasing

Source: Altus Group’s Investment Trends Survey

Apartment investment demand remains favourable for markets with higher poten琀al yields Loca琀on barometer for suburban mul琀-unit residen琀al (Q1 2020)

MOMENTUM RATIO (BUY % / SELL %)

16% 14%

14.0%

12% 10% 8% 6% 4%

7.0%

6.3% 5.0%

2% 1.6%

2.5%

1.8%

2.8%

0% Vancouver Edmonton Source: Altus Group’s Investment Trends Survey

altusgroup.com/data

Quebec City

Calgary

Toronto

O awa

Montreal Quebec City Halifax

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Property transactions by asset class Slower economic ac琀vity and product shortages con琀nue to a昀ect investment ac琀on in Vancouver Vancouver Market Area Land Office Retail Industrial Apartment Hotel

2018

Res. Land

2019

ICI Land

2018 2019 2018 2019 2018 2019 2018 2019 2018 2019

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$ BILLIONS

Source: Altus Group

Investors showed healthy appe琀te for o ce and industrial products in the Edmonton market, but ac琀vity expected to taper o昀 with the current economic downturn Edmonton Market Area

Land Office Retail

2018

Res. Land

2019

ICI Land

2018 2019 2018 2019 2018

Industrial Apartment Hotel

2019 2018 2019 2018 2019

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$ BILLIONS

Source: Altus Group

Investment demand in Calgary remains acute as the market is forced to ba琀le greater economic challenges Calgary Market Area

Land

2018

Res. Land

2019

ICI Land

2018

Office Retail Industrial Apartment Hotel

2019 2018 2019 2018 2019 2018 2019 2018 2019

$0.0 Source: Altus Group

$0.2

$0.4

$0.6 $ BILLIONS

$0.8

$1.0

$1.2

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Property transactions by asset class Investors adapt to new reality and focus on specula琀ve returns and an琀cipated new demand Greater Toronto Area

Land Office Retail Industrial Apartment Hotel

Res. Land ICI Land Res. Lots

2018 2019 2018 2019 2018 2019 2018 2019 2018 2019 2018 2019

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$ BILLIONS

Source: Altus Group

Investors look to take a more apprehensive approach towards the O琀awa market, a昀er a solid year in investment ac琀vity O琀awa Market Area

Land Office Retail Industrial Apartment Hotel

2018

Res. Land

2019

ICI Land

2018 2019 2018 2019 2018 2019 2018 2019 2018 2019

$0.0

$0.2

$0.4

$0.6

$0.8

$ BILLIONS

Source: Altus Group

Market ac琀vity accelerated in Montreal as the city undergoes revitaliza琀on Montreal Market Area

Land Office Retail Industrial Apartment Hotel

2018

Res. Land

2019

ICI Land

2018 2019 2018 2019 2018 2019 2018 2019 2018 2019

$0.0 Source: Altus Group

$1.0

$2.0

$3.0

$ BILLIONS altusgroup.com/data

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Sincerest Thanks To Sponsors For Their Ongoing Commitment For 2020 only, Edmonton and Calgary Real Estate Forums Will Merge to Create the Alberta Real Estate Forum on October 21 & 22

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TOP 10

REAL INSIGHTS

2020 Edmonton Real Estate Market

ISSUE 42

1

2

GROWTH FORECASTED TO PICK UP IN 2020

RENTAL HOUSING DEVELOPMENT EXPLOSION IN EDMONTON – UNTIL COVID-19

LENDERS CONTINUED TO EXPRESS INTEREST IN ALBERTA, WITH RECENT EVENTS – IT IS A WAIT AND SEE APPROACH NOW

Rebounding production and investment in the energy sector was supposeG to drive GDP growth to 2.2% this year according to CBofC.

Population growth and modern amenities supported the absorption of new units.

Over 10% of surveyed lenders had plans to increase their budgets in the province.

7

6

5

4

OFFICE VACANCY DROPS SLIGHTLY PRE COVID-19

ECONOMIC DIVERSIFICATION EFFORTS STALL

INVESTORS WERE CHASING YIELD IN EDMONTON

REVITALIZATION OF EDMONTON’S DOWNTOWN CORE WAS CONTINUING

There was a 昀ight to quality as tenants took advantage of competitive rental rates.

BC was on schedule to potentially bene昀t from provincial reduction of tax breaks and incentives to tech industry.

With total investment reaching $3.3 B, 2019 was one of the best years on record.

Momentum was building around Stadium Yards and The Quarters District.

8

9

10

SOLID PERFORMANCE OF EDMONTON’S RETAIL SECTOR CAUGHT OUR ATTENTION PRE COVID-19

STRONG DEMAND FOR QUALITY INDUSTRIAL PRODUCT WAS THE TREND BEFORE MARCH

OPPORTUNITIES WERE PLENTIFUL IN ALBERTA’S SECONDARY MARKETS

Rental rates rise despite the delivery of 1.5 M sq. ft. of new supply.

New supply could not outpace demand and vacancy slides to 5.6%.

Population growth, lower taxes and higher incomes made Alberta’s secondary cities attractive investment destinations.

INSIGHTS FROM INDUSTRY LEADERS DURING THE CONTENT FORMATION OF EDMONTON REAL ESTATE MARKET

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AltusGroup

3

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

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Canadian Real Estate Forum / SPRING 2019

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EDMONTON THE ALBERTA RESILIENCE WILL PREVAIL

Rohit Gupta President Rohit Group of Companies

As real estate businesses navigate the strange new world of COVID-19, some will struggle while others will thrive. At Rohit Group of Companies we are trying to be pragmatic by identifying what works and what doesn’t. What’s going well in the business? Where are we collecting rent? Where are we getting sales?

Where is cash coming in? And what are the areas that are struggling?

Everybody in Alberta is dealing with not only COVID-19, but also a slump in the oil and gas industry. We’ve engaged in a philosophical discussion about this both internally and with our partners, and that discussion goes something like this: We’ll all take some beatings along the way, but what is an acceptable beating to take? Once we decide that, we can talk about how we manage it. Finally, if there’s an impulse to make a decision immediately, we try to take two weeks or even 30 days and buy ourselves time to think.

In our business, the greatest impact from the pandemic has been on new home sales. We’ve seen big changes in how customers interact with us, how they go through the home buying process, how we reach them with a message about what our product is, and their confidence level in their own employment opportunities going forward.

Doing business in a pandemic requires new marketing techniques. Like many of you, we have introduced virtual tours, and created a marketing spend that moves away from drive-by traffic and focuses on digital media. We have changed our messaging to be relevant to a COVID environment. So instead of showing gatherings in our advertising, we’re showing messaging that’s more relevant to COVID-related challenges — messaging that might show a backyard, or someone working in a den or other private space in the house, away from the family so they can conduct their meetings. www.realestateforums.com

Like so many organizations worldwide, as a homebuilder, Rohit Group of Companies has had to accelerate its ability to do online transactions.

COVID-19 has accelerated the pace of change, from people coming into show homes to do a transaction to people doing transactions online from their houses or bedroom or sofa.

At this point, many in this industry are wondering how the different asset classes will fare as the pandemic situation progresses. In my view, from a residential perspective, COVID-19 will impact the whole economy financially and reduce the purchasing power of many new home buyers.

There should therefore be a push towards residential rental product into the future, at least for the next 24 months. From a commercial retail perspective, success will vary from one business to another.

Concepts that were poor or waning, businesses that were in poor locations, or landlords that hadn’t invested into their assets long term for the benefit of the tenants or end consumer, will probably struggle going into the future. On the other hand, landlords that have done a good job of investing in their tenants and consumer experience will probably tend to ride this out much better.

On a personal note...

I have to let out my creative juices, so I’m doing a lot of cooking with new recipes. Some have been horrible – like, really bad while others turned out pretty good. I also take daily walks.

I haven’t had this much time to myself during the day, where nobody’s watching me, since university. In fact I was interviewed for this article while exploring the woods in Edmonton. I’m exploring the city from a very different perspective, which I haven’t been able to do for 20 years. So I’m taking advantage of it.

Let’s not talk negative about COVID, and let’s not talk positive. Let’s just have fun. If we look at other businesses and how to help them adapt, eventually their success will be our success.

■ Michelle Morra 65

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REAL ESTATE DEALS TRICKLING ALONG DESPITE COVID-19 in ways not dissimilar to what we've done in the past.”

William Logar Executive Vice President KingSett Capital While real estate deals are still being completed across the country, traffic has been understandably slower than usual since the onslaught of COVID-19, says KingSett Capital’s Executive Vice President, William Logar.

“We’ve done some recent deals on the East coast, though admittedly smaller in terms of actual transactions, and we’re still active on the leasing side, but not at the pace it was at before,” says Logar.

“We’re always looking for good risk-weighted returns. And going forward, we’ll be evaluating the risk assessment of each of our tenants,

READY FOR THE NEW NORMAL?

Kevin McKee Chief Executive Officer Pangman Development Corporation

66

This would include a thorough examination of potential tenants’ financial details, their ability to pay rent, and their potential to grow and continue their business in a productive manner. “On the acquisition side, we ask ourselves if we think there's a potential for return for this asset. Is there enough transaction volume and tenant base in the market? Is there an opportunity to maintain or grow rents in the market or to do something that repositions an asset?” he says.

While they’ve had some requests for rent relief on the retail side, Logar says it’s still premature to say whether they can expect a wave of requests from commercial tenants.

“We don't actually have a direct sight line of our tenants’ financials. So, you could have a business that's been established and running for 15 or 20 years, but at a point where debt load is super high, which could in turn trigger a default in their business.

“There are programs being put in place now and we're generally trying to do the right thing on a tenant by tenant basis.”

If working during a pandemic is bizarre, one comfort is that it’s bizarre for everyone. “The nice thing is everyone’s making it up. There is no playbook. There are no rules.

Everyone’s trying to figure it out as they go and, generally, people are sharing what works and what doesn’t work,” says Kevin McKee, Chief Executive Officer, Pangman Development Corporation.

Asked how COVID-19 has affected his business, McKee says he hasn’t seen a significant erosion in productivity or a huge change on the predevelopment side, in terms of planning and permitting. “On the physical construction side, for the first two or three weeks we did see manpower decreases 20 to 30%,” he says, “but those numbers have started to return to pre-COVID levels. We haven’t seen a complete return back to normal, but

“Going forward, we’ll be evaluating the risk assessment of each of our tenants, in ways not dissimilar to what we've done in the past.”

In the meantime, Logar says, they’ve been encouraging social distancing, working from home where possible and trying to maintain the right amount of staff to ensure buildings are secure, disinfected and ready from a property management standpoint. “Every tenant is operating on their own protocol, other than in malls where they've been formally shut down, and we continue to support them as best we can,” he says.

Despite current economic conditions in Alberta, Logar doesn’t anticipate any fire sales.

“We haven't seen that in Calgary and I don't think we'll see that in Edmonton. I think there's an established set of owners who are generally well capitalized and in a position to make decisions that are appropriate for their business. And while oil prices have definitely created some dislocation, they create potential opportunity as well.”

■ Barbara Balfour

efficiency and productivity is well over 90%. What we’ve found is that if the subtrades feel that the site is safe, that the site is well organized, that the site is clean, they want to work there. That has happened on our projects.”

On the income producing side, McKee says, for retail tenants experiencing difficulty, the firm decided early on to evaluate tenants’ financial position on a case by case basis and work through deferrals, and reductions in rent, for a period of 30 to 90 days.

In Alberta, tenants and landlords are talking about what to expect when the isolation and physical distancing regulations of COVID-19 start to lift. At least for this calendar year and until a vaccine is discovered, McKee expects physical distancing will continue.

He says tenants are exploring split shifts, Canadian Real Estate Forums / SPRING 2020

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LESSONS FROM COVID-19: ALBERTA RETAIL MARKET NOT AS DIRE AS REPORTED jobs benefit from cheaper housing, enjoy higher disposable income, and are still spending money, which you see from restaurant, bar and retail sales that are still doing pretty well.

Eric Slatter Founding Partner Omada Commercial While the Edmonton market has seen its fair share of challenges, things are not as bleak as they may seem. In fact, many of the fundamentals that have kept the market buoyant are still present today.

“Edmontonians and Albertans still make significantly more average household income than the rest of the country,” points out Eric Slatter, a Founding Partner of Omada Commercial.

“And while we’re not where we used to be, those who still have

whereby 50% of employees are in the office at a time, and maybe even a pendulum swing away from open office concept and back to closed offices.

Landlords need to determine how to ensure physical distancing, in particular, in common areas.

“How do you manage traffic at pinch points?” McKee says.

“Elevator lobbies will probably be the most challenging.”

This new reality could impact office density in the long-term, in a couple of ways. McKee believes a segment of the tenant population might decide that everyone can work from home and no office presence is necessary. www.realestateforums.com

“The big picture, good news story out of all this is we’ve realized the message is not as simple as the death of retail. People still fundamentally want to leave their house and do things where they can enjoy having a physical presence.”

Moving forward, says Slatter, it will be interesting to see how the retail industry applies lessons learned through COVID-19 in relation to online sales.

“It’s not as black and white as, either you're an online retailer or a brick and mortar business and you're at war with each other.

It’s about using available tools and innovations to have a presence in both.”

Slatter points out Gravity Pope and Poppy Barley, two local high-end footwear businesses that have a major online presence, but also want high street locations in major Canadian markets. “They’ve realized that for people to trust them enough

“The big picture, good news story out of all this is we’ve realized the message is not as simple as the death of retail.” to pay $500 for a pair of shoes, they're going to want to touch and feel them to make sure they're getting that quality.”

Meanwhile, new entrants are taking advantage of slower markets to take up spaces in coveted locations. “We’re seeing a little bit of everything - new regional players coming from BC, while international chains like Jollibee and Popeyes are aggressively expanding for a better foothold in our markets,” says Slatter.

“West Edmonton Mall continues to be a major entrance point for retailers entering the Canadian or Alberta marketplace; we had Uniqlo and Canada Goose open here recently. For retailers and restaurant groups expanding across the country, Alberta's a key part of the puzzle.

“I’m cautiously optimistic that whenever we get out of this, there's going to be a rebound from pent-up demand: people who just want to get out and partake in social activities, and retailers motivated to get things moving again.”

■ Barbara Balfour

“Everyone’s trying to figure it out as they go and, generally, people are sharing what works and what doesn’t work.”

“And then I think there is going to be another camp, of which I’m a subscriber, which is that being forced to work from home has reinforced what I already knew; going to work is a number of things, but one of them is it’s a social experience.”

virtual coffee at 8:00 on Monday, Wednesday, Friday, and we talk about our weekend and whatever we did. It’s an opportunity to at least see a face, hear a voice, have that connection and try to recreate that normal routine.

On a personal note...

Kevin McKee says the key to successfully getting through the COVID-19 pandemic is to take one day at a time and stay connected.

“I try to embrace the little things that are different in my personal life,” he says. “For the last seven weeks my wife and kids and I have had dinner together every night. At different times I think all five of us are not very happy about the current situation, but it’s also an extremely special time.”

“I’m an avid cyclist so three times a week I meet my cycling buddies and we bike online together for an hour or an hour and a half,” he says. “That same group meets for a

■ Michelle Morra

67

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“Borrowers have to do a lot more work to justify the funds they’re requesting, and lenders have to do a lot more due diligence, which is understandable.”

TECHNOLOGY, CLOSENESS, AND OTHER TAKEAWAYS

Cory Wosnack Principal & Managing Director Avison Young

Uncertainty. That has been the biggest impact of COVID-19 on the real estate industry according to Cory Wosnack, Principal & Managing Director, Avison Young.

One example is how uncertainty has affected owners and developers with lenders.

“Doing a deeper dive into the credit-worthiness of occupants, their ability to sustain difficult moments in the economy and their ability to pay their lease obligations, is now a massive part of the financing conversation,” Wosnack says, adding that this new reality is slowing the financing market. “Borrowers have to do a lot more work to justify the

funds they’re requesting, and lenders have to do a lot more due diligence, which is understandable.”

Compared to other parts of Canada, Edmonton hasn’t been hit so hard by COVID-19 and things are looking up, at least in the industrial sector. Wosnack says he has seen early signs of activity in that asset class in late May, and he expects June to be a very active month.

As for retail, he says, the response will be mixed. On the one hand, many retailers were already struggling before March and now have an enemy they can blame – COVID-19. “Companies that were already on the ropes can now move towards that next phase of restructuring their company or going through a reduction in stores much faster, because of the impact of COVID,” Wosnack says. “Many of them were already being highly disrupted prior to March, and so it has just advanced that strategy.”

Wosnack finds retail activity fascinating to watch and is noticing another phenomenon.

“In some retailers that have reduced their staff, you have the response where the entrepreneurial spirit will actually produce a number of new retail businesses led by business owners who were previously employees that were no longer required at their previous companies.”

If the pandemic has caused any permanent change to the real estate industry, Wosnack says it’s the role of technology. “We have become paperless much faster, to a much higher degree than we would have without this experience,” he says. “We’re getting very comfortable with speaking on cell phones,

reviewing documents on iPads, laptops, small screens, working from the kitchen table.

“Also, you can deliver that document and that report late at night, after your kids are asleep, or on the weekend, or have that video call from your kitchen table. I love that we’re going to come out of this giving people the freedom of choosing when and how they deliver what’s expected. It’s the result of the work product that matters, not how and when they got there.”

On a personal note...

“Seeing my grandmother through the window of her unit in her seniors’ residence and having my 6-year-old and 4-year-old be able to see her and have a conversation through glass. Seeing how enjoyable it was for my grandmother to see her great-grandchildren even through the screen of her window, but appreciating the moments that we can communicate in this really unusual time that’s filled with a tremendous amount of fear, and appreciating the communication by whatever means we can get it. That was something that I truly appreciated.

“I think I spoke to my relatives, my parents, my grandmother, even more often than I would have in the last 3 months, had this been a typical spring. Having this new outlook – what it means to still maintain your relationship even though you can’t see each other the way you used to, appreciating the dynamics of the relationship in this new way – made us appreciate the depth of our closeness even more. That’s something I took away from this that became a really special experience.”

■ Michelle Morra

68

Canadian Real Estate Forums / SPRING 2020

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WHEN COVID HITS IN A RESOURCEBASED ECONOMY: THE ALBERTA CONUNDRUM

Dave Young Executive Vice President & Managing Director CBRE Limited

70

While businesses across Alberta have taken a hit from the pandemic, companies across the province begin to focus on what will happen afterwards in an economy largely sustained by the energy sector.

There’s no question the virus has exacerbated the situation, says Dave Young, Executive Vice President & Managing Director of the CBRE Edmonton office. Once companies are no longer artificially propped up by wage subsidies and rent relief, he predicts an inevitable fall-out.

“One of our concerns is under-capitalized companies with mortgage renewals coming up in the next couple of quarters where an equity infusion may be required,” says Young. “If those companies don't have the capital and their revenues are off, what do they do?”

Meanwhile, logistics and distribution industrial properties will emerge as the winners post-COVID – from both a tenancy and investor perspective.

of growth. With rents flat for at least the near term, we’re still trying to determine how that impacts yields and value.”

While Young predicts more people will be working remotely because it’s worked so well during the pandemic, he questions how employees will be onboarded in the future.

“How do you create a corporate culture where the best and the brightest want to work for you? Social interaction is important and young professionals are yearning for that office environment,” he says.

“Edmonton's different than Toronto or Vancouver, as we're fairly spread out. But there is that concern of how to get to work.

Without a vaccine, will people feel comfortable taking public transit to work?

Do we have enough PPEs and hand sanitizer on hand? How will social distancing and WFH implications impact the amount of office space a company needs?

“There’s a whole bunch of new business parameters that everybody's learning on the fly.”

“Industrial properties that are focused on distribution will be the asset class of choice, followed by the multi-family market,” says Young. “While there will be short-term cash flow issues on the multi-family side, long-term, the apartment sector is a very defensive asset and we still need housing regardless of what market we're in.

On a personal note...

I'm very regimented in what I do. I get up at the same time, I have the same schedule, and keeping focused on that routine has really helped. I'm also lucky that I’ve got family at home. My wife's here and my daughter's back from school, so it wasn't like I was on my own, not seeing anybody.”

“In Alberta, the one challenge we are hearing from our investor clients is the lack

■ Barbara Balfour Canadian Real Estate Forums / SPRING 2020

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SKYROCKETING INDUSTRIAL DEMAND IS HERE TO STAY

“People want to return to their workplace; it will continue to be a mix.”

He expects a more balanced market with increased sublease space in the short-term but anticipates that office demand will revive in the medium- to long-term.

“Firms will retain what they have or take on more square feet per person,” Margetts asserted. “Companies which can afford to stay on won’t be giving back office space, but the stigma of working from home is in the past so companies will allow this balance to continue in order to maintain more square feet per person in the office.”

Bryce Margetts Vice President Western Canada Canderel The 2020 pandemic has propelled ongoing structural shifts in sales and delivery to the stratosphere. Industrial properties have emerged the big winner and there will be no looking back, predicts Bryce Margetts.

“We’re seeing the pandemic accelerate existing trends,” Canderel’s Vice President, Western Canada told Canadian Real Estate Forum. “Industrial warehousing benefit from the distribution of goods. Last-minute warehousing, online ordering and direct delivery are seeing a significant increase in demand — and will continue to do so.”

Other market segments will not fare as well during the next 18-24 months, though, he anticipates, with tourism, hospitality and retail properties bearing the brunt of the downturn.

“Canderel has limited exposure to retail,” Margetts said. “However, the retail assets that we do have are definitely the most adversely affected. We were about 55% rent collection in April.”

“They will take the longest to recover, followed by office,” he forecast, though office properties ought to regain resilience.

“We don’t see the trend toward working exclusively from home as long-term,” Margetts explained. www.realestateforums.com

Alberta, already hard hit by the energy price collapse, now faces a double whammy.

Projected GDP losses in the second quarter, coupled with unemployment, make Alberta Canderel’s greatest concern.

Canderel hasn’t faced a cash crunch though. Its passion for preserving good relationships through thick and thin have again reinforced the firm’s position, heading into the latest downturn.

“Firms will retain what they have or take on more square feet per person. Companies which can afford to stay on won’t be giving back office space, but the stigma of working from home is in the past so companies will allow this balance to continue in order to maintain more square feet per person in the office.”

“One of the most important things that our company has done is to honour our obligations with our lending partners. Once more, we have not asked any lender to defer mortgage payments and we have enough cash flow to continue those payments indefinitely,” Margetts underscored.

“That gives us an excellent relationship with our lenders,” he continued. “The big-five banks continue to fund us at attractive rates that haven’t budged from pre-COVID levels – including bridge loans for land financing.”

On the construction side, Canderel faces the same challenges as other developers, including increased equity and presale levels and tests.

Margetts mused that the coronavirus crisis might inspire new lease clauses, like letting landlords test tenants’ temperature before allowing access, and amending shipping and receiving rights such as allowing couriers to come directly to their door versus a central depot.

“Those are things that we’re talking about, but it might be a bit early,” he concluded.

On a personal note...

Crisis tightens ties with colleagues, family.

Connecting electronically from home has unexpectedly woven staff closer to their fellow workers and loved ones, Canderel has discovered.

“The increased contact in our company has really helped to counteract the isolation some people are feeling at home,” reported Western Canada Vice President Bryce Margetts. “It has really bound the company together more closely than at any time in its history.”

“There are pluses and minuses to having to conduct a Zoom call every hour,” he conceded, “but it has generally been a positive for us.”

Canderel conducts a daily, 2 p.m. call with other partners in Montréal and Toronto.

“For a lot of our employees, that interaction has never happened before,” Margetts observed. “That’s something which has really helped to bring the company together.

It is the biggest positive change that will come out of the coronavirus crisis for Canderel.”

The company, which has long prized strong, lasting interpersonal relationships, intends to continue to use technology to retain its increased closeness, even after the all-clear sounds.

“We intend to keep that in place. Maybe to a lesser extent, but we will absolutely keep that in place,” Margetts vowed.

He added that he also very much appreciates the additional time at home with his two children, aged six and eight.

“I enjoy spending time with them on-and-off during the day,” Margetts smiled. “We set time aside to go outside the house to exercise together. It’s an opportunity that I didn’t have before, and I am enjoying it!”

■ Robert Frank 71

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MOVE FORWARD, MANAGE EXPECTATIONS

Emmett Hartfield Owner & Partner Intelligence House

Alberta is experiencing a perfect storm with COVID-19, a struggling economy, and oil trading in the negative. In real estate, purchases are at a standstill as people are reluctant to move or make a large-scale financial commitments until COVID restrictions are lifted and job security is more solidified.

However, residential rentals are still moving at a steady pace and there are still numerous projects under construction and launching to the general public this year as it was all pre-COVID commitments.

After these projects have launched, it is anyone’s guess what moves forward in the future, and when.

“I do think over the next year or so the only product that will be

moving will be multifamily rental,” says Emmett Hartfield, Owner & Partner, of Intelligence House. “I think commercial retail will have a tough go. The condo market has basically been decimated here already, and the single-family market won’t be moving at any significant pace. If you want to be doing anything right now it’s purpose-built rental.”

One positive outcome that has emerged in recent months is that technology has had a chance to shine. The world was already going increasingly digital before the pandemic, and Hartfield says he expects to see less emphasis placed on in-person meetings moving forward, especially until a COVID-19 vaccine is found.

Intelligence House is a Western Canadian-based, full-service real estate consulting firm. Hartfield says the firm is currently finishing up three or four projects that were launched before the pandemic, and will launch four or five new projects this summer. “At this point, developers have no choice but to move forward as the only other choice would be to sit there and do nothing, which is not realistic. It’s just about managing expectations on absorptions at this point.”

“I think digital, and video conferencing, will probably be around for quite a while now.

People are busy. The world moves very fast now. So the quicker you have instant access to as much information as possible, the better it is for the consumer to make a decision,” Hartfield says. “Technology has allowed those platforms to kind of pull through and demonstrate their worth. I think in this case we’re very lucky to have it, given the situation.”

Hartfield believes there could be a difficult relationship between developer and lender down the road, particularly in Alberta.

One thing he sees already happening is that condo properties are being repurposed for rental. “It is really the only choice at this point to get the revenues and the capital flowing in, and to try and make work of a very difficult situation,” he says.

On a personal note...

“Getting out there and getting active outdoors is key, and not isolating yourself,” says Hartfield, on surviving the pandemic.

“Communication, be it by video conference or through phone calls I think is important for friends, family and work colleagues.

■ Michelle Morra

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