GTA October 2022

PART OF THE

PART OF THE

PRESSURE

MIND THE GAP

– KEVAN GORRIE, PRESIDENT & CHIEF EXECUTIVE OFFICER, GRANITE REIT

REGAINS GROUND

BY BARBARA CARSS

The Ontario government has pledged $342 million in additional energy efficiency spending to be rolled out between the spring of 2023 and the end of 2024 as a part of the current fouryear framework for conservation and demand management (CDM) programs. The new injection is a 49% boost to the budget allotted when the framework was launched in 2021, but still falls short of the funding available before the government scaled back offerings for the commercial sector and cancelled most programs for the residential sector in 2019.

“We were quite disappointed when there were cuts to the CDM framework a few years ago at a time when conservation was gaining momentum,” says Bala Gnanam, vice president, sustainability, advocacy and stakeholder relations, with the Building Owners and Managers Association (BOMA) of Canada. “So we are pleased to see Ontario is committing additional funds now. Better late than never.”

The government’s rationale is spelled out in a directive that Energy Minister Todd Smith issued to Ontario’s Independent Electric System Operator (IESO) in late September.

It’s premised on projected future electricity demand and the economics of curbing consumption to offset the need to produce more supply.

The IESO advises more electricity system capacity will be required as early as 2025 to keep up with provincial growth and the steady switch away from fossil fuels for transportation and building space heating. In sync with escalating demand, aging nuclear generating units are slated to be decommissioned or sidelined for refurbishment.

“Fulfilling this forecasted supply need will require the IESO to procure electricity products and services from both existing and new resources,” Smith’s directive states.

NATURAL GAS FIGURES IN FUTURE SUPPLY

“Energy efficiency programs have the potential to generate significant savings for ratepayers, lowering electricity costs. Moreover, they help to reduce our dependence on natural gas electricity generation, which is a priority for the government.”

Along with coordinating the distribution of the additional CDM funds, the IESO is tasked with inducing an extra 285 megawatts (MW) of annual peak demand reduction and 1.1 million megawatt-hours (MWh) of annual energy savings by 2025. That’s expected to translate into a $650 million cost saving and a 3 million tonne reduction in greenhouse gas (GHG) emissions over the lifetime of

Ontario will turn to fossil fuel to meet looming demand for electricity supply. Energy Minister Todd Smith recently confirmed the Independent Electricity System Operator (IESO) has been tasked with procuring an additional 4,000 megawatts (MW) of system capacity, including 1,500 MW from natural gas-fired generation and up to 2,500 MW from energy storage tied to renewable and low-carbon sources.

In the short-term, expansions to existing gas-fired generating facilities are expected to deliver a large portion of the 2,500 MW of additional electricity supply the province is projected to need as early as 2025. Once online, new gas-fired generation is projected to emit 0.2 to 0.4 megatonnes of greenhouse gas (GHG), representing a 2 to 4% increase to total system output.

Recent recommendations to the Ontario government — released in October in the IESO’s Resource Eligibility Interim Report — note some of the challenges for the ambitious energy storage procurement. If fulfilled, Ontario could boast one of the largest energy storage fleets in North America, but there is currently less than 100 MW of energy storage in the IESO system.

Given the tight timeline to 2025 — particularly since contracts are not slated to be awarded until into 2023 — there is uncertainty around: potential construction delays; battery production capacity; and the rising cost of the conventional battery components, lithium, cobalt and nickel. The IESO also acknowledges that it is still developing “the necessary experience to integrate and operate grid-scale batteries” and reiterates that other sources of supply will almost invariably be necessary in any case.

“Battery storage is an energy-limited resource, which can typically only be discharged once a day for up to four hours and, as such, would not be available to provide energy over long durations or for multiple times over a day,” the report explains.

Gas-fired generation is endorsed for the ease with which it can be dispatched or withdrawn from the system. Proponents of the procurement also speculate that it could enable enough electric vehicles and heat pumps to more than offset its direct GHG emissions.

“As of yet, there is no like-for-like replacement. Operating a system without it requires a careful analysis of how a combination of other forms of supply can provide this level of flexibility,” the IESO report states.

The Resource Eligibility Interim Report can be found at https://ieso.ca/en/Sector-Participants/Resource-Acquisition-andContracts/Resource-Eligibility

“WE WERE QUITE DISAPPOINTED WHEN THERE WERE CUTS TO THE CDM FRAMEWORK A FEW YEARS AGO AT A TIME WHEN CONSERVATION WAS GAINING MOMENTUM.”

the energy efficiency measures, providing good payback on the investment.

The new $342 million allocation will flow into four CDM programs, with up to $136 million or nearly 40% of the funds earmarked for incentives for greenhouse operators in southwest Ontario. The remainder is intended to underwrite:

• allowance for custom energy-efficiency projects within the IESO’s existing retrofit program for the commercial, industrial and institutional sectors, broadening out from the current focus on prescriptive measures;

• “enhancements” of the IESO’s local programs for targeted areas experiencing particular electricity system constraints, which currently encompasses the Richview South district in Toronto, York Region, Ottawa and the Belle River area in WindsorEssex, including incentives for distributed energy; and

• the creation of a new voluntary demand response program for residential customers agreeing to let their local utility adjust their central air-conditioning or heat pump controls via their smart thermostats.

RATE INCREASE POTENTIAL Smith’s directive also hints at potential ratebased energy efficiency funding to supple

ment the budget the provincial government has provided. That’s to be considered as part of the pending mid-term review of the 202124 CDM framework.

“The IESO shall explore opportunities for regulated distributors to build on IESO CDM programs where they can add value to their distribution system. This may include support for distributors’ CDM applications to the Ontario Energy Board for distribution rate funding that are in the best interest of Ontario electricity ratepayers and program customers,” the directive states.

The provincial government effective ly purged local distribution companies (LDCs) when it dismantled the previous government’s CDM framework in 2019 and transferred program oversight solely to the IESO, but decarbonization propon ents stress that electricity grid capacity is critical to enable fuel-switching and con nect new clean power sources. They argue that the managers of the grid should be assigned a role in peak demand reduction.

“As more businesses and municipalities are targeting net zero, there needs to be a focus on helping achieve smart electrification at an appropriate pace and on using conservation as an offset to the electricity growth. Local distribution companies would be a logical place to look for a coordinated effort between the grid, distribution system, municipality and the distribution customers,” maintains

Andrew Pride, an energy management specialist and consultant on conservation planning.

“I read this part of the directive as opening the door for LDCs to apply for rate increases to support the IESO CDM programs and bring incremental value to the distribution and transmission systems,” Gnanam observes. “Our industry would support it if such rate increases were used for grid innovation and to improve grid reliability and resilience.”

SPENDING WISH LIST

As for the deployment of the new CDM funding, he underscores the significant energy savings and emissions reduction returns to be reaped in aging Class B and C buildings.

“We would like to see much of the additional funding allocated to support this sector in the way of special incentive programs, education and training and other initiatives to build capacity,” Gnanam urges.

Meanwhile, Jeff Ranson, BOMA Toronto’s senior director, energy, environment and advocacy, characterizes CDM as “good grid citizenship” that frees up more capacity to pursue emissions reductions.

“In terms of allocation of funding, we see a real need to support both conservation and zero carbon transition planning,” he says.

For its part, the Ontario government anticipates a large chunk of the projected peak demand reduction will be achieved in

ONTARIO SEEKS TO DELAY PICKERING SHUTDOWN

The Ontario government is supporting a bid to extend operations at the Pickering nuclear generating station for 21 months beyond its scheduled shutdown. Ontario Power Generation (OPG) will seek approval from the Canadian Nuclear Safety Commission to keep four of the facility’s eight units running until September 30, 2026.

The short-term extension is seen as a stopgap before ongoing refurbishments are completed at two of the province’s other nuclear generating facilities, Bruce and Darlington, and while awaiting the arrival of additional anticipated low-carbon electricity supply. However, the Ontario government has also instructed OPG to explore the feasibility of refurbishing Pickering B’s four units, post 2026, to enable up to 30 more years of service.

“Nuclear power has been the safe and reliable backbone of Ontario’s electricity system since the 1970s and our government is working to secure that legacy for the future,” says Todd Smith, Ontario’s Minister of Energy.

A previously contemplated refurbishment program at Pickering was shelved in 2009, but both the Ontario government and OPG maintain the timing could be right to resume that proposal. The Independent Electricity System Operator is projecting continued growth in electricity demand and the completion of the Darlington refurbishment will free up a skilled workforce that could be redeployed to the complex project.

“We have learned a lot about refurbishment since 2009 and through our Darlington project, which remains on time and on budget, and will apply these learnings to our feasibility assessment of Pickering,” says Ken Hartwick, OPG’s president and chief executive officer.

southwest Ontario’s greenhouse sector — 225 MW of the targeted 285 MW — through incentives for LED lighting and behind-themeter distributed energy resources (DER), such as combined solar generation and battery storage.

“This will help to alleviate electricity system constraints in the region and foster economic development,” a government release states.

PROGRAMS PROMISED FOR 2023

That release also indicates the new CDM programs will be ready for applicants in the spring of 2023. The IESO had already

been scheduled to launch three other new CDM programs in 2023, which have been in development over the past two years. These include:

• commissioning incentives for existing buildings;

• incentives conveyed through commercial lighting distributors, providing point-of-sale discounts for energy-efficient products; and

• the planned transition from subsidizing energy managers’ salaries to instead offering “training, resources and enhanced

technical support” for companies with an energy manager on their payroll.

Perhaps illustrative of the challenges of the provincial government’s timeline for launching additional programs, last May, Rob Edwards, the IESO’s business manager for private sector initiatives, told online attendees of BOMA Toronto’s annual global adjustment workshop that commissioning incentives would become available in the fall of 2022. When asked about the program’s eligibility criteria, he noted: “That is still under design and that’s why we’re not able to launch it until the fall.” ■

“AS MORE BUSINESSES AND MUNICIPALITIES ARE TARGETING NET ZERO, THERE NEEDS TO BE A FOCUS ON HELPING ACHIEVE SMART ELECTRIFICATION AT AN APPROPRIATE PACE AND ON USING CONSERVATION AS AN OFFSET TO THE ELECTRICITY GROWTH”

Robust yields for industrial landlords projected to continue SPACE CRUNCH SPURS RENTS

BY BARBARA CARSS

Warehouse and logistics space con tinued to deliver robust yields for industrial landlords through the summer of 2022. CBRE Canada’s third quarter overview reveals a national availability rate of 1.5% along with 9.6 million square feet of posi tive absorption, while Colliers Canada’s nation al market snapshot highlights the unpreced ented breaching of the $20-per-square-foot threshold for average asking net rents in Van couver and vacancy rates below 1% in six of the 12 metropolitan areas surveyed.

Market analysts and asset managers express confidence that the industrial sector will be buoyant into the future despite current global economic uncertainty. Speaking during the recent Bloomberg online Canadian finance conference, Kevan Gorrie, president and chief executive officer of Granite REIT, acknowledged a slowing of the e-commerce escalation that supercharged space demands throughout the pandemic interlude, but outlined other factors that bode optimistically for market prospects.

“Just based on where market rent growth is going, we think 2023 and 2024 at least are going to be very strong years,” he said. “Although we’re seeing tenants deal with cost pressures, they’re still looking to take up modern space and really enhance it and modernize their supply chain capabilities.”

In Canada, CBRE pegs the Q3 average net asking lease rate at $12.89 per square foot (psf) across the 10 markets it surveys, up more than 29% from the average in Q3 2021.

Drilling down to individual markets, Montreal saw the steepest gains with a 68% year-overyear increase in net asking rates, taking the average up to $14.82 psf. Vancouver, Toronto and Ottawa also commanded net lease rates above the national average, with Vancouver posting a chart-topping $20.67 psf.

Colliers Canada analysts identify the prevailing trends in markets like Calgary, where the availability rate dipped to 2.2% during Q3. Landlords there have pulled back on offering leasing inducements and sitting tenants have been signing renewal agreements earlier

than customary. Meanwhile, proximity to the Greater Toronto Area factors into Waterloo’s 0.5% availability rate and related pressure on the region’s agricultural land, prompting forecasts that more zoning change proposals will filed in the coming months.

SUPPLY CHAIN DYNAMICS

Elsewhere in southwest Ontario, Granite REIT has a 1.7-million-square-foot facility in development in Brantford, as part of a major building program that includes seven other projects set for Ohio, Tennessee and Texas.

Gorrie confirmed the development program targets “certain markets that we have a lot of conviction in.” That dovetails with evolving supply chain dynamics as world events both impede just-in-time delivery and underpin a more inward perspective for governments and business.

Among the trends flowing through to in dustrial property demand, he cites expanding inventory footprints in the warehouse/dis tribution sector, and the migration of manu

facturers away from cheaper labour sources and toward closer prox imity to the markets they serve. As well, widening of the Panama Canal to accommodate supertankers has boosted the profile of the port of Houston and associated logistics routes, which are emerging to complement the port of Los Angeles’ conventional dominance.

“We’re seeing tenants like Amazon and others that are taking more space — 5 to 10% more space — that they’re carrying as inventory now to basically guard against future disruptions,” Gorrie advised. “A lot of companies are building resiliency and redundancy into their supply chains, and a lot of them are shifting those transportation corridors to the east coast.”

He also reports an uptick in companies relocating from eastern to western Europe, and predicts that new incentives for electric vehicles in the U.S. will create demand for manufacturing space. As of Q2 2022, Granite REIT had recorded 15% year-over-year rent growth in the United States along with nearly 10% year-over-year increases in the Netherlands and Germany. It also awaits portfolio-wide lease renewals in upwards of 25% of its existing holdings over the next two years.

“We feel we’re probably 20% below market in terms of rents,” Gorrie submitted. “Maybe Amazon takes up less space moving forward over the next couple of years, but that has been replaced in terms of demand by other companies that continue to build out their e-commerce and their omnichannel supply chains.”

EVOLVING FACILITY REQUIREMENTS

“The supply of industrial space continues to lag behind demand regard less of a slowing economy and record levels of construction in many Can adian cities,” concurs Paul Morassutti, vice chair, valuation and advisory services, with CBRE Canada. “There is the potential for some moderation

of industrial rental rates. However, a deceleration in the rate of rental

should not be confused with a decline in rental growth.”

Currently, CBRE tallies nearly 43 million square feet of new supply

progress across the 10 markets it surveys. That’s mostly speculative

which the firm’s analysts attribute to “continued

and demand” and characterize as a “healthy” pipeline that remains at less than 5% of the existing inventories in most of those markets. Meanwhile, more than 71% of the space scheduled to be completed this fall has already been pre-leased.

The largest shares of new supply are under construction in Toronto (more than 15 million square feet) and Vancouver (more than 10 million square feet), both of which post Q3 availability rates below 1%. Together, those two markets have already seen 8.7 million square feet of positive absorption thus far this year, including the summertime completion of Amazon’s 700,000-square-foot two-storey distribution centre in Burnaby, B.C.

The latter exemplifies the new direction of development Gorrie fore sees. Just as industrial tenants’ transportation costs are often multiple times greater than real estate expenditures, he notes that rent is increas ingly getting packaged within larger facilities operating budgets.

“If you look back 20 years ago, you’d have a large warehouse with maybe five people driving forklifts. Today, you could have thou sands of workers in there. You have fulfillment centres that are five storeys and three of those levels are robot-only,” he mused. “The amount of investment behind the door that tenants are making in these facilities is worth more than the building itself. That’s great for our sector, just to see the level of investment in automation and mechanization behind these buildings.” ■

BUDGET PRESSURE

Condo managers grapple with rising and uncontrolled costs

By Rebecca Melnyk

As multi-residential buildings wres tle with rising construction costs, condo managers in Ontario are ex periencing the impacts up close. Inflation, supply chain disruption and labour short ages are collectively affecting both cap ital projects and day-to-day operations, says Yasmeen Nurmohamed, President of Royale Grande Property Management Ltd, based in Toronto.

She is seeing condo boards give additional consideration before embarking on capital projects or pausing on more cosmetic projects. In some cases, bigger ticket items are being

phased due to longer lead times for materials, which also cost more, prompting boards to select base finishes over upgrades.

“The cost of projects is higher than budgeted in the reserve fund study,” she says. “Contributions will have to be increased to ensure the reserve fund is adequately funded in accordance with the Condominium Act.”

According to Statistics Canada, residential construction costs increased 5.6% in the first quarter of 2022, the highest since the second quarter of 2021.

“Most interestingly, a portion of the costs was attributed to the labour shortages,”

says Val Khomenko, Senior Condominium Manager with Toronto-based ICON Property Management. “With workers taking on more responsibilities, the results are increased salaries due to demand. These costs are, by extension, passed onto the end user.”

Contractors are also offloading the increased cost of transporting building materials, and are less committed to holding prices on quotes, adding to the pressure of long-term financial planning.

“Contractors have begun adding fuel surcharges and other axillary costs such as PPE to the invoices,” says Khomenko.

“This becomes a difficult conversation with condo boards as we enter the budget season.”

“One of our clients is currently planning a major hallway renovation and the original budget estimate from 2021 has skyrocketed by at least 40%,” he recounts. “On a smaller scale, window and door orders that used to take four to six weeks are now delayed into months. Certain flooring products have seen deliveries pushed to six to eight months. As a result, pricing in these items fluctuates robustly.”

“Budget figures committed to in longterm planning a couple of years ago are no longer applicable,” he says. “There will be over-budget spending in projects and maintenance, no doubt about it.”

Angel-Marie Renier, President of Kitchenerbased Onyx Condo Management, relays a similar sentiment.

“Where once pricing was held for 30 to 60 days, now it is only held for a few days,” she says. “As a result, it is more challenging to coordinate with a board of directors since more time is required to make decisions than just a few days.”

DELAYS ON ALL FRONTS

A lack of expedited services in day-to-day operations is also straining communities.

“Longer than normal wait times for regular service calls because of labour shortages and supply chain issues are affecting relationships with boards and owners and residents who are accustomed to prompt and excellent service,” says Nurmohamed. “Before, when you’d call a plumber, they would come the same day or next day. Now, they’re coming days later because they’re so busy. It’s also taking a while to get parts.”

For example, as of mid-September, one of her client buildings was still awaiting a chiller relief valve that had bee ordered in May. “We’ve been able to safely operate our chiller without it, but imagine if the chiller went down? All summer we wouldn’t have had cooling,” Nurmohamed muses.

Kirsten Dale is a property manager at MCRS Property Management in Huntsville, which provides services to condos in Simcoe, Muskoka, Parry Sound and Haliburton. She’s finding that besides longer wait times to begin large-scale projects, there is the inability to even complete smaller projects at all.

“Trades are swamped, materials are hard to get and labour is impossible to find,” she says. “If you have a single railing to get re-painted, you are better off trying to find a few other little tasks to bulk in with this work to make the job more desirable for trades to bid on. Otherwise, you are potentially paying a much higher than market rate for the trade to afford to take on such a small task.”

NEW INSURANCE ISSUES

Insurance costs are also affecting the budget. As Nurmohamed explains, in the last couple of years, insurance costs rose because of the hard market, with larger claim payouts and fewer underwriters.

“This year, insurance appraisals are increasing the value of buildings because the cost of construction has increased significantly,” she says. “The result is increased premiums. The reprieve we thought we were going to get from the hard market is now being replaced by another issue.”

Consequently, there is an upward pressure on the entire budget. With various issues beyond control, it makes budgeting much more

challenging and the future tricky to predict. She advises that budgets remain realistic of the current conditions, while balancing the needs of the owners.

ADJUSTING RESERVE FUND STRATEGIES

Dale maintains the trend of keeping annual increases to reserve contributions as low as possible is no longer very viable.

“If a board is consciously projecting 2 to 3% increases for inflation, they need to reconsider this strategy. Low fee increases will only help to maintain popularity to a point,” she submits. “When major funding needs arise and a board has not adequately funded the reserve account in advance, the owners remain on the hook for any difference from what was funded and what is needed.”

A proactive approach to capital projects is also something Reiner’s team encourages, suggesting that corporations complete reserve fund studies earlier than required to build increases into the funding plans, and adding a contingency to the overall budget.

“Depending on the project’s scope, we generally suggest 5 to 10%. This helps with the what-ifs,” she says. “We also recommend that a preventive maintenance schedule is followed for items like mechanical systems and roofing. This provides a more cost-efficient solution rather than waiting for something to happen and having a costly repair.”

Today’s condo fee increases and special assessments are unlikely to deliver long-term returns to current owners, undermining the appetite to take them on.

“We see decisions are being made favourably on the short-term basis,” Khomenko says. “With rampant inflation, it would be irresponsible to saddle future owners with costs that can be planned ahead of time.”

Beyond prioritizing, he suggests looking outside traditional methods of raising fees or special assessments.

“With the higher inflation than the interest rates, there has been an increasing trend in borrowing to cover the shortfalls in project costs,” he notes. “There are lenders who would provide the analysis of the reserve fund study needs and cash flow projections to ensure that borrowing is a viable option.”

He also urges a clear communication strategy with residents, beyond the required notice of future funding.

“It is important for the owners to understand the implications of low condo fees on the long-term viability of the physical asset,” he says. “The case of short-term pain for long-term gain has never been more applicable than it is today.”

CONSTRUCTION LABOUR CRISIS

Skill shortage undermines capacity to fulfil housing objectives

Anew report from Canada Mortgage and Housing Corporation (CMHC) looks at the skilled labour shortage and how it may affect, or undermine, Canada’s 2030 hous ing objectives. Using the housing supply targets tied to estimates of housing need, the report examines the skilled labour capacity in Ontario, Quebec, British Columbia and Alberta, and as sesses each province’s ability to deliver.

In the best-case scenario, CMHC projects that housing starts will fall well below the 2030 affordable supply targets in three of the four provinces. While Alberta is expected to be successful, Ontario, Quebec and B.C. will need to double their best-case labour capacity in order to adequately reach their targets.

“To solve the issue of housing affordability in Canada, an ‘all-hands-on-deck’ approach will be needed,” the report declares. “This will include building on innovative ideas and initiatives be ing utilized in the current housing industry and through the federal government’s National Housing Strategy.”

Proposed solutions include shifting the focus towards converting existing com mercial structures into residential units; increasing the construction of multi-unit housing versus single-detached homes; creating more incentives to develop a new generation of skilled construction workers; and developing more targeted immigra

tion programs to encourage skilled, tem porary and/or permanent foreign workers to bridge the labour shortage, particularly in Ontario and B.C..

The report’s key findings include:

• At this current pace, there is insufficient labour capacity to address the significant housing supply gaps, mainly in Ontario and British Columbia.

• Under a best-case scenario, labour capacity could only increase housing starts activity across all four major provinces between 2022-2030 by an annual average of 30% to 50% above CMHC’s baseline housing starts forecasts. Drilling down to the provinces, that would be increases of 36% in Ontario, 29% in Quebec, 41% in BC and 54% in Alberta.

• Labour capacity issues are most critical in Ontario, which has the largest population and the highest price pressures.

• While the pandemic has shown that the workplace can pivot and manage greater construction volumes with fewer workers, this may still cause construction backlogs, which will create delays and postpone sup plying new units to markets in need of more supply.

To restore affordability, we need 3.5 million additional housing units beyond current projections

We want to restore affordability to levels last seen in Canada in 2003-04 when the economy was stable and housing costs were a relatively low share of the economy. Targets vary across provinces because of the propensity to spend on housing tends to increase with provincial incomes.

Two-thirds of the 3.5 million housing unit gap are in Ontario and British Columbia. These two provinces have housing markets that are not affordable, and they have faced large declines in affordability.

Around 2003-2004, an average household would have had to devote close to 40% of their disposable income to buy an average house in Ontario, and close to 45% in British Columbia. In 2021, such a household would have had to devote close to 60% of their incomes to housing. Restoring affordability levels in these provinces means cutting housing costs by 25 to 40%.

Additional supply would also be required in Québec. Historically, Québec has had an affordable housing system, but affordability has declined markedly over the last few years.

Other provinces remain largely affordable for a household with the average level of disposable income.

Source, CMHC, Canada’s Housing Supply Shortages: Estimating what is needed to solve Canada’s housing affordability crisis by 2030.

NEED PEAKS IN ONTARIO AND BRITISH COLUMBIA

MIND THE GAP

Commercial property tax rates increased in 2022

0.92%. This year, that translated into $21.22 per $1,000 assessed value, up from $21.03 in 2021. This is the 18th consecutive year the commercial-to-residential tax gap has narrowed, as part of an extended campaign to eventually hit the threshold of 2.5 to 1.

Commercial ratepayers in Ottawa saw a 3.51% increase in the tax rate and a widening of the commercial-residential tax gap to 2.39 to 1. However, the residential tax rate also rose by 2.54%. Meanwhile, Quebec City adjusted the commercial tax rate 0.9% upward and the residential tax rate 0.4% downward, stretching the tax gap to 3.51 to 1.

Commercial ratepayers saw rising property tax rates this year in eight of the 11 major Canadian cities Altus Group surveys for its annual benchmark report, while commercial-to-residential tax ratios widened in all but two of those markets. On average across all the cities, commercial properties were taxed at 2.8 times the rate applied to residential properties, with commercial ratepayers in Toronto, Vancouver, Calgary, Quebec City and Halifax taxed at more than three times the rate for residential householders.

Altus analysts note a general trend of falling commercial values in the markets where reassessments have occurred since the onset of the COVID-19 pandemic, along with municipal governments’ conventional reluctance to shift more of the tax burden to residential ratepayers. Meanwhile, ratepayers in Toronto and Ottawa are still locked into assessments that reflect 2016 market values.

“The post pandemic market is incredibly volatile and governments need to be proactive to address the value shifts without increasing inequities between commercial and residential taxpayers,” urges Kyle Fletcher, president of Altus Group’s Canadian property tax division. “To achieve equitable taxation and to support economic recovery, governments like Ontario’s need to embrace more frequent reassessment to keep up with market changes, and municipalities need to move away from policies that shift a greater

portion of the tax burden to commercial properties.”

Nationally, commercial taxes averaged $24.23 cents per $1,000 of assessed value, with Edmonton, Ottawa, Montreal, Quebec City and Halifax all surpassing that average. This year, the tax shift onto the commercial base was most notable in Calgary, Edmonton and Halifax, which took on an extra 6.5 to 10% share of the tax load compared to 2021.

Among the 11 cities, the widest tax gap occurs in Montreal, where the commercial-toresidential ratio stretched to 4:21 to 1 in 2022. The narrowest ratios continue to be found in Saskatchewan, where Regina’s commercial ratepayers are taxed at 1.51 times the residential rate and Saskatoon’s are taxed at 1.61 times the residential rate.

Winnipeg was the sole city to see both a slight narrowing of the commercial-to-residential tax ratio and a nominal dip in the commercial tax rate. For 2022, commercial ratepayers were taxed at 1.92 times the residential rate. A tax rate of $23 per $1,000 of assessed value was down from $23.05 per $1,000 of assessed value in 2021. At the same time, Manitoba’s residential ratepayers were rebated 37.5% of their education property taxes this year, which, Altus analysts calculate, reduced Winnipeg homeowners’ overall property tax rate to $9.08 per $1,000 of assessed value.

Toronto’s tax ratio tightened 2.42% in commercial ratepayers’ favour — to rest at 3:36 to 1 — but the tax rate nudged up by

There was a 4.35% year-over-year decrease in Montreal’s commercial tax rate, pushing it down to $34.66 per $1,000 of assessed value. However, the residential tax rate dropped 5.37% to widen the tax ratio. This is the last year of the city’s threeyear assessment cycle so Altus analysts project greater shifts between property classes next year when the new 2023-25 cycle begins.

Alberta’s annual reassessment is deemed a significant factor in this year’s tax landscape in Calgary and Edmonton. Notably, Calgary’s downtown assessment base has shrunk steadily in recent years due to falling office values, and the city has adjusted the commercial tax rate upward to adjust for the loss of revenue. In contrast, there was an 8% year-over-year gain in residential assessment this year attributed to the city’s strong single-family housing market.

Calgary’s commercial tax rate rose by 6.44% from 2021, for the steepest increase of the 11 cities, while the residential tax rate fell by 3.47%. That translated to commercial tax at $21.93 per $1,000 of assessed value and a residential tax rate of $7.15 per $1,000 of assessed value. ■

THE 2022 CANADIAN PROPERTY TAX RATE

WWW.ALTUSGROUP.COM/REPORTS/CANADI AN-PROPERTY-TAX-BENCHMARK-REPORT.