commercial real estate

Commercial and Investment Real Estate Market Heating Up

What a gorgeous day in Kitchener Waterloo – it’s sunny, warm(ish), and dry! 

Earlier this week we looked at the strength in the investment, student (Student Rental Market Update – Waterloo, Ontario) and commercial real estate (Commercial Real Estate Market Update – Kitchener Waterloo & Cambridge) markets in Kitchener Waterloo, Ontario. 

It’s not just KW – the commercial real estate (CRE) market is gearing up all over.  Let’s take a look at a few stories from the Canadian CRE world.

On Thursday, the New Brunswick Business Journal had a story about Kilam Properties Inc (listed on the TSX as KMP) looking to acquire up to $150 million in new properties this year. Kilam is a major owner of apartment buildings in Atlantic Canada, and is looking to potentially expand into areas including Kitchener Waterloo, Ontario

Fraser said the plan for Killam is to spend up to $150 million on acquisitions in each of the next five years.

The Halifax-based company is already one of the country’s largest residential landlords, with 118 apartment buildings in Atlantic Canada’s six major urban centres.

The company also runs 55 so-called manufactured home communities across Canada, with the majority of those trailer parks located in Ontario.

Overall, Killam owns and operates 18,150 units in 173 properties, representing total real estate assets of roughly $720 million.

But in 2009, the company’s pursuit of new properties came to a halt, largely because of the sagging economy.

On Wednesday, Fraser again said the company is examining the Toronto, Ottawa and Kitchener-Waterloo markets for buildings to pull under the Killam banner.

“We continue to see opportunities for Killam to grow in Ontario by focusing on high-quality properties, including newer buildings and more established properties in prime locations,” he said.

Thursday’s National Post has a story about $500 million worth of Real Estate Investment Trust (REIT) IPOs coming to market this year, including one by a landlord with significant holdings of apartment buildings in Kitchener Waterloo, Transglobe:

It’s been four years since the real estate investment trust sector last saw an initial public offering on the Toronto Stock Exchange but that is about to change, with IPOs worth about $500-million expected in coming weeks.

The Financial Post has learned TransGlobe Property Management will be the latest private company to go public, with an IPO estimated to be worth between $200-million to $250-million, in a deal led by CIBC World Markets. The TransGlobe deal will likely wait in the wings as the market consumes a $150-million IPO from Northwest Healthcare Properties that has already filed with regulators.

There are a couple of interesting tidbits about Transglobe throughout the article, including: “It’s not clear whether all of its buildings would be included because some of its properties may have too much leverage to be palatable for a REIT.” 

This has caused some people to say:

“We will sit down and listen to the story and see what happens, but these really are not of the quality I am looking for,” said Sandy McIntyre, chief investment officer of Sentry Select, about the current deals on the table. BPO Properties is another story. “I’d rather see a big industrial portfolio or office portfolio come forward. The BPO conversation could be used as an opportunity by Brookfield to sell down its position.”

Looking at why we’re seeing these offerings come to market now, and why the public will likely show alot of interest in them:

As it stands now the S&P/TSX 60 has no real-estate companies, something Mr. McIntyre figures could change.

“As we go into the next decade, real estate with yield is going to be a beneficiary.”

For now, the sector will have to be happy with some mid-priced initial public offerings.

The NorthWest deal, which includes 45 health care-related buildings, has been priced to yield 7.25% to 8.25%.

LeisureWorld is being priced in the 8%-to-9% range. Investment banking sources say both deals are attracting plenty of interest.

It’s not hard to understand why there would be demand for REIT product, when you consider the dearth of IPOs. Crombie REIT was the last TSX offering, in early 2006.

…

“I think real-estate investment trusts proved their worth in this dry spell. They kept their vacancy rates [low] and most of them continued their distribution,” said John O’Bryan, vice-chairman of CB Richard Ellis.

Also in the news:Tim Horton’s is renovating and expanding many of its stores, as well as adding new-format locations:

The iconic Ontario-based company known for its coffee, doughnuts and light meals says it expects 900 new stores of various formats by 2013.

They would include 600 stores in Canada where Tim Hortons already has more than 3,000 locations under its banner.

Up to 60 locations in Canada will be converted to include the Cold Stone Creamery concept in partnership with an American ice cream chain.

The restaurant operator says it plans to spend $180 million to $200 million this year to support its growth initiatives.

That’s a pretty big investment in commercial real estate infrastructure!

If you have questions or comments on the commercial real estate market, leave a comment below, or email me at Benjamin@BenjaminBach.com, or call me now at 519-772-4376

commercial real estate

Bauer in Waterloo filled, Cambridge place still half empty

There is a very interesting article in The Kitchener Record this morning about the night and day differences between the Waterloo and Cambridge real estate markets for Office space, as well as industrial space. 

While many people are excited to live in the Bauer Lofts, there is also prime commercial space next door in the historic Bauer building. This space was leased very quickly, while similar space in Cambridge is still sitting empty.

Note: the vacancy rates mentioned in this article are for the commercial markets, specifically the vacancy rate for office buildings.  The residential vacancy rates remain very low in Kitchener Waterloo and Cambridge, Ontario (read: “Waterloo Vacancy Among Canada’s Lowest”)

WATERLOO REGION — To paraphrase Charles Dickens, it was a tale of two buildings.

While vacant office space was snapped up quickly in the new Bauer Buildings development in downtown Waterloo when it came on the market in the middle of last year, Cambridge Place remains half empty nearly two years after the city vacated the building for its new city hall.

The fate of the two buildings reflects sharp differences in the local office market among the three cities in Waterloo Region at the close of 2009.

With a vacancy rate of 11.5 per cent, office space is scarce in Waterloo. With a rate of 28.5 per cent, anyone looking for desk space in Cambridge can strike a pretty good deal. Aided by spillover from Waterloo, Kitchener falls roughly in between at 17.5 per cent.

Cambridge also has the smallest supply at 800,000 square feet, compared to 2.5 million in Kitchener and 2.1 million in Waterloo.

By year’s end, the office vacancy rate for the region stood at 16.5 per cent, up 1.7 per cent from the previous quarter.

Those figures were presented today during a seminar on the local commercial and industrial real estate markets hosted by Colliers International.

With “great amenities” such as the Vincenzo’s food store, the Bauer Lofts condos and ample parking of four spots per 1,000 square feet of space, the Bauer Buildings quickly attracted such tenants as CIBC Wood Gundy, BDO Dunwoody and Moxy Media, said John Lind of Colliers. “It was a real success story.”

Parking was a key factor. The Allen Square building across the road at 180 King St., with 2.5 spots per 1,000 square feet of space, still has empty space. In parking-starved Toronto, this space would be snapped up quickly, noted Dave Young of Colliers.

Meanwhile, Cambridge Place has 50,000 square feet begging for occupants. The owners may have no choice but to convert the building into other uses, said Karl Innanen, managing director of the local Colliers office.

Also swelling vacancy rates in Cambridge is an ample supply of office space along Highway 401 built prior to the recession, he said. Developers erected this space on spec, without lining up tenants beforehand.

Building conversions are another success story and a growing trend, he said. The old Lang Tannery in downtown Kitchener is being redeveloped with a mix of uses including office, restaurants and specialty retail. It has already attracted tenants such as the Digital Media Convergence Centre, Desire2Learn and the Downtown Community Health Centre. Innanen called this a “villaging of space.”

Fuelling demand for this project are key neighbours such as the University of Waterloo School of Pharmacy and the area’s designation as a future transit hub, he noted.

While Waterloo rules the office market, the opposite is true in industrial real estate. Cambridge dominates with an inventory of 30 million square feet, following by Kitchener with 21 million and Waterloo with 10 million. Waterloo is hurt by its distance from Highway 401, Innanen said.

Still feeling the effects of the recession, the industrial vacancy rate in the region nearly doubled from 4.9 per cent in 2008 to 8 per cent in 2009. While the market took a shock, with the rate still below 10 per cent, “it’s still not horrible,” he said.

Among the three cities, Cambridge has the highest vacancy rate at 8.6 per cent, followed by Kitchener at 7.6 per cent and Waterloo at 7.4 per cent.

Sometimes, one large building can skew the numbers. In Kitchener, the former Kaufman warehouse at 137 Glasgow St. remains empty. At 350,000 square feet, it boosts the rate by 1.7 per cent all by itself.

While smaller buildings have been faring well during the recession, larger ones above 25,000 square have not, victimized by the weak economy and high Canadian dollar.

commercial real estate

Fundamentals for Canadian Commercial Real Estate Intact, say Avison Young

Avison Young just released their report researching 13 major commercial markets in Canada and the US (Vancouver, Calgary, Edmonton, Regina, Winnipeg, Toronto, GTA West/Mississauga, Ottawa, Montreal, Quebec City, Halifax, Chicago and Washington, DC.).  They look at the Industrial, Retail, Investment and Office market sectors.

"If anyone needs to be reminded, commercial real estate is a cyclical industry," comments Mark E. Rose, Avison Young’s Chair and CEO. "In our 2009 Forecast last January, we predicted one overriding theme – decision-making would grind to a halt until key metrics stabilized and new trends appeared. The dislocation in real estate lending and investing was so severe in March and April that the markets looked to be on the verge of collapse. Canada weathered the storm better than the U.S. and activity was down, but transactions were executed."

Rose continues: "Due to government intervention, the concept of distressed selling and buying did not materialize anywhere in North America. The U.S. government put money into the major banks, which in turn extended every loan they could to avoid realizing losses. The Securities and Exchange Commission watched from the sidelines and allowed the impacted lenders to postpone the inevitable."

"2010 is shaping up to be more of the same, but with a slightly positive bias," he says. "Fundamentals have firmed, decision makers are getting their sea legs back and the second half of 2010 should produce favourable comparisons to 2009. This, in turn, will drive the confidence we have been sorely missing and allow for activity to return to more normal levels. With that said, before recovery can occur in 2010, private markets must solve their own problems, even if that means capitulation; the bid and ask spreads need to narrow; and we must see job growth in North America."

According to the report, the national vacancy rate for office space in Canada is up 270 basis points (bps) to 9.0% since the close of 2008 and is poised to climb to the 10% range by year-end 2010. Markets nationwide have experienced increases in vacancy as a result of less than stellar leasing velocity, which muted overall demand levels. The two strongest markets in Canada recently, Calgary (vacancy rate +410 bps to 10.1%) and Toronto (vacancy rate +340 bps to 10.5%), turned in the poorest performances, largely impacted by the delivery of new supply. In contrast, two of the smallest markets, Regina and Winnipeg, witnessed nominal increases in vacancy, rising to 1.5% and 5.4%, respectively, from 1.2% and 4.8%.

The leasing market for industrial space was also hit hard, experiencing escalating vacancy rates on average across Canada. With nearly 1.9 billion square feet (sf) of space distributed across Canada’s 11 largest cities, the national industrial market saw its vacancy rate climb 110 bps from year-end 2008 to close 2009 at 6.3%. With the exception of Montreal (vacancy +200 bps to 8.0%) in the east, the most notable change in vacancy occurred in the western markets of Edmonton (+300 bps to 4.2%), Vancouver (+200 bps to 4.4%) and Calgary (+140 bps to 5.2%). This was tempered by the relative performance of the Ontario markets (Toronto, Mississauga and Ottawa), which witnessed marginal increases in vacancy of between 20 and 70 bps. As the industrial market continues to recalibrate, the national vacancy rate is expected to push beyond 7.0% over the next year.

Investment sales transaction volume was down 55% to $5.4 billion through the first nine months of 2009 as investor caution, a scarcity of willing lenders, and owners’ increased reluctance to sell devalued assets in the current climate proved to be barriers to the flow of transactions. Interest from foreign investors, especially the Germans, remained a key factor in the investment sales market, demonstrating Canada’s relatively strong real estate fundamentals and enduring appeal to overseas capital. This international interest, along with a surge in capital raisings and a number of notable acquisitions in the closing months of 2009 by the domestic REIT community, is perhaps a good omen of things to come.

On the retail front, consumer spending was more resilient in Canada than south of the border through 2009. While some national chains fell victim to the recession, extensive discounting by retailers attempting to lure customers was common, especially in the months leading up to the all-important holiday shopping season. Though the final tally has yet to be determined on the overall performance in 2009, the outlook for the retail market is for stability or modest growth this year.

"Opinion remains divided on the question of whether Canada’s economy will see the beginning of a sustainable recovery in 2010, or whether a further correction is to come before things start to look up," notes Bill Argeropoulos, Avison Young’s VP and Director of Research (Canada). "Notwithstanding this, Canada remains in better shape than its neighbour to the south and many other real estate markets around the world, and is poised for a more rapid recovery. Ultimately, markets are expected to rebound as the economic cycle starts its next upswing."

commercial real estate

Commercial Real Estate news heard on Twitter

Not familiar with Twitter? Twitter is a communication platform where posts are limited to 140 characters; it’s like ‘micro-blogging.’

In case you are not following me on twitter (you can go to twitter.com/BenjaminBach to sign up and ‘follow’ me), here are some commercial real estate news stories you will find interesting, that I ‘tweeted’ about this past week.  Some are about the local real estate market in Kitchener Waterloo and Cambridge, Ontario, while other’s are about other markets in Canada, and a few are about the US commercial real estate market.

• A great Waterloo Region company! RT GHarrisCCIM: Keep the good news rolling….Toyota adds second Woodstock shift http://viigo.im/1KdW

Toyota Motor Manufacturing Canada Inc. (TM-N83.58-0.44-0.52%) will hire more than 800 workers and add a second shift of production at its plant in Woodstock, Ont., providing another shot in the arm for the Ontario economy and another sign that a recovery in the battered auto sector is under way.

• Just took a real estate investor to view a condo rented for $2k+ /month, for sale under $220k -gotta love Kitchener Waterloo!

(We’re involved in multiple offers on the above property.  As of last night, there were ‘7 or 8 offers’ competing to buy this investment property!)

• TD and RBC lowering mortgage rates (as per the Kitchener Record) http://bit.ly/4y1j7d -if you need a *great* investment mortgage pro, msg me
• Housing Starts up in Kitchener Waterloo area http://bit.ly/7URBZj – another important metric for real estate

WATERLOO REGION — Led by the construction of single family homes, housing starts rose by 16.2 per cent in Waterloo Region in November compared to the same month last year. Foundations were poured for 273 housing units in the region, up from 235 a year ago, according to figures released today by Canada Mortgage and Housing Corp.  November’s total was the second highest of the year, trailing only October when 344 homes were started.

• Kitchener Waterloo just featured in Fox news report as a strong economy. That’s 1 reason real estate investors buy rentals here – FOX News discovers Waterloo Region’s tech sector employment needs: http://bit.ly/796MBy
• Bank of Canada keeps overnight rate at historic low of 0.25%, saying it will stay there til mid-2010. Some say ‘rates won’t chng til 4Q ‘10′
• Moody’s says US & Britain may "test" triple-A credit ratings. Canada considered safe, w ‘resistant’ ratings due to ’strong fiscal position’
• Globe & Mail – Housing starts hit 2009 high http://bit.ly/53Gd1s

Housing starts hit their highest level this year in November, more proof that Canada’s real estate market has clawed out of recession. Starts rose 0.7 per cent to 158,500 units on a seasonally adjusted basis, as single-home construction outweighed a drop in multiple home activity, Canada Mortgage and Housing Corp. said Tuesday.

Record low interest rates are fuelling a rebound in Canada’s real estate market, spurring rising prices and a flurry of buying activity. The Bank of Canada today reiterated its expectation that rates will stay low until the middle of next year.

• Kitchener Waterloo real estate update: construction starts up for 2nd month in a row, over 2008. YTD Cambridge starts up 87.5% (as per CMHC)
• More info @ http://BenjaminBach.com RT @creanews: Real Estate Sales in Kitchener-Waterloo reach monthly high for 3rd cons. month in Nov
• CMHC spring 09 report says Kitchener CMA’s vacancy rate under 3% (& below province’s avg)
• Invest in what you understand or you can lose a fortune! These smart ppl lost millions in areas they didn’t know about http://bit.ly/7uPUDc
• Just spoke w/ real estate investor who owns 2 investment condos in Toronto; he thinks TO market is peaking & time to sell-what do u think? The investor from Toronto thinks their equity will make more $$ in Kitchener Waterloo & Cambridge, so they’re investing in real estate here
• RT @gregboutin: Guelph-Kitchener-Waterloo region might become silicon valley of Canada (I’m talking solar PV silicon) http://bit.ly/7wbiqK

Waterloo Region is on the list as a potential site for a solar module plant that could employ as many as 500 people, says the president of Kitchener-based Canadian Solar Inc.   The company announced today that it plans to build a $24-million plant to produce solar modules for the Ontario market. It said it expects to make "definite decision" about the location in the first quarter of 2010.

• Real Estate Investors: good article (pdf) on how largest multi-family, apartment & investment sales in the US were financed in 2009http://bit.ly/5m6wGi

Includes details of how sales between $2.3 million and $109,500,000 have been financed this year in the States – Very interesting read!

• RT @creanews National Post – HOUSING RECORDS TO FALL; Red-hot Vancouver and Toronto drive totals http://is.gd/5caOl

November housing sales across the country are set to reach new highs based on fresh data from the country’s two most expensive markets.

The national numbers from the Ottawa-based Canadian Real Estate Association are not due out until mid-December but the Toronto Real Estate Board said yesterday it had its best November on record. Toronto’s news came on the heals of a Wednesday release from the Real Estate Board of Greater Vancouver that said sales activity in the city rocketed up 252.7% in November from a year ago.

What the latest numbers will likely mean is an improvement in the national average sale price, which was up 20% in October from a year ago – the largest such increase in two decades. The two cities tend to skew the national average price up or down, based on levels of sales activity.

For daily updates, follow me on twitter.com/BenjaminBach