13 Nov

Commercial real estate bull run to continue: Morassutti

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Posted by: James Moysey

Evan Duggan | Property Biz Canada | 2017-11-07


Canada’s bull run in commercial real estate shows no signs of abating despite ongoing threats to NAFTA and concerns over Canada’s overheated housing market, said CBRE’s executive vice-president at an annual market and economic update in Vancouver this week.

Paul Morassutti of CBRE.

Paul Morassutti is the executive vice-president of CBRE. (Image courtesy CBRE)

Paul Morassutti said commercial property investment and leasing in Canada “continues to defy predictions while grappling with an unprecedented level of change.”

He was speaking Wednesday at the introduction of the Vancouver Real Estate Strategy and Leasing Conference to a packed ballroom of industry stakeholders and observers.

“We are currently eight years into an incredible bull run for the commercial real estate market,” Morassutti said.

“After years of mediocrity, the Canadian economy outperformed all G7 nations in the first half of the year,” he said. “The Alberta economy rebounded sharply while growth in B.C., Ontario, Quebec and most other provinces remain solid.”

He said the foremost question on the mind of everyone in the room is whether the commercial property market has peaked.

“Bull run shows no signs of fatigue”

“After a record year for (commercial property) investment sales in 2016, it looks like Canada will set a new record in 2017,” he said. “This bull run shows no signs of fatigue.”

Morassutti acknowledged Canada’s economic fundamentals have slowed in the latter part of this year and a potentially collapsed NAFTA would pose a threat of real disruption.

He strummed several optimistic, and clearly hopeful, chords in his speech.

“Bull markets do not die of old age,” he said. “For the cycle to end, there needs to be a catalyst; either a major policy mistake, or a significant economic disruption in one of the world’s major economies. In our (CBRE’s) view, neither appears to be in the offing.”

Delving deeper into the various asset classes, Morassuti said retail is performing better than news headlines would suggest.

Retail in slow bleed, but evolving

He characterized the Canadian retail landscape as a slow bleed — but one with increasing separation between static, outdated losers and innovative winners.

“With Sears, it was always a matter of ‘when’ rather than ‘if,’ ” he said, noting Sears’ demise will add about 15 million square feet of space to the Canadian market, which continues to deal with a remaining four million square feet of space left over from Target’s retreat.

But top urban shopping centre owners will continue to carve up their vacated department store spaces, focusing more on attracting new international retailers, more dining and service options, and generating interest and traffic for shopping centres as a whole, forgoing the outdated anchor-tenant concept.

Tech will spark change in office market

In the office industry, technology and artificial intelligence is set to create a shakeup, he said.

“If machines can review mountains of legal documents in seconds rather than days, what does that mean for law clerks and paralegals? And by extension, what does it mean when a law firm’s lease rolls over? Are all of these firms going to shrink?”

Landlords need to prepare themselves for days when-white collar jobs (and traditional office-fillers) like financial advisers and accountants are replaced by the makers of algorithms and block-chain systems in what will clearly be a painful transition, he said.

Meanwhile, the industrial sector continues to face historically low vacancy rates and a massive shortage of product, he said. “In Vancouver and Toronto, we are literally running out of land.”

Multi-family investment and sales continues to represent the lowest volatility of any asset class, especially so in B.C., Morassutti said. “This sector remains rock solid.”

10 Nov

After attracting other tech giants, Montréal International sets its sights on Amazon

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Posted by: James Moysey

After attracting $1.347 billion in foreign direct investment in 2016, and helping to bring Facebook, Samsung and Google-affiliate DeepMind to Montreal this year, Montréal International is now trying to attract Amazon.

Things are going well for Montréal International, the economic development agency tasked with encouraging foreign direct investment in the Montreal region.

Since September, Facebook, Samsung, DeepMind (a subsidiary of Google’s parent company Alphabet), IBM and Thales have all opened new offices in Montreal or announced plans to do so.

Things are happening in the city, said Hubert Bolduc, Montréal International’s president and CEO.

“You’ve got $4 or $5 billion in infrastructure investments happening in Montreal, you’ve got the (Réseau électrique métropolitain), you’ve got buildings growing everywhere, you’ve got 12 hotels that are under construction, there’s never been as many tourists in Montreal,” he said. “There’s a hype about Montreal.”

2016 was a record year for Bolduc’s organization, Montréal International helped attract $1.347 billion in foreign direct investment — when companies from other countries set up or acquire operations here — up from $1 billion the year before.

In 2016, it also doubled the share of that investment coming from the United States to more than $600 million.

Now, Montréal International is hoping to attract Amazon’s second headquarters.

The online retail giant’s high-profile search for a city to host what it calls “HQ2” has attracted 238 proposals from across North America. Vancouver, Toronto, Halifax, Ottawa, Edmonton and Calgary have all made bids — as have numerous cities in the U.S., and a handful in Mexico.

The company plans to spend $5 billion on the new facility, which will eventually employ 50,000 people.

While much of Montreal’s bid is being kept secret — Amazon requested the bids be confidential — Bolduc said the biggest thing Montreal offers is skilled workers.

“We have the local talent, we have the capacity to attract international talent and that talent, overall, comes in at a very affordable price, so it’s less expensive to hire engineers, lawyers, accountants, tax advisors here in Montreal than it is in comparable cities in North America,” Bolduc said.

The cost of doing business in Montreal is between 20 and 25 per cent less than in other major North American cities, he said. Along with wages, real estate prices, the cost of energy and corporate tax rates are lower here.

There’s also a basket of tax credits, though Bolduc won’t say what’s on the table beyond the standard range of credits that are available to any company.

Quebec’s immigration policies are also attractive, he said, particularly in comparison to the U.S.

Even though Amazon is an American company, Bolduc sees language as a selling point, not a challenge.

“Amazon is a multinational, they need to have access to the most multilingual talent possible, Montreal is the most trilingual city in Canada and probably North America,” he said.

There are also 2.5 million English speakers in the Montreal region, said Christian Bernard, Montréal International’s chief economist and its vice-president of Economic Affairs and Marketing Communication.

That’s more English speakers than in Vancouver, he said.

Companies from English-speaking countries are already setting up shop here, two-thirds of all foreign direct investment in Montreal comes from the U.S. or the United Kingdom, Bolduc said.

While the decision about HQ2 won’t be announced until the new year, Montreal has already become more attractive to U.S. tech companies.

“It’s incredible, the buzz about Montreal,” said Mark Maclean, Montréal International’s director of business development for the West Coast.

That wasn’t the case two years ago, he said, back then Montreal had a reputation in certain sectors “but there was no real buzz about it. Since then, it’s been unbelievable.”

It’s even visible at the airport, Bolduc said.

“10 years ago, Montreal had only 35 direct links abroad, you know how many the have today? Almost 90,” he said. Toronto has 95. “A year from now, we’ll have as many direct flights to other international cities as Toronto.”

By the numbers:

Cities bidding for Amazon HQ2: 238

Expected employment at HQ2: 50,000

How much Amazon plans to spend: $5 billion

Foreign direct investment in Montreal in 2016: $1.347 billion

Number of jobs created or maintained by foreign direct investment in 2016: 3,240


6 Nov

Downtown Montreal office ‘has never been stronger’

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Posted by: James Moysey

The future looks brighter than it has in a long time for commercial leasing and development in downtown Montreal, panelists agreed during a discussion on the state of the city’s office market.

Montreal Real Estate Strategy and Leasing Conference logo. “I think next year is going to continue to be strong. Downtown has never been stronger,” says Robert Giglio, vice-president, leasing at Bentall Kennedy. “People are interested in the city. We’ve never had more visits from Torontonians looking at buildings and wanting to invest their money here.”

He was speaking at the Montreal Real Estate Strategy and Leasing Conference on Oct. 12.

Things look good for downtown office space and there are no particular reasons to expect a slowdown, says Philip Belliard, senior director, leasing at GWL Realty Advisors. While infrastructure work may cause a few blips, “everything is moving in the right direction for Montreal as a whole,” in terms of confidence, economic growth and employment.

New office development expected soon

Developers have adopted a more conservative approach and “are staying in line and not popping up buildings when they’re not necessary,” Belliard says.

That said, he thinks a new office development for the downtown will likely be announced in the next 12 to 18 months because there are no large blocks of vacant space available. “That’ll prompt somebody to take the lead.”

This has been a “great” year for GWL, Belliard adds, kicking off with the acquisition of 1350 and 1360 René Lévesque Blvd. W. (see Benchmark office deal closes in downtown Montreal). The buildings are 530,000 square feet and 397,000 square feet, respectively.

GWL also completed the sale and leaseback of the 375,000-square-foot SNC Lavalin building at 455 René Lévesque. Together, those moves have added almost 1.5 million square feet to its portfolio.

“I’ve rarely seen Montreal have the growth like we’re in right now.”

He does not see anything changing that situation although the fate of NAFTA negotiations could have some negative impact.

Laurin notes that since much of the space for development on René Lévesque has been taken up by condos and hotels, new downtown office development will likely have to take place in the south.

Live, work, play concept taking hold

Belliard says the development of residential condo buildings on René Lévesque has helped with office tenant retention given the concept of live, work and play is one of the biggest drivers of decision-making.

However, while residential development in an area that has traditionally been home to commercial development has proven to be popular with baby boomers and millennials, it has not taken off with Gen Xers and their families.

Brokers on the panel noted  that while downtown is doing well, it is often tough to find takers in the suburban markets of St. Laurent and Laval.

The expansive St. Laurent market, which stretches some 16 kilometres along the Trans-Canada Highway, is “a hard nut to crack,” Beillard says. There were 52 options for tenants looking for between 4,000 and 8,000 square feet in St. Laurent the last time he checked.

“It comes down to, ‘How do you make sure your employees can get to your buildings?’ We all have buildings that are in good shape, that show well, that the tenants tend to stay at. It’s just trying to get them there.”

Class-B building owners reinvesting

Belliard notes there has been a significant flight to quality of tenants moving from class-B to class-A properties “because they need to densify and modernize.” As a result, class-B building owners need to reinvest to retain tenants, often in areas tenants can’t see but definitely can feel – from HVAC systems to improved mechanics in the elevators.

“Definitely, location is not the only thing that counts anymore. You have to be ahead of the curve. There are some landlords in Montreal that have ignored this reality.”

Giglio says commercial landlords who are currently finding it difficult to lease their spaces have to reposition their buildings to provide upgraded and additional services, such as better Wi-Fi, to accommodate a growing millennial workforce.

“When you’re sitting at 25 or 30 or 40 per cent vacancy, you’re also in a position to be a little bit more aggressive, to give a little bit more incentives to a new tenant.”

1 Nov

An Update from James Moysey

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Posted by: James Moysey

Interest rates for commercial mortgage financings seem to have stabilized in the last few weeks after a sizeable jump early in September which was at least partially as a result of the prime rate increase which took effect the first week of September. Going forward another increase in the Bank of Canada rate does not appear to be likely before the end of the year so barring unforeseen circumstances there does not appear to be much pressure on interest rates to move upward in the next few months

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