Emerging Trends in Real Estate 2012 - Urban Land Institute

Exhibit 5-13
Canadian Office Buy/Hold/Sell
Recommendations by Metropolitan Area
Exhibit 5-14
Canadian Retail Buy/Hold/Sell Recommendations
by Metropolitan Area
Office
Buy
Hold Sell
Retail
Buy
Hold Sell
Calgary
40.00% 45.00% 15.00%
Calgary 41.18% 50.98% 7.84%
Montreal
18.87% 52.83% 28.30%
Montreal
27.66% 59.57% 12.77%
Toronto
47.22% 37.50% 15.28%
Toronto
38.71% 45.16% 16.13%
Vancouver
51.35% 33.78% 14.87%
Vancouver
40.63% 45.31% 14.06%
0% 20% 40% 60% 80% 100%
Source: Emerging Trends in Real Estate 2012 survey.
Note: Based on Canadian respondents only.
0% 20% 40% 60% 80% 100%
Source: Emerging Trends in Real Estate 2012 survey.
Note: Based on Canadian respondents only.
Calgary (3). Canada’s hot growth mecca, Calgary can boom
and bust suddenly. Down last year in the midst of a too-muchnew-development
“train wreck,” the city rebounds overnight in
concert with resurging regional energy companies. “Calgary
is quite independent from the rest of the country. The market
depends entirely on demand for oil and gas.” Office vacancies
recently in the midteens quickly decline into single-digit territory
again. “The new construction digested quickly, so more will
be on the way with oil companies back in expansion mode.”
The market’s big question for the future is whether the United
States approves a new oil sands pipeline through Alberta into
the States in the face of environmental challenges. “All eyes turn
to D.C.” A go signal could rev up the market to another level.
More sprawling than other Canadian cities, Calgary sees local
leaders take steps to densify the downtown and discourage
unfettered suburban expansion. Mass transit development gets
into gear, and condo projects begin to form more of a residential
footprint in and around downtown. Green and sustainability initiatives
gain less traction in Big Oil country. If you want to gauge
Calgary’s prospects, just keep tabs on energy prices.
Edmonton (4). Another oil sands market and the gateway to
the north (both for oil sands and for mining industries in the
Northwest Territories), Edmonton quietly prospers in less of a
seesaw mode, historically cushioned by the presence of the
provincial government. Construction costs (labor) are escalating
in Alberta for 2012, and there is some carryforward of 2011
backlog projects into next year. “The commercial tenancy
differs from Calgary, featuring more stable engineering companies
and not so many wildcatters.” Absorption is slower and
steady—not so volatile—but the city still is driven by the health
of the energy industry. Locals wonder if heightened government
budget discipline might temper demand and soften the market.
Commercial development activity remains relatively restrained,
and local leaders aim to push residential construction closer to
the city core where new contemporarily designed arts center
and museum buildings provide the sleepy, 1980s-style downtown
with a shot of pizzazz. The industrial market tightens to
almost microscopic vacancies; warehouse and distribution
centers service the extraction activity due north of the city. Retail
also does well: workers earn big bucks in oil sands country and
spend in local malls and power centers, including one of the
world’s largest in west Edmonton. Homebuilders do extremely
well throughout Alberta: ample salaries support large homebuying
appetites. Local governments take advantage by hiking
development assessments. “It’s good political optics versus
raising property taxes.”
Ottawa (5). The nation’s capital throws off returns like a reliable
bond: high occupancies and steady rents generate decent yields
with the opportunity for “mild growth.” New product rarely trades,
and landlords cannot find a more creditworthy tenant than the federal
government, which leases most of the market’s space. But will
government budget paring lead to rising vacancies Although lease
terms shorten for government deals, the public sector “has never
stopped growing.” Any reversal would send shockwaves through
both commercial and traditionally stable residential markets. New
laws mandate green measures and access for the handicapped
in government-tenanted properties, requiring renovations for older
buildings to stay competitive. As in other cities, residential devel-
66 Emerging Trends in Real Estate ® 2012