Emerging Trends in Real Estate 2012 - Urban Land Institute

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conditioned by all the condo units for rent. Until the market turns, developers do better building condos instead. Investors “can never get their hands on enough apartments. And everybody has the same idea. When you get some, hold onto them.” Retail. Unlike the United States, Canada has not overbuilt stores, and many burgeoning residential districts in downtowns are underserved. Expected declines in consumer spending should not precipitate major problems: landlords anticipate Exhibit 5-22 Canadian Neighborhood/Community Centers 2012 Prospects Rating Ranking Investment Prospects 5.83 Modestly Good 3rd Development Prospects 5.13 Fair 5th Buy 30.6% Hold 41.9% Expected Capitalization Rate, December 2012 7.0% Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Sell 27.4% leveling cash flows and minor vacancy increases from low- to mid-single-digit levels. Some U.S. retailer bankruptcies actually open up space for new U.S. chains previously shut out of markets. REITs and pension fund owners work “cozily” with tenants in “an oligopoly” to avoid overbuilding and maximize sales in existing malls. Neighborhood shopping centers in prime suburban areas do well, too: planning controls on sprawl limit competition from too much commodity development. Most of the new construction activity will concentrate in cities as part of high-rise residential projects. Retail and condo developers join forces to meet growing urban demand for stores and provide better amenities for projects in a win-win collaboration. “Urban retail is where it’s at—not only mixed use, but also low-rise sites and street-level forms.” Internet impacts “feel more like a continuum and evolution” because bricks-and-mortar sites are not oversupplied. Some retailers carry less inventory and use less storage space. Industrial. The lingering U.S. export malaise continues to dampen outlooks for Ontario industrial markets, especially for owners of older, low-ceiling space, which is threatened by obsolescence. Investors follow tenants, who gravitate to newer big-box distribution product. Excellent absorption of these high- Exhibit 5-23 Canadian Power Centers Exhibit 5-25 Canadian Warehouse Industrial 2012 Prospects Rating Ranking Investment Prospects 5.67 Modestly Good 6th Development Prospects 5.00 Fair 7th Buy 15.3% Hold 61.0% Expected Capitalization Rate, December 2012 6.7% Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Sell 23.7% 2012 Prospects Rating Ranking Investment Prospects 5.71 Modestly Good 4th Development Prospects 5.41 Fair 1st Buy 46.6% Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Hold 37.9% Expected Capitalization Rate, December 2012 6.6% Sell 15.5% Exhibit 5-24 Canadian Regional Malls Exhibit 5-26 Canadian R&D Industrial 2012 Prospects Rating Ranking Investment Prospects 5.54 Modestly Good 7th Development Prospects 4.53 Fair 9th Buy 33.9% Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Hold 54.2% Expected Capitalization Rate, December 2012 5.9% Sell 11.9% 2012 Prospects Rating Ranking Investment Prospects 5.38 Fair 8th Development Prospects 5.15 Fair 4th Buy 32.7% Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Hold 50.9% Expected Capitalization Rate, December 2012 6.9% Sell 16.4% 70 Emerging Trends in Real Estate ® 2012
Chapter 5: Emerging Trends in Canada ceiling facilities offers opportunities for developers to replace old warehouses on well-located sites. Interviewees wonder if car manufacturing will ever recover because automakers shift facilities to cheaper plants in right-to-work states south of the border. “They won’t be building new plants in Canada.” The near-par exchange rate also hurts the industrial sector: Canadian goods no longer look as cheap to U.S. buyers. But demand intensifies for new data centers: companies outgrow old space and need to accommodate new technology for backing up systems and disaster recovery. “The cloud needs to go somewhere.” Exhibit 5-27 Canadian Central City Office 2012 Prospects Rating Ranking Investment Prospects 6.28 Modestly Good 2nd Development Prospects 5.33 Fair 2nd Buy 43.9% Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Exhibit 5-28 Canadian Suburban Office Source: Emerging Trends in Real Estate 2012 survey. Note: Based on Canadian respondents only. Hold 47% Expected Capitalization Rate, December 2012 6.2% 2012 Prospects Rating Ranking Investment Prospects 5.22 Fair 9th Development Prospects 4.43 Modestly Poor 10th Buy 14.3% Hold 50.8% Expected Capitalization Rate, December 2012 7.2% Sell 9.1% Sell 34.9% Exhibit 5-29 Canada: Downtown Office Vacancy—Class A Space 15% 12% 9% 6% 3% 0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: CBRE Vancouver Toronto Montreal Calgary Office. Institutional investors and REITs cuddle their class A downtown towers in the primary 24-hour cities. They have no intention of letting go of these cash-flowing babies in markets stuck in near-perpetual supply/demand balance. “Any supply bulge from the 2009 recessionary blip has been absorbed,” but owners need to keep close tabs on decisions from Bay Street executive suites in Toronto and government budget hawks in Ottawa and Edmonton. Will workforces in these cities be slimmed down At the very least, interviewees have trouble identifying sources of new job growth to create pressure on rental rates, except in energy markets as long as oil prices and demand stay up. On average, “don’t expect any increases”; trophy buildings may register slight upticks, while class B buildings may get nicked. “It looks like a flat market for 2012.” Investors grow more leery about suburban locations: traffic congestion and move-back-in trends work against them. “Without barriers to entry, suburban nodes don’t hold value as well.” Investors must be “more agile” and market-time quick exits. “The challenge for larger suburban commercial districts is how to turn into full-fledged cities” by building the proper transit infrastructure. Companies and their workers “want greater convenience and avoid car dependency.” Tenants show signs of following the lead of U.S. companies, “jamming more people into less space. It may never go back to the old ways.” They also want to manage energy costs and pay attention to LEED ratings. “Their issue is expenses, not environmental consciousness. They still ask for more parking spaces.” Hotels. The lodging sector hobbles along. A weak U.S. dollar continues to discourage cross-border visits. At least, “liquidity is back and the better stuff trades,” though significant yield spreads separate “trophy and trash.” This gap is “not nearly as wide in other sectors.” Financing for acquisitions or new projects remains “very difficult” compared with “unavailable” several years ago. Established business center hotels in Toronto and Vancouver hold their own without new competition and can score high occupancies during the workweek. Resort and vacation destination properties suffer from restrained tourist demand, while suburban and limited-service hotels struggle to raise room rates. Many properties bought at or near market peaks look a little ragged around the edges as struggling owners delay capital upgrades. On a bright note, in St John’s the revved-up 2011 1Q 2011 2Q 2011 3Q Emerging Trends in Real Estate ® 2012 71
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Emerging Trends in Real Estate ® 2
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Emerging Trends in Real Estate ® C
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Executive Summary F or 2012, U.S. r
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Exhibit 1-1 Importance of Various I
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Exhibit 1-3 Index Returns: Real Est
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gateway cities at or near market bo
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Exhibit 1-8 Firm Profitability Fore
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occasional build-to-suits, the odd
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chapter 2 Real Estate Capital Flows
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Chapter 2: Capital Flows Exhibit 2-
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Page 83 and 84: DLC Management Corp. Adam Ifshin DL
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Emerging Trends in Real Estate 2012 - Urban Land Institute

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