Emerging Trends in Real Estate 2012 - Urban Land Institute

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
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