Broad-based activity spurs Calgary investment sales higher in Q2

Peter Mitham
Western Investor

 

Multifamily deals underscored strength outside the office sector

Concert Properties Ltd. acquired 111 Lowes Road in Balzac, Alta., from Highfields Investment Group in April 2022 for $133.8 million.Concert Properties

An “astonishing” increase in investment transactions in the first half of 2022 had broad underpinnings in the second quarter, according to data released this week by Altus Group.

Commercial real estate investment surged to $3.73 billion in the first six months of the year, a 147 per cent increase versus 2021.

Deal-making was led by the office sector, where 21 deals accounted for $1.84 billion in transactions in the period, led by sales of the landmark Bow and Western Canadian Place office towers. Together, the two tower sales totaled $1.7 billion.

The activity trounced the $67.1 million worth of office transactions that took place a year earlier. With the two tower sales removed, office transactions totaled just $165 million, still a significant increase from the previous year but not exponentially greater.

The outsized impact of the two office sales was further underscored by more normal transaction volumes in the second quarter.

Office transactions fell back to $89.6 million on a volume of 10 deals, while total investment totaled $1.25 billion, double what changed hands a year earlier. Transaction volumes increased to 182 from 125 a year earlier.

Despite slowing in the second quarter, commercial investment was broad-based, with industrial and multifamily deals topping the rankings.

The strength of industrial isn’t unique to Calgary, with Edmonton also seeing activity in the sector pick up as vacancies fall and institutional investors reallocate funds to these assets.

“A resurgence of more traditional industrial uses have resulted in investors pursuing industrial assets not only within Calgary, but also in surrounding communities such as Airdrie and Balzac,” Altus reported.

Key deals include Concert Properties Ltd.’s acquisition of 111 Lowes Road, a newly built 1.2 million-square-foot warehouse and distribution centre in Balzac. Highfields Investment Group sold the property for $133.8 million in April 2022.

The deal, little more than a tenth of the size of the Bow transaction, was the largest deal of the quarter and highlighted the return to more normal activity. This was reinforced by the second-biggest industrial deal of the quarter, Anthem Properties Group’s purchase of 3201 Ogden Road SE, a 195,585-square-foot multitenant industrial building built in 2007, for $35.1 million from the Mancal Group.

Occupants of the property at the time of sale included long-term tenants Coast Appliances, Daltile and Steel-Craft Door Products.

But industrial space means jobs, and with the economy in Calgary and Alberta positioned for growth as commodity prices rise and new companies seek space in the province, multifamily rental properties are also attracting interest.

Buyers purchased $214 million worth of multifamily properties in the quarter, up 39 per cent from $154 million a year earlier.

“The investment dollar volume for multi-family residential in the second quarter of 2022 was the most recorded since the fourth quarter of 2018,” Altus reported. “Investors appeared to be taking note of the higher levels of net migration to Alberta that really started to accelerate in the third quarter of 2021.”

Colin Johnston, president of research, valuation and advisory at Altus Group, believes the multifamily sector may be the strongest element of the Calgary market given uncertainties in other areas of the economy.

“I still feel relatively bullish on purpose-built apartment buildings and multifamily. There’s such strong fundamentals there,” he said. “We’ve underbuilt apartment buildings for a decade, so we have a lot of catch-up to do, so the fundamentals remain strong.”

Strong growth in rents point to the resilience of the market. According to Rentals.ca and Bullpen Research and Consulting, the average one-bedroom rent in Calgary increased 29 per cent over the last year to $1,625 a month in September. A two-bedroom apartment increased 21 per cent to $1,895 a month.

Yet the city remained relatively affordable on the national scene, ranking 24th out of 35 cities surveyed.

The strength is attracting investors keen to reposition existing properties – most notably underutilized office space – for multifamily use.

“I think that’s a great opportunity to repurpose buildings that are not going to be competitive going forward, older B and C office buildings – into apartments, some of which will be more affordable,” Johnston said.

Andrew Petrozzi, director, commercial research for Western Canada with Altus expects the sector to benefit as investment continues to pour into industrial assets and others.

“While the focus of investors is expected to remain on industrial properties through 2022, positive migration trends will also likely drive investors to further consider the acquisition of apartment buildings and retail assets,” he said. “A slow shift in investor perceptions of Calgary appears to be underway and what remains to be seen is whether any economic or political upheavals could derail that progress.”

 

© 2022 Western Investor

Edmonton investment sales rebound in first half of 2022

Peter Mitham
Western Investor

Slower times ahead but steady economy draws in buyers

Nexus REIT acquired 11250 189th Street NW, Edmonton, home to MTE Logistix, as part of a two-building purchase worth $91 million in the second quarter of 2022.MTE Logistix

Strong demand for industrial assets gave a lift to investment activity in the Edmonton market during the first half of 2022.

Recently released figures from the Altus Group show that total transaction value in the period was up 68% over the same period of 2021, totaling $1.7 billion on a volume of 424 deals. Deal volume was also up, rising 16% from 365 a year ago.

Within the second quarter itself, 249 transactions closed worth $1 billion.

The top three deals in the quarter all involved industrial assets or development sites.

These included Nexus REIT’s acquisition of 14711 128th Avenue NW and 11250 189th Street NW for $91 million. The two warehouses total 555,689 square feet on 24 acres. The largest of the buildings is occupied by MTE Logistix, a growing tenant that also signed the largest industrial lease of the quarter with a deal for 548,000 square feet in Apex Business Park to the north.

Real Capital Solutions Inc., of Colorado paid $86.1 million for 8351 McIntyre Road NW, 13503 149th Street NW and 1705 90th Avenue, a portfolio of three industrial buildings on five acres.

On the development front, Air Products Canada Ltd. acquired a 150-acre parcel at 13004 and 13104 33rd Street NE from North Industrial Carriers for $60 million, or $339,733 per acre. The site will be the location for its a multi-billion-dollar net-zero hydrogen energy complex it says will make Edmonton “the centre of Western Canada’s hydrogen economy and set the stage for Air Products to operate the most competitive and lowest-carbon-intensity hydrogen network in the world.”

The activity underscored strong demand for industrial space in Edmonton, where CBRE Ltd. reports that the industrial availability rate fell to 5.6% in the second quarter and have held steady despite additions of new space. This is down from 8.4% a year ago.

“Industrial assets in the Edmonton market were far and away the most sought-after by investors with almost $594 million invested in 142 properties in the first half of 2022,” reported Andrew Petrozzi, director, commercial research for Western Canada with Altus. “The first half of 2022 marked the strongest six-month period of investment in terms of dollar volume in Edmonton’s industrial market since at least 2013 and comprised 35% of overall sale proceeds.”

One major industrial asset that has not traded hands is Oxford’s CityView Business Park.

“The park contains approximately 1.5 million square feet across 16 buildings, with an overall average vacancy rate of 8.4%,” Avison Young noted in its second-quarter report. “This would constitute one of the largest industrial building sale transactions in Edmonton.”

Oxford says it has no further updates on the property.

The activity on industrial sites was driven by institutional investors shifting allocations away from office and retail towards acquiring industrial assets.

Petrozzi said the trend has playing out in all Canadian markets, but the expanding role Edmonton’s industrial market is starting to play beyond supporting the traditional needs of Alberta’s energy industry is generating fresh interest in investment there, too.

Nevertheless, Altus’s investor sentiment survey found that Edmonton was the second-least favoured market for CRE investment in Canada among investors. The only market less favoured by investors was Calgary.

Outside industrial, Edmonton saw strong growth in multi-family residential investment, which surged 178% in the first half of 2022 to $448 million versus $161 million a year earlier.

Altus reported that the multifamily sales added up the third-highest tally of the past decade, after $547 million in the first half of 2020 and $480 million in the first half 2018.

“The region’s status as one of the most affordable major cities in Canada, combined with improving employment prospects and the lower risk associated with apartment properties, has proven attractive to investors,” Petrozzi said. “Many such investors may see the potential to achieve greater returns through improvements in rents generated by existing multi-family residential properties.”

Altus expects the activity to continue through the remainder of the year, albeit at a slower pace.

“While the focus for investors is expected to remain on industrial assets, ICI land and multi-family residential properties, investment activity is anticipated to slow in the back half of 2022 as investors continue to process the wide range of potential risks threatening to stall decision-making,” Petrozzi said.

 

© 2022 Western Investor

Pace of housing starts surges 11% amid concerns of supply shortage

Shantae Campbell
The Vancouver Sun

Hits highest monthly level in almost a year 
Canada’s annual rate of housing starts jumped 11 per cent in September. Photo by Michelle Berg/Postmedia
Canada’s annual rate of housing starts jumped 11 per cent to 299,589 units in September from 267,443 in August, reaching its highest monthly level since November 2021.
Data from the Canada Mortgage and Housing Corporation released on Tuesday showed the rate of urban starts increased 12 per cent to 276,142 in the month while multi-unit urban starts surged 16 per cent to 216,549 units. The pace of urban starts of single-detached homes remained flat at 59,593 units.
Montreal, Toronto and Vancouver recorded large increases in multi-unit starts on a seasonally adjusted annual rate (SAAR) basis, which resulted in an overall increase in Canada, Bob Dugan, CMHC’s chief economist said in the report.

“An 85 per cent increase in single-detached units in Vancouver was offset by flat single-detached starts in Toronto and Montreal,” Dugan said, noting that starts remained elevated for the year.
Earlier this month, a CMHC report found Canada lacked the labour capacity needed to build the 3.5 million homes the agency says would be needed to restore housing affordability by 2030.

 

© 2022 Vancouver Sun

Is there a shortage of homes in Canada?

Jonathan Russell
Western Investor

Factors that are affecting Canada’s housing crisis
While it has been common to blame Canada’s houses crisis on a shortage of homes, there are reasons to believe that is not the case. One thing that is certain is there is a lack of affordable housing. Here are some things you should know about Canada’s housing crisis and so-called home shortage.
Some would argue that there is not really a housing shortage in Canada, and that the housing crisis in this country is better attributed to speculation, rather than housing shortages. A recent BMO study found that there were enough houses for everyone, even when the housing crisis was at its height. The issue was that investors were purchasing extra properties with the hopes that the prices would rise.
And while it may be tempting to blame the issue on foreign investors, BMO’s research found that many Canadians purchased second and third properties, usually to rent them out or with the aim of flipping them for profit. The result of all this is a sustained rise in prices in a short period of time—or a housing crisis (or bubble).
While Canadian banks did facilitate the crisis, Bank of Canada polices such as low interest rates further precipitated the rush to purchase properties in 2020-2021. Commercial banks, meanwhile, were mainly responding to policies set by Canada’s central bank. Interest rates have increased since 2021 and commercial banks are required more and more to scrutinize buyers’ finances prior to approving mortgages, meaning it is unlikely that banks will, ultimately, cause a housing market crash.
Building more houses is not a solution—affordability might be
One of the major housing issues facing Canadians is that it is a basic human right and a commodity that people and entities profit from, according to a research paper released by the University of Waterloo’s urban studies department. For this reason, for-profit developers would be happy to build more premium-priced homes—it is where the largest profit margins are.
It is also why Canada’s housing market needs more affordable housing rather than simply more housing. Toward that end, some proposed governmental solutions include open-ended grants and subsidies for both homebuyers and homebuilders, who will build and attempt to purchase the homes dictated by the for-profit housing market. 
Another proposed solution is known as up-zoning, which would do away with zoning rules requiring that a recently demolished home be replaced by a single-family dwelling, to maintain the aesthetics of the neighbourhood. The proposal would encourage building more types of houses, including townhouses, laneway homes, triplexes, and low-level apartments. Some argue, however, that rather than helping low-income families find affordable housing, the practice of up-zoning instead resembles gentrification.
Factors that impact the housing market in Canada
While a shortage of housing in Canada has often been blamed for the housing crisis, that mentality is now being challenged. Housing affordability is also commonly viewed as being a major factor. Home prices outpacing wages by about 50% in the past seven years have been cited as another factor in Canada’s housing crisis, as have fluctuating interest rates.
The housing crisis is no longer a homebuyer’s problem
The housing crisis in Canada is no longer simply a homebuyer’s problem—it is becoming a major issue for homeowners as well. House prices in Canada have, for most of the last decade, been rising more quickly than incomes. For instance, home prices have risen nearly 50% more quickly than wages since 2015. That essentially means that over the last seven years Canadian homes have become even more unaffordable.
In 2022, however, home price gains have been reversing, with property prices falling from their February peak by 18.5%, or $150,000. While that may be better for homebuyers, particularly homebuyers hoping to enter the housing market, it is creating problems for homeowners, who are seeing their net worth drop. Plus, anyone who has a mortgage with an interest rate that changes, otherwise known as a floating mortgage, are facing rising interest payments, as well.
In other words, the housing crisis in Canada is not only a problem for first-time homebuyers who are being forced out of the market by skyrocketing prices—homeowners are also feeling the pressure due in large part to rising interest rates.

Copyright © 1996-2022 KM Business Information Canada Ltd.

Sim elected new mayor of Vancouver in a landslide vote

Frank O’Brien
Western Investor

Ken Sim, a novice politician, is the first Chinese-Canadian elected as mayor of Vancouver.

Ken Sim thanks supporters in his election victory speech Oct. 15 in Vancouver. | CTV screen shot

Ken Sim was elected the new mayor of Vancouver in a landslide vote October 15.

 A Vancouver businessman who had never held a political post, Sim received the majority of votes, with 47.93 per cent. Incumbent Vancouver Mayor Kennedy Stewart followed in second, with 16.68 per cent of the total votes.

Sim and his ABC Vancouver party have promised to hire 100 officers, 100 mental health nurses and reinstate the police school liaison program. ABC says it will support a VPD graffiti abatement program and wants police officers on patrol to wear body cameras.

Sim’s party says it will also create a task force to address the dramatic rise in anti-Asian, anti-Semitic and anti-Indigenous hate crimes.

Vancouver’s new mayor is the co-founder of Rosemary Rocksalt Bagels and Nurse Next Door.

 

© 2022 Western Investor

Less than acre of Surrey multi-family land sells for $6.5 million

Western Investor Staff
Western Investor

The 0.97-acre parcels is in the Fleetwood area, close to the planned 152 Street SkyTrain station.

Frontline Real Estate Services, Surrey, B.C., for Western Investor

 

Property type: Development land

Location: 15316 88 Avenue, Surrey

Zoning: Designated residential multifamily

Sale price: $6.5 million.

Brokerage: Frontline Real Estate Services Ltd., Surrey, B.C.

Brokers: Megan Johal, Adam Lawrence, Justin Mitchell.

 

© 2022 Western Investor

CMHC makes huge house price drop prediction

Tara Deschamps
other

However, the fall will do little to improve affordability

Canada Mortgage and Housing Corp. is predicting housing prices will continue to drop in 2023, but is warning the fall will do little for affordability.

Patrick Perrier, the housing agency’s deputy chief economist, said in a report Thursday that he expects the national average home price to fall 15% from $770,812 – the peak seen in the first quarter of this year – by the end of the second quarter of 2023.

On an annual basis, he sees prices growing 2.6% in 2022 compared with 21.3% in 2021 and then, declining 6.3% in 2023 and rising 2.1% in 2024.

Perrier attributed the moves to housing demand slowing as interest rates rise.

Despite the price decline, Perrier believes housing affordability will not improve because any benefits that can be reaped from lower prices will be offset by higher interest rates and combined with an increasingly competitive rental market.

“Those who are current renters that were planning to purchase a house, they won’t be able to do it, so they’ll stay in the rental market,” Perrier said in an interview.

“And unfortunately, we might see others that are currently owners that, because of deterioration in their employment and income conditions, might have to sell and go on the rental market.”

Thus, Perrier said less demand and pressure in the ownership market will transfer to more demand and pressure in the rental market.

To make the housing markets for affordable, he feels more supply is needed and it needs to come quicker to keep pace with demand and take pressure off pricing.

Perrier sees the lack of affordability occurring as the country heads into a recession by the end of 2022, but added that the downturn will not be as severe as the last and a recovery will begin in the second half of 2023.

In a separate report, Royal LePage lowered its home price expectations on Thursday. It sees prices in the fourth quarter decreasing compared with the same quarter last year and erasing the gains made at the start of 2022.

The real estate brokerage’s new outlook is based on a survey that predicted the aggregate price of a home in Canada in the final three months of the year will drop 0.5% compared with the fourth quarter of 2021.

That’s down from a July forecast that predicted prices in the fourth quarter to be up 5.0% on a year-over-year basis.

Because home prices follow sales volume trends, Royal LePage CEO Phil Soper expects to see further softening in the final months of the year.

“September did not bring the typical seasonal lift in the number of homes trading hands in this country, a clear indication that our housing market continues to adjust to higher borrowing costs,” Soper said in a statement.

“Our revised outlook has national prices at just below where we ended 2021, erasing the gains made in the first quarter of 2022.”

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

Canada home prices fall again

Fergal McAlinden
other

 

September marked the seventh successive month of declining prices

Canadian home prices were down again in September, marking a seventh consecutive month of decline as they dropped nearly 9% below their March peak.

New data from the Canadian Real Estate Association (CREA) showed that the benchmark price of a home in September was $766,000, a fall of 1.4% from August, with the Greater Toronto Area (GTA) accounting for an especially significant decline.

That’s in stark contrast to other cities including Calgary and Ottawa, which both posted higher benchmark prices in September than the previous month.

Prices in a red-hot housing market skyrocketed in Canada during the first two years of the COVID-19 pandemic, before dipping in recent months amid a series of rate hikes by the Bank of Canada and notably lower purchase activity.

Read next: What’s next for Toronto’s once-sizzling housing market?

Home sales in September decreased by 3.9% compared to the previous month, CREA said, with year-over-year sales slipping by a full 32.2%. That meant September sales were around 12% lower than the pre-pandemic 10-year average for that month.

CREA’s senior economist Shaun Cathcart said in remarks accompanying the news that it was important to remember the market remained in the middle of “a period of rapid adjustment” with buyers and sellers both trying to “feel each other out” while many people stepped back from their plans to buy a house.

“Resale markets may remain on the quiet side for some time yet,” he said, “with the flipside of that coin being even more pressure on rental markets.”

Despite the cooling housing market and falling prices, there’s little indication that the Bank of Canada will change course on its rate-hiking trajectory of the year to date, with a jump of at least 0.5% expected in its next announcement.

 

Copyright © 1996-2022 KM Business Information Canada Ltd.

Canada home prices fall again

Fergal McAlinden
other

Rezoning application prepped for key Broadway site

Peter Mitham
The Vancouver Sun

Two rental towers are proposed for the site of MEC’s former flagship store at 130 West Broadway in Vancouver under a rezoning application set for submission in November.Colliers International

Two rental towers of up to 29 storeys will be proposed for the site of the former Mountain Equipment Co-op flagship store at 130 West Broadway in Vancouver under a rezoning application being prepped for submission next month.

“The proposal would include two secured rental towers (28-29 stories in height) on top of a commercial podium comprised of childcare, retail, restaurant and fitness space, a public park, and below-grade parking,” stated a letter developers Reliance Properties Ltd. and QuadReal Property Group distributed to neighbours earlier this month.

The letter says the proposal conforms to the recently approved Broadway Plan, which envisions “a mix of housing, job space, public amenities, and streetscape improvements including an active public realm” for the site.

“The design … is not that much different from the one we drew up back in 2017, 2018. It’s just that we couldn’t move it forward because it couldn’t be supported under the existing zoning,” said Jon Stovell, president of Reliance, which acquired the site in 2015. “It required the Broadway rezoning policy to be supported under that form or height.”

Previous proposals always envisioned rental housing on the site, but the scale was impossible prior to the Broadway Plan’s approval in July. Now that letters of inquiry and rezoning applications are permitted, Reliance and QuadReal are moving forward to submit a rezoning application for consideration by the new council.

“We pursued, for a long time, various options under a secured market rental or Rental 100 type of application,” Stovell said. “But neither we nor the city was very happy with the outcome that could be supported by the existing zoning, and everybody decided that it would be better to wait until there was a clearer pathway to what could be done with the site.”

Given the amount of work undertaken on previous proposals for the site, Reliance and QuadReal are moving directly to a rezoning application rather than submitting a letter of inquiry first.

While the Broadway Plan doesn’t require developers to consult with the community prior to submitting an application, Reliance and QuadReal are doing so to avoid surprises during the approval process.

“As with all our projects, the partnership is committed to each community in which we build, and we strive to gain an understanding of and hopefully address our neighbours’ priorities and concerns through open dialogue,” the letter to neighbours stated. “With this in mind, we would look forward to a conversation with you as our neighbour.”

“We’re doing the next best thing, which is to try and inform immediately impacted neighbours of what’s coming,” Stovell said.

The city has told Stovell that more than 60 letters of inquiry have been received for properties since approval of the Broadway Plan in July. By moving directly to rezoning, 130 West Broadway is potentially one of the first projects set for completion under the new plan.

The exact timeline will depend on the length and success of the approval process, which remains lengthy. It’s safe to say construction won’t begin before 2024, however, a year before the Broadway Subway Project is set to open.

Redevelopment of the block will add life to a block dominated by what Stovell described as “the ultimate white elephant building,” a former car dealership-turned-big box store that has sat largely vacant since MEC vacated it for a new flagship store in the Olympic Village in 2020. The current building is 52,486 square feet.

“This application has zero displacement of existing rental residential, which is one of the main bugbears and complaints of the Broadway Plan,” he said. “Literally nothing will be lost. It’s just a dead block right now.”

 

© 2022 Western Investor