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Wednesday, November 15, 2017

2017 Highlights of the Canadian Apartment Renter Survey

By Amy Erixon, Toronto

On September 12, I presented the results from the second annual Apartment Renter Sentiment Survey, with surprising findings in many areas, among others - recycling commitments and rising tech savvy among tenants.   Across Canada, commute times decreased and so did the time to find an apartment, key findings in the 2017 pan-Canadian Apartment Rental Survey.  Overall, Canadians polled are less fussy than their US counterparts, and stay in place much longer.  A higher percentage of renters are married, at 50% compared to one-third south of the border, and nearly one third have children living in their units.  Nearly one-third of the 10,000 survey respondents indicated they had previously owned a home, and desire for a hassle-free life style led the list of reasons why they were renting.  A whopping two-thirds indicated they plan to stay in their current apartment, and 31% had been in place for more than 3 years.   Broadly representative of the Canadian population, by geography and other demographics, 25% of those surveyed were age 18-30, while 39% were over 50. 
While 20% of renters polled indicated they were highly satisfied, 70% indicated satisfaction with their current living arrangement, Vancouver landlords were ranked significantly better than their Toronto counterparts for service quality ad responsiveness.  Asked whether they would be willing to pay more for amenities they did not have, 43% of tenants said they would - including at the top of the list, high speed internet access, energy efficient lighting, fitness facilities and tri-slot garbage (recycling).   In terms of amenities targeting a subset of the population, 37% of renters have children,   35% have pets, and 59% said they would use package lockers, while fewer than 8% of units reported offering this service. 

Canadian landlords continue to lag their tenants in technology arenas.  While most renters initiated their search on-line, and half of all renters with access to on-line features utilize them, fewer than 20% of communities have tenant portals and on-line payment schemes.  Fifty-five percent of renters indicated that smart thermostats and in-unit alarm systems were important, which, for context nearly tied with desire for a walk-in closet and en-suite bathroom.   High speed Internet access, for the second consecutive year rated as the single most important feature, ahead of parking, proximity to a grocery store and access to transit (which closely followed).

I encourage all owners to sign up to participate in next year’s survey.  To view my 2017 presentation, click

To receive the white paper on the results, and to obtain access the underlying database, contact  

Wednesday, November 8, 2017

Key attributes of Atlanta’s industrial real estate market

By Nadine Melo (Atlanta)

Strong market fundamentals, stability and long-term growth have made industrial the most coveted real estate sector across the U.S. Nothing exemplifies this dynamic more than Atlanta’s industrial market.

Despite being one of the last markets to recover from the recession, Atlanta is not only the second most active market in the southeast, but it has absorbed a staggering 37.8 million square feet (msf) of industrial build-out in the past decade alone, according to GlobeSt.

The pace of Atlanta’s industrial market growth is even more astounding when you consider that the current year-to-date absorption of 16.8 msf has already surpassed the 2016 total by 23%, according to Avison Young Research.

Now, what exactly is driving Atlanta’s industrial growth when compared to other markets like L.A and Chicago? The panel from Atlanta’s industrial Bisnow event in September surmised that such factors as the growth of e-commerce, demographics, and location are primarily responsible.

One cannot mention the current industrial boom without talking about e-commerce first. Industrial’s growth is backed, in large part, by the changing dynamics occurring in the retail space. The internet has driven the creation of a globally inter-connected economy that has impacted both logistics and the supply chain, respectively. Resulting in smaller players competing on equal footing with their larger counterparts.

In turn, the demand generated from e-commerce is driving the need for modern building specs that requires the logistics of the industry to operate at optimal efficiency. As discussed by the panel, pricing, larger floorplates, separate entrances, drive-thru and higher clear ceiling heights (32 feet and above) are some of the prerequisites being issued by tenants today.

Big-box retailers, like Target and Amazon for example, are driving the growth of industrial product by searching for urban infill locations. As a result, retailers can fulfill orders within a 24-hour time frame and with increasing frequency, the same day, by being close to their demographic base – a marked contrast to the sector’s previous focus on location and access to infrastructure.

Proximity to a strong demographic base translates into instant access to not only your consumer, but also to talent, and Atlanta more than satisfies that need. Between 2015 to 2016, Atlanta’s population grew by 1.6%, statistically making it the ninth-largest metropolitan area in the country, according to the U.S. Census Bureau/

However, the current growth is not simply attributed to e-commerce and demographics. In fact, Atlanta has always been a major transportation hub for the U.S. As mentioned by Larry Callahan, a panelist at Bisnow’s September event and CEO of Pattillo Industrial Real Estate, Atlanta is a logistics hub by design. Since its inception in 1837, Atlanta was designed to serve as a strategic railroad junction, and its legacy is evidenced by the various railroad tracks that now comprise the Beltline.

When looking at a map, it's easy to see why Atlanta is attractive to national and foreign investors alike. Atlanta is home to the most visited airport in the world, according to Metro Atlanta Chamber, and located just 250 miles away from the Port of Savannah, the largest single container terminal in the U.S. In addition, three major interstate highways pass through the metro and provides access to 80% of the U.S market.

According to Brittany Holtzclaw, a panelist at the Bisnow event, current local industrial projects are being driven by e-commerce and investors’ desire to get close to the population base while keeping costs low. Therefore, Atlanta is a perfect market for international projects, as demonstrated by the foreign investment activity that we are seeing in the market today.

While Atlanta’s industrial market shows no signs of abating, with approximately 5.1 msf to be delivered by year-end 2017, real estate professionals can expect to face various challenges in the foreseeable future. Said challenges include: site location, construction costs, higher asking rents and traffic congestion as the metro region and industrial real estate demand continue to grow.

(Nadine Melo is the marketing co-ordinator in Avison Young’s Atlanta office. She works closely with her office’s Capital Markets group.)

Monday, October 30, 2017

Multi-family real estate: past, present and future

By Gary Lyons and Craig Cadwallader (Raleigh-Durham)

As most readers understand, the multi-family property sector has been on a tear for the last seven years with primary growth indicators reflected in the last five years across much of the United States and, certainly, in Raleigh-Durham’s Research Triangle region.

Overall, the Triangle market has been fueled with an influx of new residents (and capital) seeking affordable and/or short-term housing solutions until they determine their long-term plans; many of the newcomers are millennials and baby boomers who are considering downsizing their homes. Between 2010 and 2015, the Raleigh-Durham area’s population grew by 16.5%, making it the fastest-growing metropolitan area in the nation, according to MPF Research.

As millennials quickly become the majority of the new entrants into the job market and family formation continues to be delayed, there is a continued increase in the relative demand for rental properties of all types, with apartments continuing to lead the way.

Developers have responded with a historic level of construction, delivering an average of 4,600 units per year between mid-year 2012 and mid-year 2017 with another 5,550 units slated to be completed over the next four quarters. In spite of this record level of deliveries, occupancy levels have held consistently between 94% to 95% since 2012, while lease rates have been climbing at an average of 3.5% per year since then, according to MPF Research.

Well-capitalized developers have had no problem securing favorable short-to-long-term financing solutions from a wide variety of lenders, including Fannie Mae, Freddie Mac, the Federal Housing Administration/Department of Housing and Urban Development, commercial mortgage-backed securities (CMBS), the U.S. Department of Agriculture and insurance-related loan product types. Lending terms have been extraordinarily favorable with common loan-to-value ratios of 65% to 75% and interest rates ranging from 3.26% to 4.85% based on loan type. For bridge loans, interest rates have ranged from 8.99% to 13.00%, with limited fixed periods available, and construction loans have hovered around 5.25%. Lenders’ overall appetite for writing new loans has diminished somewhat and will impact some developers’ ability to finance new projects, but we believe that there is no short-term end in sight to the continued growth of the sector in the Triangle.

According to a recent National Multifamily Housing Council (NMHC) and National Apartment Association (NAA) study, North Carolina will need an additional 220,000 apartments by 2030. If one were to assume that the Triangle region will supply approximately a third of the statewide inventory, our region would need to add a total of 73,333 units, or 5,641 units per year, by 2030. If, however, the Triangle’s demand equates to 40% of the statewide production, developers would need to deliver an average of 6,769 units per year.

Finally, investors continue to be enthralled with our region’s multi-family assets with approximately $1.4 billion worth of inventory trading in 2016, according to MPF Research. Volume and prices have cooled from the peak of 2016 with volumes down 41.9% on average and prices down 6.5% ($125,000 per unit) year-over-year. As of mid-year 2017, the national average sales price was $151,000 per unit versus $125,000 per unit in the Triangle, with prices varying based on product type.

In recognition of the strong demand for multi-family properties, Avison Young is expanding its multi-family service offerings in Raleigh as part of a companywide initiative to expand Avison Young’s footprint in the sector.

(Gary Lyons and Craig Cadwallader are both members of Avison Young’s capital markets team in Raleigh-Durham. Lyons is a senior vice-president specializing in the marketing, disposition and acquisition of investment properties. Cadwallader is a vice-president specializing in multi-family properties. Recognizing the appeal of multi-family properties among the global investor community, Avison Young recently hired Cadwallader, a 15-year commercial real estate veteran, to lead the company’s multi-family practice in the Triangle.)

Houston, We Have a Problem

By Rand Stephens (Houston)

Jack Swigert suits-up
Jack Swigert Suits Up by NASA via Wikimedia Commons
The famous quote from the 1995 movie, Apollo 13, is a phrase that is often used to indicate an unforeseen problem. However, this iconic Hollywood tagline from Tom Hanks, who played Mission Commander Jim Lovell, is not only a misquote, it’s attributed to the wrong astronaut.

It was Jack Swigert (played by Kevin Bacon), who radioed NASA Mission Control Center and said, “Ok, Houston, we’ve had a problem here,” after they discovered an explosion had crippled their spacecraft.

Although Hollywood may have changed the tense of the phrase for dramatic effect, it didn’t change the substance of the event, but Swigert may have felt slighted for not getting the credit for his famous quote.

This brings to mind the recent unforeseen flooding problems brought on by Hurricane Harvey to the Greater Houston area. The famous tagline once again echoed throughout the city, and, the country. However, Houston’s resiliency demonstrated that we can take a hit, regroup and continue to grow and prosper even after being struck by the worst storm to hit Texas in more than a generation.

It’s not surprising that Houston can “take a licking and keep on ticking”. It has built a strong foundation with economic engines centered around energy and medicine, exemplary post-secondary education with world-class universities, an outstanding transportation system and an affordable cost of living.

Amazingly, commercial real estate was unaffected by Harvey’s flood waters. And, based on the market activity, investors are still very bullish on Houston.

Unfortunately, Harvey did the most damage to homes, flooding approximately 100,000 homes and causing tremendous personal loss. Also, there were an estimated 300,000 cars lost to the flood waters.

Going forward, the City of Houston, Harris County, as well as the state and federal governments will undoubtedly invest in a new water drainage infrastructure for the residential areas that were hardest hit. I am confident the system will be able to withstand future storms of Harvey’s magnitude. Downtown Houston and the Medical Center flooded badly during Allison, but withstood Harvey because of the infrastructure improvements that were made after Allison. We learned from Tropical Storm Allison and we will do the same with Harvey.

Owners of multi-family projects benefitted most from Hurricane Harvey, as occupancy has soared due to displaced homeowners leasing apartments. Many investors are concerned that there is a huge roll-over risk as short-term leases expire. However, by offering short-term leases to homeowners, and staggering lease expirations, many owners have ensured they are not burdened with a big inventory of units to lease at one time. Prior to Harvey, there was a balance of supply and demand, so it looks like natural absorption will buffer short-term lease expirations, thus, paving the way for another good development cycle for multi-family.

Harvey may have resurrected the phrase, “Houston, we have a problem,” but it also created a new one, “Houston Strong.”

Click here for third quarter reports on the Houston market.

(Rand Stephens is a Principal of Avison Young and Managing Director of the company’s Houston office.)

Monday, October 16, 2017

Expo 2017: Thoughts from a regular attendee

By Robin White (Toronto)

I attended Expo Real again this year in Munich (October 4-6). It is a regular stop on my travel calendar, and in my opinion one of the better venues for transacting business.

For those who have not been there, picture a cluster of major aircraft hangars on the periphery of town, all populated with exhibitor booths of varying shapes and sizes. Exhibitors range from cities (i.e. municipal governments) to investment and asset managers to brokerages to banks to professional associations to a variety of service providers, all competing for the attention of a hoard of attendees --  reportedly more than 41,500 this year. A sea of dark suits clambering over each other in an effort to be on time for half-hour meetings that have been set up in the various booths within the complex. Sometimes if the weather is good, as it was this year, meetings can be rescheduled outside, where seats have been set up in a courtyard setting.

In typical German fashion, the discussions are extremely efficient. A half hour does not allow for much small talk. After initial pleasantries, it's time to get down to business. Introductions dispensed with, it is time to see if there are opportunities that might fit, services that can be provided, or further meetings that need to be set up. It is fascinating what can come out of such meetings when everyone knows there is only a limited time frame for discussions.

After a full day meeting with dozens of contacts, and bumping into several others on the way to such meetings, it is time to chill at the Munich or Düsseldorf stand and savour some excellent German beer while reviewing some of the takeaways from each meeting. It is a terrific setting to build networks that may grow into meaningful relationships. 

And the overall summation of this year's Expo? Very positive feedback from European investors with respect to the future of European real estate, especially in Germany. Not quite so bullish on North America. Lots of discussion on whether there will be housing corrections in Toronto and Vancouver. Are interest rates heading up? Will there be any capital growth in commercial real estate in Canada next year? Hedging costs are a significant dent in investor returns, especially in the U.S. 

Having said all of this, major investors will continue to seek out investment opportunities in North America as part of their overall global allocation to real estate. But they are likely going to be more wary, especially given the global geopolitical environment that we currently face.

Major investors will require up-to-the minute advice when it comes to seeking out suitable opportunities, and the best advice is provided face to face. Expo allows this interaction to happen in the most efficient manner, and as such will continue to be on my calendar. I am already planning for next year!

(Robin White is Chair of Avison Young’s capital markets group and a founding Principal of the firm. During his career, which began in 1977, he has co-ordinated the sale of more than $5 billion worth of commercial real estate and completed several significant lease transactions, including several high-profile office buildings and industrial properties.) 

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