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Sunday, September 10, 2017

Strong demand lifts Calgary retail property values


By Kevin Morgans, Walsh Mannas and Ryan Swelin (Calgary)

Demand in Calgary’s retail real estate investment market continues to strengthen even as values approach all-time highs, capitalization rates compress and lease rates and occupancy levels remain strong.

Through large institutional-quality asset sales and small private-to-private transactions, Avison Young has been one of the most active groups in brokering retail asset transactions in the Calgary market.  This activity has kept us at the forefront of this trend line and allowed us to track the investment metrics changing quarter-over-quarter and almost week-over-week. The strong demand has led to multiple-bid scenarios, putting more upward pressure on property values as groups compete to control assets.  We have also seen interest come in from investors in Vancouver and Toronto as they pursue risk-adjusted returns not available to them in their home markets.

Since major enclosed malls and regional power centres rarely come to market, investors’ focus has been on strip centres along main thoroughfares and mature neighbourhood centres. The centres that have traded recently are all well-performing assets with multiple opportunities to increase returns through such value-add strategies as façade renovations, pad development, re-tenanting, long-term site redevelopment and/or densification.

One key factor in the upswing has been a consistent, record-breaking rise in Alberta’s monthly retail sales. As indicated in the graph below, sales have broken the previous record of $6.72 billion set in October 2014 every month this year (as of June 30) since March, with June sales reaching $7.15 billion. 



This is not to say that there is not pain being felt in Calgary’s retail market.  Downtown retail correlates directly to the strength of our office market, which still sits with a vacancy level at heights not seen in decades.  Restaurants and bars that once catered to the downtown crowd have been the most obvious casualties with a number of new entrants and landmarks closing their doors this year.

We predict that the remainder of 2017 will see retail real estate investors continue to chase well- positioned assets with more opportunistic buyers taking a serious look at downtown and inner-city opportunities to really try and add some value.

Kevin Morgans, Walsh Mannas and Ryan Swelin are Vice-Presidents in Avison Young‘s Calgary office and co-lead the capital markets group in Calgary.


Tuesday, August 29, 2017

Evolving trends and varying fundamentals challenge stakeholders to adapt

By Bill Argeropoulos (Toronto)

Trends prevalent in 2016 continued to play out in the first half of 2017 – and will likely shape Canada’s office market in the foreseeable future as the sector adjusts to the changing dynamics.

Evolving trends and varying fundamentals are challenging stakeholders to adapt more now than ever before – not just in Canada, but globally. On the Canadian front, the prevailing trends include urban intensification, transit-oriented development, consolidation, workplace design and millennials’ live-work-play preferences.

Though demand from traditional sectors has been patchy, technology and the co-working craze are transforming the marketplace, garnering an increasing share of the leasing pie. Co-working space providers have expanded rapidly due to the need to cater to startups, entrepreneurs and the increasing demand for affordable workplaces on flexible lease terms. Notably, U.S.-based WeWork has leased big blocks of space in Vancouver and Toronto after opening its first Canadian location in Montreal in 2016. Meanwhile, e-commerce is another ubiquitous driver, prompting firms such as Amazon (in Toronto) and home-grown Shopify (in Toronto and Ottawa) to grow their real estate footprints.

Traditionally having occupied funky, older premises or brick-and-beam product on the fringes of major urban cores, this sector is now seeking a larger presence in major towers, primarily in the country’s downtown markets. These trends will challenge owners and occupiers to adapt to evolving circumstances and varying fundamentals in markets from coast to coast.

Notable Mid-Year 2017 Canadian Office Market Highlights.... https://avisonyoung.uberflip.com/i/861690-aymid17namericaeuropeofficemktreportaug16-17final

(Bill Argeropoulos is an Avison Young Principal and the firm’s Practice Leader, Research (Canada). He is based in the company’s global headquarters in Toronto.)

Thursday, August 24, 2017

Atlanta’s BeltLine serves as model for other cities

By Nadine Melo (Atlanta)

One wouldn’t usually equate parks and cultural activities with real estate investment, but Atlanta has been setting the pace for what that correlation looks like.

Since 2005, Atlanta BeltLine Inc. has used the manifesto created in Ryan Gravel’s 1999 Georgia Tech master’s thesis on architecture and city planning to put into practice a sustainable redevelopment project that will connect 45 local neighborhoods via a 22-mile loop of multi-use trails and parks.

The project, aptly named the BeltLine, stems from the idea of new urbanism, which takes a human-centric focus when it comes to designing and planning urban areas. New urbanism takes into consideration land use, transportation, and urban form to create communities that encourage sustainability, a sense of place, economic progress and historical preservation.

Since the BeltLine’s inception, more than $3.7 billion of new and private development has been generated within a half mile of it. The project has also created an influx of approximately $450 million of public and private dollars into the creation of infrastructure that helps connect Atlanta’s inner neighborhoods.  

In particular, the area of Inman Park has seen demand for creative office space as companies flock to the area to attract and appeal to the next up-and-coming workforce, millennials. As much as we hate the dreaded M-word, the fact of the matter is that millennials are impacting the real estate industry by forcing companies to not only change how they work, but also where they work.

Urban developments like the BeltLine are attractive to Millennials because it appeals to their sense of work-life balance and the market is responding to that demand. This trend is best evidenced by the Jamestown award-winning Ponce City Market project, which redeveloped a former Sears regional distribution center into a 2.1 million-sf mixed-use project featuring specialty retailers, office spaces, restaurants, and apartments – all while sitting parallel to the BeltLine.

Additionally, the project has spurred other development activities, such as the redevelopment of a new Kroger grocery store that will feature 360,000 sf of office space on a lot adjacent to the BeltLine. In fact, the influence of the BeltLine has managed to reach the suburbs, which aim to replicate the same type of growth and development that the project has initiated within Atlanta’s city limits.

The BeltLine’s success has enabled Atlanta to act as an incubator for these types of projects and a model for other cities to follow. For example, in Alabama, the City of Birmingham recently opened Railroad Park in 2010 and Rotary Trail in 2016. These projects borrow from the BeltLine concept of repurposing an old railroad bed in Magic City’s downtown area into a walkable space that connects two of the city’s major historical attractions while providing outdoor amenities for people to enjoy.

So what is it about these types of urban developments that make them so lucrative for the real estate industry? Redevelopment projects like the BeltLine help provide value to a city, making it easier for us in the real estate industry to sell, lease or manage space. They also help create a healthy economic environment that is sure to attract – and please – investors.

If you would like more information on where the BeltLine is heading next and the development projects following suit, check out BeltLine.org for more information.

(Nadine Melo is a Marketing Co-ordinator based in Avison Young’s Atlanta office. She works closely with the Atlanta office’s capital markets group.)

Tuesday, August 22, 2017

Office sector undergoing important shift in dynamics as trends transform both demand and supply



By Mark E. Rose (Toronto)

Amid varying economic performances and property fundamentals, North American and European office leasing markets are generally performing well as they undergo an important shift in dynamics influenced by trends transforming both occupier demand and the supply of new product. Traditional drivers of demand are being joined by emerging disruptors that will increasingly shape the future of the office-space market and commercial real estate as a whole.

These are some of the key trends noted in Avison Young’s Mid-Year 2017 North America and Europe Office Market Report: https://avisonyoung.uberflip.com/i/861690-aymid17namericaeuropeofficemktreportaug16-17final

The office sector and commercial real estate, in general, are not immune to the effects of globalization and technological innovation. The world is transitioning into a more distributed, automated and digital economy, which impacts how occupiers conduct business and think about their workplaces, and this transition may have profound implications on the role and intrinsic value of property. In turn, owners and developers are finding ways to adapt and provide flexible work environments that meet these changing requirements.

Rapid change has given rise to the idea that technological advances could render physical real estate increasingly obsolete. However, historical evidence suggests that technology is just as likely to create new jobs as to displace them. For example, the likes of Amazon and WeWork are among the occupiers that feature most frequently in our report’s survey of the largest lease transactions across Avison Young markets.

Amazon’s success in the digital realm is translating into increasing demand for physical space – not only in the retail arena, but also the industrial and, now, office sectors, pointing to a new driver of demand in the office market as the e-commerce industry continues to grow. Meanwhile, the growth of WeWork and other providers of co-working and space-sharing services demonstrates that business will still require physical workplaces, even as we move toward an interconnected world offering anywhere-anytime access to skills on demand.

With Canada and the U.S. intertwined by close economic ties, the aforementioned disruptive trends continue to shape the Canadian and U.S. office markets, while in Mexico City, oversupply has led to the postponement of some new construction projects. Turning to Europe, the U.K. market is in flux one year on from the Brexit vote; Germany’s markets are reporting strong performances with declining vacancy rates year-over-year; and in Romania, the newest country on the Avison Young map, solid results in Bucharest have been driven by the information-technology and communications sector.

According to the report, of the 64 office markets tracked by Avison Young in North America and Europe, which comprise almost 6 billion square feet, market-wide vacancy rates decreased in 40 of the markets as nearly 52 million square feet (msf) was absorbed on an annualized basis.

Occupiers’ desire for new product remains strong and the development community has responded, as more than 62 msf of office space was completed during the 12-month period ending June 30, 2017. Meanwhile, another 134 msf was under construction at mid-year 2017 – with 50% of the space preleased. 

(Mark Rose is Chair and CEO of Avison Young.)

Monday, August 14, 2017

The State of the Houston Office Market

By Rand Stephens (Houston)

During my 30 years in the Houston commercial real estate industry, I have experienced several major economic downturns. Surprisingly, the latest slowdown (I say slowdown because Houston never experienced negative job growth) has not packed the punch of the economic implosion during the 80’s. Although Houston’s economy seems to be on the upswing, as it has developed a vibrant, diversified economy beyond oil and gas exploration, I remain cautiously optimistic. The slowdown began in Q3 2014, and ended Q2 2016. During that time, oil prices declined from $100/bbl to $35/bbl. Since last year, Houston’s job growth is back on track with 56,000 new jobs reported for the trailing 12 months.

During the slowdown, the housing, retail, and industrial markets remained very strong, but the office and multi-family markets took a hit because of overdevelopment. Multi-family now seems poised for a recovery, due to very little new construction over the last few years combined with sustained population growth and improved job growth.

The office market is the one sector where a recovery will take longer. Although, we’re seeing small signs of improvement, there is still a lot of vacancy. And, with 11 million square feet of sublease space available, as these leases expire, this shadow inventory may have the effect of pouring gasoline onto the fire.

The Energy Corridor (west Houston) and the Greenspoint submarkets have been hit hardest. The office inventory in west Houston increased dramatically from 2010-14. Fortunately, the new construction was responsibly financed with significant investor equity and pre-leasing with credit-worthy companies to give owners “staying power”. However, it looks like many of the energy companies leased a lot of space for future growth. So, not only do these companies not need the future expansion space, but much of the existing space they were occupying is also unnecessary.

From 2010 to 2014, offshore exploration drove much of the office development. Therefore, without a rebound in this part of the industry, it’s hard to see any quick turnaround in the office market, particularly in west Houston. Fortunately, the overall Houston economy is solid and will help to whittle away at the significant surplus of office space.

Click here for a full update on the Houston office market.

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

Sunday, August 6, 2017

Next downtown Vancouver, BC office development cycle facing headwinds

By Andrew Petrozzi (Vancouver)

While downtown Vancouver’s recent office development cycle, which will result in more than 2.1 million square feet of new space added to the core between 2015 and 2017, has been largely deemed a success, a number of new actors and trends in 2017 may offer challenges to the next wave of office development preparing to break ground.  

Though downtown office vacancy did rise – peaking at 9.8% at mid-year 2015 – as new buildings were delivered, dire predictions that vacancy could spike to levels last recorded in the early 2000s when downtown vacancy hit 13.5% failed to materialize. Nor did a tsunami of sublease space wash out the downtown market by weakening asking rates and contributing to vacancy in its wake. The vast majority of space in new buildings was leased and resulting sublease space subsequently absorbed through existing tenant expansions and businesses locating in the core.

Although tech firms have been largely credited with the successful lease-up of this recent wave of developmentand certainly Amazon, Microsoft, Sony Pictures Imageworks and others played a substantial role – it is also important to note the significant contribution made by local legal, finance and accounting firms as well as engineering companies.

The first wave of development successfully tapped most of the expansion demands (and a desire for ‘cool’ updated premises) from these stalwarts of the downtown office market and the growing clout of the city’s tech cluster that had built up over a decade, in which the downtown market only recorded the addition of the 540,000-sf Bentall 5 office tower in 2007 (in two phases nonetheless!). A majority of the city’s lawyers, accountants, engineers, bankers and software engineers have moved into new digs since 2015. The next wave of development, which could start delivering new buildings by late 2019 and would continue to 2021, will not be able to count on this pent-up demand to drive their leasing programs.

The arrival of co-working juggernaut, WeWork, to Downtown Vancouver’s office market in early 2017 may have a potentially disruptive impact on the traditional relationship between tenants and landlords, particularly with technology firms (which are touted as the source of much of the future demand for new office space in Vancouver). Regus’ co-working format, Spaces, also opened in Vancouver this year. The fundamental rethinking of the tenant-landlord relationship represented by these new players may reduce demand for space in the next development wave. Whether or not the appetites of a WeWork or Spaces to take on more space in these new buildings outweighs a potential reduction in demand from firms that choose to go the co-working route remains to be seen.

The scale of construction proposed in the second wave of development, which already includes more than half a dozen buildings totalling almost 1.5 msf and counting, will be much more reliant on demand originating from outside the local market. While many Vancouver-based businesses, tech and otherwise, continue to grow and will require additional space, the magnitude of the office development being proposed exceeds the likely requirements generated by local firms, many of whom already expanded or relocated since 2015.

While ongoing concerns with immigration policy under the current U.S. administration may lead some American firms (particularly tech companies) to open offices in Vancouver to recruit talent from around the globe and avoid U.S. visa restrictions, the nature of these operations has a transient quality that may be unwise to base a development cycle upon. A rising Canadian dollar and an end in sight to nearly a decade of easy money will also be factors that need to be considered and which were largely absent during the first wave of new development. While the success of the recent wave of downtown office development may not be easily replicated, the next wave will represent a true step forward in the city’s evolution and its establishment as a truly global tech hub, but first steps are never easy or simple.    

(Andrew Petrozzi is Principal and Vice President Research in Avison Young's Vancouver office.)

Tuesday, July 18, 2017

Seismic structural shift in the office market isn't coming, it's here...

By Rand Stephens (Houston)

PropertyWeek.com recently posted a very interesting article about a shift in how companies want to use office space and the impact that may have on the asset class.

I believe this article is spot on from what we’re seeing in the marketplace. However, the Seismic shift isn’t about to happen… it’s happening as I post this blog.

The phenomenon that’s occurring is that more and more large corporations want short lease terms (less than 5 years) to provide themselves flexibility in an ever changing business environment. In the past, the cultural need for private dedicated offices for employees required sizable investment in tenant finish by landlords which in turn created the need for a long lease term in order for the landlord to amortize that cost. That culture has changed due to constantly improving technology which allows people to work anywhere anytime. Consequently, employees are willing to give up their private office in exchange for improved lifestyles with less commute times and improved family time, or “me time”.

That’s a big cultural shift, and corporations are willing to accommodate their employees if it also improves their bottom-line; and, that has been happening by corporations being able to use significantly less square footage per employee. Now big companies are also seeing value in short lease terms because they potentially rid themselves of the huge cost of carrying unused space.

Companies like LiquidSpace, WeWork and TechSpace have arisen overnight in a new real estate service line to satisfy corporate America’s rapidly growing desire for flexibility (read the article to learn more).

For smart landlords who work with this new service line, this shift to short lease terms will create opportunity. In addition to the benefits discussed in the article, a bigger benefit will be improved cash flow since landlords won’t have to incur huge tenant finish costs. The tenant’s workplace design will be done with furniture to create private areas, public areas and collaborative areas and the landlord will have to provide a simple open floor plan reducing the need for the high cost of tenant finish which currently eats up the investors’ cash flow.

Special thanks to Amy Erixon, Principal and Managing Director of Avison Young Investments, who tuned me onto this article and keeps our company up to date on breaking technological trends. Be sure to read her most recent white paper, Architecture of the Fourth Industrial Revolution: Distributed Networks and Artificial Intelligence – Impacts and Opportunities for the Real Estate Sector.

(Rand Stephens is Managing Director of Avison Young's Houston Office.)

Thursday, June 22, 2017

Interface Carolinas event provides interesting takeaways

By Beverly Keith (Raleigh, NC)

On June 1, I was pleased to attend and participate in the eighth annual InterFace Carolinas commercial real estate event produced by France Media.

The event attracted more than 250 participants, who listened to six panels of exceptionally informed commercial real estate experts discuss the state of the market across North Carolina and South Carolina.   Mark Vitner, Managing Director and Senior Economist at Wells Fargo, was the keynote speaker and presented a top-down view of current economic trends in the Carolinas.  A few interesting takeaways included:

  • ·         Employment statistics as reported by the U.S. government can be misleading. The government counts anyone employed for only one hour in the last 30- day period as employed;
  • ·         The significant economic impact of the HB2 law’s enactment and repeal will most likely not be fully realized for another two or three years; and 
  •            Vitner forecasted GDP growth in 2017 at 2.5%, not the 3.5% that the federal government is predicting.

Additional topics covered included the state of the market, capital markets and trends in the office, industrial, retail and multi-family markets.  Not only were the speakers well informed and actively involved in their designated segments, but the networking between panel discussions was exceptional.

On the heels of ICSC ReCon, which was held in May, the retail panel included David Kelly, CIO of Wheeler REIT; Matt Klump, Vice-President of Acquisitions for RCG Ventures; Jimmy Penman, Director of Leasing at Lat Purser & Associates, Drew Gorman SVP, Acquisitions & Development at ECHO Realty, and me.

The retail topic was grocery wars and how the influx of so many new grocers is fragmenting and disrupting business as usual in the Carolinas.  With everyone agreed that Wegman’s entry to the market is a game changer, there was significant discussion on which grocers may grow their market share, establish a foothold or lose market share.  The consensus is that, while the Carolinas continue to add population at an extremely fast clip, the grocer market cannot support so many grocery choices in the market.  Some will win and some will lose, but don’t count out the homegrown favorites of Harris Teeter and Food Lion, each of which has reinforced its brand with significant upgrades and, in some cases, new stores.  Shoppers are finicky; they’ll try the new player just to return to the tried and true.

I’d like to extend a special thank you to France Media’s Associate Publisher Ryan Nixon for his leadership in organizing this exceptional event. And thank you to the North Carolina chapter of CCIM for its diamond sponsorship and Avison Young for its silver sponsorship.


(Beverly Keith is a Senior Vice-President of Retail Services based in Avison Young’s Raleigh office.)

Thursday, June 1, 2017

Understanding the role of demographic data in commercial real estate

By Kieran Smith (Vancouver)

For the first time in its 150-year history, Canada has more seniors aged 65 and over than children under the age of 15.

Federal 2016 census data released in early May shows that seniors now account for a larger piece of the population (16.9%) than children 14 years old and under (16.6%). Meanwhile, younger demographics – especially millennials – are disrupting traditional ways of doing business and engaging in leisure activities.

These developments are not exactly surprising – but they will shape our nation for decades to come.

The question now is: As government policy makers adapt to the changes, how will the commercial real estate community react?

Census data identifies interesting trends

It is hard to predict the future but strategic census and demographic data analysis can be used to enhance the transaction process.

Federal 2016 census data, recently released in May 2017, has identified some interesting trends. Demographics are changing broadly as baby boomers reach retirement age and the younger age cohort decreases in size.

Simply put, Canadians are living longer, becoming increasingly urban and shifting away from the single-family home. Therefore, housing-related issues are receiving considerable public attention.

The federal population and household data released in February 2017 received an extensive amount of media coverage in Vancouver, particularly because the information relates to housing affordability. The coverage tended to focus on areas where populations are shrinking and identifying municipalities with large numbers of unoccupied dwellings – particularly in certain transit-oriented development areas of Metro Vancouver. Whilst these issues are related to residential real estate, there is an associated relationship with commercial real estate.

Recent government policy changes in Vancouver (and BC) have been implemented to assist housing affordability for locals. The lack of affordability and focus on empty dwellings contributed to new tax rules – a 15% foreign buyers tax (2016) and a 1% vacant home tax (introduced this year). Its knock-on effect will play out over the next few years. And although these changes are aimed at residential real estate (the 15% tax doesn’t apply to commercial property), there is uncertainty over what the effect of this tax would be from a commercial perspective, from suggestions that commercial investors will be put off, or that speculators will redirect investments from residential to commercial properties. It’s still too early to draw conclusions.

Data analysis can enhance transaction process

The demographic changes highlighted by the census will influence real estate in the years ahead because long-term planning and policy decisions are based on what the aforementioned types of data show. As such, the use of census and demographic information can enhance the transaction process. First of all, data analysis can provide insight that increases the value proposition. Secondly, the statistics can help validate a broker’s local knowledge.

Getting back to our aging population, governments (local and federal) will have to put increased resources into meeting the needs of an older population. From a commercial real estate perspective, this scenario might result in a greater need for residences, hospitals and care facilities, leisure centres and retail properties that cater to seniors. Personal services and senior-specific businesses are also likely to grow.

Seniors will be less inclined to commute to local services and amenities, preferring instead to reside in higher-density residential areas. This scenario could lead to an increase in senior-specific multi-family residences that cater to empty nesters, who are increasingly downsizing from single-family homes. These changes could affect brokers – and clients – across many sectors, including multi-family, investment, office and retail.

We also need to interpret the census data to know where these changes are happening at the local level. For example, proportionally more investment in services for seniors is likely to be required in BC and Atlantic Canada compared to Alberta, where there is a high discrepancy between the proportion of population aged 65 and older.

Incorporating broader demographic and lifestyle changes

Despite the headlines generated by the census data regarding older Canadians, younger generations have also driven change to our lives and lifestyles. Millennials’ non-traditional attitudes are evident in their preferences to live in central locations versus outlying areas, rent rather than own their homes, and reside near public transit in order to reduce their dependence on automobiles. These recent trends, driven in combination with technology and millennials’ non-traditional attitudes, have begun to influence real estate, both residential and commercial. Increased urbanization, revised lifestyle preferences, the growth of disruptive services such as online retail and Uber are just some ways in which things are changing. Shared office space is gaining ground within the office commercial sector.

Whilst millennial-related stories often generate continued media interest, census data are clearly important when it comes to understanding local market demographics. By using the data wisely, brokers will broaden their market knowledge and, ultimately, clients will remain highly confident throughout the transaction process.

Results of the 2016 Canada Census are being released throughout 2017 and can be accessed at Statistics Canada’s website (http://www12.statcan.gc.ca/census-recensement/index-eng.cfm).


(Kieran Smith is the Director of Geographic Information Systems (GIS) for Avison Young’s Vancouver office, where he assists brokers and clients with data analysis, demographics and mapping requirements related to transactions.)

Monday, May 29, 2017

Why co-working space is increasingly attractive to today’s office tenants

By Carl Condon (Austin, TX)

It’s no secret that co-working is one of today’s hottest trends. To help put the dynamic growth in perspective: Only a handful of executive-suite providers existed in Austin, TX five-plus years ago, whereas today there are more than 20 such businesses in the city leasing out as much as 400,000 square feet (sf) of space.  According to Jason Saltzman, CEO of collaborative workspace provider Alley and guest writer for Entrepreneur magazine, some 70,000 co-working spaces are used globally, and Deskmag – a magazine devoted to co-working – predicts that 1 million people will conduct business out of shared space by 2018.

According to multiple reports, the most common advantages of the co-working phenomenon are: Community, connectedness, collaboration, networking, and peer-to-peer learning. While all of these benefits are true, there are four other business and/or real estate reasons why today’s tenants find co-working environments so attractive.

1. Low capex requirement

Young and/or growth-oriented companies that are focused on building their management teams and initial products may have raised early rounds of funding, but cash remains king. In a tight marketplace like Austin, where attractive traditional lease options are limited, tenants frequently sink significant dollars into such capital expenditures (capex) as design, construction, new furniture, telephone/cabling and so forth. On the other hand, co-working space providers have already invested upfront capital into their locations. While a co-working tenant may cover these costs over the term of a lease, the saving of a large upfront cost allows a younger company to use its capital on the business, whether it be for hiring new employees or building its product.

2. Scalability

Five-plus years ago, the traditional executive-suite model leased out individual enclosed-office spaces. Enclosed-office configurations made sense for both young and mature companies looking to expand their presence in a particular market, but the economics and functionality of the spaces became obsolete once the business grew beyond five or 10 people. Today’s co-working spaces are designed much more effectively, allowing for team rooms and glass walls that bring in natural light within all portions of the space. Such attention to design easily enables companies to scale upwards of 30-50 people within the same building or space, keeping relocation costs to a minimum and productivity high.

3. Flexible lease terms

In a supply-constrained market that includes older and outdated spaces alongside newly constructed product, a tenant is often required to accept a longer lease term – of up to seven years or more – for traditional space. A long-term lease is not always a good fit for a company that does not have a clear vision of where its business will be in two years. Five or seven years can feel like an eternity for technology companies undergoing constant change. However, co-working space providers are more than happy to sign three-to-12-month leases or even go month to month. That’s a significant difference.

4. Proximity to amenities

To attract and retain the best talent today, companies must offer employees more in the way of amenities, such as workout facilities, showers, and restaurants/bars within walking distance of their workplaces. Co-working spaces typically locate close to amenity-rich environments, building upon the importance of community and connectedness.

In the past, these environments mostly attracted early-stage startups and freelancers. Now, even large corporate users are getting the message. IBM recently leased an entire 10-story, 86,000-sf building from co-working space provider WeWork in New York to accommodate up to 600 employees. In terms of the space size, this deal represents a landmark co-working lease transaction. But David Fano, WeWork’s chief product officer told The Real Deal New York that major companies have exclusively taken 30 full floors in WeWork buildings. Furthermore, large companies with more than 500 employees account for 20% of WeWork’s membership.

Co-working space is not for everyone. Disadvantages include distractions, noise, potential employee poaching and the lack of a stand-alone company identity and culture. However, the aforementioned benefits are real – and hard for a business to ignore.

It is expected that more and more companies – both small and large – will consider co-working space as a potential option for their businesses.


(Carl Condon is a Principal of Avison Young based in the firm’s Austin, TX office. He specializes in office tenant representation, acting for leading corporations and local organizations alike.)

Wednesday, May 24, 2017

At the forefront of Downtown Toronto’s latest development

By Bill Argeropoulos (Toronto)

In 2012, Avison Young became the first – and only – commercial real estate brokerage firm to relocate its offices to Toronto’s burgeoning Downtown South node.

Since then, from front-row seats, our global headquarters employees have watched an unprecedented period of development unfold.  Of the 10-million-plus square feet of office space that has been delivered in Downtown Toronto since 2009, and continues to be built, nearly half is located south of the railway tracks.

I witnessed the launch of this story’s next chapter on the morning of May 17, when members of Cadillac Fairview (CF) and Ontario Pension Board (OPB) officially broke ground on their latest project, 16 York Street. (Avison Young’s headquarters is located across the street in PwC Tower, part of the Southcore Financial Centre.) With 32 storeys and 879,000 square feet, 16 York will complete the final corner at the intersection of York Street and Bremner Boulevard – culminating the redevelopment of four sites that, only a decade ago, were gravel parking lots.

I’ve seen a few development cycles in my 29 years of following the Toronto commercial real estate market, but nothing like the one that started in Downtown South in 2006 with the announcement of a new tower to be built for Telus by Menkes Developments. Ever since, I have seen an ongoing roster of organizations make the move to Downtown South – including many so-called traditional firms previously housed only in the confines of the Financial Core, such as PwC, CI Investments, RBC, RSA, Marsh & McLennan and, more recently, Sun Life and HOOPP. These organizations are now rubbing shoulders with tech giants such as Amazon, Apple, Cisco Systems and Salesforce, with others expected to follow suit.

The 16 York project demonstrates the faith that the Downtown South market (increasingly referred to as the South Core) has generated among developers. Both CF and OPB elected to commence construction before securing a lead tenant, giving the node a strong vote of confidence.

From our Avison Young headquarters vantage point, we can also watch the construction of Ivanhoé Cambridge and Hines’ massive 2.9-million-square-foot Bay Park Centre development, which is following on the heels of 16 York. Home to CIBC’s new headquarters of up to 1.75 million square feet, Bay Park Centre will straddle the railway tracks, bridging the Financial Core and Downtown South office nodes.

Given all of this activity, only a handful of remaining sites can accommodate future downtown office development, which the market will be watching closely as we work our way through this cycle. Once these sites are fully utilized, the natural progression will be to push development eastward along the waterfront. Stay tuned for further updates and announcements as the ongoing development wave carries us into the next decade.

(Bill Argeropoulos is an Avison Young Principal and the firm’s Practice Leader, Research (Canada). He is based in the company’s global headquarters in Toronto.)


Monday, May 15, 2017

Single-digit vacancy rates define rapidly evolving North America and U.K. industrial sectors

By Mark E. Rose (Toronto)

The industrial property sector continues to be characterized by sound fundamentals, irrespective of geography and geopolitical and economic conditions. Record-low or near-record-low vacancy rates, owing to robust demand, are placing upward pressure on rental rates. Development costs are also on the rise, due to dwindling land supply in some markets. Meanwhile, developers strive to deliver modern product to meet evolving tenant demand – increasingly driven by the retail sector and its goal to feed today’s insatiable consumer appetite. 

These are some of the key trends noted in Avison Young’s Spring 2017 North America and U.K. Industrial Market Report, which covers the industrial markets in 55 North American and U.K. metropolitan regions: https://avisonyoung.uberflip.com/i/822225-ayspring17namericaukindustrialreportmay11-17final

The industrial property sector’s metrics continue to impress the market as occupiers and investors alike are drawn to the sector’s stability. Though traditional manufacturing operations remain part of the industrial fabric, surging demand for online shopping – while causing disruption in traditional brick-and-mortar retail properties – has provided immense opportunities in industrial plant, distribution and warehouse assets as supply chains become increasingly complex and seek efficiencies. An increasing urban population base also means feeding the unquenchable demand of a fickle and growing consumer market that demands cost-effective, same-day delivery options.

There is one recurring statistic in virtually every market and country under our coverage – low vacancy rates. All but two markets posted single-digit vacancy at the conclusion of the first quarter of 2017. Keeping pace with demand, the development community delivered more than 218 million square feet (msf) over the past 12 months and had more than 205 msf under construction at the end of the first quarter. In increasingly land-constrained markets, developers are being forced to think outside the traditional warehouse footprint and are even contemplating multi-storey warehouses.

Of the 55 industrial markets tracked by Avison Young across North America and the U.K., which comprise almost 14 billion square feet, vacancy declined in 40 markets, remained unchanged in two and increased in only 13 during the 12-month period ending March 31, 2017.

The analysis revealed lower year-over-year industrial vacancy rates in 30 of 41 U.S. markets and seven of 11 Canadian markets. Logistics-driven demand cut Mexico City’s industrial vacancy rate by half to 3.2%, while in the U.K., the Coventry and London markets reported vacancy rates of 5.8% and 2.7%, respectively.

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