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Sunday, March 11, 2018

Avison Young achieves Platinum status with Canada’s Best Managed Companies program, recognized for overall business performance and sustained growth

By Mark E. Rose (Toronto)

After competing against some of the nation’s top firms in all business sectors, we are thrilled to announce that Avison Young has achieved Platinum status with the Canada’s Best Managed Companies program by retaining our Best Managed designation for seven consecutive years.

The past seven years have been a period of tremendous growth for Avison Young. Throughout it all, our employees in Canada, the U.S., Mexico and Europe have set new standards for leadership, innovation and execution while giving back to the communities in which we operate.

This award also gives us third-party confirmation that our values, our unique Principal-led ownership structure, our collaborative culture, and our client-centric approach are making a difference in the commercial real estate industry. We thank Deloitte and the other award administrators for recognizing us as one of Canada’s Best Managed Companies for the seventh consecutive year, and we salute all new and repeat winners.

Sponsored by Deloitte, CIBC, Canadian Business, Smith School of Business, TMX Group and MacKay CEO Forums, the Best Managed program recognizes Canadian-owned and managed companies for demonstrating strategy, capability and commitment to achieve sustainable growth.

We are truly honoured to be recognized as a 2018 winner of this prestigious business award, and we celebrate the achievement with our clients, partners and employees around the globe.

Mark Rose is Chair and CEO of Avison Young

Tuesday, March 6, 2018

Calgary retail real estate investment market remains resilient

By Kevin Morgans (Calgary)

In 2017, we witnessed another year of continued strength in the Calgary retail real estate investment market. 

Despite headlines throughout the year that cast a concerning shadow over the fundamentals of Canada’s retail market, a closer look at Calgary retail sales transaction data and, more particularly capitalization rates (cap rates), reveals quite a different story.

Even as bond yields rose through the course of 2017, most notably between June and September, cap rates for retail properties continued to compress. Whereas in mid-year 2016 cap rates were in the sub-6% range, cap rate guidance for pricing of those retail assets today would likely be 75 basis points (bps) lower. In several cases, cap rates compressed, moving in the opposite direction of bond yields, which would typically move somewhat in parallel with one another, given the bond yield’s role as a primary determinant for borrowing rates for commercial debt.

Demand for retail in Calgary and surrounding submarkets has largely been driven by local private investors in recent years, with a few notable exceptions that reveal an emerging trend of investors entering our market from Vancouver and Toronto. These two major markets have seen property demand and values escalate to ranges that, only a few years ago, would have been unthinkable. Today, Vancouver and Toronto rank as two of the most rapid price-growth investment markets in North America, over the last two to three years.

The result of the extremely competitive bidding environment to acquire investment properties in these markets has led several investors, ranging from institutions to private individuals, to reconsider Canada’s alternative major investment markets. Although many investors were hesitant on Calgary in particular and Alberta in general after the global oil-price collapse began in 2014, the hyper-competitive environments in Vancouver and Toronto are leaving few other options. Calgary has offered, and continues to offer, a substantial yield premium in comparison to these two larger markets.

In 2018, with several REITs looking to reduce exposure to retail in an effort to re-balance the property-type weightings of their portfolio, we anticipate that private investors and private equity funds will find opportunity through acquisition of recycled REIT assets. The continued stability of Calgary’s retail market, evidenced by vacancy rates remaining low and lease rates continuing to grow, show the market’s resilience against macroeconomic fluctuations. The signals of progress in Calgary’s early economic recovery include Alberta’s and Calgary’s positive GDP growth forecast, rising employment, which is now above pre-downturn levels, and country-leading retail spending data.

Looking forward, we anticipate that rising interest rates may cause a mild rise in investment cap rates, although rising demand for investment properties coupled with demand from outside investors will likely temper escalation in yields.

(Kevin Morgans is a Principal specializing in Investment Properties in Avison Young’s Calgary office.)

Wednesday, February 28, 2018

Edmonton downtown office market undergoes unprecedented transformation

By Corey Gay and Antoni Randhawa (Edmonton)

Edmonton’s downtown financial district is in the midst of an unprecedented development period that is reshaping the office market.

The transformation is being driven by the introduction of 1.8 million square feet (msf) of class AAA office space over a three-year period between 2016 and 2018. The phased integration of three towers – Enbridge Centre, Edmonton Tower and Stantec Tower – has prompted a flight-to-quality scenario with tenants vacating primarily class A space to take advantage of the new developments. The increase in office inventory partly contributed to the increase in vacancy to 15.3% from 12.9% in downtown districts between Dec 31, 2016 and Dec 31, 2017. Compounding the effect was the recessionary period felt throughout the Alberta economy in the wake of the 2014 oil-price decline. In general, the city-wide trend saw vacancy levels consistently increase throughout 2016 and the first half of 2017. The most recent two quarters are showing signs of stability after many of the city’s submarkets experienced modest positive absorption.

There were a handful of transactions in the Edmonton central business district in 2017 – most notably, the sale of 9Triple8 Jasper and HSBC Bank Place. Both buildings are the same age and within two blocks of each other. However, on a per-square-foot basis, they sold for dramatically different prices. The 9Triple8 Jasper property sold for $342 per square foot (psf). HSBC Bank Place sold for $108 psf.

This price difference has prompted the question: What is the market value for an office building in downtown Edmonton?

The 9Triple8 Jasper tower was completely redeveloped, starting in 2015 to a LEED Gold standard. The total renovation cost was $22 million ($124 psf). The building was 9.1% vacant at the time of sale.

On the other hand, HSBC Bank Place was 58% vacant when it was sold. In order to get HSBC Bank Place to the same occupancy level as 9Triple8 Jasper, a costly and time-consuming re-leasing and renovation program will be required. This investment would likely make up a large portion of the $234-psf spread in sale price.

So, to answer the question… well, the market value of a downtown Edmonton office building depends on a number of variables and, therefore, requires answers to more questions – namely, what is the current occupancy in the building? When was it last renovated? How extensive were the renovations? Is it a LEED-certified building?

Going forward, we expect to see a wide range of prices, as landlords who have reinvested in their buildings will be rewarded through higher rental rates, higher occupancy levels and strong prices. Landlords who have not made these reinvestments and kept up with their peers will be faced with compounding challenges of lower rental rates, lower occupancy levels and difficult decisions about their assets. To that end, in the last few months both Centre West ($55 psf) and the former Enbridge Tower (approximately $100 psf) have been sold to purchasers who intend to convert these assets to non-office uses.

(Corey Gay and Antoni Randhawa are members of Avison Young’s capital markets group based in Edmonton. Gay is a Principal of Avison Young and office, industrial and retail property investment sales specialist. Randhawa is an analyst/sales assistant who complements Gay’s advisory services.)

Tuesday, February 20, 2018

How to Use Virtual Reality to Engage Commercial Real Estate Tenants

By Rodney McDonald (Toronto)

Want to show your tenants what their future space will look like? Virtual Reality is an excellent tool to do just that.

For the past 35 years, designers have shared their ideas for space with our clients using two-dimensional computer renderings. For more than three decades, these renderings have been the best way to convey the design being considered. Working with a client recently, Avison Young took design to the next level by using Virtual Reality (VR).

For a tenant, Avison Young is also project managing the design, build-out and move into a new 175,000-square-foot office space. The new office space features lots of natural light, no private offices and low-height workstations, and will be LEED-certified -- the location is a modern departure from our client's current office space and a change for our client's employees.

During the design process and before the physical build-out we needed to convey the design to our client's executives. We also needed a tool to help our client's employees experience the new space and start becoming comfortable with the change prior to the move. Avison Young proposed using VR to meet both objectives, and as a way to engage the employees in voting on two options for design finishes in key spaces.

After our client endorsed the VR idea, to implement the innovation Avison Young took a number of simple steps using tools we all have -- a telephone and e-mail:
  1. We telephoned a rendering firm (Norm Li) for a VR quote. Norm Li asked us how many VR renderings we wanted, what spaces we wanted in VR and if we needed the hardware. (This was our first time using VR, so, yes, we needed the hardware, too).
  2. We received Norm Li’s quote by e-mail and forwarded it to our client for approval (Our client paid for the renderings and Avison Young paid for the hardware: two VR headsets and two mobile phones to attach to the headsets).
  3. Our client returned the signed quote by e-mail, which we forwarded to Norm Li.
  4. Once Norm Li was formally engaged, we connected Norm Li to the designer, so the designer could e-mail Norm Li the two-dimensional renderings of the new office space.
  5. Norm Li turned the two-dimensional renderings into VR and delivered the hardware, with the renderings loaded, to Avison Young’s office.
If you have not experienced VR, you must.

When the package arrived from Norm Li, I put the VR headset on immediately. I was transported inside the new office space and amazed. VR is a completely immersive experience and blocks out the physical world around you. It’s perfect for conveying an experience of commercial real estate that does not yet exist in our physical world.

First, we presented the VR experience to our client’s internal project team. They loved it! Next, we presented the VR to our client's two executive project-sponsors. Both executives put the goggles on simultaneously, and we provided verbal instructions to help them navigate through the various spaces. It was interesting and exciting for them to experience the proposed space. Lastly, we scheduled two days for our client's employees to experience their new office space in VR. These two days were one component of our overall change-management strategy and plan. We set up a room with a display of the two-dimensional renderings, samples of the finishes, and a VR station. Using a new technology tool created excitement about the future office space for employees. VR also helped with the voting process for different finishes. VR was a hit with the employees and generated a lot of discussion and excitement about the future office space.

This example shows how Virtual Reality can be an excellent tool to help your tenants experience what their future office space will look like. The future of commercial real estate is here!

(Rodney McDonald is a Principal of Avison Young and Practice Leader of Consulting and Project Management Services in Ontario.)

Wednesday, February 7, 2018

Houston is Prime Location, but not for Amazon

By Rand Stephens (Houston)

Earlier this month, Amazon released their list of 20 cities for its second headquarters (HQ2) and Houston was not among them. Should we be concerned that the 5th largest company in the U.S. will not be seeking 8 million square feet of Class A office space and providing potentially 50,000 jobs to the Houston area? Or, are we primed for an economic boost despite Amazon’s dismissal?

From business reporters and columnists to commercial real estate heavy hitters and economic development organizations -  they have all been weighing in on why Houston did not make Amazon’s HQ2 short list. Most point to lack of mass transit infrastructure, technology talent, and incentives. Hurricane Harvey did not help our bid either.

Energy, finance and technology are just a few of the strongest driving forces of the U.S. economy. As the energy capital of the world, Houston has always attracted Fortune 500 companies in the oil and gas industry such as Phillips 66, Halliburton and Marathon Oil. In fact, there are 25 Fortune 500 companies headquartered in Houston. Healthcare has also been an emerging economic driver and Houston is home to the largest medical center of the world, the Texas Medical Center (TMC).

The TMC may be Houston’s best kept economic secret despite being home to the world’s largest children’s hospital and the world’s largest cancer hospital. Healthcare is the fastest growing industry and has more potential for growth.  It averages about 10,000 open positions throughout the year. And, we are not talking about just nursing jobs, where there is currently a shortage, but also technical jobs in research and development and education. 

Currently, the TMC has $3 billion in construction projects underway and more to come. By uniting the collective renowned hospitals, public health organizations, universities, medical, dental and pharmacy schools and academic and research institutions, the TMC is poised to transform health, education and research needs of Texas and the world. And, it’s all taking place right here in Houston.

The Houston technology labor market’s primary focus is energy and healthcare, perhaps a labor market that Amazon is not willing to compete with, and that’s okay. Ultimately, Amazon may not have felt at home here, but the outlook for Houston remains positive. If 2017 showed us anything, it’s resilience.

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

Tuesday, January 16, 2018

Avison Young 2018 Forecast: Change and opportunity will abound in 2018

by Mark E. Rose (Toronto)

We just released our 2018 Forecast and I’d like to share a few perspectives on commercial real estate markets for the year ahead.

Our industry has spent the last three years debating where we are in the real estate cycle. In 2017, we concluded that the real estate industry was in the late stages of the ballgame, but could be headed into extra innings. As we start 2018, the game is still going, but change is underway and the dynamics on the field are definitely in flux.

In general, conditions remain positive. Yields on commercial real estate are still attractive when compared with alternative investments. Equity and debt capital are still plentiful and available, and there is no shortage of demand for real estate investment. Employment data looks good and economies are growing in the major countries in which we operate. While markets are still a little uncomfortable with certain aspects of both politics and central-bank policies, these trends are a continuation from 2017, and not new concerns.

Importantly, interest and capitalization rates are still at historic lows. Interest rates are moving up incrementally, as they really only have one way to go, but short-term interest rates are being properly – and effectively – normalized by central banks.

Capitalization rates are another story. Commercial real estate has printed trades at historically low cap rates, but the bid-ask spread is widening – and acting as a brake on transaction volumes in major markets. Cap rates and corresponding return requirements will eventually move as the financing of acquisitions becomes more expensive.

As we head into 2018, it’s critical to note that, everywhere, change is in motion – change that is positive, powerful and moving very quickly. This is the type of evolution that creates opportunity.

These changes are evident in occupier behaviour that is challenging the market and, we think, fundamentally driving innovation and performance. Alternative workplace strategies are finally being accepted as strategic, and have expanded from hoteling, mobile workforces and outsourcing to include flexible office and co-working alternatives. When we begin to anticipate the impact of autonomous vehicles on everything from suburban/urban dynamics to repurposing of parking lots and logistics configurations a host of real estate challenges and opportunities opens up. While potentially disruptive in the short term, these trends will ultimately result in real estate used more effectively and with greater cost efficiency… which leads us to technology.

Technology is, potentially, the most exciting element of change in our industry. Technology adoption – including artificial intelligence – is gaining so much momentum that it is driving profitability and expanding capabilities exponentially.

Finally, wellness in the workplace is an emerging trend that intersects with occupancy solutions, the hunt for talent and also with technology. Whole health, or the combination of physical and mental wellness, is critical to the success of all enterprises. Tenants have always observed that a workforce is happier with access to natural light, plants and fresher air, but studies using sensors that measure workplace conditions now also confirm the tangible economic benefits of employee wellness.

These are just a few of the trends we’re watching in 2018.

We invite you to read Avison Young’s 2018 North America and Europe Forecast, covering 67 markets, here:

and my 2018 Forecast VIDEOCAST here:

We wish you all a very happy, healthy and prosperous 2018.

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

The postings on this site are those of the bloggers and do not necessarily represent the views or opinions of Avison Young.