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Wednesday, November 23, 2011

Einstein and the Future of Alberta's Energy Market

By Walsh Mannas (Calgary)

Bloomberg recently ran an in-depth article reviewing Alberta’s role in global energy supply in the wake of the American Government pushing off a decision on the XL Keystone Pipeline for 15 – 18 months (the article can be found here).

The article addresses a number of key issues facing Alberta’s energy policies which include evaluating Alberta’s potential trading partners, environmental risks associated with various pipeline routes and the delicate relationship between Albertan and American politics.

Immediately after the global economic correction which hit Canada in late 2008 there was a lot of ink spilled contemplating what historical averages, be they rental rates, commercial real estate vacancy rates or energy prices, Alberta would stabilize at. My position is that recent technological advancements and the forming of new international trade/investment relationships have rendered the correlation between historic and future averages nearly obsolete. As Albert Einstein mused that it is insane to expect different results by doing the same thing repeatedly I would argue that it is insane to expect the same (historic) market results by producing energy more efficiently and selling that energy to a broader market.

I draw this conclusion by evaluating the technological advances Alberta’s energy market has adopted through the past decades (horizontal multistage natural gas fracturing and steam assisted gravity drainage being two of the most advantageous) and the ongoing diversification of foreign trade/investment partners. These two market realities paired with buoyant oil prices have insulated Alberta from recessionary forces over the past three years and have put Alberta in a great position to meet the ever increasing global demand for refined and unrefined energy alike.

As recent Alberta energy land sales have hit all time highs this year, energy production is becoming more and more efficient and as the global energy markets are clamouring for more energy security Alberta seems to be an ideal market for long term investment.

Monday, November 21, 2011

Silver lining along the Silver Line?

Reston-Herndon-Dulles Toll Road Submarket - by Dan Gonzalez

The biggest news to hit this submarket is that California-based Bechtel Corp. will move 625 jobs from Frederick, Md. to Reston Town Center, where it will occupy 200,000 square feet at 12011 and 12021 Sunset Hills Road. The move will occur during the third quarter of 2012 to the buildings that were developed by Boston Properties in 1999.

Overall, as of the end of the third quarter, office rental activity in the Reston-Herndon submarket (along the Dulles Toll Road) of the Washington, DC. region remained sluggish though. This trend probably will continue into the first part of 2012. What activity there was, occurred through renewals and relocation.

According to the 3Q Avison Young Washington Report, the Reston-Herndon submarket has a vacancy rate of 14.49 percent; year-to-date net absorption of 247,000 square feet; and an average rental rate of $28.

While most leasing activity for this submarket was small to medium sized deals, in addition to the Bechtel announcement, ManTech Corporation signed a lease for a large consolidation of 109,736 square feet at 2251Corporate Park Drive in Herndon. The company will be combining several locations, which has been a recent trend among government contractors --- including Qinteiq, Deltek, and EADS North America --- to realize certain efficiencies and take advantage of current favorable rental rates. ManTech will be backfilling space vacated by Scitor Corporation, which is moving to 12010 Sunset Hills Road in early 2012.

The construction of the Silver Line Metrorail extension to Dulles International Airport is creating demand for mixed-use projects such as Dulles World Center, which will have its own Metro stop. At build out, it will be the same size as Reston Town Center and have 4.1 million square feet of office space in eleven buildings; 400,000 square feet of retail space; 1,300 residential units; and a 350-room full service hotel.

Uncertainty for 2012 is still the theme, but perhaps there are some silver linings starting to cling to the clouds we have been accustomed to seeing.

Thursday, November 17, 2011

Mainstream Media Begins to Report on New Accounting Rules

By Michael Fonda - Chicago

Rand Stephens blogged about the forthcoming accounting rule changes here on May 2nd of this year. As Rand pointed out, the impact on the real estate industry would be significant. Companies will be forced to treat their leases as a new kind of asset that they would then have to place on their balance sheet, offset by a corresponding liability.

In yesterday's Wall Street Journal, this accounting overhaul (which is being coordinated between the U.S. Financial Accounting Board Standards FASB and the International Accounting Standards Board IASB) is finally getting traction in the mainstream media. That being the case, maybe this overhaul, which has been going on for years, is close to implementation. If so, get ready for short term leases with multiple renewals. In non-core markets where cap rates are penalized by leases with a short fuse, companies may be forced to purchase their real estate.

Wednesday, November 9, 2011

Fall 2011 Metro Vancouver Industrial Overview

By Michael Farrell - Vancouver

The Vancouver office released our semi annual report on the regions industrial market last week with an overall tone of cautious optimism and an excellent Q&A section on how low interest rates are impacting our local market place. The report can be found by clicking this link:

The local 180 million square foot industrial market is defined by restricted supply, which can be attributed to physical (mountains, oceans, and USA/Canada Border) and legislative (Agricultural Land Reserve) restrictions. This has always frustrated users, developers, and investors from within and outside the region. However, during the recent downturn, investors were delighted with the relatively quick recovery to low vacancy rates and capital preservation observed within this market and this has only fueled further interest and cap rate compression.

Historically these same barriers have provided local developers with some protection from outside competition; however locally competition is fierce. Lately we have seen more large scale (300,000 sf plus) buildings completed on a speculative and build-to-suit basis and this has caught the eye of larger developers from outside the region. The main issue is how to gain scale efficiently in the local market place. Ultimately, large scale users will have to depend heavily upon developers to source and deliver the right product at the right price (Vancouver premium included). If developers are unable to do so users will have to consider doing it on their own (as Loblaw's recently did with a 400,000 sf distribution center) or rely upon existing product released to the market due to churn, limited build-to-suit opportunities, or the more traditional style of local development (100,000 to 200,000 sf at a time).

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