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Tuesday, March 20, 2018

Stay Innovative Houston

By Rand Stephens (Houston)

Innovation has always been a part of the American spirit and the driving force of the U.S. economy. From the lightbulb to the Internet, from the Model-T to the autonomous vehicle, and from the telephone to the cellphone – we are a nation of continuous technological advancements. Technology comes in many forms and it is booming right here - in Houston, Texas.

Houston is a cutting-edge city where science, academia and industry can collaborate to take the next giant, innovative leap. Yet, many are still lamenting over Amazon passing over Houston for their HQ2 and blaming it on a shortage of digital tech talent. In fact, Houston has an abundance of tech talent that is being absorbed by the energy, healthcare and aerospace industries.  Perhaps that kind of competition for tech-savvy professionals is too much for Amazon.  

Recently, Greater Houston Partnership President and CEO Bob Harvey indicated that Houston’s lack of digital talent may be why it didn’t make Amazon’s short list for HQ2.  “While we are the number one market in the country for STEM (Science, Technology, Engineering and Math) talent, we need to bolster our pipeline of digital tech talent that is relevant to tomorrow’s digital economy,” stated HarveyThat statement is half true.  Houston is the STEM hub of the nation. It should focus on staying innovative in the industries that make this the energy capital of the world and the home of the largest medical complex in the world – two of the five major industries that drive the U.S. economy.  Instead of trying to fit a square peg in a round hole, Houston should remain centered around its natural strengths – energy, medicine and aerospace.  It does not need to be the next Silicon Valley. Innovation is essential for the medicine, energy and aerospace sectors to continue to thrive in the future.
“Houston is arguably now the country’s most important emerging city, with the largest job growth of any major metro area. Not only can engineers make money there, unlike in Silicon Valley, they can also afford to buy a house.” -

The energy industry is technology dependent, and it is no surprise that Houston is ranked 5th on the list of Top Ten Cities in the World to be anEngineer by Engineering Opportunities.comIt is the only U.S. city to make the list. Houston is the trailblazer for every element of the oil and gas industry such as exploration, production, transmission, marketing supply and technology. In fact, new energy technologies such as horizontal drilling, hydraulic fracturing and deep water offshore technology originated here or are based here.

The Texas Medical Center (TMC) is at the forefront of advances in health sciences with 5,700 of the world’s top medical researchers in the areas of genomics, clinical research, regenerative medicine, immuno-therapeutics and health I.T.  It is home to both the largest children’s hospital and the largest cancer hospital in the world.  There are so many medical advancements and breakthroughs to come out of the TMC such as performing one of the first heart transplants to developing the MasSpec Pen, a device that allows surgeons to analyze tissue while it’s still in the body and to be more precise about what to preserve during cancer surgery
Approximately 658 acres available for development in Ellington Airport.
Best uses:  Office - Aviation - Institutional - Industrial
Houston is also an aerospace mecca that attracts the nation’s top high-tech professionals for space technology and aviation industries.  It is home to the Lyndon B. Johnson Space Center, the center for human spaceflight training, research and flight control for the U.S. and NASA’s largest research and development facility.  Down the road is Ellington Field, a multi-purpose commercial and general aviation facility and a joint reserve military base to all five of the military branches, as well as the Texas Air National Guard.  In 2015, the Federal Aviation Administration awarded the Houston Airport System a launch site license, making Ellington Airport the 10th commercial spaceport in the country that can be a potential launch and landing site for suborbital, reusable launch vehicles. 
Leaders from the medical and energy industries have been in discussions to launch a data science institute to develop groundbreaking research and keep Houston competitive in the tech world.  Brilliant idea!  Houston has top-tier universities and medical schools including Rice University, University of Houston, Texas A & M University, Baylor College of Medicine and University of Texas Medical Branch that produce the best and the brightest STEM workforce in the country.  Tying academic partnerships with the energy and the health sciences industries to establish a data science center will keep Houston as the STEM hub for decades to come.  Yet, early last year, a plan by the UT System to do just that was shut down. (“Texas Medical Center, Houston’s energy industry in talks on data science collaboration”)  The proposed location for the data center would have been on 300 acres south of downtown.  However, William McKeon, president and CEO of the Texas Medical Center is now teaming up with Jeff Shellebarger, President of Chevron’s North American exploration and production, to put the consortium in a neutral location, since the proposed UT system was met with much criticism. (“Texas Medical Center, Houston energy cos. considering data science consortium)  If this collaboration of academia and industries does result in a data science center that makes Houston the intellectual epicenter, the economic outlook for the fourth largest city in the nation will continue to be strong and the opportunities for commercial real estate will be promising, as well.

People from all over the world relocate here to take advantage of the abundant opportunities that this diverse city offers.  But, even the most robust industries can have threats.  Staying innovative in energy, health sciences and aerospace is essential for Houston to continue to be the leader of the major drivers of the U.S. economy.

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

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.)

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