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Thursday, February 28, 2019

Toronto – A Development Retrospective

By Bill Argeropoulos (Toronto)

As I celebrate 10 years with Avison Young, I can’t help but reflect on the changes I’ve seen in the downtown Toronto office leasing market during my 31 years in commercial real estate.

Those who have joined the industry in the last 10 years – when we’ve seen continuous development in the downtown market – may not fully appreciate the extent of the peaks and valleys the market has endured over the decades, and how the current wave of development compares to the boom years of the 1970s, ‘80s and early ‘90s which shaped the downtown as we know it today.

These musings inspired me to create this chart, putting the past 50 years into perspective – along with what’s coming in the next five years.

A look back over the years inevitably leads to the question: does this ongoing construction cycle, which started in 2009, constitute a renaissance in the Toronto’s downtown office market?

With historic-low vacancy (1.8%) and a burgeoning development pipeline, the red-hot downtown market has attracted a lot of attention recently – and deservedly so. Supply constraints remained the market’s Achilles heel in 2018 and will be the primary brake on growth in 2019. This situation is set to persist until nearly 8 msf (out of a record wave of new development comprising almost 10 msf) is delivered to the market between 2020 and 2022. Consequently, rents are on the rise and although each deal is different, in many cases, space that would have leased for $35 per square foot (psf) net one year ago has risen to the range of $40 to $50 psf, with rates breaching the $50-psf mark for the best office space.

Although the building boom downtown continues to capture the headlines, a comparison with the city’s suburban markets paints a different picture. The results may surprise you!
Since 2000, cumulative new office completions in the suburbs outpaced downtown by a factor of nearly two to one. This gap is set to narrow, as almost 10 million square feet will be delivered downtown by 2024 – compared to just 1.3 million square feet now underway in the suburbs.

As of year-end 2018, suburban vacancy fell below 10% for the first time since 2011 (buoyed by a strong performance from Toronto West), as the suburbs posted notable quarterly and annual gains in occupancy, which lifted overall suburban absorption to 1.7 msf – an 11-year high.

Even though the downtown office market receives most of the attention, the suburbs appear to be turning the corner, supported by a greater emphasis on public transit infrastructure, transit-oriented development and urbanizing assets. For example, the Vaughan Metropolitan Centre has benefited from the TTC subway connection opened in 2017, while the GTAA’s Pearson Transit Hub project looks to bring connectivity to the surrounding Airport office nodes.

Though downtown is booming, could dwindling available sites and the rise of transit-oriented development favour the suburbs and actually help to sustain the longer-term development trend? Only time will tell.

For additional insights into the Greater Toronto Area office market click here:

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

Tuesday, February 12, 2019

Astros Golf Foundation Hits a Homerun for Memorial Park

By Rand Stephens (Houston)
Once again, Houston collaborates to produce innovative results that benefit the community as a whole by making the connection between private and public partnerships. The Astro Golf Foundation’s $13.5 million proposal to renovate Memorial Park Golf Course was passed by Houston City Council on January 9. Renovations are well underway, teeing up Memorial Park to host the 2020 Houston Open.

Using private funds to renovate a public golf course benefits Houston on multiple levels – revenue for the city, money raised for charities, and a golf course face-lift designed by world-renowned golf course architect Tom Doak (with the collaboration of Brooks Koepka, current U.S. Open Champion) at zero cost to tax payers and zero course fee increases. Although local golfers and park goers will have to endure the inconveniences of construction over the next several months, the positives far outweigh the negatives.

Over the last 70 years, the tournament has bounced around many different golf courses in and around Houston, including BraeBurn Country Club, Quail Valley Country Club, Pine Forest Country Club, Champions Golf Club, Woodlands Country Club and Golf Club of Houston (formerly Redstone Country Club). The tournament was first hosted by River Oaks Country Club in 1946 and moved to Memorial Park the following year.

Memorial Park Golf Course was a hotbed for the city’s best golfers during the 40’s, 50’s and 60’s when they congregated and competed at the park to sharpen their skills.  The most notable player being golf hall of famer and Masters Champion, Jackie Burke, who was recently inducted into the Texas Sports Hall of Fame with George Forman, AJ Foyt and Dan Pastorini. Also, golf legend Arnold Palmer won the tournament at Memorial Park in 1957.

Bringing the event back to Memorial Park is a stroke of genius. Not only does one of the city’s crown jewels get restored, it’s an area that’s centrally located and easily accessible via Uber or Lyft and a putt away from Uptown Houston which is home to some of the most prominent energy, financial, real estate and professional services in the world. The renovations to Memorial Park and its golf course, coupled with the projected 2020 completion of the dedicated bus lane project will make Uptown-Galleria the ultimate live-work-play location.

Given the disruption that many retailers along Post Oak Blvd. have endured because of the bus project, having the Houston Open return to Memorial Park Golf Course may be just what is needed. Retailers in that area will undoubtedly benefit from the estimated $50 to $90 million economic impact that the tournament will bring to the city.

Renovations, improvements, construction will always bring temporary hassles, but that’s just par for the course. When the final outcome spurs prosperity for businesses, charities and the community, well that’s just a homerun for all.

Monday, February 11, 2019

Mission impossible: Selling a contaminated site for future use

By Janko Pahlitzsch (Berlin, Germany) 

For the past 15 years, I have been advising owners, banks and insolvency trustees on the sale of land and other real estate throughout Germany.

Often, the properties are no longer in demand and, therefore, new usage ideas have to be developed and implemented. Consequently, changes in use have to be approved by local authorities.

The process of seeking the approval of a new use for a former industrial site is particularly challenging and demanding. Often, sites are contaminated and disproportionately high disposal costs are added to the sale price, making the site’s sale and conversion even more difficult.

The future allowable use is usually unclear, and that raises the question for investors of whether the purchase and demolition are economically viable.

The above factors make the broker’s work significantly more difficult and force the seller and the buyer to spend a considerable amount of time reviewing a potential transaction that faces an uncertain outcome and risk of cancellation.

The solution to completing this type of difficult deal lies in getting a real estate broker and the local authorities involved early in the negotiation process. Without clear confirmation from the authorities on what is allowed and what is not, the seller and the buyer will have difficulty converting the site to a new use.

By dealing with authorities on a daily basis, the broker has knowledge and expertise that the seller and buyer often lack. Early advice and contact with the authories will make the everything proceed much more smoothly.

For example: Avison Young is currently representing a U.S.-based chemical company in the sale of a 700,000-square-foot site in Pirmasens, Germany. Chemical production at this location is no longer economically viable. Preliminary talks with local authorities revealed an attractive – and allowable – use of the property as a 24/7 logistics operation. The use of retail was categorically rejected. 

The authorities’ clear statements on the property’s allowable and unallowable uses enabled us to approach logistics real estate developers in a targeted manner and to enthuse about the location. The property’s sale is scheduled to close in May 2019. 

(Janko Pahlitzsch is an Associate Director in Avison Young’s Berlin office with 15 years of commercial real estate investment sales experience. He specializes in advising owners, banks and insolvency trustees on foreclosure/forced property sales throughout Germany.)

Friday, February 8, 2019

Avison Young completes acquisition of U.K.-based GVA; two companies combine under Avison Young name and brand

By Mark E. Rose (Toronto)

We couldn’t have been more excited to announce last Friday the completion of our acquisition of GVA – one of the U.K.'s leading and most diverse real estate advisory-led businesses.Even more exciting is that our two companies have now combined under one unified brand – Avison Young.

This acquisition represents another milestone in our global expansion strategy, and the combination better positions us to serve our clients across the world. As a result of the transaction, we are now 5,000 strong in 120 offices in 20 countries around the world, and the only privately held, Principal-owned, global, full-service commercial real estate services firm. The combination also establishes Avison Young among the top five commercial real estate advisory businesses in the U.K.

In GVA, we’ve added a like-minded U.K. real estate leader – a company that brings a partnership culture formed during more than 200 years in business. By combining our two complementary businesses, we increase our scale and presence, expand our global talent pool and reach, and enhance the breadth and balance of our services. Most importantly, the combination increases the resources that we can invest in innovation to keep our clients ahead of the curve. 

In the U.K. alone, Avison Young now has 18 offices and 1,600 employees, working with clients on the transaction and consultancy sides of the business.

Watch video here:

GVA brings to Avison Young a broad portfolio of national and international clients, including U.K. public institutions, multinational corporations, major space users, developers, owners, lenders and investors. Furthermore, the scale and depth of GVA’s offering is evidenced by the firm’s services organized around a client’s lifecycle of real estate: planning and development; project management and building consultancy; transactions; property management services; valuation and business rates.

This is a very exciting and memorable time in the history of Avison Young, and we look forward to working with our new clients, colleagues and partners around the world.

Read full press release here:

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

Monday, February 4, 2019

The Global Competition for Space and Accordant New Challenges for Land Use Planning

A Glimpse into the Future for Cultural Institutions in the 21st Century?

by Amy Erixon, Toronto

The Newseum, located in Washington, DC was founded by the Freedom Forum in 2008 to celebrate and chronicle First Amendment rights.  Its permanent exhibits include a memorial to journalists who died in the line of duty, an archive of newspapers and magazines going back centuries, and one of the largest display portions of the Berlin wall.   The history of modern journalism is told in more than 15 galleries and a dozen theaters housed at this location. 

The demise of the Newseum is the latest sign of technological and political stresses challenging independent journalism, but we should also take 
note of what this development warns us about “crowding out” of valuable charities, cultural and religious facilities and public spaces to make way for new gleaming condominium towers, shopping malls and entertainment venues. 

Despite sale proceeds of $372 million, the charity noted the most likely future of this institution is in cyber-space, an ironic obituary for an institution whose existence celebrated print medium, and this despite more than 10 years in one of the most conspicuous locations in the western world, (555 Pennsylvania Avenue in Washington, DC is  mid-way between the Trump International Hotel and the US Capitol building) in the midst of the Smithsonian, FBI Building and the Canadian Embassy.  The institution passed, for the most part, without notice. 

Like this 1892 Congregational Church at the corner of Beacon Street and Massachusetts Avenue in Boston, which was destroyed by arson in 1978, quickly followed by the approval for construction of 50 condominiums.  Far from addressing the needs of neighborhood residents (largely students) a one-bedroom unit here now sell for upwards of $1.5 million.  

Identifying sites for construction of housing is a great challenge for the world’s well-developed gateway cities, but the consequence of this fire was the demise of this community congregation, and its many charitable projects, as they had no hope of finding an alternative location in highly coveted Back Bay.  The fact that the project sponsor was renown architect Graham Gund (of Harvard School of Architecture fame) likely facilitated re-use approvals, but also ensured fa├žade restoration to record the historic passing of this community institution, which had served the neighborhood since 1814.  Lest we forget, cultural and educational facilities, open space and related physical manifestations of community fiber, heath, talent and distinction, are themselves property value boosters.  

Left to survive on charitable giving, physical space is rapidly becoming the pinch point for many contemporary cultural, ecological, religious and to a lesser extent, education and hospital organizations.  These facilities are already exempt from property and sales (revenue) taxes in the US and in Canada; it is not by accident the successful bidder for the Newseum facility was another tax-exempt organization.  Property taxes can amount to 30% or more of total costs to operate a facility in most major cities.  But it’s not just competition for sites that is squeezing non-profits, it is rising operating costs, housing costs for employees and staff and financial pressure from the growing disparity between rising prosperity and lagging charitable giving; together with shifting funding priorities by both government and individuals (the former of which makes it very difficult for charities to do long term planning).   In Canada one in ten Canadians works for a non-profit, making this the 5th largest employment category in the country. 

2018 Charitable Giving Tables

$ 410 B
$C 262 B
Per Capita
$C 7,485

Arts, Culture
Environment & Animals

In both the US and Canada, charitable giving is part of roughly 1/3 of all household budgets.  However, on a total dollars given basis (see chart on left) the vast majority of all money is being contributed in the form of major gifts from individual, extremely wealthy contributors.  In the United States, a significant portion of this activity manifests in major donations by billionaires to their personal foundations, such as the Zuckerberg and Dell foundations included in the chart on the left.   Foundations are not a key tax strategy in Canada, so donations tend to get placed more directly with worthy organizations, in order to be tax deductible.   Likewise, corporate donations are far more common in the US, (not included in the figures on the right), constituting on average, an additional 8% of total US contributions.

In both countries, University buildings and research centers (like the Bloomberg donation of acquisition of the Newseum property) are popular major gifts, and in Canada the largest pot of money is being donated to construct wings and research centers for hospitals (the vast majority of which are private).   Naming rights are largely underpinning this trend.  

In the US, individual contributions are widely spread among Human services (such as soup kitchens and homeless shelters), International Affairs (UNICEF and World Vision), Public-society benefit organizations (Red Cross and United Way) and in-kind contributions such as pharmaceuticals, computer equipment and lightly used clothing, which together comprise nearly half of all giving.   

Every one of these causes is deserving.  But in compiling these totals, especially over time, the looming crisis for public radio and television, fine arts and the environment comes into stark relief.  And the pressure for redevelopment of the prime (and often historic) real estate these cultural institutions occupy is only getting worse.    What can, and should be done? 

The steady withdrawal of federal, state and provincial support for these specific cultural and natural investments is not well understood.  Armed with more fulsome information, donors are better able to assess the needs and priorities of charitable organizations and their deployment track record.  Each of us needs to reflect on our personal values and whether the institutions we support are the best way to further those efforts.  In this era of government prosperity,  an overlay on critical land use and zoning needs to be taken to prevent funding pressures from driving these institutions away from transit served, centralized locations where they are accessible to all and contribute deeply to community pride and connectivity.  It is too late to save the Newseum, but that doesn’t mean we can’t learn from the experience. 

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