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Friday, September 27, 2019

Avison Young backs global effort to reduce embodied carbon

By Tom Malcolm Green (London)
Avison Young has formally endorsed the World Green Building Council (WGBC) report entitled Bringing Embodied Carbon Upfront as one of more than 80 signatories. This endorsement coincides with the 10th annual World Green Building Week and comes in the wake of the Global Climate Strike (held September 20) demanding climate action to target net zero.

The report sets out a bold new vision for how buildings and infrastructure around the world can have 40% less embodied carbon emissions by 2030 and achieve 100% net zero emissions by 2050. In order to achieve these targets, the industry must act together, with owners, occupiers, developers, investors, architects and consultants all leading the charge on change.

There are signs that the industry is taking the global call to action seriously as well. On Friday, the Better Buildings Partnership (BBP) published the BBP Members Climate Commitment, a pledge by 23 owners – who, collectively, have more than £300 billion of assets under management (in excess of 11,000 buildings) – to reach net zero by 2050 and, in 2020, publish their pathways to reach that goal.

A fundamental part of the carbon reduction strategy is reducing (and, eventually, negating) the impact of embodied carbon, which the WGBC defines as carbon emitted during the construction process and material manufacturing; hence, Avison Young endorsed the WGBC report. Another key part of the strategy is to reduce upfront carbon, which the report refers to as carbon released before the built asset is used.

It is clear that a radical change in industry co-ordination and co-operation is needed to ensure the required market transformation to mainstream net zero, and that the real estate industry cannot act in isolation. Promoting cross-sector collaboration is crucial, particularly as governments look to embed targets into policy and other regulatory frameworks. Innovative approaches are necessary to engage and deliver across industries – and deliver tangible results that, as a minimum, impact and satisfy the required standards.

The result of all of this is a clear mandate for the real estate industry to take action and bring its sustainability agenda to the forefront of operations. Avison Young is well-positioned as an industry leader in sustainability consulting to assist our clients in both putting together net-zero-carbon pathways and delivering on them. We see this service as good business sense and an investment in assets as well as the planet, ensuring that all of our buildings are better for everyone whilst protecting the future for our planet. The recent industry focus on climate issues clearly shows that those organisations that don’t keep up risk falling behind and losing value over time.

To discuss how Avison Young can help your business lead the change and what services we can offer, please do get in touch.

You can read the WGBC Bringing Embodied Carbon Upfront report here.

(Tom Malcolm Green is a Graduate Surveyor based in Avison Young’s London-Gresham Street office. He is a member of the company’s U.K. sustainability team.)

Wednesday, September 18, 2019

Planes, Trains and Automobiles

By Rand Stephens (Houston)
Discussion of trains and busses utilized for traditional mass transit to alleviate traffic continues to be a hot topic around Houston. As discussed in earlier blogs, mass transit (Metro) in Houston isn’t working to ease traffic congestion. Metro buses that pull over at a bus stop, in the middle of traffic, with no riders getting on or off only worsens traffic congestion.  

Let’s face it, traditional mass transit is not being used enough to make a difference because it doesn’t save riders significant time, money, and nor is it a better travel experience to and from their destinations.

However, people are amenable to alternative modes of transportation when saving time, money or improving their transportation experience. Vonlane, a luxury 22-passenger motor coach with routes between Houston and Dallas, running 8 times per day, hit the road in 2015 and business is doing well. They recently added a San Antonio to Houston route.

Why is the Vonlane having success?  Well, we’re not talking about your average bus. This is a high-end motor coach that provides a first-class experience at a similar cost and travel time as flying including navigating airport security. So, at an equal cost and travel time, people are willing to use alternative travel modes just for the improved experience -  amenities like Wi-Fi, leg room, outlets and a variety of food and beverage options.

Vonlane demonstrates that people in Texas will use alternative forms of mobility which bodes well for the high-speed rail project between Houston and Dallas. In less than 10 years, Texans may have this option that will transport them from Houston to Dallas in 90 minutes with ticket costs competitive with airlines. Still not clear whether train fares will spike for last minute purchases. (No last minute spikes for Japan’s high-speed rail.) Texas Central is closer than ever before to linking the two biggest economic powerhouses –Dallas/ Ft Worth and Houston with a bullet train using private investments. The company is expected to begin construction by the end of 2019 or early 2020 with a duration of up to five years.

Japanese bullet train – Courtesy of
The Texas Bullet Train (would be the first U.S. high-speed train) faces several challenges such as eminent domain, cost and government regulations. But, once resolved, Houstonians could be boarding the high-speed train at U.S. 290 and Loop 610, former Northwest Mall site which is slated to be H-town’s railway station as early as 2026. Other stations will be in Dallas and in the Brazos Valley.

According to research conducted by L.E.K Consulting and released by Texas Central, 90% of trips between Houston and Dallas are made by car and 85% of those who made that trip within the last year would be willing to use high-speed rail, if it were available. The Texas train is expected to have 8 cars with the capacity for approximately 650 passengers per trip. That could translate to thousands of riders per day – Japan averages 452,000 daily riders.  That could have a huge impact on I-45 traffic between Texas’ two largest metro areas. The train cars are also expected to have tons of leg room, high ceilings, wide aisles, and reclining seats (It’s all about the experience!).

When travelling – near or far, most people want to save time, save money, perhaps be productive and have an overall great travel experience. Traffic gridlock will not be resolved with a single solution, such as adding more lanes to freeways and highways and adding more busses and bus lanes. It’s going to take an infrastructure overhaul that reimagines mobility using technological advancements to improve the whole travel experience – the Texas Bullet Train may be the first giant step we need to get on track.

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

Tuesday, September 17, 2019

Romania: the outsourcing valley of Europe

By Colin Lovering (Bucharest)

People say that Romania is like its wine.

You don’t realize how wonderful it is until you’ve tasted it.

That has definitely been the case for key global business players over the last few years as they discovered, tested and invested in the country’s unique, task-oriented and deeply skilled talent pool, which has a refreshing Latin flair for creativity and the courage to embrace new technologies, cultures and pioneering employers.

Now, that description of the talent base sounds very nice. But, of course, the pool’s qualities would be completely neutralized if it weren’t for equally courageous investment in real estate and diverse education that has provided a constant flow of high-end talent into state-of-the-art office buildings throughout Bucharest and Romania’s other major cities, including Cluj Napoca, Timisoara and Iasi. As result, Romania is becoming known as the outsourcing valley of Europe.

Each majestic scene of cranes across a skyline is a testament to Romania’s aforementioned qualities – but also a constant reminder of the need to continue to healthily and sustainably raise the proverbial bar in unison with new investors’ rising expectations.

As people discovered a few years ago about its wine, Romania is no longer a nice, quirky surprise. It’s the very calculated and value-added choice for companies seeking serious business performance in global outsourcing, business process outsourcing (BPO) and automotive manufacturing.

Like many things in life, the Romanian corporate landscape and its people have inherited certain traits and cultures, particularly in relation to the country’s incredible diversity, which has culminated with a business community heavily composed of key Austrian, German, Turkish, French, Greek and British companies – and, more recently, household-name American firms, including Microsoft, IBM, Kellogg’s and Oracle, etc.

The Romanian people’s natural curiosity and welcome approach to tourists and investors alike provide a solid platform for integration and healthy, speedy starts for organisations big and small arriving here. Romania’s goodwill extends to meeting the needs of ex-pats, particularly executives’ spouses and children who require support along with quality housing and education.

Speaking of starts, startup firms are generating big buzz across Romania. Startups are inspired by young Romanians’ incredible technical abilities. Many organisations frequently tap into the country’s large millennial talent pool in their ongoing push to innovate and stay one step ahead of the competition. Young experts can quite often be found in the many co-working spaces scattered around the city.

Getting back to our wine analogy, Romania’s business community is definitely maturing nicely. Its continental flavours are distinct and diverse. Meanwhile, more organisations are hearing about it – and definitely want a taste for themselves.

Cheers, everyone!

(Colin Lovering is a senior vice-president of enterprise solutions and advisory services in Avison Young’s Bucharest office.)

Tuesday, September 10, 2019

Interest rate volatility affecting investment real estate in Alberta

By Brennan Yadlowski and Ron Dezman, AACI (Edmonton)

Reality has set in concerning Alberta’s investment market: it’s no longer as vibrant as we’d like it to be.

The provincial election in April brought in a government that is pro-business, but the outcome of the upcoming federal election in October is far from certain. Many buyers and vendors still have a disconnect of expectations on real estate investment opportunities in Alberta. Those investors who are showing confidence and making investments in our market will be rewarded in the future through significant cash flow, principal reduction and, in time, capital appreciation. Higher capitalization (cap) rates lead to positive leverage that is difficult to achieve in other major markets throughout Canada. In Alberta, the spread between cap rates and the cost of financing can equate to an excellent yield for investors.

That brings us to interest rates, which are among the most relevant factors in commercial real estate investment. Important as they are, interest rates also rank among the most difficult factors to predict and rely on consistently. In Edmonton’s capital markets (and those across Alberta), interest rates affect most financing assignments that we work on. Investors constantly base their investment decisions on the interest rates that they believe they will obtain after consulting with the debt capital markets team. In a volatile market, less compression on cap rates from market disrupters (such as private REITs) indicate that we are at the trough of an economic cycle.

It is well known that most lenders price their rates on the prime rate, the cost of funds relating to deposits, or as a spread over the Government of Canada (GOC) bond rate for any selected term. For the best assets with strong covenants attached to the transaction, tier 1 lenders such as life insurance companies and schedule A banks will usually base their five-year term rate on a spread of 140 to 180 basis points (bps) over the GOC five-year bond. Tier 2 lenders will usually base their interest rates on their respective cost of funds, resulting in a spread of 220 bps-250 bps over the GOC bond rate.

For example, a neighbourhood retail centre with a solid mix of tenants would trade in Edmonton in the 6.25% to 6.75% cap rate range, according to Altus. On this type of asset, the overall interest rate (based on the spreads listed above) would currently be 3.05% to 3.70%. This variance of 3.00% to 4.00% is attractive to many private investors in our market.

Lately, however, we have seen some Alberta lenders implement a floor rate around the current prime rate (3.95%). The trend in GOC bond rates through the first eight-plus months of 2019 has been volatile – to say the least. The wide swings that we have seen this year are reflected in the graph below. As indicated by the orange line, the yield curve today has inverted, as the five-year GOC rate was higher than the 10-year rate on August 15.

This trend could cause lenders to cut fixed interest rates relative to floating rates in the near future. Many investors prefer the certainty of a fixed rate when calculating their yields on a real estate asset. We are seeing interest rates on the A-class industrial, office and retail assets well under 4.00%, something that hasn’t happened in the last two years. This situation creates an excellent opportunity for many investors in Alberta to acquire industrial, office and retail assets at cap rates above 6.00%.


  • Investors: Be ready to set the interest rate.
  • As the federal election campaign gains steam, interest rates may begin to rise and continue to rise towards the end of the year.
  • Amid the downward trend in bond rates, the stock market has remained relatively strong.
  • We are five years into the last economic downturn in Alberta, and lease terms should be coming due for many tenancies that were on five-year terms. How these are dealt with can provide more income certainty and impact investment decisions.

(Ron Dezman is a senior vice-president in Avison Young’s Edmonton office. Brennan Yadlowski is an associate in Edmonton. Both are members of the company’s Alberta capital markets team.)

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