REALpac Study Shows Sinking Confidence in Commercial Real Estate

A gloomier-than-usual economic outlook has top commercial real estate executives concerned about where the local market is heading, according to a Real Property Association of Canada (REALpac) study. (There's a lot of money in commercial real estate tarot card reading now-a-days.)

"With so many unknowns in the picture right now, including a slower-than-expected recovery in the US, it's no surprise that there's a mixed bag of sentiments among property leaders right now," REALpac VP Carolyn Lane (second from the left). The REALpac quarterly surveys measure current outlooks on real estate conditions, values and availability of capital. Many market participants see higher interest rates, a decrease in transactions, and cap rate decompression in the short-term future. Carolyn added that while the study showed concern over short-term speed bumps, fundamentals are still seen as strong, and the general consensus about the long-range forecast remains positive. (So don't turn to a life of crime just yet.)

KAO Canada Deal Shows High Demand in Mississauga Corridor

The lease deal at 75 Courtneypark Drive West in Mississauga, where KAO CanadaÂ took over 38k SF--the last space available in that building--is indicative of high demand up the Highway 10 corridor, says Avison Young principal Joe Almeida. The building is one of three there, part of the Mississauga Gateway Centre (developed by the Healthcare of Ontario Pension Plan). Joe says the city is looking for more intensification up that corridor. Combined with the demand, HOOPP is now changing their plans and are instead building a five-storey, 150k SF mid-rise tower (image), with the top two floors already leased out (62k SF, to Compass Group Canada). Stay tuned for more lease action there in the coming weeks, says Joe.

Silver Lining For REITs

In a cautious REIT market, Dundee Capital's senior real estate analyst Frederic Blondeau tells us there is still a number of companies to keep an eye on, focusing on their growth potential without having to bring on additional capital. Multi-rez and seniors living REITs are the sub-sectors on his hit list. Frederic's Top 5?: Boardwalk (BEI-U), in the multi-rez sector, because of solid rental fundamentals, a top-tier management team and a conservative balance sheet—giving them the flexibility to support any growth initiatives. InterRent (IIP-U) is a multi-rez company that had a new management team take over its portfolio in 2009, repositioning those assets, and has now realized higher occupancy and rents—which fueled a high number of property acquisitions in 2012.

Frederic also points to Mainstreet (multi-rez; MEQ) as one to keep focused on over the next 12 months because of anticipated occupancy growth and acquisitions, and Leisureworld (LW), which Frederic says is the most appealing REIT in the seniors living sector because of its low-risk model, conservative balance sheet and the opportunity to boost cashflow because of a better-than-expected performance in RH property operations. The announcement in April that they were acquiring a portfolio of 10 properties in Ontario increased the number of beds/suites by 30%. Allied Properties (AP-U,snapped is their King St office) caps off the Top 5. Frederic points to their strong internal growth numbers, their ability to lease out what they have—and $150M in liquidity and $400M in unencumbered properties. "While the cost of equity has risen for publically listed entities," he says, "interest rates remain near all-time lows and investment spreads remain attractive."

Yorkdale Rolls Out Latest Luxe Retailers

The next three weeks will be a busy period for Yorkdale Shopping Centre, as Tumi, Gucci, Chanel, Prada, and David Yurman all open their doors with new stores (and we all open our wallets), all part of this luxury retail quadrant the shopping centre off the 401 has been building up. "For these companies, it's a great opportunity to see what is involved logistically, and what the product demand is, in external markets," Yorkdale GM Anthony Casalanguida tells Bisnow, adding that many of the US retailers coming to market in the GTA are looking to use Yorkdale as a jumping-off point for more locations across Canada.

Colliers Deal Shows Increased Demand for 905-Area Land

Colliers' Jeremiah Shamess says the $38.6M deal they just brokered for three portions (60 acres total) of land west of Toronto (one of the largest brokered greenfield land deals of the year; the end use of the land will be residential) shows the continued hunger for a dwindling supply of large tracts of land for development, where, "land owners are pushing the boundaries in terms of what values they wish to ask for. I have seen it time and time again." That is making it challenging at his end to determine true land value, he says. (Might as well blindfold yourself and throw a dart at a chart.) Despite the demand, he adds, with development charges increasing, it's the "larger, more sophisticated developers" that can realize long-term, double-digit returns, Jeremiah says.

Proposed Transit Revenue Tool Would Impact

Speaking of an uptick in development charges, a new CBRE study says Metrolinx's proposed 15% hike in charges to help fund transit in the GTA would negatively impact the industrial market, according to a new CBRE study. This would come at a time when municipalities already are raising development charges, all making the cost of industrial construction higher. For example, in Richmond Hill, the most expensive municipality for industrial construction (charges of $23.89 psf), with new industrial buildings in the GTA averaging over 241k SF, a building that size would result in $4.7M in development charges in Richmond Hill--$6.6M if the Metrolinx plan goes through. That could give other municipalities a competitive edge, including those just outside the GTA, says CBRE EMD Andrew Wright.