CBRE and Colliers are two of the most prominent real estate services and investment firms in Canada, and their leaders answered questions about the industry during a May 20 webinar presented by NAIOP’s Vancouver chapter.
CBRE’s Canadian president and chief executive officer Werner Dietl was joined by Colliers Canada president and CEO Brian Rosen for a conversation with Jenn Podmore Russell, senior vice-president of operations for Vancouver real estate services firm Rennie.
Podmore Russell opened the event by listing several reasons to be optimistic about the economy and the real estate market, including:
– a low-interest-rate environment and the Bank of Canada’s commitment to maintaining it;
– almost $90 billion in savings sitting in the bank accounts of Canadians;
– the strong stock market performance;
– more Canadians being employed now than before the pandemic;
– and an anticipated increase in immigration.
Podmore Russell asked Rosen and Dietl what has them excited at the moment.
Rosen expects the industrial real estate asset class to keep chugging along well and he’s looking forward to an accelerated transformation of retail.
“We haven’t seen that acceleration happen yet, in part because of the hesitance to sell and take some of the write-downs over the last couple of years,” Rosen said. “But, as things start to transform naturally coming out of the pandemic, we’re going to see which service industries and people made it or didn’t make it through, and that’s going to accelerate even further some of the transformation.”
Rosen said building supply chain facilities in areas that have higher rent profiles isn’t currently profitable for businesses or building owners, so it will take bold visions and a lot of reimagining to make last-mile delivery work more efficiently.
Dietl believes industrial and multifamily will remain strong asset classes and retail will be a big part of an increase in mixed-use developments.
The future of office spaces
Dietl thinks offices still have a bright future but will be used in different ways. Flexible and agile workspaces will be important within portfolios.
Dietl said more end-users may start owning their spaces instead of leasing them so they have more control over their environment and can make employees feel more comfortable: “What does the future look like for the best and the brightest and how do they want to operate, and how do you find a way to balance that with what the company wants, to foster collaboration?”
Rosen feels offices are critical for gathering, collaboration and innovation, especially in real estate-related businesses where brokers can use them to get to know clients better.
Many tenants are still unsure about their plans and are deferring major lease decisions and looking for shorter terms, according to Rosen. Some are also experimenting with technology and designing more modular spaces.
Dietl said there are fully built-out office spaces available to sublet in the market which are receiving multiple offers.
“Trading volume hasn’t returned on the leasing side to what it was, but there is activity,” he noted. “Even in the lockdown cities of Montreal and Toronto, the activity that’s going is decent, given the lockdown and COVID playing much better.”
Demand for investment properties
Last year was dominated by private capital, with high-net-worth investors, value-add funds and opportunity funds driving investment activity, according to Dietl. More institutional money is now looking at longer-term opportunities as market conditions have stabilized.
Dietl said data centres, life sciences facilities and self-storage properties have become more mainstream, and he thinks other new asset classes will emerge.
While Rosen said there are well-funded and sophisticated buyers in the marketplace, the slow pace of getting buildings built is constraining supply, which is driving a hunt for product and increasing prices.
Rosen said investment activity and transactions are picking up again in the hospitality sector, with some hotels being converted to multifamily residences. He thinks travel, including business travel, will accelerate more in 2022 than this year.
Dietl has seen strong interest in hospitality properties that have been on the market, but said it’s very value-driven. He also thinks business travel will recover and he expects longer business trips of a few days instead of quick in-and-out visits.
Rosen said Canada is viewed as a very attractive real estate and business investment market – despite its relatively high costs – due to its quality of life and access to great talent. He’s spoken with several American clients who can’t wait for border restrictions to be lifted because they have technology companies eager to set up in Toronto, Montreal and Vancouver.
“There’s a lot more international capital that could be coming in to the marketplace,” said Rosen. “What we struggle with versus the U.S. is we don’t really have secondary cities.”
Dietl agreed and said mass transit infrastructure is needed in secondary markets, but it’s very expensive to create and operate.
“Canada is a great country to invest in and our major cities are coveted. The challenge for many international investors is that our asset base is too small.”
Real estate industry growth challenges
Another growth challenge, according to Dietl, is the amount of bureaucracy and long waiting times involved with the permitting process.
Dietl said more funding is needed for real estate programs in Canadian universities and the industry itself has to do a better job of promoting itself to attract top talent.
“When you think of the total GDP that comes out of our sector, it’s massive. But, we play it down. Maybe it’s a Canadian thing, but we’re just way too humble.”
Rosen added the industry also has to improve in accessing more talent from different races, genders and business backgrounds by demystifying real estate and making it more attractive. Rosen and Dietl agreed on a need to engage with communities on a local grassroots level, and that can be driven from up top.
Real estate is successful when the community around it is successful, so Dietl said efforts have to be made by companies to improve communities through improving access to affordable housing, food and childcare.
“We’re all trying to do our best to make a difference,” concluded Rosen.