本文发表在 rolia.net 枫下论坛December 13 , 2001, Toronto-A review of real estate activity in major Canadian markets took place at the 10 Annual Real Estate Forum in Toronto. Michael Dosman, Chairman of the Toronto Real Estate Board’s Executive Council, Commercial Division is reporting on this session.

Despite the pall of doom cast by thoughts of a recession for the coming quarters, Royal LePage’s annual review of real estate activity in the major Canadian markets held fast to a positive note.

Sheila Botting, Royal LePage Advisor’s executive vice president suggested that the slow and gradual recovery of the GDP will likely occur in the latter part of 2002, "and the year will end up, overall in the one or possibly one-and-a-half GDP range."

Currently, the GDP has only just fallen off, said Botting, and there hasn’t been a substantial drop in occupancy to date. Nonetheless, she cautioned that the first half of 2002 would not be an easy one.

BIG INVESTMENT PROPERTIES HOLD THEIR OWN
With a 9 per cent vacancy rate, strong rents and credit-worthy tenants, class A properties are quite capable of holding their positions. Some restraint in the financing markets and a weak new supply will keep rents stable. "There’s no reason," said Botting, "to think this slowdown will have the same impact of the 1990s recession." To date, investment activity remains constant from 2000.

ENTERTAINMENT RETAIL VULNERABLE
This sector is only expecting annual sales to be up by 2 or 3 per cent this year and Botting cautioned to watch for activity in the entertainment sector, which, with its dependence on consumers’ disposable income, is more vulnerable in a harsher economic climate.

WAREHOUSING AND DISTRIBUTION KEY TO INDUSTRIAL
The key component to the industrial sector is warehousing and distribution, an area of business that employs 840,000 people and represents 6 per cent of GDP. Technological efficiencies and the importance of goods being delivered 24 to 48 hours from the time of ordering has resulted in a proliferation of super regional facilities in Toronto, Montreal and Calgary.

There is now a national total of 540 million square feet of distribution space which constitutes 42 per cent of our national industrial inventory. Changes to border policies are, however, beginning to affect warehousing.

TECH SUB-LEASING DRIVES UP OFFICE VACANCY
Paul Morse, Royal LePage Commercial’s vice president & manager, office leasing said that companies are refocusing on reducing cost and preserving capital which means real estate and other capital expenditures have been put on hold for now. "We expect to see just 1.3 million square feet of positive absorption," said Morse adding that this constitutes the lowest rate of absorption since 1995.

He also expects vacancy rates to climb to 8.2 per cent with the high-tech sector’s subleasing activity accounting for two-thirds of the total increase in vacant space since 2000.

OFFICE RENTS RETURN TO NORMAL PRICING
Across Canada class A net rents have declined by an average of 10 to 15 per cent falling to their pre-2000 levels, said Morse, explaining that this is more a return to normal pricing than it is a collapse in rent. Morse believes property owners are heading into the downturn from a position of strength and that, "net rents have already adjusted to the market realities."

Next year, Morse expects to see 5 million square feet of positive absorption and over 6 million square feet of new supply. This gap, he suggests, will bring the overall vacancy rate up to 8.4 per cent.

TORONTO OFFICE VACANCIES RISING
The GTA is an extremely well-diversified market that, by year end is likely to see vacancy rise to 7.7 per cent. As a result, we are likely to see 250,000 square feet of negative absorption (something Morse says the city hasn’t seen in nine years – when vacancy rates were just under 20 per cent).

More contraction is the diagnosis before the GTA market gradually expands to the latter half of next year. He expects to see just 1.7 million square feet of new space on the market (half of what was built this year). Tech-heavy sub-markets will continue to put downward pressure on rents. Nonetheless, leasing activity will be ready to turn up again by mid year – in time to offset the tumult of the first two quarters.

FOUR TAKE-HOME POINTS:
Botting closed the morning session calling attention to four major points.
1. In the short term, vacancies should rise and rents should come off slightly but at the same time, the constraints of new development and the low interest rates are providing owners with more potential for profit.

2. Canada’s five major cities are becoming increasingly important as regional economic centres and that’s more important to Canada than Toronto – a city that is currently our national business district and major corporate headquarters. (A recent Conference Board of Canada study found that economic integration in North America proceeded faster in the last decade than any of us would imagine. Free trade and the shrinking dollar drove our manufacturing output up to 140 per cent. And head offices have increasingly become regional offices for U.S.-based multi-nationals.)

3. Within North America, Central Business Districts (CBDs) are evolving into a hierarchy with 24-hour CBDs – which host business and residential activities around the clock – taking the top spot over 9-to-5 CBDs. These 24-hour CBDs command the highest office rents and property values across North America. Such spatial relationships among cities and regions are dictating the value of commercial real estate.

4. Real estate continues to be the asset of choice. In Canada, real estate represents 27 per cent of our assets – $2.7 trillion – one-third of which is in commercial real estate. Real estate continues to endure as an attractive investment - it’s a hard asset and a safe haven in these uncertain times as well as a strong hedge against inflation.

Botting concluded the breakfast with more optimism saying that: "What we expect to see in the near future is a flight to quality a search for stability and a recognition that real estate is one asset class that always has value."

THE INDUSTRIAL REAL ESTATE MARKET
Given its stable yields, low volatility and great tenant diversification, David Barry isn’t surprised many conservative investors are eyeing industrial real estate as a solid asset class. As vice president of Penreal Capital LP, he is in fact, one such investor representing the pension fund point of view on a four-member panel discussing the some of the sector’s latest trends and identifying the coming opportunities.

"When times are tough and vacancy is high," says Barry, "this cycle won’t be as deeply felt by industrial as it will for those in the office sector."
Barry expects to see a greater number of subleases not renewed in the short term and overall lease transaction activity to slow down.

HOLDING STRONG
Chris Lawrence of Perimis Properties agreed with Barry saying that there has been a great awakening in the markets to the benefit of industrial real estate. With regards to fears of there being a slowdown in development, Lawrence said he doesn’t see new construction in industrial tapering off to mid-90s levels. Vacancy is holding and occupancy is holding, he said.

"If we see some relief in the latter part of 2002, the impact on the industrial market will be far less significant than on other sectors," Lawrence stated, echoing the thoughts of some of the other panelists.

NO CHANGE IN RENT
Joe Nestic, senior vice president with Menkes Developments Inc. said there’s nothing to fear but panic.

"The industrial sector is still strong," he said noting that between the peak of 2000 and now, rental rates have only come off by about $0.25, so that in fact, there hasn’t been an appreciable change in rent.

"As developers, the only risk we have out there is contractors panicking," he said adding that when pension funds acts as developers they sometimes conduct deals for too little driving prices down. "Without panic or fear," he added, "Toronto will do fine."

INDUSTRIAL OPPORTUNITY
Kevin Pshebniski of Calgary-based Hopewell Developments is inclined to agree with Nestic’s perspective on Toronto saying that his firm is expecting to move into the GTA in a larger way. While it remains a dominant player in the Calgary market and continues to feel positive about that market (particularly regarding condominium product), Hopewell is always looking for large and small opportunities, said Pshebniski.

Perimis Properties’ Chris Lawrence pointed out that industrial is a sector favoured by many because "industrial costs less to own in the long run. That’s why people like it," he said. "The key is to just buy product with good physical characteristics like location and construction."

Nestic said opportunity lies with in-fills. "Find the right spot and build one building at a time," he counseled saying that the GTA was a "meat and potatoes" market (plastics, chemicals, manufacturers) and that such products will always need to be produced, warehoused and distributed, regardless of the economic climate. "Seasoned pros in Toronto," Nestic said, "will make money."

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本文发表在 rolia.net 枫下论坛December 13 , 2001, Toronto-Ross Brennan, President and CEO, Commercial Mortgage Origination Company discussed results of a survey of 40 financial institutions and all schedule A banks on commercial mortgages in Canada. Michael Dosman, Chairman of the Toronto Real Estate Board's Executive Council, Commercial Division is reporting on this and the views of panellists on what to expect from the economy in 2002.

WHO’S DOING THE BUSINESS
Brennan noted the average loan is $3 million with $13 billion in annual volume (4700 new commercial loans). Life insurance companies are doing the most business with 40 per cent of this total. Banks are next with 20 per cent, pension funds at 15 per cent, 13 per cent securitized, 9 per cent credit unions and 3 per cent warehouse.

Pension funds have significant cash reserves that are not yet available in the lending market due to the lack of internal expertise to underwrite. If their lending increases by only 3 per cent of total asset allocation, this could have a major positive impact on the availability of funds in the market.

WHERE IS THE BUSINESS BEING DONE
Ontario, with 38 per cent of the country’s population, accounts for 46 per cent of these loans followed by Quebec with 18 per cent.
By property type, office accounts for 31 per cent, 25 per cent retail, 22 per cent multi-family, 16 per cent industrial and 6 per cent other.
The majority of loans are for 5 to 10 year terms and currently liquidity for real estate debt is excellent, both short and long term.

LARGE MORTGAGE MARKET
Other panelists discussed the large mortgage market with loans over $25 million. This market is more conservative than the small loan market, but lender concerns are the same.

There is a good supply of capital in this segment of the market and conduits have increased their lending limits. However, there is decreased activity from offshore lenders. Annual volume is $5 billion with the average loan totaling $94 million. Traditionally, major office and retail interests seek funding in the mortgage bond mortgage for loans in excess of $50 million.

Since the last major downturn in the early 1990s, the loan transaction cycle time has been averaging three months. Lenders want to ensure the asset is maintained at a level that the asset is in as good a state of repair and maintenance in year 10 as it was at the point of purchase. That is why NCF is so important so the lender can require the borrower to assign a per cent of cash flow into a capital and maintenance fund with a spending schedule.

HOW WILL OUR ECONOMY PERFORM IN 2002 AND BEYOND?
Jeff Rubin, Chief Economist and Managing Director of CIBC World Markets Inc. observed that in his view the U.S. economy has been in a recession since March 2001, but that the impact has not yet been reflected in our GDP.

He noted that over 400 basis points (four percentage points) have been cut in U.S. interest rates and will continue to fall. The housing sector and auto sales have not been impacted yet. Rubin is expecting $150 billion in direct fiscal stimulus by next year in the U.S. "We have yet to see comparable stimulus in Canada and anything less than $8 to $10 billion will be insignificant," said Rubin. He argues Ottawa is not positioned to spend this much and that tax cuts (sales taxes) will stimulate but is not hopeful this will happen and is expecting around $4 billion in fiscal stimulus from Ottawa.

Rubin expects monetary policy will do the heavy lifting for the economy through interest rate cuts. The 30 per cent devaluation we’ve seen in the Canadian dollar should have led to inflation, but that hasn’t happened. Huge surpluses have also contributed to the low Canadian dollar in Rubin’s opinion.
He is anticipating a recovery by spring/summer 2002. However, it will not be as rapid as the expected U.S. recovery where the government has initiated greater fiscal stimulus.

Don Drummond, Senior Vice-President and Chief Economist with the TD Bank Financial Group was of the view that productivity in the construction sector hasn’t been very good. He went on to predict 2002 building starts growth in the industrial market of 1 to 1.5 per cent, 1.5 to 2 per cent in the commercial-office market and 2.2 per cent in multiple housing units.

Drummond went on to note that the shift appears to be towards a service-based economy, consistent with other industrialized countries. David Baxter, Executive Director of The Urban Futures Institute predicted that the increase in consumer spending will grow faster than population growth over the next 50 years. He expects population growth of 30 per cent in southern Ontario, Alberta and B.C. Without population growth in Canada, he is projecting dramatic labour shortages by 2050, especially when other factors are considered such as an aging population, low birth rate and early retirement.

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