Ottawa’s Commercial Real Estate Market in 2017: What should we expect in the year ahead?

June 22nd, 2017 Posted by InvestCRE Magazine No Comment yet

Alan Whitten is the founding partner of Huntington Property Group Inc.

Will Ottawa’s economy boom or bust, or offer more of the same boring, steady growth in the coming months?

Now that 2017 has dawned, the year ahead is expected to be somewhat exceptional in Ottawa, if only because it’s Canada’s 150th birthday, which offers much promise for the tourism and entertainment sector.

For the commercial real estate market (CRE)—which is defined as office, retail, industrial and mid-to-large multi-family dwellings and apartments—it will likely be just more of the same, which is a good thing. Due to the presence of the federal government, Ottawa has rarely set records for price changes, up or down, and that won’t change this year. This region will, however, continue to be a slow and steady opportunity for those looking to invest in CRE—or probably any other kind of real estate, for that matter.

One of the main drivers of this forecast is the basic macroeconomic principle of supply and demand. The supply of good-quality CRE assets is limited here, especially when considering the area bounded by the National Capital Commission’s Greenbelt.

There are a finite number of properties that can be bought or sold—or even become available— inside that boundary, and a very high majority of them are owned by those who intend to keep them indefinitely, resulting in very little supply. Influencing the demand side of that principle is the presence of the federal government, which provides a continuous trickle-down effect that ensures a basic level of demand for goods and services in the National Capital Region. This point can be debated (no city will ever empty out of residents willing to do business with one another); however, the recent example of Calgary’s downturn illustrates how a local economy can slow due to external events and other potential risks. Nevertheless, provided its main economic driver remains in place, Ottawa should always be stable, which makes for a healthy (if somewhat boring) environment for CRE.

While supply may be particularly limited inside the Greenbelt, most of the factors influencing supply and demand apply to the entire city of Ottawa. Its urban area is well defined, and unrestrained growth is very unlikely anywhere, as Ottawa already has one of the largest geographic boundaries of any city in Canada.

Other factors driving demand include the increasingly diversified economy, specifically Ottawa’s excellent tourism activity and its dynamic tech sector. That sector, particularly in Kanata North, has been undergoing a rebirth of sorts in recent years, and it’s no secret as to why. From the beginning, Ottawa’s tech sector has been based on telecommunications and software, and does anyone believe that smartphones and the Internet will be obsolete any time soon?

Look around at any exciting new technology product or service, and it’s safe to say that telecommunications and software are key components. Ottawa’s long history of expertise in these areas provides an advantage. Although the demise of Nortel Networks was indeed unfortunate, there is a silver lining: the collapse of Nortel attracted a host of international companies to fill the gap, such as Ericsson, Nokia and Ciena, each of which has a large presence in Kanata North.

BlackBerry, another example of a prosperous Canadian company whose fortunes appeared to be headed south, pivoted into a success story in Ottawa by way of its acquisition of software company QNX, a market leader in the development of autonomous vehicles. Now, Ottawa is poised to become a major research and development centre in that field. Even if you doubt you will ever travel a long distance in a self-driving car, that’s where the future is headed, and Ottawa will be at the forefront in the design and testing of this new technology. (Ironically, Apple, the multi-billion-dollar company that has achieved supremacy over all other smartphone companies, including BlackBerry, has also set up shop in Kanata.)

Today, Ottawa has the highest proportion of technology employment in Canada, higher than any major city—including tech hub Kitchener–Waterloo—and that translates into higher demand for commercial real estate.

Of course, tourism is not to be ignored. Sure, Canada’s 150th birthday doesn’t come along every year, but Ottawa is well situated to continue attracting people and events every year. To start with, Canadians will always be drawn to their capital to bask in Canadian culture and experience our country’s history. In addition to the natural advantage of being centrally located between Toronto and Montreal, Canada’s two largest cities, Ottawa is within a day’s drive of the huge population base on the eastern seaboard of the US. Those facts, combined with the presence of dozens of international embassies and consulates that draw visitors from around the globe, make the National Capital Region a significant catch basin for tourism.

Ottawa is not only rich in tourism assets such as Parliament Hill and other historical buildings, it also boasts an amazing array of world-class museums, music and arts festivals and sporting events, as well as proximity to outdoor phenomena such as Gatineau Park, the Ottawa River and the world’s largest skating rink! If those responsible for Ottawa’s many attractions promote these assets widely, both nationally and internationally, our tourism sector will continue to flourish beyond 2017. You may be able to guess my point: Tourism creates employment and opportunity, and translates into higher demand for commercial real estate.

So, the fundamentals of Ottawa CRE clearly favour strong demand for goods and services—meaning more buyers not only for accommodation, but also for everything from coffee and clothing to entertainment, which means that more businesses will be created to cater to this demand.

But Ottawa CRE is an asset class that demands capital. Despite those ridiculous advertising claims we’ve all seen (Buy real estate with no down payment!), CRE is a capital-intensive business, and buyers need both debt (in most cases) and equity (in all cases). Fortunately, Canadian banks and other lenders are unlikely to turn off the taps when it comes to financing what is perceived as among the lowest-risk assets in Canada—that’s a given.

And once you’ve acquired your asset, the future horizon appears promising for liquidity. Brookfield, a global company that currently manages more than $250 billion in real estate assets, published a report in 2013 predicting that institutional investors will increase their investments in real assets (such as CRE). The report noted that this trend is expected to “accelerate materially over the course of the next decade, with allocations to real assets reaching 20% to 30% of portfolios by 2030.”

And what about demand for Ottawa CRE assets? In 2016, Altus, a national commercial real estate consulting company, conducted a survey of Canadian real estate executives that found there were an estimated 17 buyers for every seller of good-quality industrial assets. Yes, there is demand for Ottawa CRE!

CRE is an asset that creates a rate of return, which is kind of important, as no one who invests money in anything wants it to sit idle.

Some may view the Ottawa market with skepticism due to the lowered rates of capitalization and rising price tags associated with CRE assets in recent years. However, interest rates have dropped in tandem with capitalization rates, mitigating these market changes. Your rate of return is most important when compared with inflation, and the rates of return for Ottawa CRE assets are still performing well compared with most inflation rates in the industrialized world.

Whether you are a sophisticated money manager or a family with money to invest, you don’t want to stick your money in a mattress and watch it erode in value due to inflation. In Canada, the inflation rate has stayed at or below 2% for the majority of the past decade, and many experts predict it will remain at a manageable level. Well-located and properly managed CRE investments will allow you to beat inflation on your assets.

While rate of return is important, capital growth is also a critical aspect of investing in CRE. The investment objective should extend beyond simply beating inflation, as you should expect your assets to grow in value as well. In many CRE sectors, it’s still cheaper to rent or buy something that already exists, given the current cost of buying land and building new. In 2017, this “discount” on buying existing assets should be in the range of 20% to 40%, depending on the asset.

There are reasons why new assets cost more, and the biggest one is that users who need a distinct feature will pay more for something they can’t find elsewhere. But most users, whether they are a corporation or a shop owner, will likely opt to take the cheaper route, rather than breaking the bank to buy the “shiny new toy.”

As an owner of CRE, buying a property that is already there, with a value you can measure, protects you from the risk that someone down the street will build something new and steal your tenants. This discount is also a way of shielding yourself to some extent from future development, because the cost base of existing assets is lower than it is for newly completed properties. Plus, there is good reason to expect this “discounted” initial purchase price will translate into capital growth sometime in the future.

These are some of the “macro” reasons why Ottawa is a good place to invest, but one still needs to be smart about what to buy. Do your research, negotiate hard, and be prepared when a good opportunity presents itself.

Huntington Properties was established in 1996 because we believed there are good CRE investment opportunities in Ottawa. Our subsequent growth has confirmed that it was true then, and it is still true in 2017.

InvestCRE Magazine Issue 2

May 23rd, 2017 Posted by InvestCRE Magazine No Comment yet

As the snow melts and as green shoots emerge, we feel a renewed sense of direction—of new beginnings. Here at Koble, we have built our lives around new beginnings, whether it is our clients parting ways with their commercial properties to invest in something new, or those who have just invested in something new to build a brighter future.

It is with this theme that we present this quarter’s issue of InvestCRE Magazine. However, in this issue, we not only discuss the business side of new beginnings, but we also focus on the educational aspect. As well, to add to this issue, we look at the more personal, human element as it relates to health and longevity.

Far too often, we concentrate on the right here, right now, of business—momentum that can blind us to our own wellbeing. In fact, we know we are guilty of this. A fast-paced life leading to fast-paced food, leading to little time to take care of the engine that continually drives us forward.

Therefore, we encourage everyone to sit back, take a moment, and relax. Perhaps even recalibrate and embrace the fact that personal health and wellbeing will lead to better business decisions, better investments, and, ultimately, more success—for you and for those closest to you.

So, with new beginnings and spring in the air, we hope you enjoy this latest issue.

Marc Morin
Co-editor

Graeme Webster
Co-editor

Ottawa Commercial Real Estate Property Spotlight: 348 Patricia Avenue

May 2nd, 2017 Posted by Spotlight Property No Comment yet

PROPERTY SPOTLIGHT

Welcome to our weekly Spotlight where we highlight features that make a particular commercial property distinctive.

348 Patricia Avenue

Location: Westboro, Ottawa

Westboro is fast becoming Ottawa’s best “Live, Work, Play” neighbourhood. Patricia Avenue is well located just off of Richmond Road, close to shopping, restaurants and a short walk from the Westboro Transit station and future LRT stop.

Features

348 Patricia Avenue consists of approximately three thousand square feet over 3 floors with the perfect mix of executive offices and open work spaces:

  • Lower Level – Full kitchen, additional work areas, and multiple file and storage areas
  • Main Floor – A large boardroom and reception area
  • Second Floor – Sizeable open area promoting a collaborative and creative workspace and enclosed offices with large windows

Highlights

  • A fully renovated, commercial office building in Westboro—one of the most popular neighbourhoods in Ottawa
  • Over $250,000 of stunning interior and exterior upgrades completed in 2015
  • Move-in ready for any business
  • Provides plenty of parking in a neighbourhood where parking is extremely scarce

Click here to view more on this prestigious property that sits in the heart of trendy Westboro.

Ottawa Commercial Real Estate Property Spotlight: 1114 Wellington St West

April 25th, 2017 Posted by Spotlight Property No Comment yet

PROPERTY SPOTLIGHT

Welcome to our weekly Spotlight where we highlight features that make a particular commercial property distinctive.

1114 Wellington St West

Location: Hintonburg

Hintonburg is one of the Ottawa’s most desirable neighbourhoods with a thriving retail and dining scene, as well as an active area for infill and condominium projects. Hintonburg is prospering and has an abundance of pedestrian and automotive traffic that makes it a dream location for street-front retailers.

Highlights

  • A fully leased, mixed-use commercial property in the centre of Hintonburg
  • Conveniently located close to highway 417 and less than 2 km from downtown Ottawa
  • Contains 3 retail shops and 4 apartment units—all with long-term tenants
  • Residential units consist of two 1-bedroom apartments, a 2-bedroom with a balcony, and a 2-storey, 3-bedroom apartment
  • Tenant turnover is rare
  • Vacancies are quickly leased as demand for housing in and around this neighbourhood continues to increase

Click here to view more on this prestigious property that sits in the heart of trendy Hintonburg.

Ottawa Commercial Real Estate Property Spotlight: The Eddy | 1000 Wellington St W.

April 5th, 2017 Posted by Spotlight Property No Comment yet

PROPERTY SPOTLIGHT

Welcome to our weekly Spotlight where we highlight features that make a particular commercial property distinctive.

Prime Street Level Retail for Sale in Trendy Hintonburg

Location: Hintonburg on the corner of Wellington St West and Irving Avenue

Hintonburg is quickly emerging as one of Ottawa’s most desirable neighbourhoods. This property is surrounded by a blend of heritage buildings, new residential and mixed-use developments, and is close to many popular restaurants, shops, pubs and coffee houses.

Highlights

  • Exciting opportunity to own a retail condo in a new LEED Platinum Certified Building
  • 3,333 SF available fronting on Wellington St West
  • Strong pedestrian and automotive traffic
  • Features soaring 12-foot ceilings and 2-piece washroom
  • Modern technology in this building features geothermal heating and cooling, Ottawa’s only 5by2 automated parking system, rain recovery system, and more
  • Two underground parking spaces available
  • Direct access to grade level double doors for loading
  • Less than a kilometer to Bayview station—an important rapid transit hub on Ottawa’s new LRT system

Click here to view more on this prestigious property that sits in the heart of trendy Hintonburg.

Tips Before Starting Your Next Commercial Real Estate Project

March 15th, 2017 Posted by Opinion No Comment yet

By Don Catalano | Mar 7, 2017 9:22:10 AM

Whether you’re searching for the first office space for your start-up, expanding your company with a second location or preparing to move to new office space, a new commercial real estate project can seem daunting. While finding the right office space or building to lease is a lengthy process, you can make the process simpler by doing some legwork in advance. Follow these tips to get your project off to a successful start:

  1.   Get a Clear Picture of Your Financials

Before you can begin considering office spaces and buildings, you need to know what you can afford. Have your accounting team crunch the numbers and come up with a budget. You’ll need to consider more than just rent. Commercial leases for office space also include common area maintenance fees, and you’ll be responsible for utilities. Having a clear picture of your financials will make it easier to focus your search on spaces that are within your means. (more…)

The IOT Future And Your Space

March 3rd, 2017 Posted by Opinion No Comment yet

Feb 20, 2017 3:53:31 PM By Don Catalano

 

The Internet of Things — now getting abbreviated to IOT — has been a buzzword for a few years now, but is really starting to change the way that tenants, landlords and buildings interact. New sensor technologies coupled with much more intelligent big data-driven software are enabling buildings to go well beyond saving energy and automatically dimming lights.

Before going into the future, the current applications of IOT — as described above — are real and valuable on their own right. Sensor laden buildings don’t need to have an entire floor’s worth of lights left on all night either for an empty floor that might have someone come in or for a single worker. Instead, they can sense who is there, who is not, and set lighting accordingly. The best systems can even modify the quantity and color of the light to better support employee health, productivity, or both. HVAC systems enabled with sensor technology can not only vary temperature to achieve the optimal blend of comfort and efficiency but also track indoor air quality to better ventilate. They can even measure the number of people in a space to proactively change airflow before air quality deteriorates. (more…)

Growing by Hops and Bounds

February 8th, 2017 Posted by Opinion No Comment yet

Ottawa’s Craft Beer Market brews itself into Canadian’s Hearts

By William Scott with contributions from Darryl Bilodeau, MDK Business Law

Every country has its stereotypes—for many they are just caricatures based on pop culture portrayals handed down throughout the decades. However, for Canada one steadfast stereotype exists that holds true—our love for beer.

If you have ever traveled the globe, you will see the stereotype in all its glory—from the pubs in the Untied Kingdom, to the beaches of the Mayan Riviera, to the quaint café-style restaurants of Europe, in all cases you’ll find Canadians doing what they love to do—drinking beer.

And it’s that love of beer that has woven itself into our social fabric, one that we laugh about, take pride in, and practice at almost every event in our lives. So it’s no surprise that the national capital of Canada has embraced one of our most beloved pastimes, making it a part of our landscape—the craft brewery is literally growing by hops and bounds in the National Capital and, in turn, taking Canada by storm.

It seems that in almost every neighbourhood there is another brew pub serving unique flavours of beer, all brewed with ingenuity, determination, and the love of the craft. For instance, the ClockTower Pub has been a staple in the Glebe neighbourhood of Ottawa for 20 years—and because of its popularity the booming business has since opened multiple locations across the city, including Elgin Street, New Edinburgh, the Byward Market, and Westboro. And in every instance, the restaurant and its in-house brew has won the hearts and minds of many in those neighbourhoods. (more…)

When Is It Safe To Waive Conditions?

January 26th, 2017 Posted by Opinion No Comment yet

By Eli M. Udell Real Estate Lawyer, Merovitz Potechin LLP

A key element of negotiating and finalizing a commercial Agreement of Purchase and Sale is determining necessary conditions and, by extension, a deadline for the waiver or fulfillment of those conditions.

Conditions in an Agreement may be drafted in favour of the Buyer, the Seller, or both parties, and may range from broad strokes, such as due diligence, to narrow issues, such as the repair of a deficiency identified during inspection. Regardless of the conditions included, a deadline is typically established in the Agreement to determine the date on which each party must decide whether to waive conditions or terminate the deal.

As legal counsel to real estate prospectors, investors and owners, I am often asked to highlight issues that must be considered during negotiations and during the conditional period itself. Common threads have emerged, especially in the context of Buyers and Sellers. The following is a list of recommendations from both perspectives.

If you are interested in purchasing commercial property, and you have future plans for the property beyond the existing structure or layout, consider consulting with a licensed planner before submitting an offer. A planner will review the existing property footprint with you, and will also report to you on zoning. This will help you determine if the Agreement will need to be conditional on the pre-approval of plans, on obtaining a building permit, or on confirmation of re-zoning or other planning issues.

After you have decided to submit an offer to purchase, it is helpful to include a general due diligence condition in your favour. Ensure that the condition deadline will give you more than enough time to complete your due diligence, so that a future request for an extension is unlikely. Extension requests degrade leverage. Also, consider scheduling the title search deadline in the Agreement on the same date as the conditions deadline, so that your lawyer may submit his or her title requests while the deal is still conditional, thereby maintaining your leverage.

During the conditional period, consult with trusted experts such as an environmental engineer—it is always more cost-effective to spend a bit more during the conditional period in order to save a bundle after waiver or closing. (more…)

Investment Market – The Evolving Buyer

January 12th, 2017 Posted by Opinion No Comment yet

By Graeme Webster, Koble Commercial Real Estate & Brokerage.

Over the past 10 years, we have seen a transition in types of active buyers in the Ottawa commercial real estate market, most notably between $2 to $20 million. The most recent change has occurred over the past 36 months.

Up until 2007

It was only 10 years ago that we witnessed the subprime mortgage meltdown in the US and the ensuing financial crisis. Up until that time, we were in a seller’s market and most of the buyers in the $1 to $20 million range for commercial real estate were Real Estate Investment Trusts (REIT), institutions, developers and some professional syndicators, along with long-term real estate family investors.

Deals were plentiful and competition was everywhere. It didn’t matter if properties were fully leased, or had vacancy, there was always a buyer looking to place capital. During this time frame, the market relied on projected future growth, aggressive leasing assumptions and the competing low cost of capital. Today’s fundamentals seemed to be an afterthought for most deals. In August 2007, when the subprime crisis began to affect the lending market and Ottawa’s commercial real estate market, transactions in this size range essentially came to a standstill. Lenders weren’t lending and buyers paused, assuming that the prices of real estate would plummet.

(more…)