Ontario's Commercial Real Estate Sparkles
Due to abundant natural resources, proximity to the United States, and population growth, Ontario, “especially from the greater Toronto area to the west, may be the best place for real estate investment dollars in Canada,” says J.S. Kewin, CCIM, of Steve Kewin & Associates in Guelph. “The region has enough political regulation to discourage the kind of active oversupply you find in many parts of the United States.”
Multifamily Hotter Than Ever
Ontario's multifamily segment is extremely stable overall, with demand outstripping supply in primary markets such as the greater Toronto area and the Highway 401 corridor, Kewin says. Near record-low interest rates are driving investor demand, and lacking any adverse changes, demand and prices should increase, he predicts.
Southwestern Ontario's multifamily market is “red hot,” says Christopher Coupal, CCIM, of Whitney & Co. Realty Ltd. in Waterloo. An influx of new development, including 100 luxury units in Waterloo and 350 units in Kitchener, has not affected the region's approximately 1 percent vacancy rate. Lease rates and sales prices both are on the rise; a 22-building, 2,270-unit portfolio in London recently sold for approximately $82 million, he says.
Multifamily is the hottest commercial investment segment in eastern Ontario, with occupancy more than 95 percent and improving, says Bruce E. Cooke, CCIM, of Royal LePage ProAlliance Realty Ltd. in Belleville. Although little construction is occurring, demand is growing for new product with security, garden suites, and proximity to public transportation, shopping, and recreation, he says.
Toronto's industrial market is experiencing “significantly more subleasing activity” and lower levels of construction, most of which is build to suit, says G. Raymond Lyons, CCIM, SIOR, of Thomas L. Johnson Realty Ltd. in Mississauga. About 5 percent to 6 percent of greater Toronto's approximately 750 million square feet of space is available. Demand has pushed up prices for small buildings, but prices for large buildings have not risen significantly and “there is downward pressure on lease rates on larger blocks of space,” he says.
Negative absorption continued to plague Ottowa's industrial market through third-quarter 2002, but moderate leasing activity should balance the market by the end of the year, according to CB Richard Ellis' Ottawa Industrial Market Index Brief. Although the vacancy rate holds steady around 5 percent, “there is a slight increasing trend,” says James Shotton, CCIM, of CB Richard Ellis Ltd. Although current new construction is limited, “several build-to-suit opportunities are being explored,” he says. “We see [industrial] as a steady performer, with overall supply growing at 1 percent to 2 percent per year.”
Canada's Technology Triangle, comprising Kitchener, Waterloo, Cambridge, and Guelph, is experiencing a retail development explosion, including Cambridge Centre's 300,000-square-foot expansion, Cambridge Power Centre's 600,000-sf expansion, and a new big-box project and power center in Kitchener, according to Mel de Oliveira, CCIM, of CB Richard Ellis Ltd. in Kitchener. Occupancy rates average 96 percent, approximately 1 percent lower than year-end 2001. “The next few years will see existing retail nodes in the area become fully developed,” he predicts.
Located in southeastern Ontario, Belleville is the largest service center in the Bay of Quinte tourist region and offers a variety of shopping options. Several new big-box developments in the past three years have increased vacancies in the area, according to William G. Bird, CCIM, of William G. Bird Real Estate. However, construction “is now peaked for eastern Ontario and will remain flat for several years unless a major development occurs,” he says.
Office vacancies in the greater Toronto area have risen dramatically since 2000 because of “low corporate earnings, which in turn has caused a cautious outlook by businesses and reluctance to make significant investment in facilities,” says Mark G. Armstrong, CCIM, of Mark Armstrong Realty Ltd. Yet these factors, plus restrained speculative development, have kept lease rates stable. Due to high sublease availability, “only buildings with tenants in place or for users are under construction,” such as a 430,000-sf building in the central business district with Maritime Life as the lead tenant and a 540,000-sf building in north Toronto partially leased by Transamerica Life Canada, he says.
Suburban Toronto's office market is healthy, although the vacancy rate has increased to 15 percent during the last few years, says Jeffrey Flemington, CCIM, of J.J. Barnicke Ltd. in Mississauga. Large buildings are in high demand, which, along with a lack of quality investment product, has inflated sales prices slightly. Build-to-suit construction accounts for all of the new development, as no speculative projects currently are underway, Flemington says. Yet “the suburban office market appears to be the choice for the bulk of future development,” due to lower rental rates and taxes, Armstrong says.
Known as the largest mustard producer in the world, Hamilton sits on Lake Ontario's shores, about 40 miles southwest of Toronto. Although “activity has been somewhat slow in the past six months,” the city's occupancy rate is up, says David H. Blanchard, CCIM, SIOR, CPM, of Blair Blanchard Stapleton Ltd. Expansion of the John C. Munro International Airport should spur new office development in the city's northern region, he says.
Last year, Time magazine highlighted Sacramento, Calif., as the United States' most racially integrated city. A diversified work force, above-average job growth, and rapidly expanding cargo and passenger airport, have helped the city's economy remain strong through the recent downturn.
Sacramento's high-growth potential attracts many outside investors, causing “an extreme shortage of quality leased investments for sale,” says Robert A. Rosenberg, CCIM, GRI, of Investnet. The retail market is expanding rapidly, with new developments by Target, the Home Depot, Lowe's Home Improvement Warehouse, Albertson's, and Safeway.
Sacramento “has been the second-hottest market in the United States for apartments the past two years,” says Bruce F. Hester, CCIM, of Grubb & Ellis. Strong development cannot keep pace with demand, driving up both lease rates and sales prices. Competition for sales is brisk, and some projects are selling in the 6 percent cap rate range, he says.
Repositioning McClellan Air Force Base added 4.3 million square feet of vacant space to the market, contributing to an 11.3 percent vacancy rate at the end of third-quarter 2002, according to CB Richard Ellis' Sacramento Area Industrial Market Index Brief. Yet the market absorbed nearly 528,000 sf through increased leasing activity in the third quarter.
A 10.7 percent vacancy rate at the close of third-quarter 2002 marked the end of a five-quarter trend of increasing vacancy rates, according to Colliers International's Sacramento Office Market report, supplied by Thomas W. Bacon, CCIM. Roseville, Rocklin, and Folsom are the main submarkets targeted for new development, the report says.