Concern over the state of the economy is making prospective commercial real estate clients take their time before inking leases, according to the chief executive of one of the country’s largest office real estate investment trusts.
Michael Emory, CEO of Allied Properties REIT, said his company saw strong interest in lease tours during the third quarter, but that it was taking longer to close deals, meaning two of the key metrics he uses to forecast demand were throwing up contradictory signals.
“In some respects, the results are contradictory leading indicators,” Emory said. “Tours suggest strong demand in the near term. The stretching out of timeframes to get deals done suggests that demand may be weakening. Our interpretation, and it’s (a) preliminary interpretation, is that the stretching out of timeframes may signal some degree of slowdown in the face of a pending recession or in the face of an expectation of recession.”
As a result, Allied, which reported third-quarter earnings this week, is taking a more cautious approach to its occupancy outlook while focusing on completing the developments in its pipeline. “Management expects to add $82 million over the next few years” to their annual earnings before interest, taxes, depreciation, and amortization (EBITDA), the company said in its quarterly report.
Allied, which is currently working on 109 potential lease transactions the number that are completed in the fourth quarter will be telling on the state of the market going forward.
Emory said the rebound from the pandemic has differed from city to city. While the REIT’s properties in Vancouver and Calgary are almost completely occupied, the return to work in Montreal and Toronto still “have a long way to go.”
“It has been the slowest in Montreal and Toronto. Tours and deals have begun to accelerate in both markets starting in September, and the acceleration has been quite significant,” Emory said. “In percentage terms, we’re still below 50 per cent occupancy but we accelerated very rapidly from about high 20s to almost 40 per cent in September and October. So, the rate of change is quite positive but we still have a long way to go.”
The REIT’s third quarter ended on Sept. 30 with average in-place net rent per occupied square foot increasing to $25.56, up 3.8 per cent from the comparable quarter last year and 1.1 per cent from the second quarter. Their FFO per unit was 60.6 cents, down 2.9 per cent from the comparable quarter last year and identical to the second quarter. AFFO per unit was 52.6 cents, up 1.3 per cent from the comparable quarter last year and down 3.1 per cent from the second quarter. NAV per unit at quarter-end was $51.10, down slightly from the end of the second quarter due to a decline in value in their Calgary portfolio.
The S&P/TSX Real Estate Sector Index plunged 30 per cent in September making it one of Canada’s worst-performing sectors and putting it on pace to suffer its largest annual decline since 2008. This fall came following the Bank of Canada’s 75-basis-point interest rate hike that month, which it followed with a 50-point hike on Oct. 26 to bring its policy rate to 3.75 per cent.
• Email: shcampbell@postmedia.com
Source link
Related
