It’s situation that has likely never been experienced in Calgary’s downtown office market. When energy company Nexen moved its operations to the Bow Tower last fall, the energy company left the site of its former headquarters completely empty – the 801 Seventh Building.
More commonly known as the Nexen Building, it stands 37 storeys tall and contains about 600,000 square feet. Every square foot is now available for lease.
Michael Gigliuk, vice-president, associate, with Devencore, confirmed that never in Calgary history has a building of this magnitude in the city’s core been entirely vacant.
During the early 1980s, the city struggled through an economic downturn that left several smaller buildings empty, but nothing on this scale.
Gigliuki is a veteran of the downtown office market in Calgary who is well-known for his research and knowledge of the industry.
He told RENX six downtown Calgary office buildings were vacant during that 1983 slump: Selkirk House, 220,000 square feet; the Western Union building, 74,000 square feet; the Alpine building, 52,000 square feet; Atrium 1 and 2, 109,000 square feet each; Petro Fina building, 150,000 square feet; and the Hanover building, 240,000 square feet.
Nexen Building opened in 1982
The total for those six vacant buildings was 952,000 square feet. Much of it was a result of energy giant Petro Canada vacating four of the buildings, ironically about 600,000 square feet: Atrium 1 and 2; Petro Fina; and Hanover.
“Just to give you some perspective, at that time the total inventory in 1984 in downtown Calgary was 25.4 million square feet and today it’s 44 million square feet,” said Gigliuk.
“The vacancy at that time was 19.4 per cent. Actually 1983 is when the vacancy peaked back then, at 22.3 per cent.”
Oil and gas company Nexen is a subsidiary of Hong Kong-based CNOOC Limited.
Nexen moved its headquarters near the end of 2019 from the corner of 7th Avenue and 8th Street S.W. to the 58-storey Bow skyscraper, taking up 290,000 square feet of sublease space from Cenovus Energy. The Bow is located at 500 Centre Street S.
The Nexen Building was designed by J.H. Cook Architects and built by CANA Construction for Novalta Properties. The tower, which is just shy of 500 feet in height, opened in 1982 as the headquarters of Nova Corporation.
Ownership of the Nexen Building is now comprised of five Calgary families and an Ontario-based pension fund group. Leasing inquiries are being handled by Century West Management Inc.
A spokesperson for Century told RENX no one from the ownership nor management group would be available for comment.
“Early signs of positivity”
Calgary’s downtown office market has been struggling since the collapse of oil prices in late 2014, which sent the economy into recession in 2015 and 2016.
Thousands of jobs were lost in the heart of the oil patch which led to energy companies, and those related to the industry, vacating huge amounts of space in the heart of the city.
Today, about five years later, the downtown vacancy rate remains at an extremely elevated level in the range of 25 per cent.
“Calgary’s downtown office vacancy rate remains very high, persistently over 20 per cent, as it has been since 2016. Recently there have been some early signs of positivity on the horizon as vacancy rates have been trending slowly downward over the past three quarters,” said Adam Legge, president of the Business Council of Alberta.
“We’re expecting to see some economic growth in 2020, but it will likely be very low, slow growth that is unlikely to absorb a considerable amount of that inventory.
“This ongoing market situation is leading to innovation and new ideas in Calgary real estate. Several commercial buildings have been repurposed as apartments, and many building owners have put forward new offerings and new rental models, like co-working.
“Calgary’s downtown is a unique system, even among cities of similar size. It is highly concentrated in a single and defined geographic area and it’s also uncommonly connected because of the +15 (pedestrian) network.
“This means that the overall health of that system is important and pockets of very high vacancy can be concerning.”
Other large blocks of space available
While having the entire Nexen Building vacant might be unique, having large blocks of vacant space is not new. Todd Throndson, managing director and principal of Avison Young, said other blocks of space in the 600,000-square-foot range have been available.
“There have been other large blocks of space that have been available to tenancies in the market,” he said. “Unfortunately we have a vacancy of over 20 per cent.
“So whether or not there’s a building that has 600,000 square feet or not, I don’t think it really impacts the marketplace in any way, shape or form.
“What it does do, is it does allow an opportunity for a larger-size tenancy to either consider it as an option for themselves or use it as leverage against the landlords because they’re going to have to be very aggressive to try and get a tenancy.”
Throndson said the location of the former Nexen Building will also be a factor for potential tenants.
“It’s in the West End. It’s not right down in the core. It’s not going to appeal to some of the tenancies that are in the core right now that would never consider a West-End location,” he observed.
“So they’re going to have to compete on a financial basis.
“But, it does allow an opportunity for any significant and large tenancy in the suburban marketplace to consider downtown.”
Downtown Calgary “fairly active”
Aly Lalani, executive vice-president/partner with Colliers International, said it is definitely rare to have a building of this magnitude be completely vacant.
“It’s a unique situation. I don’t know it speaks to the market at all. I’d say it would be unfair to characterize this as a sign of the market,” he said.
“We’re seeing quite a bit of activity in the market, a lot of activity from tenants outside of the downtown core whether that’s tenants located in the suburban Beltline market or tenants who are outside of Calgary who are considering Calgary.
“The downtown core has been fairly active. Last year we added the 600,000-square-foot building of Nexen to inventory. We added TELUS Sky to inventory and some bigger sublease blocks of space that came available.”
Lalani contended that, although the market ended the year with negative 177,000 square feet of absorption, it’s not indicative of the activity that took place.
“It’s active downtown and that trend will continue for 2020. The good news is that we have no new office supply coming to the market other than potential sublease blocks, which is a wild card that we can’t really plan for.”
Forget Real Estate Investments, Buy REITs! – The Motley Fool Canada
With the stock market crashing and interest rates tumbling, now seems to be as good a time as any for real estate investments.
However, investing in real estate isn’t the only method of generating passive income — buying REITs is just as good, or better, depending on the investor.
Real estate investments
Of course, there’s no denying the earnings potential of a good real estate investment.
In theory, you simply front the down payment, charge more for rent than you pay for the mortgage, pocket the difference and eventually sell the house for much more than you bought it for.
However, there are a lot of finer details and things that can go wrong along the way.
For one, you have to be able to afford the down payment. Even if the housing market cools with a recession, a 20% down payment is still going to be at least $50,000-100,000 — depending on the area of course. This hurdle can take a lot of investors out of the running right away.
Now, even with the down payment covered, there can be a lot of issues surrounding renting the property out. Staging and showing the place, carrying out repairs, footing bills, property tax, and so on and so forth. These things simply eat away at your time and your bottom line.
So, in order to avoid these types of issues, REITs can be preferable to traditional real estate investments.
Advantages of a REIT
REITs generally don’t require a minimum investment, as they trade just like a stock. So, you needn’t worry about being able to put six figures down from the onset.
As well, when you buy into a REIT, you’re not going to be directly managing any property. You won’t be responsible for going out and fixing a busted fridge or finding a new tenant.
You simply invest your money with the REIT and they take care of all of that.
Disadvantages of a REIT
Obviously, you don’t have control over the properties the company chooses to buy. It’s therefore important to choose REITs that align with your investment philosophy from the beginning.
As well, you generally aren’t going to make a ton of money on your principal investment with a REIT. While the monthly income you can generate is quite substantial, REITs tend to just bounce around in price rather than outright grow over time.
So, come time to sell, you’ll more or less be getting your principal investment back, whereas someone making a real estate investment will generally sell for more than they bought for.
Choosing a REIT
Most of its real estate investments are in the retail space, with a small but growing portfolio of other properties.
While its main focus is not on residential, but rather retail property, Choice is still well positioned to succeed in the near term.
This is because its retail locations are anchored by Loblaw, Canada’s largest grocer. Thus, Choice’s income and stability should be secured as Loblaw should continue to perform well as a vital service provider for Canadians.
Currently, Choice is trading at $12.87 and yielding 5.75%. At that yield, an investment of $20,000 would generate $100 a month in passive income.
Real estate investment strategy
Before making a real estate investment, consider whether it’s the best action for your situation. Under some circumstances, investing in a REIT can be a far better option.
As far as REITs go, Choice is one of the most stable options for Canadians, as its anchored by its main tenant, grocery giant Loblaw.
Many investors fear market crashes. However, long-term investors should embrace this crash, because bear markets can potentially allow you to make millions. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.
How Do Real Estate Valuation Metrics Work? – Baystreet.ca
For real estate investments, the metrics used to quantify how certain properties or portfolios/Real Estate Investment Trusts (REITs) are valued are different than the typical valuation metrics used on most conventional stocks on the TSX or S&P 500, for example.
This is because real estate has unique characteristics to that of operating businesses in the sense that real property tends to be long-term, bond-like physical assets with a “coupon”-like cash flow structure, most of which is paid out to shareholders (REITs tend to have payout ratios in the 90%+ range).
For REITs, assessing Net Operating Income (NOI) rather than earnings in the norm, with a REIT’s NOI representing rental/lease revenue less operating expenses.
A REIT’s cap rate is the yield an investor receives on a given property, and is equivalent to the NOI of a building dividend by the value of the building.
Lower cap rates mean higher building values, so comparing cap rates across REITs with similar geographical/property type mixes can tell an investor which portfolio of properties may be undervalued relative to each other.
Vacancy rates are another important metric to assess knowing how full a given portfolio of properties is, on average, relative to the overall market can tell an investor if said properties are well managed or not.
Invest wisely, my friends.
Real estate industry taking precautions during COVID-19
Jason Yochim, CEO of the SRA, holds a conference call with agents three times a week to share news, advice and protocols.
“With no more open houses, we’ve advised our agents on what we call essential sales activity,” he said in an interview. “For example, if I want to move to that bigger house I’ve always wanted, maybe now is not the time to do that.”
On the flip side, some people need to move. Life changes such as divorce, or settling an estate, or moving for employment purposes are considered essential housing transactions, Yochim noted.
“We’re guiding our members that way. We’re (also) encouraging them to utilize technology for showings, whether it’s Facebook live or virtual tour products.”
Stocks jump on virus slowdown hopes, but oil slips on oversupply – Investing.com
Coronavirus: 3M says Canada will continue receiving N95 masks following U.S. deal – Global News
Report: NBA eyeing rapid COVID-19 testing – TSN
Iran anticipates renewed protests amid social media shutdown
Popular Richmond BBQ spot speaks out about coronavirus rumours after man collapses outside restaurant – Vancouver Is Awesome
Real Estate Board of Greater Vancouver reports January housing sales up 42.4 percent
- Health19 hours ago
Coronavirus: Woman explains day-by-day symptoms of COVID-19 – 'literal fire in my lungs' – Express
- Health16 hours ago
Halifax and Associates is not registered to sell securities in our province says alert – HalifaxToday.ca
- Sports17 hours ago
Could North Dakota be an NHL location if 2019-20 season resumes? – Sportsnet.ca
- Tech23 hours ago
Nintendo Switch Deletes ‘Cooking Mama’ After Crypto Mining Controversy on Reddit
- Science23 hours ago
Covid-19 lockdowns have caused the Earth’s crust to stop shaking
- News16 hours ago
11 new deaths and 450 new cases in Ontario over the last day; 240000 Canadians have already applied for CERB; E-Learning starts for Ontario students – Toronto Star
- Media5 hours ago
Indonesia approves large-scale social restrictions for Jakarta: media – TheChronicleHerald.ca
- Art18 hours ago
Forgery, drugs and sex abuse in the Canadian art world exposed in new documentary – Art Newspaper