While Canada’s office real estate sector stands to benefit from certain tailwinds, one research director says it faces a reckoning regarding its risk profile and status as a core asset.
Adam Jacobs, senior national director of research at Colliers Canada, said in an interview with BNNBloomberg.ca Wednesday that office real estate was previously viewed as a “core asset” with a low-risk profile over the longer term. With hybrid working arrangements staying in place beyond the COVID-19 pandemic, he said the market is grappling “with the fact that office clearly does have some risk now.”
“We’re seeing that technology can disrupt office also, and it has a lot more risk as a long-term investment. So that’s part of the reckoning happening in the market, trying to figure out what’s the price of this?” he said.
“What’s the value of it? How risky is it compared to a warehouse or a hotel or the other things I can own? We haven’t gone through that disruption for office (real estate) the way we have a retail and some other assets.”
Collier’s National Investment Report, released last week, said the industry has continued to experience rising vacancy rates over the past four years. According to data from Altus Group, released in January, Canada’s office availability rate came in at 17.6 per cent in the fourth quarter of 2023.
According to Jacobs, there was speculation as recently as a year ago that employees would broadly return to the office five days per week. But this doesn’t appear to have taken place, he noted, and negotiations in the industry are now commonly based on the assumption that hybrid working arrangements are “not just for the next six months, but the next 10 years.”
“So I think there’s still some reckoning on the tenant and landlord side of ‘we didn’t realize that hybrid work is like completely permanent.’ I don’t want to say permanent, but I feel more confident than I did maybe a year ago that this is just kind of the status quo for a while,” he said.
As of November 2023, data from Altus Group indicated the proportion of workers in a hybrid environment has tripled since January 2022, rising from 3.6 per cent to 11.7 per cent. During that period, entirely remote working arrangements fell from 24.3 per cent to 12.6 per cent.
Tailwinds from immigration, top assets
Despite the various challenges facing the sector, Jacobs says it stands to benefit from some tailwinds.
Firstly, he said there is a significant divide between the top and bottom of the market. According to Jacobs, buildings at the top of the market face far fewer vacancies and are performing as well as ever.
“They’re still growing, the rent is still way up from where it was four or five years ago. So what we call triple A, the top of the market, is still very resilient,” he said.
In comparison, the bottom of the market faces markedly less demand as “tenants can just work from home anyway,” he said. As a result, there is now uncertainty surrounding what will happen to office buildings in the bottom 10 per cent of the market.
“They’re going to get converted to apartments, (or) they’re going to get knocked down and something else is going to get built there instead… (or) they’re going to get sold off for pennies on the dollar,” Jacobs said.
He said it is “not clear” what will happen to assets at the bottom of the market, but the data supports relative strength at the top of the market, with rent growth and demand for leasing.
In December of last year, Keith Reading, senior director of research at Morguard, said in an interview with BNNBloomberg.ca that a key trend to monitor in the office real estate industry is a “flight to quality.”
“What we have seen recently is that a lot of companies also have taken the opportunity to move up the quality ladder,” Reading said.
The other tailwind regarding the office market is Canada’s demographic situation, Jacobs said. He added that record immigration is seen as a positive tailwind for other sectors like single-family homes, apartments and others.
“We never say ‘Is (immigration) a good thing for the office market?’ and my question is always ‘Why not?’ If five million people are going to move to Canada over the next couple of years, did they all come here to work from home?”
“I assume some of them would like to get a job, get their career started, network, work downtown and make connections. So I think we might be somewhat underestimating that immigration…might also benefit office.”
‘Big players’ on the sidelines
Other big changes in the office real estate market have included the fact that big market players have largely “stepped aside in the last couple of years,” Jacobs said, including pension funds like OMERS and the Ontario Teachers Pension Plan. He said he predicts this trend to continue, as many “big players” may feel more comfortable allocating capital into areas like infrastructure or private equity bonds.
“That’s really changed, a lot of the buyers now, they’re foreign buyers maybe from Europe or Asia. Or they’re local, but it’s like a private investor,” Jacobs said.
The Colliers report noted that institutional investors have been “sellers of office,” and buying activity has been increasingly done by private investors.
“Institutions have been willing to sell signature downtown assets, or pursue one in, one out strategies: developing a new office asset and then selling an older one,” the report said.
Development cycle ‘to zero’?
The report from Colliers also highlighted that a large development cycle for the office market is ending, where “mega projects launched or planned pre-pandemic were delivered over the past three years.” This spurred some atypical market conditions, the report noted, with increasing inventories and rising vacancies occurring at the same time.
Jacobs said that the office market has experienced a “crazy development cycle” with new units being built in downtown Vancouver and Toronto. He said the market has faced an “impossible situation” with hybrid working arrangements amid “millions and millions of square feet” of office space coming online.
In this instance, he said all the space can’t be leased.
“So we’ve had years of rising vacancies for downtown office. The development side is going to come to an end, it’s already way on the downswing. It’s already down more than 50 per cent from where it was a couple of years ago,” Jacobs said.
“And I think the way things are now it might go to zero. Between working from home and interest rates, I’m not sure who’s going to be building new office towers these days, at least for a couple of years. So that’s going to bring a little bit more balance back to this.”
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
MONTREAL – The Quebec Professional Association of Real Estate Brokers says Montreal-area home sales rose 9.3 per cent in August compared with the same month last year, with levels slightly higher than the historical average for this time of year.
The association says home sales in the region totalled 2,991 for the month, up from 2,737 in August 2023.
The median price for all housing types was up year-over-year, led by a six per cent increase for the price of a plex at $763,000 last month.
The median price for a single-family home rose 5.2 per cent to $590,000 and the median price for a condominium rose 4.4 per cent to $407,100.
QPAREB market analysis director Charles Brant says the strength of the Montreal resale market contrasts with declines in many other Canadian cities struggling with higher levels of household debt, lower savings and diminishing purchasing power.
Active listings for August jumped 18 per cent compared with a year earlier to 17,200, while new listings rose 1.7 per cent to 4,840.
This report by The Canadian Press was first published Sept. 6, 2024.
In the quest to find cities where renters can enjoy the best of all worlds, a recent study analyzed 24 metrics across three key categories—Housing & Economy, Quality of Life, and Community. The study ranked the 100 largest cities in Canada to determine which ones offer the most to their renters.
Here are the top 10 cities that emerged as the best for renters in 2024:
St. John’s, NL
St. John’s, Newfoundland and Labrador, stand out as the top city for renters in Canada for 2024. Known for its vibrant cultural scene, stunning natural beauty, and welcoming community, St. John’s offers an exceptional quality of life. The city boasts affordable housing, a robust economy, and low unemployment rates, making it an attractive option for those seeking a balanced and enriching living experience. Its rich history, picturesque harbour, and dynamic arts scene further enhance its appeal, ensuring that renters can enjoy both comfort and excitement in this charming coastal city.
Sherbrooke, QC
Sherbrooke, Quebec, emerges as a leading city for renters in Canada for 2024, offering a blend of affordability and quality of life. Nestled in the heart of the Eastern Townships, Sherbrooke is known for its picturesque landscapes, vibrant cultural scene, and strong community spirit. The city provides affordable rental options, low living costs, and a thriving local economy, making it an ideal destination for those seeking both comfort and economic stability. With its rich history, numerous parks, and dynamic arts and education sectors, Sherbrooke presents an inviting environment for renters looking for a well-rounded lifestyle.
Québec City, QC
Québec City, the capital of Quebec, stands out as a premier destination for renters in Canada for 2024. Known for its rich history, stunning architecture, and vibrant cultural heritage, this city offers an exceptional quality of life. Renters benefit from affordable housing, excellent public services, and a robust economy. The city’s charming streets, historic sites, and diverse culinary scene provide a unique living experience. With top-notch education institutions, numerous parks, and a strong sense of community, Québec City is an ideal choice for those seeking a dynamic and fulfilling lifestyle.
Trois-Rivières, QC
Trois-Rivières, nestled between Montreal and Quebec City, emerges as a top choice for renters in Canada. This historic city, known for its picturesque riverside views and rich cultural scene, offers an appealing blend of affordability and quality of life. Renters in Trois-Rivières enjoy reasonable housing costs, a low unemployment rate, and a vibrant community atmosphere. The city’s well-preserved historic sites, bustling arts community, and excellent educational institutions make it an attractive destination for those seeking a balanced and enriching lifestyle.
Saguenay, QC
Saguenay, located in the stunning Saguenay–Lac-Saint-Jean region of Quebec, is a prime destination for renters seeking affordable living amidst breathtaking natural beauty. Known for its picturesque fjords and vibrant cultural scene, Saguenay offers residents a high quality of life with lower housing costs compared to major urban centers. The city boasts a strong sense of community, excellent recreational opportunities, and a growing economy. For those looking to combine affordability with a rich cultural and natural environment, Saguenay stands out as an ideal choice.
Granby, QC
Granby, nestled in the heart of Quebec’s Eastern Townships, offers renters a delightful blend of small-town charm and ample opportunities. Known for its beautiful parks, vibrant cultural scene, and family-friendly environment, Granby provides an exceptional quality of life. The city’s affordable housing market and strong sense of community make it an attractive option for those seeking a peaceful yet dynamic place to live. With its renowned zoo, bustling downtown, and numerous outdoor activities, Granby is a hidden gem that caters to a diverse range of lifestyles.
Fredericton, NB
Fredericton, the capital city of New Brunswick, offers renters a harmonious blend of historical charm and modern amenities. Known for its vibrant arts scene, beautiful riverfront, and welcoming community, Fredericton provides an excellent quality of life. The city boasts affordable housing options, scenic parks, and a strong educational presence with institutions like the University of New Brunswick. Its rich cultural heritage, coupled with a thriving local economy, makes Fredericton an attractive destination for those seeking a balanced and fulfilling lifestyle.
Saint John, NB
Saint John, New Brunswick’s largest city, is a coastal gem known for its stunning waterfront and rich heritage. Nestled on the Bay of Fundy, it offers renters an affordable cost of living with a unique blend of historic architecture and modern conveniences. The city’s vibrant uptown area is bustling with shops, restaurants, and cultural attractions, while its scenic parks and outdoor spaces provide ample opportunities for recreation. Saint John’s strong sense of community and economic growth make it an inviting place for those looking to enjoy both urban and natural beauty.
Saint-Hyacinthe, QC
Saint-Hyacinthe, located in the Montérégie region of Quebec, is a vibrant city known for its strong agricultural roots and innovative spirit. Often referred to as the “Agricultural Technopolis,” it is home to numerous research centers and educational institutions. Renters in Saint-Hyacinthe benefit from a high quality of life with access to excellent local amenities, including parks, cultural events, and a thriving local food scene. The city’s affordable housing and close-knit community atmosphere make it an attractive option for those seeking a balanced and enriching lifestyle.
Lévis, QC
Lévis, located on the southern shore of the St. Lawrence River across from Quebec City, offers a unique blend of historical charm and modern conveniences. Known for its picturesque views and well-preserved heritage sites, Lévis is a city where history meets contemporary living. Residents enjoy a high quality of life with excellent public services, green spaces, and cultural activities. The city’s affordable housing options and strong sense of community make it a desirable place for renters looking for both tranquility and easy access to urban amenities.
This category looked at factors such as average rent, housing costs, rental availability, and unemployment rates. Québec stood out with 10 cities ranking at the top, demonstrating strong economic stability and affordable housing options, which are critical for renters looking for cost-effective living conditions.
Québec again led the pack in this category, with five cities in the top 10. Ontario followed closely with three cities. British Columbia excelled in walkability, with four cities achieving the highest walk scores, while Caledon topped the list for its extensive green spaces. These factors contribute significantly to the overall quality of life, making these cities attractive for renters.
Victoria, BC, emerged as the leader in this category due to its rich array of restaurants, museums, and educational institutions, offering a vibrant community life. St. John’s, NL, and Vancouver, BC, also ranked highly. Québec City, QC, and Lévis, QC, scored the highest in life satisfaction, reflecting a strong sense of community and well-being. Additionally, Saskatoon, SK, and Oshawa, ON, were noted for having residents with lower stress levels.
For a comprehensive view of the rankings and detailed interactive visuals, you can visit the full study by Point2Homes.
While no city can provide a perfect living experience for every renter, the cities highlighted in this study come remarkably close by excelling in key areas such as housing affordability, quality of life, and community engagement. These findings offer valuable insights for renters seeking the best places to live in Canada in 2024.
