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Skyscrapers Give Way to Sheds as Covid Changes UK Real Estate

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(Bloomberg) — On a building site about 20 miles east of London, workers are busy putting up the largest warehouse in Europe. Just leased to Amazon.com Inc., it can’t go up fast enough.

When it’s done next summer, the four-story “mega-box” will encompass 2.3 million square feet, the size of 40 American football fields. Developer Tritax Big Box REIT Plc had plenty of interest from retailers in the site on the River Thames, but when Amazon came knocking, the rest were pushed aside.

A development on this scale during the U.K.’s first recession since 2009 highlights how the growth of e-commerce has helped make warehouses one of the hottest assets in real estate. Demand for these properties hit a record in the second quarter as online shopping spiked during lockdown. The value of the rent they’re bringing in is surging at more than twice the rate of offices.

“The pandemic has accelerated the shift in consumer habits to online, which means online retailers’ demand for warehouse space in the U.K. is increasing at unprecedented levels,” said Jonathan Compton, senior director for U.K. industrial and logistics intelligence at broker CBRE Group Inc. “This sector is undoubtedly a key area of growth for real estate investment.”

The U.K. has led the e-commerce boom in Europe, and warehouse builders and operators have reaped the benefit. Landlord Segro Plc has seen its shares soar over the past five years; it’s now worth about 11.5 billion pounds ($15.2 billion), making it the country’s most valuable listed property firm. The market has also attracted global giants including Blackstone Group Inc. and Prologis Inc., which runs a logistics park next door to the Tritax site in Dartford.

By contrast, the rise of online shopping has battered traditional retailers and their landlords, most dramatically in the case of Intu Properties Plc. The owner of nine of the U.K’s top 20 shopping centers collapsed into administration in June after failing to reach a deal with its creditors. Other firms are also struggling, such as Hammerson Plc, which is raising money to help it through the pandemic.

Covid-19 threw this trend into overdrive. Internet sales accounted for 20% of all retail purchases in February, before the U.K. government shut down much of the economy to slow the outbreak, according to Office for National Statistics data. In June, the number was 31.8%, with average weekly sales of 2.5 billion pounds.

Driven by this internet shopping spree, the demand for warehouses climbed to a record 12.8 million square feet in the three months through June, with online retailers taking up nearly half of that space, according to CBRE. Amazon alone accounted for 36% of the market in so-called big-box facilities in the first half of this year, according to Savills Plc.

”We’re seeing a massive change in the way people perceive logistics. Twenty years ago, it was the ugly duckling,” said Andrew Parsons, who manages over $3 billion in assets at the Nedgroup Investments Global Property Fund. Now, warehouses are “prime pieces of real estate with massive amounts of capital being put to work. It’s remarkable the reordering of the real estate pecking order.”

The growth in demand is being fueled not only by online retailers, but also by traditional merchants ramping up their internet businesses to adapt to the post-Covid economy. John Lewis Partnership Plc, which is closing department stores and cutting jobs, has said it expects online sales to account for 60% of total trade, up from 40% before the coronavirus.

“Whether it’s for PPE, virus-testing kits or everyday essentials, some supply chains were found wanting during the pandemic, and we are seeing a renewed focus on this by governments and businesses alike,” Segro Chief Executive Officer David Sleath said in an emailed response to questions. The result will be more production in the U.K. and more inventory held locally to prevent disruptions.

“Brexit and global trade wars will only add to these pressures, and that means more warehousing demand in the future,” Sleath said.

With the U.K. mired in a recession, the government trying to prevent a second wave of infections and the looming possibility of a no-deal Brexit further damaging the economy, the outlook for real estate is uncertain. Yet firms in the logistics sector are betting that the changes that have reshaped consumer spending during the pandemic will become permanent.

While internet spending will probably come down slightly from its lockdown highs as brick and mortar shops reopen, it’s still expected to remain at about 28% of total retail sales, according to Len Rosso, head of industrial and logistics at Colliers International Group Inc.

For every 1 billion pounds spent online each year, another 950,000 square feet of warehouse will be needed, CBRE estimates. But the supply of warehouses is tight, especially so-called last-mile facilities located on the fringes of towns and cities. This is an area where U.K. firms are competing with Blackstone. It started a company last year called Mileway, which is the largest last-mile logistics real estate company in Europe, according to its website.

Rent Premium

Urban warehouses are “a huge area where we obviously need a lot more capacity,” according to Bloomberg Intelligence analyst Sue Munden. “Demand there is still very strong, and I think rents will continue pushing up.”

For Tritax, this means Amazon will pay a rent premium for its Dartford warehouse, which is located inside London’s M25 ring road, said Bjorn Hobart, a partner at the developer. With this one deal, Tritax locked in the profit expected from the entire site, which has planning permission for another 450,000 square-foot shed and space left over.

A representative of Amazon declined to comment on the deal.

The site’s location and the demand for warehouses also afford Tritax a luxury that few U.K. landlords have these days: the ability to be choosy about its next tenant. The developer has turned down “many offers” for the smaller plot in Dartford, and is holding out for “high-quality” tenants.

“We feel we can achieve better,” said Hobart.

Source: – BNN

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The Niagara Real Estate Trends You Need to See – RE/MAX News

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How could the Niagara real estate market be better off today than it was a year ago? It’s just one more thing to add to the growing list of unprecedented phenomena dotting the 2020 timeline. The Canadian economy may be feeling the sting of pandemic-related business closures and job loses, but the housing sector is booming from coast to coast. Every segment of the industry, from the condominium market to the luxury niche, is performing well through the COVID-19 pandemic. Niagara is no exception.

Even before the coronavirus public health crisis, Niagara had been an attractive place to plant roots. Big-city dwellers may have also wanted an excuse to migrate to the southeastern region, but work and the amenities of major metropolitan cities prevented the move. With changing consumer trends and societal shifts unfolding today, many families now have their eyes set upon this municipality that blends suburban charm with city culture.

So, just how strong has the Niagara real estate market been in recent months? Several trends are emerging across the region, from declining inventories to ballooning demand. Niagara could be one of the hottest markets in Ontario real estate heading into 2021.

The Niagara Region Real Estate Trends You Need to See

According to the Niagara Association of Realtors’ (NAR) latest data, residential home sales activity surged at an annualized rate of 37.2 per cent in August, totalling 978 units. Prices also experienced double-digit gains in August, rising 15.3 per cent to $482,600 from the same time a year ago.

The other important development was the average days it took to sell a home – which was 35 days in August 2020, down from 43 days in August of 2019.

Terri McCallum, President of NAR, attributed the robust growth to steady inventory levels and multiple offers on listed properties.

Despite the steady increase in property values, Niagara remains one of Ontario’s most affordable markets, according to the 2020 RE/MAX Housing Affordability Report. For a long time, a large chunk of demand for Niagara real estate had been driven by retirees. However, with more professionals working from home, remote workers have been elevating demand and taking advantage before housing prices increase even further.

But how much more is the Niagara real estate market expected to grow? The RE/MAX Fall Market Outlook Report estimated that Niagara real estate could increase as much as six per cent in the remainder of 2020, which is roughly in line with broader Ontario real estate market performance in the final quarter of the year.

What Is Driving the Niagara Real Estate Market?

Niagara is another community benefiting from the growing trend of families leaving major urban centres and planting roots in small towns. Whether it is due to fears over hyper-dense cities or employers introducing work-from-home policies, people are choosing to live in areas other than Toronto and Hamilton. This allows them to save money on housing and enjoy more square footage for their dollars.

Like nearly every other market in Canada, Niagara is seeing a flood of homebuyers amid historically low interest rates. At the height of the coronavirus pandemic, the Bank of Canada (BoC) slashed interest rates to nearly zero per cent. Further, the Bank lowered the conventional five-year mortgage rate to below five per cent. Put simply, borrowing has never been cheaper, so homebuyers are taking advantage of this accommodative monetary policy and jumping into the market or upgrading their living space.

The lure of the Niagara region is undeniable; it is not hard to see why it remains a favourable destination for tourists and residents alike. Beyond hosting one of the seven natural wonders of the world, Niagara’s rich cultural community and natural sights offer enough to keep you busy year-round:

  • The city boasts 101 wineries that churn out delicious Chardonnays, Gamays and Pinot Noirs.
  • The region’s long summers and moderate winters are perfect for enjoying the 42 conservation areas, like Ball’s Falls.
  • Farms and farmers’ markets offer up some of the best produce in the province.
  • The many different festivals, including the Grape and Wine Festival, the Niagara Jazz Festival, and, of course, the Shaw Festival have historically been well-attended by tourists and local residents.

Is Niagara part of the near-term cash injection from impetuous borrowers who have decided to flee the Greater Toronto and Hamilton Area following the height of the pandemic? Or is the Niagara Region’s booming housing market part of a long-term trend? Indeed, Niagara’s trends are consistent with so many municipalities within the southeastern part of Ontario, many of which are projected to keep expanding for many years to come. Based upon its strong appeal and sound market fundamentals, the Niagara real estate market has more room for growth as we edge towards 2021.

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Canadian Real Estate Is Becoming More Bubbly According To The US Federal Reserve – Better Dwelling

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The world’s largest central bank is seeing the warning signals for Canadian real estate get brighter. US Federal Reserve (US Fed) updated their exuberance indicators for Q2 2020. Their measures for Canada show recent acceleration over the past two quarters. There was a brief period in the data where it appears Canada almost came back to reality. In the first quarter of this year though, buyer’s became more exuberant. 

Exuberance Is Not A Fundamental

First, let’s quickly run through the concept of exuberance. Exuberance is the state of being excited. When used in economics, it means emotion and excitement is the driving mechanism. If a buyer is said to exuberant, they are buying not based on any fundamental reason – but rather their emotional reasoning. In other words, they’re paying more based strictly on the fact they think they should be paying more. Not because any fundamental basis is driving the valuation higher. 

Exuberance doesn’t mean markets can’t or won’t go higher. Markets driven by an emotional state are more vulnerable to correction though. If buyers aren’t using fundamentals, then a sudden change in emotion means they need to discover the actual price floor. That’s sometimes a ways down.  

Canadian Real Estate Becomes More Exuberant

Canada is seeing exuberance accelerate over the past few quarters. The indicator reached 1.89 in Q2 2020, up from 1.56 during the same quarter last year. The market has seen two consecutive quarters of acceleration. 

Canadian Real Estate Buyer Exuberance

An index of exuberance Canadian real estate buyers are demonstrating, in relation to pricing fundamentals.

Source: Federal Reserve Bank of Dallas, Better Dwelling.

Canadian real estate has been consistently in this level for years, but not as many as some people want you to think. It first breached the critical threshold in Q1 2015, and hasn’t fallen below that level since. There’s been a few periods where it almost has, which have been followed by policy moves to prop up the market. Technically the market has only been exuberant for half a decade. Although that may feel like forever, it’s not really that long. 

The Federal Reserve warns this indicator doesn’t tell us when we’ll see a correction, just the likelihood of one. After 5 quarters above the critical threshold, the Reserve believes markets will require a correction. The longer this trend persists, the further detached the market is from fundamentals. This means a larger correction will be required, whether in terms of falling prices or inflation that kills the real value. 

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How the pandemic 'lit the fire' of a red-hot real estate market inside the Atlantic bubble – TheChronicleHerald.ca

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For the first time in 20 years, Richard Kennedy is getting a taste of what it would be like to sell real estate in Ontario’s hot housing market.

Since COVID-19 hit Canada, the St. John’s-based agent at Hanlon Realty has been fielding multiple offers on properties — a staple of Ontario’s market, but a rarity in Newfoundland. His clients can no longer take weeks to make a decision, knowing they’ll have their choice of properties, but instead need to pull the trigger in days. And, yes, they actually have to make offers above listing price to fight off competing bids.

“It’s the first time in a long time where I’ve seen listings go at asking price or over asking price,” he said, noting the last time he experienced a market like this was in the early 2000s. “I was just speaking to another agent about this: Houses are up for 48 hours and they’re gone.”

Kennedy’s experience is part of a wider trend across Atlantic Canada. In September, prices surged by double-digit percentage points on a year-over-year basis in each province but Newfoundland, where they rose by 7.7 per cent. Sales volumes, meanwhile, hit record totals across the board, according to the Canadian Real Estate Association. Even the worst-performing province, P.E.I., registered a 24.5 per cent year-over-year increase. Newfoundland, at 39.5 per cent, reported the largest bump. In just one year’s time, inventories have been halved, bringing Nova Scotia, Prince Edward Island and New Brunswick into seller’s market territory.

For what you’d buy the cheapest, absolute worst house next to the railroad tracks in Burlington, Ont. for — $600,000 to $700,000 — you can buy a mansion here

Charlottetown real estate agent Michael Poczynek

Realtors point to a variety of factors to explain the increasingly hot market, from low interest rates to the built-up demand caused by the freeze during the early months of COVID-19. What they all agree on, however, is that there is an increased surge from buyers coming from outside the East Coast and that the pandemic, in one way or another, is pushing them there.

“The thing about COVID is it lit the fire,” said Sandra Bryant, a realtor at Bryant Realty Atlantic in Halifax who says she has been regularly fielding calls from interested parties in Toronto.

Multiple realtors told the Post that buyers are moving to the region knowing that the shift to working from home means they no longer need to be near expensive city centres like Toronto and Montreal and that the aggressive restrictions on visitors to the region have made it something of a safe haven from the virus.

It’s difficult to determine the precise degree to which the influx from outside Atlantic Canada is contributing to the property boom because no organization fully tracks the geographic origin of real estate buyers in Canada.

That’s left to individual realtors like Re/Max’s Michelle Roy in Fredericton, who reports that about a quarter of her sales are coming from outside Atlantic Canada. This can lead to some disparity as a competing agent’s numbers may be several percentage points higher or lower and tell a different story.

Re/Max defaults to the numbers of one local agent in each province. In Nova Scotia, the company reports 20 per cent of sales are coming from outside Atlantic Canada, when only 10 per cent did pre-COVID. In P.E.I., it’s 15 per cent — five times higher than the norm, while an agent in New Brunswick reports numbers around 10 per cent. Sales to buyers outside of Atlantic Canada in Newfoundland have nearly tripled to reach eight per cent.

Those buyers are homing in on what’s always made the region a desirable one: affordability and safety. Even in the midst of one of the most heated housing markets in Canada, buyers from the most populated regions of Ontario could be looking at a $700,000 discount compared to buying a home in the province.

“For what you’d buy the cheapest, absolute worst house next to the railroad tracks in Burlington, Ont. for — $600,000 to $700,000 — you can buy a mansion here,” said Michael Poczynek, a Century 21 Northumberland Realty real estate agent in Charlottetown.

Poczynek said escaping COVID-19 has been top-of-mind for a few buyers from Ontario.

“I have buyers all over Ontario, from Windsor, London, Kitchener, Cambridge and Waterloo, and some of them have said to me on the phone, ‘We can’t get out of here fast enough,’ because they’re just terrified about COVID-19 and sending their kids to school,” he said.

On Thursday, the four Atlantic provinces combined had 108 active cases of COVID-19. Ontario alone has lately been announcing about seven times that number in new cases on a daily basis.

Much of the success the Atlantic provinces have had in controlling the virus can be attributed to the bubble that’s been set up to insulate it from outside carriers.

Travellers entering Nova Scotia and New Brunswick must self-isolate for 14 days upon arriving. In P.E.I. and Newfoundland, further restrictions are in place, and one of the only ways around them is to be a homeowner.

Because of the restrictions, most buyers from outside Atlantic Canada are buying properties sight unseen, according to Donna Harding, a broker at Engel & Völkers in Halifax.

“They’re not here for closings, they’re just grabbing properties so it has to be COVID-based,” she said.

Harding said one couple she helped move into the province from Quebec in July was willing to work around the restrictions and buy sight unseen because they wanted to have enough time to both make the move and get their young children ready for the start of the new school year in September.

That couple, she added, had the added benefit of having jobs where they can work from home, which she thinks may be another catalyst driving interest to the area.

Non-resident buyers with similar working conditions who are also concerned about the pandemic have chosen to purchase property outside city centres. Not everyone is flocking to Halifax, Harding said, describing Nova Scotia’s more rural north shore as a popular destination for Ontarians.

Some of the buyers Harding has moved told her that they were already toying with a move before the pandemic. For most of them, though, it could have been a decision they were planning to finalize in two or three years, but safety concerns and new work-from-home policies brought on by COVID-19 convinced them to move up their timelines.

As a result of the added competition for homes, locals, according to multiple realtors, are having a difficult time adjusting.

For example, Bryant said she’s used to selling homes on Connolly Street in Halifax’s west end for between $300,000 and $400,000, but that’s no longer the case. One recently sold for close to $800,000, she said, and others on the street have gone for $100,000 above listing price.

Those prices might be difficult for locals to swallow, but Ontarians, used to aggressively bidding above asking price, already know the drill.

“Think of this, I always call it bigger dollars and deeper pockets, if you’re coming out of Toronto, then it’s no big deal,” she said.

In Fredericton, Roy has already seen similar price action. In multiple-offer situations, it’s the comfort that a bidder from Ontario has in going $60,000 to $80,000 above the listing price that ultimately allows them to win out.

But it’s difficult for realtors to assess whether the current activity in the market is here to stay.

In St. John’s, Kennedy has seen temporary waves of interest that may last a few months, maybe even more than a year, such as what occurred in the early 2000s, but the market has always settled back to the norm.

A fellow realtor at Hanlon Realty in St. John’s, Larry Hann, worries that change could come as early as the winter.

Many high-earning Newfoundlanders were laid off due to the struggles of the Alberta oil patch. Their high incomes allowed them to buy expensive property in their home province, but if the sector doesn’t recover before their cash runs out, Hann suspects Newfoundland will see a wave of foreclosures.

Roy, meanwhile, is still advising her clients to have a five-to-10-year plan in place if they’re thinking about buying in New Brunswick.

She’s seen too many swings from a buyer’s market to a seller’s market to think that the current trend is permanent. If her clients have a 10-year plan in place, that should be enough to avoid being burned by depreciation, she said.

Harding offers a different idea about the current market dynamics. Most realtors would describe the Atlantic bubble as being one of the predominant factors drawing in more outside buyers, but she can’t help but think it’s keeping others out.

Nova Scotia and P.E.I. have 2.7 and three months of inventory respectively. New Brunswick is sitting just above them at 3.2 months’ worth. To put those numbers in perspective, all three provinces are quickly approaching the 2.6 months of inventory Ontario’s blistering market had in September 2019. Once the Atlantic bubble protecting residents from COVID-19 is dissolved, Harding worries that buyers will become even more aggressive and that these numbers will continue to decline.

“If the Atlantic bubble wasn’t there, I don’t know what kind of market we’d have,” Harding said. “There’s so much demand that if you open the bubble, I’m a little concerned we’re going to have enough inventory to handle the demand.”


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