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Marlon Bray and Raymond Wong share their top 10 list of municipal, regional and national government actions that are making or will be making the most impact to Canada’s CRE market.
Welcome to Altus Insights Podcast Series. This podcast brings together some of our leading brainiacs at Altus Group to discuss, debate, and on occasion complain about the evolving state of Canada's residential and commercial real estate. Join Ray Wong, Marlon Bray, and Avi Zelver for monthly podcasts covering the latest market and construction cost trends across major markets in Canada.
First, we've ditched the below average gas we've had on in the past few weeks. And secondly, if you look on YouTube, there's always these really helpful videos and options that say like top ten, top 10 ways or top five ways to get rid of your slice. Ray's watched all of them. It's not helped or top best five games of 2022 for myself because I'm a big gamer PS5 and xbox, I'm an adult after all. It's also interesting, our marketing overlords usually don't let us deal with politics. So the big question is how much editing is going to happen today, especially the way Ray usually goes off on these things. But so when we originally set the podcast a few weeks ago, we were going to do the top 5 and top worst five issues that have impacted CRE in the past couple of years. Then Rob Ford came along and Ken Sim in Vancouver and basically ruined our podcast by coming out. I've really great ideas on how to fix half of the problems we're going to raise, so today's going to be a bit more free flowing. So Canada is upside down right now because it's actually heading in the right direction for one. So I'm going to go first, then Ray is going to go, then we're going to have a discussion. So my top policy right now, the top thing is actually the new More housing act, which came out this week, and that gets the top two spots in my list just because it's such an epic change to the direction we've been heading in for so many years. After that would be Vancouver's mayor's promise to deal with housing approvals. But my other favorite is when Ford, halved the size of city council in Toronto, definitely could do with half in it again. It would make life a lot easier for everybody. I really love Alberta's new approach to pulling or poaching people from Ontario and the provinces with their advertising come who live here. It's a great place to live. There's great jobs. It's a genius way of actually demonstrating how affordable Calgary is as an option. And then if we start looking on the negative side of things, some of it's already being dealt with inclusionary zoning, Mississauga, Toronto and Ottawa. I mean, I can't say how many times I've mentioned I hate that thing but they act fixed it kind of approval timelines in Vancouver and Toronto having dealt with the DC rip off is being phased in now. One that hasn't been fixed is Quebec's a little bit of an insular view towards immigration, which has raised its nasty head over the last year or so, albeit a populist approach is not really a good direction for CRE in general. They've tried to walk some stuff back, they've said, but I think the point has been made. They want to reduce immigration significantly and then the two that kind of need big sort of change of retention is one immigration around increasing the skilled labor. So we can increase the pace of construction. The current numbers we're looking at to try and build kind of it's going to be difficult. And the targets that the feds have for immigration around skilled labor kind of defies logic. So I think we're going to see movement on that. And I suppose you can't have any podcast where you're talking about what's going on in the world right now without touching on interest rates. And, you know, the alleged independent central banks we have, I think the more homes built faster act in Ontario is going to be basically the best Christmas present we've had in home supply in the last 20 years. And then I'll pass it over to ray, who can touch on some stuff around office. Commercial side of things. Great thanks, Marilyn and Marilyn. The other way to fix a slice is just pay more money for better equipment, which is the easiest thing. The nice thing what's happening with on the residential side with some of the fixes that Marlon is sort of mentioning, is that it helps the commercial market, especially with population growth and increased demand. So some of the things that Marlon mentioned is a positive. And what we've seen on the commercial side is. Especially the last 2 and 1/2 years, is a nice pivot, right? There's been a lot of discussions about ESG and to be able to substantiate changes in that area and the advent of the mass timber development in Vancouver as well as Toronto, such as Toronto with the T3 Bay Bayside 10 story office building. There is more sort of vested interest in that area, especially from not just from the ownership side, but they also recognized from tenants and as well as from employees that these type of buildings, these type of initiatives matter. The way our profile and the company in a positive light for going to these locations. But as well as everything that we're sort of hearing now that employees are looking for companies, buildings or spaces that allow them to be more sort of comfortable environment with better air circulation, more of a living room setting work wherever they want within the space, have a little bit more interaction and collaboration. So that's seen as a positive with growth, especially with the redevelopment or for new projects. But on the redevelopment side, we're also seeing some more discussions about how do we create a neighborhood, how do we be a little bit more inclusive for various people with various needs within the space so that everyone is not targeted for a particular age group or a particular facet of the company, but more open that people feel a little bit more inclusive for that space. So we're seeing some really interesting proposals and changes and as well as on the mixed use side, especially with the mega developments that we're seeing with the well in Toronto, with a million square feet of office retail, residential, square one redevelopment of potentially 80 million square feet of development or redevelopment on 130 acres. So when we're seeing this change with especially on the office front with do we go back into the office that you're seeing a pivot change. And as well as a lot more flexibility in the area and what you're seeing on the retail as well that again, retail, as has been said many times, that this year is a death now that we don't need brick and mortar, but they continue to evolve and change themselves. And that's one of the areas where we see four opportunities for redevelopment based on their locations for more added value and and for the owner as well as more interaction with the consumers and the tenants in that space. So on the commercial side, it's following nicely. I think commercial has gotten benefit from everything that Marlon said on the positive. On the residential side especially, we get housing affordability and for people to have more of a choice instead of looking at lower priced housing in Alberta, that we retain that talent across the board and creating environments for people to be able to make a living as well as being able to feel that they can succeed in different parts of the country. So from the positive side that we're seeing a lot of positivity, even though that we're seeing what Marlon mentioned earlier with the higher interest rates, the impact and perhaps this pending recession, there are sort of a number of positive things from the development side and growth in both existing as well as the older product, as well as a new product going forward. So when we said five, we really meant 10 good things because we're not good at math. And then really managed to avoid any negative. But I think it's been interesting this week, the changes we've seen and especially as we coming out of the pandemic, there seems to be a lot more positivity in the market. I think as you mentioned on the commercial side of things, in the mixed use, that's been largely driven by large institutional companies taking a completely different view of mixed use in the residential office, retail being combined. So you're actually creating neighborhoods versus one off projects that hopefully link up to be neighborhoods. And I think a lot of that positivity has came because we're starting to see some movement. As I mentioned earlier, the change in the mayor that will be coming up in Vancouver and the different approach towards getting housing and addressing that market and then Ontario being addressed. There's a lot of positivity now that you can feel is an acknowledgment of housing affordability is a significant drag to basically all. Real estate, no matter what type of asset is. In order to free up the whole market, the more people, the more homes we can get, the more affordable. They get. It should help. And that's why I think the more homes built faster act I saw an article of day basically says, forget everything you thought you knew about planning or something to that effect. It really is that wide ranging change that hopefully some of the other provinces that are having challenges can start taking a look at this sort of action as well. And it deals with everything that was been negative almost it's almost like they went for a checklist of all the negativity that was the drag that was holding things back. And I would say they made it equitable. I mean, some people are always going to complain. It goes one way or the other way. I think it's much more equitable than the position that we were in two or three months ago where developers were sort of wringing their hands, how the hell do I build this project? Don't make any money whatsoever. Never mind even a reasonable return. Rental personal rental was slowing down. We know we've spoken about work from home and whatnot and the changes, but I think this is the first sort of positivity we've had since the beginning of the pandemic, maybe before the beginning of the pandemic. And it kind of feels like a wild ride of negativity up to more recent times. Well, and exactly. I just came back from a conference with about three days of constant research discussions. And, you know, the big discussion was the impact of interest rates and the potential slowdown, the economy of a soft landing, but a sort of a longer recession and higher unemployment both North and South of the border. And there are some concerns, especially with where the interest rates are going and whether or not that's going to impact values across the board, because definitely we have seen cap rates move up. And it's not just your that retail and office that are seeing some of those changes, but there's also some upward movement in industrial and industrial. You're still getting 10% to 20% increase in rents, but you're starting to see cap rates go up just because the cost of financing some of these projects. And that's the other biggest challenge that we're starting to see with some of the slowdown in the market and that securing financing for projects or acquisitions. So it's we talked a lot about the positives, but there's a number of headwinds that are coming up that are really going to impact the market, especially if we are in for a little bit longer recession, as well as if the interest rates remain high for a longer period of time than anticipated. So we could get even if we pushed you hard enough. It was really weird when I'm the positive 1. It's been a week of negativity. And I just wanted something positive to end the week. Marlon so, so I'm glad that you brought all those the things that are changing on the, on the residential side that is putting this into a positive light. And there's no way, by the way, the equipment is going to fix your slice. It's the operator. It's always the operator. No, no, it's always the club. We always return it because the club is broken. It's not me. Yeah, that's. That's when the guy is trying to sell you a $900 driver and a $500 shaft. Don't worry, this can improve your game. No end. What with the recession. I'm hoping for a half price markdown. Well, hopefully that goes through the whole sort of process. But again, I think I still want to conclude, I think it is positive despite the interest rates. And I mean, if you start to look at what the policies are going to do, again, going back to the act, the act, in effect, lowers the cost of development on the soft cost side will help. It gives more predictability over time. So even if we do have a soft landing or a duration of recession, which we're expecting, realistically, we should come out the gate flying afterwards. So it's going to be a couple of years of pain and then or a year of pain and then come out of the gate flying. And most of the projections we've been saying or discussions we've had is we think 2023, 2024 might not be the greatest years, but it's ramping you up ready for 2025 where things take off again. Yeah and, and I've heard that a number of times in the past week. And the concern again, I think people are, are, are very cautious and about that set up with now there's a little bit more sort of availability of labor with some of the projects that have been delayed because some of either the post loans or parcel pending cancellations in the residential side. But it was a thought that once we get back on fair footing and once we get this green light again, we're going to get back into the same problem because we're not fixing the hopefully immigration fix that in the interim, but we're not. We're not restructuring ourselves to do what that next sort of upward movement is. So I'm not sure if we're just in this area of getting settled and then it's going to be a worse in about 18 to 24 months, when the economy starts picking up again, it will be unless tough change, which is kind of the whole topic of the policy changes and the issues that we see is if immigration can be changed to increase the number of skilled workers. And obviously there's a large focus on the recruitment side of things at the moment that starts down in school, works through the training, up through the whole age cohort. But I think there's opportunities definitely to ramp up. Will we be ready in two years? Probably not. Will we be ready in 3 or four years? Probably if things had in the right direction. So again, I see that in the short term, there's a little bit of pain. The mid-term there's definitely light at the end of the tunnel. And long term. These are the foundations that we see now with these changes in policy and the positive policy to fix a long term, 20 year, 15 year issue that's been built in and largely ignored. I mean, the supply side of housing, the government's been obsessed with the demand side for so long and bubbles and other such ridiculousness that the fact that supply has finally been acknowledged by both the provincial level and the federal level, I think the municipalities are slowly getting the hang of it as they usually just cry. They don't have enough money. I think we're starting to see light that we're going to head in the right direction. Will it be fixed overnight now? I think this is a 10 or 15 year endeavor to get to the end, but maybe by the next generation we've actually fixed all the problems we caused so well. Again, that's why I see the positives that the next generation has. There's more open communication there. There seems to be a lot more of a vested interest in the progression of development. So I'm you're sort of counting on that next generation to carry on as well as do better than what we've done in the past. And I think that's where we're going to see this whole thing with climate change, the ESG really start to pick up and how we deal with the social governance part of ESG and how that's going to be fact reflect positively on the real estate side, on how we build space, how we use space and how we interact. So and we're starting to see some of that. And that's why I'm sort of excited going forward with the imagination and some of the integration of the younger people into that decision process and how real estate is going to change overtime for the positive, I think. Yeah, and I think we can probably end there because we actually got you back. On the positive note, I know you had a bad day, so we got negative rates at a positive rate. So I'm actually in a good mood because my dog decided to go to Halloween, haunt wonderland with a friend. So I got like a night off, got date night set up. Might be at McDonald's because I haven't booked anywhere yet, but no matter what, I'm out. So I think we'll end the podcast on a positive note that it looks like we're starting to head in the right direction. Hopefully we're going to help out the next generation that we've probably screwed over a little bit over the last 20 years, and things will head in a much better direction. Feel free to tune into the next podcast. I'm not sure we have a topic yet, so this one might be a bit more winged as well, but we'll talk to you again soon. Cheers Thank you. Bye