Last year, the commercial real estate industry faced a number of diverse challenges and successes that are expected to develop throughout 2017. Here, REMI’s award-winning editorial team takes a look at the top stories from 2016 and how they will continue to impact the industry. The articles appear in no particular order based on popularity and reader traffic.
1. Stable real estate investment market foreseen
Barbara Carss, editor, Canadian Property Management: Record low cap rates defined the real estate investment market in most of Canada’s major centres last year. That’s in sync with similarly historic low bond yields and ongoing volatility in equity markets, positioning real estate as a comparably stable and attractive asset class despite a dip in returns.
As institutional investors await 2016 results, they expect a somewhat similar picture to 2015 with Vancouver and Toronto registering strong performance and Calgary and Edmonton continuing to struggle. Newly completed Class A and AAA downtown office space continues to come onto to the market, creating leasing challenges for existing space. Yet, institutional owners continue to patiently hold properties in even the most distressed markets.
Two major Canadian players are expected to actively enter the game in 2017, as approximately $18 billion in assets will be transferred from current third-party property managers to the British Columbia Investment Management Corporation’s (bcIMC) new real estate arm, QuadReal, and the newly established Investment Management Corporation of Ontario (IMCO) begins operations. Meanwhile, world events continue to accentuate the attractiveness of Canadian real estate.
2. Condo corporations vs. short-term rentals
Michelle Ervin, editor, CondoBusiness, Canadian Facility Management & Design: The rise of websites such as Airbnb has become a headache for condominium corporations whose governing documents prohibit hotel-like tenancies. As boards struggle to enforce rules against short-term rentals, a recent court ruling out of Ottawa may bring relief to communities across the province and beyond. In it, a judge found that a declaration provision limiting the units to ‘single-family use’ precluded offering Airbnb-style accommodations.
3. Ontario opens way to inclusionary zoning
Erin Ruddy, editor, Canadian Apartment: Affordable housing is a topic that dominated news headlines throughout 2016, and will no doubt persist into the New Year and beyond. With policy makers and industry professionals alike searching for solutions to ease the affordable rental housing shortage, one controversial proposal had many developers seeing red. Inclusionary zoning has now been given the green light in Ontario, which means cities will have the power to make apartment developers include affordable housing in all new residential projects, setting aside a percentage of their new units for low- to moderate-income households. Here’s a look back at the article we ran in May, sharing some important perspectives on this new legislation.
4. Engaging next generation property managers
Rebecca Melnyk, online editor, Canadian Property Management, Facility Cleaning & Maintenance: Buildings are becoming more sophisticated and will need a new generation of skilled property managers who understand their myriad complexities, from security systems to energy consumption. Unfortunately, this is a role with no clear career route. Real estate companies and industry associations are working to promote property management as a skilled job and create a process where young people are trained to manage these buildings. More educational pathways and increased mentorship among new hires is on the horizon.
5. Impact of building materials on human health
Cheryl Mah, editor, Design Quarterly, Construction Business: How to ensure building designs are not only good for the environment but also for people is becoming an increasingly important consideration. Many manufacturers are already actively participating by offering more data and product ingredient reporting. The focus on human health and wellness will continue to be at the forefront of the green conversation in 2017.
6. Gen Z in the workplace
Michelle Ervin: In the fight for talent, the needs and wants of millennials have dominated discussions about the design of the workplace for a number of years now. It makes sense, too, given that millennials are expected to account for half the workforce by 2020. However, that year is also the year that the Gen Z cohort will begin to enter the workforce. And at least one workplace strategist says that if organizations want to be ready, now is the time to start designing with this group in mind.
7. Taxes and surcharges pad 2017 operating costs
Barbara Carss: Taxes and surcharges — whether related to carbon pricing, property assessment or special municipal powers to generate revenue — will be a highly scrutinized element of 2017 operating costs. Notably, Alberta’s new carbon levy and the launch of cap-and-trade in Ontario means add-ons for natural gas budgets, but that scenario is pending nationwide with the federal government’s 2018 deadline for all provinces and territories to implement carbon pricing, in line with achieving Canada’s target to reduce greenhouse gas emissions to at least 30 per cent below 2005 levels by 2030.
Both Alberta and Ontario’s schemes come with promises for energy conservation programs funded through collected revenues. However, Ontario’s commercial real estate sector has been largely excluded from incentives outlined in the provincial Climate Change Action Plan, while rental housing landlords await clarification of the government’s pledge to protect tenants from the impact of cap-and-trade.
Many of these same landlords are expected to appeal their assessed property values as Ontario begins a new four-year assessment cycle in 2017. Although industry insiders generally endorsed the province’s move to a direct capitalization methodology for evaluating multi-residential properties, property tax specialists contend the applied cap rates are problematically low. This has resulted in significant gains in assessed values and is a suspected factor in the Ontario government’s subsequent decision to freeze municipal property tax increases on rental apartment buildings.
Commercial and industrial ratepayers are also wary of hinted changes to Ontario’s property tax rebate on vacant units, announced in last year’s 2016 provincial budget. At the same time, a coalition of Toronto-based real estate organizations remains vigilant as city council considers options for a levy on commercial parking spaces.
8. Cybersecurity challenges property managers
Rebecca Melnyk: Cybersecurity is a significant topic in 2017. The dawn of the Internet of Things—physical objects connected to the Internet—is well underway, but is also heightening the risk of cybersecurity breaches. While Internet-enabled building control systems are creating more functional assets they also make it easier for hackers to find gaps, compromise sensitive information and exploit organizations. Even though cost and liability are real consequences, the real estate industry downplays these threats. Meanwhile, governments and the regulatory community are just beginning to figure out what laws apply to IoT, while the insurance community is scrabbling to understand how to cover an attack. This year, there will be more push for cybersecurity laws and legal clarity, and more talk about protecting a property through contracts and best practices.
9. Vancouver moves to Zero Emissions Buildings
Cheryl Mah: The City of Vancouver is tackling greenhouse gas reduction aggressively, approving its Zero Emissions Building Plan in 2016. The Plan includes four main strategies to transition all new construction in the city to zero operational greenhouse gas emissions by 2030. The plan puts the city at the forefront of the green building movement. The ambitious plan wants to fundamentally shift building practice in Vancouver in just under ten years. Stay tuned.
10. Cogeneration sparks apartment sector interest
Erin Ruddy: In an attempt to counter the effects of rising utility costs and aging building stock, apartment owners are readily turning to technology to help them improve efficiencies. From state-of-the art boilers and advanced building automation, to simple LED lighting retrofits, one new system that got apartment owners talking in 2016 was cogeneration; otherwise known as CHP (combined heat and power). Defined as “the simultaneous production of electrical and thermal energy from a single fuel source,” cogeneration is a reliable way to produce power while redirecting ‘waste heat’ back into the building as useful energy.
11. Is LEED still relevant?
Cheryl Mah: While LEED certification is now standard practice for many projects, the green building rating system is not perfect. LEED v4 is the framework and benchmark for the next generation of green buildings and addresses many of the shortcomings of previous versions. Expect the conversation about how to ensure our built environment is truly sustainable (especially climate change) to continue.
12. The move to license condominium managers
Michelle Ervin: News about Ontario’s overhaul of outdated condominium laws slowed to a trickle in 2016 after a flurry of activity in 2015. Since the provincial government passed the Protecting Condominium Owners Act, bureaucrats have been busily drafting regulations that will bring to life reforms to the Condominium Act and flesh out the new Condominium Management Services Act. The government is preparing to bring the legislation into effect in phases, with the transition to licensing for condominium managers slated to begin in mid-2017.
13. The role of an OHS prime contractor in Alberta
Cheryl Mah: Safety is paramount in the construction industry, where the potential for injury is high. Owners and employers need to understand their obligations under the various regulations to make sure everyone goes home at the end of the day. The industry works hard to implement changes and improvements as concerns arise and that commitment to safety will not change.
14. Bedbugs on the rise in Canada
Rebecca Melnyk: Bedbugs are on the rise in Canada. Last year, Montreal reported an epidemic as numerous reports piled in from multi-residential buildings. According to an industry expert in environmental management, these pests are also popping up in less publicized facilities, such as hospitals and high-end hotels. Manufacturers are responding with new inventions to combat infestation, while the environmental management field attempts to better educate owners on how to detect and take action to eradicate bedbugs.
