What’s happening in… Vancouver?

Vancouver, in British Columbia, is one of Canada’s most well-known and densely populated cities. It is positioned on the west coast, just 45km north of the border with the United States. Some 650 000 people live in the “city proper”, while the larger metropole (bearing the name “Greater Vancouver”) is home to almost 2.5 million people. Vancouver is reportedly Canada’s most cosmopolitan city, with an ethnically and linguistically diverse population.

The city is a popular destination for the film industry (nicknamed “Hollywood North”), and for tourists, as well as enjoying a reputation as a cultural hub with many galleries, museums, and theatres. With a busy port, rail network, and as a nexus for the transcontinental highway, Vancouver’s economy was built on trade, and has expanded to include film and TV, tourism, raw materials, construction, and technology. Recently digital entertainment and the green economy are also driving GDP growth.

Post-pandemic landscape

Like most of the world, Vancouver was rocked by Covid-19, with business shutdowns and job losses. However, it was relatively more resilient than other Canadian metros. The region’s gross domestic product (GDP) is expected to bounce back by 6.8% in 2021, and forecast to grow by 4.1% in 2022.

By September 2021, however, the Vancouver region’s employment figures had recovered in absolute terms. The Vancouver Economic Commission says: “Some jobs have migrated sectors; retail & hospitality are still recovering, while other sectors – such as tech and construction – have gained jobs.” Employment in the Metro Vancouver area hit 101.3 in September 2021, the highest figure in the country and “finally surpassing pre-pandemic levels”.

Property watch

Vancouver is the country’s most expensive residential market and the most expensive place to live, which means that while it enjoys high scores in quality of life metrics, it has priced a lot of younger buyers out of the market. It enjoys high demand, and is considered a strong commercial real estate (CRE) market – especially for the multifamily and office sectors.

Software and data provider Altus Group says CRE investment in the Vancouver market area “saw a significant surge in the second quarter of 2021”, adding that the robust multifamily and apartment market is “fueled by the highest apartment rental rate in Canada, a shortage of rental product in the construction stage, and the anticipation of border openings to international students and immigration in the near future”.

Commercial vacancies naturally increased during the pandemic (increasing from 4.4% in late 2019 to 7.5% in late 2020) and the “return to office” expectations  of 2021 was tempered by news of variants and secondary outbreak waves.

Companies seeking space in the city are increasingly looking to develop former industrial space in the east, according to Business in Vancouver, with particular interest from firms in high tech and the medical and life sciences. They are however competing for space with a powerhouse industrial segment. In Q1 and Q2 2021, investment in the industrial market in Vancouver surpassed $1.1 billion, and lease pricing reached a new record high of $15.50 per square foot.

Two Tales of One City

by Alec Pacella for Properties Magazine January 2022

The dust has finally settled on 2021 and, for better or worse, it looked a lot like 2020. It’s that “better or worse” part that will be the focus of my annual wrap-up column.

I’ve used this theme a few times in past columns, sometimes I termed it “best of times, worst of times’ while other times I called it “glass half full, glass half empty.’ As has been said several times in the recent past, COVID has accelerated trends that were already present and the concept of ‘better or worse’ is no exception. To see what fared better and what fared worse, read on.

Click the link for the complete article: http://digital.propertiesmag.com/publication/?m=&l=1&i=734292&p=64&pp=2&ver=html5

Work smarter not harder: The impact of blockchain on CRE

So far in this blog series, we’ve looked at some of the most cutting-edge emerging technologies: The Internet of Things (IoT), robotics, and virtual reality. We’ve discussed the potential these developments have to revolutionize the way we do business and work in the real estate space. 

While each of those has its applications, none hold quite the same promise for changing the fundamental aspects of how we make, and document, commercial real estate (CRE) deals as blockchain. In this fourth entry in the emerging tech series, we have a look at the implications of this pivotal technology.

Blockchain basics

Nowadays, blockchain is a term everyone’s hearing with increasing regularity. To start, it’s worth having a brief recap of exactly what the tech is. At its simplest, a blockchain is a ledger – a record of information. Not all that different from the databases you’re already using to record details of properties, clients, or transactions. 

The feature that makes blockchain unique is the way that information is recorded. Each “block” can hold a certain amount of data. Once a block is full, a new block is started and the previous block forms part of an immutable chain – essentially a timeline extending outwards from the first block to the current one. 

Information on the blockchain is public and distributed across a network of computer systems – meaning that it’s very, very difficult for one person to hack or alter the information stored in the chain. 

Streamlined data

The opportunity blockchain presents for the CRE space, is the ability to streamline a lot of time-consuming tasks. Imagine having all of the paperwork for a given property digitized, accessible to everyone involved in the deal, and confirmed as accurate by multiple parties. 

Steve Weikal, MIT’s Head of Industry Relations at the Center for Real Estate, describes it like this:

“There are two areas where I think the blockchain is. There’s going to be the intersection with legal tech, so that’s land registry and recording and ownership, and all of that paperwork that exists in the system… the other is the intersection with fintech.”

Of course, an issue that comes up here is how this system can be used with potentially sensitive information – client details that shouldn’t be a matter of public record. For business networks, private blockchains can be set up to only allow access to specified parties. In this case, the identity of participants is verified in the network as well, unlike public blockchain where users can remain anonymous. Private blockchains function more like a traditional database in this sense, trading off some of the immutability of their data for privileged access. 

Sealing the smart deal

Maybe the most promising application of blockchain for CRE deals is being able to deploy “Smart Contracts” for things like tenancy agreements. Smart contracts hard code the details of an agreement on the blockchain, and are uniquely suited to real estate deals, because they can handle conditional clauses. 

As an example, startups like UK-based Midasium are already providing a prototype platform that replaces traditional landlord-tenant agreements. Using smart tenancy contracts, clauses of the agreement are automatically enforced when certain conditions are met. This can include paying rent, returning a security deposit, and directly deducting maintenance costs from the rental amount paid across to the landlord. 

It’s a system designed for transparency and rapid settlement, and the concept is gaining traction in other parts of the world. An added bonus of using smart contracts for tenancy is the possibility of building up a database of real-time data for rental prices and trends in the rental market.

A growing sector

Overall, enterprise reliance on blockchain is set for rapid acceleration. Forbes, quoting an International Data Corporation (IDC) report notes that:

“Investment in blockchain technology by businesses is forecast to reach almost $16 billion by 2023. By comparison, spending was said to be around $2.7 billion in 2019, and we will see this acceleration ramping up over the coming year.”

Blockchain adoption in CRE, however, is still in the early stages. The tech still needs to overcome a few growing pains – in terms of privacy concerns, operational complexity, and a lack of standardized processes – before we’ll necessarily see it forming the backbone of CRE transactions.

That said, it’s a space well worth keeping an eye on. There’s been growing interest, for example, in CRE tokenization –  splitting the value of a given asset into separately buyable blockchain-based tokens. What this means in practice is that instead of looking for one buyer for an expensive asset the value gets subdivided and opened to a much broader market. Which in turn may actually boost the value of the underlying asset.

There’s a lot of potential and little doubt that blockchain will make its way into CRE one way or another. But, like many things in the cryptocurrency and blockchain space, the real challenge will be separating the wheat from the chaff, the fact from the hype, and identifying functional applications of the tech rather than purely fanciful ones. 

Watch this space: Industrial boom continues into late 2021, and beyond

We’ve all seen how the Covid-19 pandemic gave the industrial sector the shove it needed to go from well-poised to interstellar. Now research from the Commercial Real Estate Development Association (NAOIP) suggests there is no slowing down for commercial real estate’s (CRE) newest darling sector.

The NAIOP’s Industrial Space Demand Forecast for Q3 2021 shows that “sustained growth in e-commerce [and] demand for industrial real estate continues to outpace supply”. This, they say, puts the sector in a state of net absorption that will continue throughout the year and into 2022.

Digging into the numbers

The authors of the report are Hany Guirguis, PhD, Manhattan College and Michael J. Seiler, DBA, College of William & Mary. They write that “the demand for industrial real estate still outpaces supply” even with “nearly 100 million new square feet delivered nationally since the beginning of the year, 450 million square feet currently under construction and another 450 million planned”.

Their data then boils down to net absorption of some 162.6 million SF in the second half of the year, and they state that they’ve “returned to their pre-pandemic confidence levels”.

Triangulating more data
The demand has of course been driven primarily by the boom in e-commerce. GlobeSt.com reports that e-commerce sales hit “a quarterly record of $222 billion in the second quarter of this year”, accounting for 13.3% of all retail sales. But there are contributing factors, such as growth in cold storage, materials and construction, manufacturing and medical industries.

With the combination of factors, CRE data analysts such as YardiMatrix are predicting the growth to stay buoyant through 2026. Yardi’s predictions include delivery of 348 million SF next year, 360 million SF in 2023, and up to 370 million SF in 2026.

New growth
There are other blooming products and industry categories that will only increase this demand. The cannabis processing industry is hungry for space in deregulated regions and in countries with widespread legalization like Canada and Latin America. Finally, there are superlative predictions for the industrial square-footage needs of the commercial space industry too.

No wonder, NAIOP CEO Thomas J. Bisacquino calls industrial “a bright spot in the CRE industry”.

Record rents point to UK CRE recovery

Reporting in the Evening Standard, based on data from Remit Consulting, indicates improvements in the UK’s commercial property sector. The firm’s data shows that rent collection in the last quarter reached its highest level in the pandemic period, which is partially due to the easing of lockdown regulations in the country.

Data from their REMark Report shows that “…an average of 72.1% of rents due in the UK had been collected with seven days of the September quarter rent day, which covers payments for the three months ahead”. This includes rent for retail and dining establishments, bars, and warehouses. Comparatively, in the previous quarter, 66.5% of rentals due were collected by the same point. Retail rents were sitting at 68.8% (up from 62.3%) and leisure at 57.2% (up from 40.1%).

Good news…

This is in keeping with a general upward trend, the firm told the newspaper, “which is good news for investors and landlords such as pension funds and other institutions, particularly as the upward trajectory of payments from tenants is similar to the previous quarters of the pandemic.”

…but not all good

Despite the strength of this news, it’s not a unilaterally positive picture, as the data also indicates that this ‘record high’ is still considerably lower than pre-Covid levels. Altogether, since the start of the pandemic, there is a shortfall in rent from commercial occupiers amounting to nearly £7 billion – a considerable chunk for property owners and investors, including institutional investors such as pension funds.

Managing the fallout

The matter of the “missing rents” is something the industry and public service are keeping a close eye on. This report from the International law firm Morrison & Foerster LLP gives an excellent rundown of the public consultation that the UK government has done around trying to establish a way forward for both struggling commercial tenants and landlords.

The policy paper published in August 2021 can be found here, and outlines the government intentions to “legislate to ringfence rent debt accrued during the pandemic by businesses affected by enforced closures” and their intent to formalize a “process of binding arbitration to be undertaken between landlords and tenants”.

Meanwhile, a number of the large and influential property industry associations have called on the government to end the moratorium on evictions that came into effect during the height of the pandemic and lockdown measures.