Month: June 2021

Princess St. in downtown Kingston is a lively high street replete with everything from used record shops to brewpubs and 130 eateries, and according to the local business improvement area, it’s ripe for new residential development.

“We’ve been advocating for residential intensification for a number of years now and for a number of different reasons,” Rob Tamblyn, director of economic development for Downtown Kingston! BIA, told CREW. “We’ve got 130 restaurants and eating establishments right in this area—and that’s one of the highest per capita in Ontario—there’s Leon’s Centre where the Kingston Frontenacs play, and hopefully will again in the fall, and a number of acts come through there as well; we have festivals in the summer time; we’ve got a skating rink. All these reasons are why we’ve been advocating for residential intensification for so long. We have all the amenities right in the heart of everything.”

Turns out, the BIA is getting its wish. Crown Condos, a nine-storey 182-unit residential tower with grade-level retail, is tentatively slated for occupancy in September 2023, and according to its developer, IN8 Developments, younger end users have expressed the most interest in purchasing there.

“It has great panoramic views of the water, and the location is fantastic, which is why it has a 97 walk score. We have a massive list of people registered who are Kingston end users, and they range from mostly millennials to baby boomers; they’re all people who see value in living downtown,” said Darryl Firsten, IN8’s owner and president. “They see the value and efficiency of living in a condo over a detached house, and they see the value of walking out their front door to all the amenities that Kingston has to offer.”

The city is enjoying a farm-to-table renaissance, added Firsten, with a lot of chefs relocating to Kingston from larger cities, and people are taking notice. All of a sudden, Kingston is the place to be, he says.

Crown Condos is mostly end user-driven but it has also received a fair bit of investor attention, which makes sense considering there haven’t been too many new developments in the area recently and nearby Queen’s University has a student housing shortage.

Downtown Kingston’s recent condo developments attracted older buyers, many of whom, says Tamblyn, are snowbirds. Conversely, Crown Condos is teeming with permanence and that’s good news for Princess St. establishments.

“We can’t wait for construction to start because it’s going to be a huge boost for the downtown economy 12 months of the year,” he said. “It’s a younger demographic than what we already have downtown, and part of the issue with past projects is that they’ve focused on an older demographic, and they’re usually off to warmer climates in the winter. But it’s going to be different with the demographic for this building and it’s very exciting.”

Oshawa is the fastest growing census metropolitan area in Canada, according to Statistics Canada, and that’s reflected in the city’s housing market.

“The CMA of Oshawa (+2.1%) recorded the fastest growing population, followed by the CMAs of Halifax and Kitchener-Cambridge-Waterloo (both up 2.0%) and Kelowna, Calgary and Saskatoon (all three up 1.9%),” StatCan wrote in a January report. “In Toronto, the net loss was mainly driven by people moving to surrounding CMAs. For example, the population growth in Oshawa (+2.1%)—which posted the fastest growth—was partly due to migration flows from the neighbouring CMA of Toronto.”

With the cost of housing in Toronto becoming financially prohibitive for many of the city’s residents, they have been leaving the city for upwards of a decade, says Dan Plowman,

“There are a number of reasons Oshawa has grown so much—I believe the infrastructure and money Durham has spent for large things, like community centres, arenas, fire halls, new schools and more, have allowed developers to put families here,” said the owner of Dan Plowman Team Realty Inc. “There’s the new north Oshawa development, too. This is the kind of development that brings massive homes, massive development and massive population growth.”

As of May 31, 2021, the average detached home in Durham Region sold for $1,002,428, while the median condo price was $585,241. Detached homes are in much higher demand in Durham Region, with 1,087 sales in May, 1,191 in April, 1,443 in March and 959 in February.

Like in pretty much the rest of the GTA, supply and demand is out of balance and that’s driving up prices. Plowman noted that demand is being driven by cheap money, which started well before the COVID-19 pandemic.

“The biggest reason Oshawa is growing the way it has is interest rates being down for as long as they have and prices going through the roof,” he said. “This has been happening consistently for at least 10 years. In the last two years, there have been consistent multiple offer situations for most houses.”

Plowman believes Oshawa is experiencing what Mississauga did three decades ago when it began growing into the juggernaut that it’s become today. In other words, talk about a bubble bursting, Plowman says, is hot air.

“Oshawa is doing what Mississauga did 30 years ago—prices went up like crazy and people were starting to leave places like Etobicoke and North York to move there. The building boom there was immense and now it’s come to Oshawa.”

It appears that buyer fatigue has indeed crept into the Canadian housing market, with sales declining by 7.4% month-over-month in May, says the Canadian Real Estate Association (CREA).

Although activity is historically high, May marked the second straight month of declining sales—nearly 80% of markets reported drops—after they fell by 11% in April.

“While housing markets across Canada remain very active, we now have two months of moderating activity in the books, and that goes for demand, supply and prices,” Cliff Stevenson, chair of CREA, said in a statement. “More and more, there is anecdotal evidence of fatigue and frustration among buyers, and the urgency to lock down a place to ride out COVID would also be expected to fade at this point given where we are with the pandemic.”

New listings decreased by 6.4% on a monthly basis in May, and because many markets are grappling with historically low inventory, that pushed the aggregate price of a Canadian home up by 1% during that period. The actual price of a Canadian home in May, says CREA, was $688,000. Excluding the Greater Vancouver and Toronto areas cut nearly $140,000 from that price, the association added.

The seasonally adjusted aggregate price of a Canadian home was $717,000 last month.

New listings also fell in about 70% of local markets, and the national sales-to-new-listings ratio declined to 75.4% in May from 76.2% in April. The long-term average for national sales-to-new-listings ratio was 54.6% last month, which is historically high, albeit well below its peak of 90.7% in January.

Contrary to popular perception, real estate developers don’t design and sell projects all on their own. In fact, thanks to firms like Vertical Marketing Realty, their units are designed with mass appeal.

In fact, Vertical Marketing Realty helps developers with everything from their pricing strategies and market research to actual sales, marketing, project management and building design, says the company’s CEO Kathleen Xie.

“Developers can either go out and enlist everybody individually or hire a one-stop shop like us, which alleviates the need to hire individuals to handle broker relations and market research,” said Xie. “We have expertise and the track record to help these clients through every one of these stages rather than them going one by one with different companies to do all this. We look after presale, land acquisition, sales and post-sales relations.”

Vertical Marketing Realty specializes in the sales and marketing of new master-planned communities, including condominiums, townhouses and single-family homes. It also handles market research for developers, including determining prices structures and studying market trends, like how much both the presale and resale segments increase annually.

“Sales and marketing can involve our in-house team or it can mean that we partner with external brokerages—for example, it can be one that specializes in condos—to help market the product with maximum exposure,” said Xie. “When we partner with other brokerages, we refer to it as broker relations.”

A major project Vertical Marketing Realty is working on right now for which it’s been tasked with all of the above is Mapleview Terrace in Barrie. The developer recruited Xie’s brokerage, which she co-founded with Sunny Sharma, because of their CCIM designation—although this typically applies to commercial real estate, the duo have become experts in determining higher uses for properties, irrespective of whether they’re commercially or residentially zoned.

“We handle project management and figure out what provides leads, what doesn’t, where we need to advertise and where we need to increase or decrease our budget,” said Xie. “We’re also in charge of brand positioning, which means we come up with themes or names.”

Vertical Marketing Realty additionally amends building designs for developers in order to help the latter extract the most dollars.

“We optimize the designs to what we see selling more versus what the architect drew. We picked one up recently with a dozen floor plans and we enhanced eight of them to allow the developer to make more profits later on.”

Bank of Canada holds rates and QE steady—asserting that both the upside in inflation and the downside in GDP is temporary

The Bank of Canada left the benchmark overnight policy rate unchanged at 0.25% and maintained its current pace of GoC bond purchases at its current pace. The Governing Council renewed its pledge to refrain from raising rates until the damage from the pandemic is fully repaired. The $3 billion weekly pace of bond-buying—known as quantitative easing—will decline as the recovery proceeds. At their last meeting in April, the Bank reduced the pace of GoC bond buying from $4 billion to $3 billion per week. The central bank was among the first from advanced economies to shift to a less expansionary policy in April when it accelerated the timetable for a possible interest-rate increase and pared back its bond purchases.

The Bank’s view regarding the domestic economy appears to be little changed despite the April Monetary Policy Report (MPR) overestimating Q1 GDP growth by 1.4 percentage points. Indeed, today’s Policy Statement notes that Q1 GDP growth was “a robust 5.6%” and that the details of the report point to “rising confidence and resilient demand.” Concerning Q2, the third wave lockdowns are “dampening economic activity…largely as anticipated.” Note that the April MPR projected 3.5% growth in Q2 GDP, while the consensus forecast currently sits at 0% for Q2, with downside risk.

The Bank also noted that, “Recent jobs data show that workers in contact-sensitive sectors have once again been most affected. The employment rate remains well below its pre-pandemic level, with low-wage workers, youth and women continuing to bear the brunt of job losses.” The chart below shows that the labour market is still below the Bank’s target for a full recovery.

Bank of Canada upbeat over the medium term

“With vaccinations proceeding at a faster pace, and provincial containment restrictions on an easing path over the summer, the Canadian economy is expected to rebound strongly, led by consumer spending. Housing market activity is expected to moderate but remain elevated.”

On the inflation front, there were no surprises. The Statement says that inflation has risen to the top of the 1-3% control range due to base effects and gasoline prices. The rise in the core measures is blamed on temporary factors as well. The Bank anticipates headline inflation will stay around 3% through the summer before pulling back later in the year.

On the cautious side, the BoC highlights that the labour market still has a way to go before healing. There’s also uncertainty surrounding COVID variants.

The concluding paragraph didn’t change much. It reiterates that there “remains considerable excess capacity” and that policy rates will stay at the lower bound until “economic slack is absorbed,” which the April MPR said was in H2-2022. Concerning further tapering, the “assessment of the strength and durability of the recovery” will guide that decision.

The Canadian dollar barely garnered a mention yet again, with the Statement noting the recent gains and accompanying rise in commodity prices. The market might view the lack of concern here as a green light for further strength.

Bottom Line

The Bank of Canada is looking through “transitory” ups in inflation and downs in GDP. With vaccination rates continuing to ramp up significantly, and provinces beginning a gradual reopening process, the economy will rebound substantially beginning in June.

Indeed, with the near-term growth outlook increasingly bright, concerns have shifted to rising production input prices and the prospect for a sharp recovery in consumer demand to stoke inflation pressures. For now, the BoC is positing that near-term increases in consumer price growth rates will prove “transitory.” But there have also been signs of harder-to-dismiss firming in most measures of underlying price growth gauges, including the BoC’s own preferred core measures edging up towards or above the 2% inflation target.

July’s meeting will likely be a bit more interesting with the Bank issuing more details in another Monetary Policy Report. We don’t see any need for dramatic forecast revisions at this stage, and the BoC’s guidance that rates might have to start increasing in the second half of next year remains appropriate. It looks like the main question will be around further tapering of the BoC’s asset purchases. The BoC didn’t signal an imminent taper (we didn’t think it would) but said decisions regarding the pace of purchases would be guided by its assessment of the strength and durability of the recovery. If incoming data aligns with the BoC’s forecasts, we could see it reduce weekly bond-buying again in July to $2 billion per week from $3 billion. If not, September might serve as a backup as the bank seeks to prevent its footprint in the bond market (nearly 44% at the end of May) from becoming too large while at the same time setting itself up to shift QE to reinvestment only well in advance of the first interest rate hike.

Home resales in Canada are slated to jump 16% to 636,700 in 2021, says RBC Economics—up from its initial forecast of 588,300 back in January—before softening to 505,300 in 2022.

The bank, which updated its projection in a June 8 policy report from senior economist Robert Hogue, also increased its home price forecast to 14.1%, bringing its revised 2021 benchmark to $707,000. However, RBC expects both sales pace and price growth to begin moderating later this year and into 2022, when it anticipates housing appreciation will climb by only 2.9%.

Despite housing appreciation tapering, Hogue’s report doesn’t foresee any issues arising for existing homeowners, however, the same cannot be said for first-time homebuyers, whom he sees having even greater barriers of entry into Canada’s housing market. During the COVID-19 pandemic, mortgage payments on a standard home in the country, pegged at $724,000 in April, have risen by $330 to $2,500 a month, and with a projected 4.2% increase over the next year, mortgage payments would increase another $150 per month. Not only are mortgage payments going up, so are down payments, and the accompanying debt burden is turning homeownership into what Hogue called “a more distant dream for an increasing number of Canadians.”

Resulting from Canada’s runaway housing prices are policymakers’ intervention and nascent signs of self-correction in the market, but neither has been particularly impactful. Although major policy change could be the impetus needed to cool prices—Hogue recounts the foreign buyer taxes introduced in British Columbia and Ontario, implemented in 2016 and 2017, respectively—a confection of other factors, namely long-term rate hikes, dwindling affordability, more mortgage stress testing, and workers returning to their offices, will most likely have cooling effects. Additionally, surging home equity could also compel Canadians to sell their homes.

Still, as long as supply and demand disequilibrium exists, prices will keep rising. The B-20 mortgage stress test amendment, which took effect June 1, will not subdue housing demand the way it did in January 2018, the last time it was modified, says Hogue. Other minor policy moves, like increasing the supply of rental housing, could create much needed housing, but the federal government, while spearheading the initiative, provided scant details about how that would happen.

It is widely parroted by real estate professionals that the length of time it takes to deliver housing is the real culprit, and if there’s truth to such a supposition—the evidence is overwhelming—then the federal government’s laissez-faire approach to municipalities’ slow planning, zoning and approvals processes does not bode well for housing affordability in Canada.

It might be too early to know exactly when the COVID-19 pandemic will officially be declared over, but as more and more jurisdictions around the world reopen, it isn’t a stretch to presume that the end is near. As such, more and more workers will be returning to their offices, some of which have already undergone retrofits to occlude the spread of contagions.

Dream REIT is upgrading all of its buildings to WELL standards, which are considered premier for indoor air quality and employee wellness across North American workplaces. The REIT has already upgraded 4.6 million of its 5.5 million sq ft portfolio spread across 25 buildings.

One of WELL’s features is sophisticated UV light technology that’s installed throughout properties, including in elevators and escalators, and which kills 99.9% of viral particles. MERV (Minimum Efficiency Reporting Value) 13 is another key technology installed throughout all air-handling units in Dream properties, and it will help exhaust contaminated air while introducing higher filtered air, and more often.

According to Dream’s COO Gord Wadley, the REIT spent the last 18 months diligently undertaking the upgrades in preparation for its buildings’ eventual reopenings, having also spent a lot of time “overcommunicating” to its tenants that they need not worry about the spread of contagions.

“We’ve adopted several industry-leading practices during this pandemic and we’re well-positioned to welcome our clients back. Sometimes when you do these programs, the communication is equally as important and everyone has a different risk tolerance, so it’s really important that the landlord is packaging this information and providing it in a comprehensive way that our clients can show to their customers, their guests, that they’ve aligned themselves and partnered with a really safe work environment,” he said.

According to a survey conducted by Harris on behalf of HR software firm Ceridian, 83% of respondents want to return to their offices at some point, with another 52% reporting feelings of isolation working from home. Thirty-six percent of survey respondents said that remote work has negatively affected their career growth, and an equal number of respondents said it’s impaired their mental health.

Wadley says that it’s a near certainty companies will return their employees to offices, and it’s for that reason Dream got a head start on its WELL upgrades.

“We’ve really seen it on all the tours of our buildings,” he said. “Some tenants are starting to incorporate their HR teams and facility managers in the decisions. We’ve seen a huge push from HR leaders on behalf of our clients to get information on how we’ve upgraded our buildings. The feedback we’ve received has been positive.”

Business recovery in Canada’s largest city will be a piecemeal process, according to research from the Toronto Region Board of Trade’s Economic Blueprint Institute, especially for sectors of the economy that rely on office workers in the city’s core, many of whom will continue working remotely.

“What we are about to experience is not a single recovery. It is going to be a series of recoveries. And each requires a different plan to lift up businesses, its workers, and acknowledge the very different challenges that each has faced,” said Jan De Silva, president and CEO of the Toronto Region Board of Trade. “For a swift recovery, the region needs to look past municipal boundaries and engage in place-based recovery planning and regional investments in express rail, high speed broadband, skills development programs, land-use planning, and affordable workforce housing.”

At 67%, the downtown core has Toronto’s highest proportion of remote workers, and the confluence of their absence with the downturn in leisure and business tourism has crippled the area economically, says the board. Conversely, the area around Toronto Pearson International Airport has the lowest proportion of remote workers at 38%.

Downtown Toronto’s office vacancy rate rose to 7.2% in Q4-2020 from just 2% prior to the COVID-19 pandemic, although the dearth of demand for office space is more acute in the city’s suburbs, doubling, and in some cases tripling, the downtown vacancy rate.

The Toronto Region Board of Trade noted that the pandemic didn’t trigger mass bankruptcies, for which it credits government support and rapid strategic overhaul towards e-commerce, but small businesses throughout Ontario still accrued an additional $66.7 billion in pandemic-induced debt, averaging nearly $208,000 per business.

“Understanding how we survived—and in some cases thrived—during the pandemic is key to understanding how we will recover,” said De Silva. “We’ve discovered that there is no one-size-fits-all solution to recovery.”

For the Downtown Yonge Business Improvement Area, Step One of Ontario’s reopening plan, which took effect June 11, couldn’t come soon enough. The BIA oversees the area encompassing Yonge-Dundas Square, which is Canada’s busiest intersection, and according to the BIA’s COO and executive director, the entirety of Yonge St. normally sees 42 million pedestrians a year—a number that jumps to 50 million at the Eaton Centre located across the street from the square—but that number has fallen significantly.

“At one point during the pandemic, traffic was down 85%, but we’ve sort of settled around at a 40% reduction. If you normally have a million people around the Yonge and Dundas intersection in one month, we’re down to 600,000 people,” said Mark Garner.

Although bars and restaurants reopened their patios on June 11, the BIA still anticipates a major shortfall stemming from work from home arrangements and the continued closures of concert venues, like Massey Hall on the corner of Victoria and Shuter Sts.

“We work with the SRRA [San Romanoway Revitalization Association] to produce occupancy reports for employment clusters, which normally run around 80% occupancy because people travel for work, are off on vacation or work from home, but it’s currently at 4% for Toronto. If you think employment clusters are coming back to pre-COVID numbers, well, the economics won’t return to downtown and what that impacts is fewer people using Metrolinx and the TTC,” said Garner.

“The economics these people create by having lunch or shopping won’t return any time soon. It will be staggered and that’s why we’re out there right now advocating for subsidies.”

Ryerson University alone helps generate $32 million in secondary economic activity in the area, but if its students don’t return in autumn, Garner anticipates harder times ahead for fast food restaurants, cafes and other businesses.

“We’re expecting the best the economic cluster will be post-COVID is 60%. We’re expecting another bump in September with more people coming back, which would bring it to 10%, and hopefully by December it gets to 20-30%. It will take another year, or longer, to get back to pre-COVID economics, for sure. We’ll probably see ongoing loss of business, to some degree.”

The BIA will soon release its latest vacancy figures, but Garner noted that Pickle Barrel, Tangerine Bank, Swiss Chalet, Reds Wine Tavern, Scaddabush, Dukes, and even a Tim Hortons, are among the permanent closures in the area. But that hasn’t precluded other businesses from moving in. Before the pandemic, the BIA’s vacancy rate was 12-15%, says Garner, and he estimates it’s risen to 15-18% (although he reminded that the latest vacancy statistics have not yet been released.)

“We gained an Ikea, so there’s been that sort of ebb and flow, that flux,” he said. “(Yonge St.) has changed for sure. We lost the Air Jordan store but at least Footlocker moved into their location. Twenty-one days from now, there will be further laxing of restrictions, so we’ll be in a better place.

Real estate as an investment offers predictability in ways that traditional investments cannot.

“You can certainly use real estate as a compliment to stocks, bonds, mutual funds, ETFs, and because real estate is a good source of passive income, there’s predictability that you don’t typically get with traditional stocks,” said Cliff Fraser, chief business development officer of Burlington, Ontario-based Equiton Inc. “Real estate during the pandemic has been extremely resilient. People thought the sky was falling and that there would be rent anarchy, but prices are going up, people are paying their rent and all the good things that were happening prior to the pandemic are still happening.”

Additionally, real estate investors aren’t required to pour all of their money into investment properties, which could mean securing an insured mortgage or leveraging debt to buy additional properties. Fraser noted that investment horizons are particularly positive for multifamily apartments and industrial properties.

“Depending on the asset class, you can be a lender if you want to get into direct loans or private mortgages, or you can get into commercial real estate or apartments, and you can put up some equity while borrowing the rest,” said Fraser. “There are some tax advantages to this, too.

“Traditionally, apartments have been extremely resilient as an investment and COVID bore that out. We didn’t see the kind of pandemonium that the press predicted. Apartment values have gone up, rent is still going up, and there are no vacancy issues if you have a well-run building in a really good city or town. Commercial real estate will resurge at least in the medium term as we open from lockdown. There is a lot of pent up demand in that sector.”

Traditional investments not only have potential for volatility, they sometimes contain built-in redundancies that, during slides in the market, can result in twice the losses. Many Canadians have a propensity to purchase multiple ETFs without realizing that the same stock is bundled into more than one, and those inefficiencies can be costly. However, investing in real estate is a surefire way to avert such investment inefficacies.

Of course, there’s supply and demand disequilibrium in the rental market that’s slated to grow. Last year, Canada announced that it would welcome 1.2 million immigrants over the next three years, which, in combination with permit workers, international students and hefty domestic demand, will yield promising returns on investments.

“Becoming an active landlord is a great idea for many people who don’t get a lot of satisfaction out of traditional investing,” said Fraser, although he advised caution in choosing condominiums over traditional multifamily dwellings like triplexes and fourplexes. “Be cognizant of the fact that if you have one or two condo rental properties, your tenant can leave and hurt your cash flow. The other thing to be cognizant of is creeping maintenance costs as the building ages because they become punitive. You might have low condo fees in the beginning but by year five they can ramp up.”

Contrary to popular perception, real estate developers don’t design and sell projects all on their own. In fact, thanks to firms like Virtual Marketing Realty, their units are designed with mass appeal.

In fact, Virtual Marketing Realty helps developers with everything from their pricing strategies and market research to actual sales, marketing, project management and building design, says the company’s CEO Kathleen Xie.

“Developers can either go out and enlist everybody individually or hire a one-stop shop like us, which alleviates the need to hire individuals to handle broker relations and market research,” said Xie. “We have expertise and the track record to help these clients through every one of these stages rather than them going one by one with different companies to do all this. We look after presale, land acquisition, sales and post-sales relations.”

Virtual Marketing Realty specializes in the sales and marketing of new master-planned communities, including condominiums, townhouses and single-family homes. It also handles market research for developers, including determining prices structures and studying market trends, like how much both the presale and resale segments increase annually.

“Sales and marketing can involve our in-house team or it can mean that we partner with external brokerages—for example, it can be one that specializes in condos—to help market the product with maximum exposure,” said Xie. “When we partner with other brokerages, we refer to it as broker relations.”

A major project Virtual Marketing Realty is working on right now for which it’s been tasked with all of the above is Mapleview Terrace in Barrie. The developer recruited Xie’s brokerage, which she co-founded with Sunny Sharma, because of their CCIM designation—although this typically applies to commercial real estate, the duo have become experts in determining higher uses for properties, irrespective of whether they’re commercially or residentially zoned.

“We handle project management and figure out what provides leads, what doesn’t, where we need to advertise and where we need to increase or decrease our budget,” said Xie. “We’re also in charge of brand positioning, which means we come up with themes or names. Think of Oscar Residences in the Annex, a condo that uses movie stars as its theme throughout the building.”

Virtual Marketing Realty additionally amends building designs for developers in order to help the latter extract the most dollars.

“We optimize the designs to what we see selling more versus what the architect drew. We picked one up recently with a dozen floor plans and we enhanced eight of them to allow the developer to make more profits later on.”