Opportunities abound for the commercial property sector as it recovers from its pandemic-era doldrums, says Avison Young chief
With the commercial real estate market having bottomed this year, Avison Young CEO Mark Rose assured that there is “nothing but opportunity” ahead for the sector.
This especially applies to the beleaguered office market, which has seen precipitous declines in occupancy rates during the pandemic era.
“Over the last three years since COVID, for many reasons, whether it be child care, care of a parent or just the commute, folks have stayed home a bit more,” Rose said in a recent interview with the Financial Post.
“But what we are seeing in our data and our vitality index is that more people are coming back into downtowns. The conversation has shifted from, ‘Well, we want people back’ to the one we’re having now, which is ‘When can we bring them back?’”
Even in markets that are seeing a disproportionate volume of distressed assets, Rose is championing the opportunities presented by conversions or renovations.
“If you are a well-situated asset that has high-grade finishes and that has thought about its impact on social value and the environment, you stand a better chance of drawing current demand,” he said. “And those buildings are driving costs.”
“The B-class buildings and the C-class buildings that are of the size to get involved in adaptive reuse or conversions and in some cases, teardowns — that’s a natural and healthy part of a cycle. And in this cycle, if you have an office building that can’t compete, you’re going to have to do something.”
Michel Durand, Founder and CEO of MCommercial, said that while the commercial sector continued to labour under familiar struggles from 2022, there was room for optimism on the horizon.https://t.co/BDngGPTZL7#mortgagenews #commercialmarket #mortgageinsights #interestrates
— Canadian Mortgage Professional Magazine (@CMPmagazine) May 15, 2023
Commercial market’s recovery is still contingent on Bank of Canada’s path
Still, Rose warns that the tone set by the Bank of Canada’s policies will be particularly influential on the commercial sector’s prospects.
“Without understanding where inflation is going or what central banks are doing about interest rates subject to changes in inflation, it is very, very difficult for buyers and sellers to agree on a price,” Rose said. “In Canada, the banks have a hard time both buying and lending to buyers because they can’t assess exactly the value of the asset.”
“What all of us are looking forward to is the day that the Canadian central bank, the US central bank, the UK, the European and Asian central banks all say no more interest rate increases… It’s at that point where velocity comes back. It’s at that point where the smartest investors who’ve been doing their homework can come in and take advantage of the discrepancy on pricing.”
