Jason Kiselbach, Senior Vice President and Managing Director of the Vancouver office of commercial real-estate brokerage CBRE, chats about the commercial real-estate market in 2021, and what the industry can expect for 2022 and beyond. Citified.ca
2021 commercial real-estate market recap and a look to the future with Jason Kiselbach of CBRE Vancouver
Ten on the 10th
Published December 10, 2021
Now in its third year, Citified's Ten on the 10th is a monthly question-and-answer segment connecting our readers with the insight and knowledge of Victoria's top real-estate and business professionals.
Ten on the 10th's December segment features Jason Kiselbach, Senior Vice President & Managing Director at commercial real-estate brokerage CBRE Vancouver. Click here to view a list of former Ten on the 10th Q&As.
Asking the questions is Ross Marshall, Senior Vice President of the Victoria offices of commercial real-estate brokerage CBRE. As a leader in facilitating large-scale commercial real-estate transactions throughout the Capital Region – which include apartment complexes, industrial retail and office properties, and land/development opportunities – Ross and his team are at the forefront of market-leading real-estate transactions on Vancouver Island.
Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you.
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What surprised you the most about the Canadian commercial real-estate (CRE) market in 2021?
There are several trends that I did not anticipate when we entered 2021. The first is that we have had a record level of investment volume nationally in the first half of the year, and in BC we are on pace for a potential record year. Looking at the investment figures, demand for office assets and development sites remained steady even though there was some hesitation around occupier demand for space which means investors believe in the long term viability of the office asset class. There has also been a significant number of suburban retail assets that traded in BC as a result of suburban retail leasing growing in popularity and investors seeking opportunities that provide yield and future development density.
Are there certain asset classes that have seen a significant increase in transaction volume?
In a continuation of the trends that we were experiencing leading in to 2021, industrial and multi-family have outperformed the other asset classes. The industrial asset class continues to have record demand levels for lease and sale product and we have seen the price of land increase exponentially this year. Owners of multi-family product weighed the costs of increasing insurance and maintenance against the opportunity to achieve potential record pricing for assets which led many to decide to sell. This included several significant portfolio sales across the country.
Can you tell me about the industries that made the most significant impact on the Canadian CRE market in 2021?
In the office sector there is still a significant focus on tech, gaming and media companies which are leading demand, especially in the major markets. Industrial is experiencing growth in e-commerce, third party logistics, food and film occupiers. There is also a lot of discussion around the growth in new types of occupiers such as life sciences and data centers which occupy flex space.
Most major markets in Canada have experienced, and continue to experience, a shortage of industrial product. What drove this supply-demand imbalance?
Prior to the pandemic, consumer behaviours were shifting towards more online shopping. When a majority of the population was forced to work from home there was a huge acceleration of this trend and it is something that we will not go backwards on. Many companies were forced to modernize their online offering and figure out how to start shipping inventory from warehouses directly. There was also a compounding factor as a result of supply chain disruption, where companies realized that they would likely need more inventory on-hand in warehouses creating a need for even more space.
In regards to supply, industrial occupiers benefit from being in close proximity to their suppliers or consumers. The cities with dense population also have barriers to constructing industrial product which range from physical barriers (soil conditions, mountains, ocean, etc.) and political barriers (zoning, ALR, permitting timelines etc.).
With a dramatic increase in e-commerce sales, how will the market adapt to accommodate this rapid growth?
We are starting to see new trends in building design and automation which will allow occupiers to be more efficient with existing sites. This includes super clear height warehouses that allow more product to be stored in the warehouse by capitalizing on total cubic volume vs square footage of floor area only and material handling equipment that provides the opportunity to turn inventory over faster in the warehouse.
“Tech-celeration” is the rapid adoption of technology into everyday life and was one of the biggest trends of 2020. Has this continued into 2021? And, in which Canadian cities are you seeing an influx of tech expansions, and will this continue?
Yes, there was definitely a continuation of this trend in 2021 and we do not anticipate a slow down in the near future. We are experiencing growth in the tech sector in many markets in Canada, Toronto, Montreal and Vancouver are leading the charge and there is growth happening in Calgary, Ottawa and Kitchener-Waterloo, and of course Greater Victoria. There is a tremendous appetite for tech firms to locate in cities that offer access to an educated population and the lifestyle amenities that tech workers are drawn to. Vancouver and Victoria are great examples of that.
Housing costs are a much-debated topic in Canada. With rising homeownership costs across the country, how has this impacted the multifamily sector?
The rising cost of homes in major Canadian cities has meant that many would-be first time home buyers are still renting apartments. This has caused multi-family vacancy rates to remain extremely low and rents continue to rise. Institutional investors have paid close attention to the residential fundamentals and now represent a significant portion of the multi-family purchases in Canada. Several institutional owners that have yet to acquire properties in Victoria have expressed interest in acquiring apartments on Vancouver Island with the biggest challenge being finding a scalable acquisition.
What do you think about the potential for de-centralized employment hubs? With commute costs and travel times increasing due to congestion, and with changing employee expectations as a result of pandemic work-from-home options, are we likely to see a re-think of what we know today as central downtown cores, and adopt policies of splitting or sharing of employment opportunities across CMAs (census metropolitan areas)?
This is an evolving topic as companies continue to plan their return to the office policies and understand what their employees are looking for long term. There appear to be some jobs that can be performed remotely (either full-time or part-time) while others require being in the physical office more often. There is potential that those more remote functions could benefit from office space available closer to employee’s homes which may be outside of the downtown core, or, in the case of Victoria, the West Shore.
One data point in Vancouver from the past year is that the vacancy rate for suburban office space was on par with the downtown vacancy rate for the first time ever. We also saw several high tech companies locate to suburban business parks on transit corridors.
Where does CBRE see the shared or co-working office environment industry in five years, or looking beyond 2030? Are flex spaces growing in popularity and in need as we consider alternatives to 9AM-5PM, singular employment nodes in our cities?
There is definitely a market for co-working space in the office market over the next five years. This offering is uniquely positioned as office occupiers are still unsure on the amount of space that they will require long term and may not want to commit to long term leases just yet. Co-working is also a great alternative to a traditional office lease for companies that are in high growth or start-up phases, especially tech companies.
In the long run, what will continue to attract investment dollars to Canada?
There are a number of fundamentals attracting investment capital to Canadian real estate. The main ones that we hear often are political stability, favorable immigration policies, an educated workforce, a growing economy and livability.
Bonus question: If you had a crystal ball, are you predicting any challenges or trends in the Canadian CRE market in 2022?
I expect that more companies will launch their formal return-to-the-office plans which will lead to more demand in the office and retail sectors as the downtown core of all cities becomes more vibrant. In addition, we are anticipating continued demand for industrial product. There are several factors we are watching out for, too, such as inflation, interest rate increases and new tax policies which could have implications on the commercial real-estate market going forward. C
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- Would you like to be featured as part of a future Ten on the 10th Q&A? We'd love to hear from you
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