Waterloo Market Outlook Breakfast

Colliers’ Annual Market Outlook Breakfast Provides Industry Insights on Waterloo Region Real Estate Market

Waterloo Region embraces change and remains poised for continued growth

Kitchener, March 6, 2017 – “When you're done changing, you're done”, Karl Innanen, Managing Director of Colliers International Waterloo Region stated, quoting Benjamin Franklin. Colliers held its eighth annual Market Outlook Breakfast on March 1 at Factory Square in Waterloo, drawing a diverse crowd of real estate investors, developers, municipal government officials, appraisers, architects, and lenders, many of whom attend every year. The presentation centered around the theme of change: The regional market is adaptive and poised for continued growth.

Market Outlook Breakfast

Innanen commented, “The last 12 months have seen some monumental transactions in the local commercial real estate market. We saw the Dream portfolio sell for the third time in eight years, with multiple offers and a price tag of $138 million. We saw a local property owner achieve a tremendous capital return with the sale of 137 Glasgow Street, which is currently being redeveloped as the world's largest advanced manufacturing/maker space. We have seen another record-breaking year with just over $1.05 billion in investment sales, just $16 million more than the previous record in 2014 – and we expect records to be broken again in the years to come. Much to the chagrin of the local buyer/investor pool, all eyes are turned to Waterloo Region.”

Changes have occurred in all market sectors. The industrial market vacancy has dropped by 2.06 per cent. "The only time we have seen a swing like this in vacancy was in 2008-2009 when it rose nearly three percent,” said John Frezell, industrial market specialist. “Vacancy rates this low are not healthy for the market."

New construction faces locational challenges with a lack of available land in key areas, and prices continue to climb. Property owners who strategically upgrade tired industrial product will attract tenancies and higher lease rates.

“The Trump effect has entered our market,” commented Frezell. “On the day of the presidential inauguration, I received a phone call from an automotive supplier who was about to purchase 28 acres of land for a 200,000-square foot design-build. He placed his real estate decision on hold in anticipation of the NAFTA re-negotiations. People don't like uncertainty. The uncertain impact of the Trump presidency has stalled movement in the industrial market, certainly in the automotive sector. For how long, no one knows. Where it takes us is anyone’s guess, and no one is placing any bets it will have a straight line.”

The story is potentially polarizing in the office sector, according to John Lind, office market specialist. "As evidenced by the recent election results, the American tech industry based in California and New York is largely Democratic, accounting for 61.5 per cent and 58.8 per cent respectively, of the electoral votes, according to Politico,” Lind stated. “This industry relies heavily on liberal immigration policies and foreign worker legislation, and in many cases, companies have set up offices abroad to access and attract the competitive, global talent pool. Tech companies may look to our market as an alternative destination: Waterloo Region has a robust international student population, world-class institutions and collaborative spaces. We have the pieces, I believe, for unprecedented growth in the tech industry."

The tech industry is dynamic, with hundreds of companies in incubator space. As these companies grow, they seek small office spaces in locations with a wealth of amenities along transit corridors. The downtown towers are well-positioned to offer flexible floor plates and lease terms. Landlords are also learning that specialization is key: Some are offering purpose-built space to defined target markets – the larger companies looking for customized, quality space with expansion opportunities.

“The Waterloo Region real estate market is mature and it is firing on all cylinders now," Innanen said.

Speakers John Frezell, John Lind and Karl Innanen discussed notable trends in the industrial, office and investment markets in Waterloo Region. Highlights from each section include:

Industrial Market

  • The regional vacancy rate dropped from 6.81% in Q4 2015 to 4.79% in Q4 2016, and without new construction, vacancy rates are expected to continue to decline.
  • While the low vacancy rate shows a need for increased building construction, available land in key Kitchener and Cambridge markets is limited while prices start to rise.
  • With speculation regarding NAFTA re-negotiations, the Trump presidency has caused uncertainty in the market and large manufacturers have placed their real estate decisions on pause.

Office Market

  • The Waterloo tech ecosystem is thriving and reinforces a strong tenant base.
  • Purpose-built spaces like 451 Phillip Street in Waterloo and 5 Michael Street and Catalyst 137 in Kitchener are providing a wide range of options in the market.
  • The downtown office towers have the opportunity to capitalize on the booming tech industry by providing ideal leasing options for tech companies ready to leave start-up incubators.
  • Class A buildings have been, and will continue to be, in high demand.
  • Waterloo Region will benefit from Trump’s immigration policies as Waterloo is already set up to be an alternative destination.

Investment Market

  • Waterloo Region investment sales topped the previous blockbuster year with $1.05 billion in sales; Colliers expects more record-breaking years ahead.
  • In 2016, private capital buyers dominated both the national and regional markets; they bought 35% of all properties nationally and 61% of all properties in Waterloo Region.
  • High-density residential development continues to be hot.
  • There is trouble in the student rental market as Waterloo overflows with beds.
  • Every buyer is looking at Waterloo Region and Colliers is seeing far more demand than supply.
  • Merchant development/redevelopment presents a big opportunity.

> See article from the Waterloo Region Record.

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