Smart city real estate

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A shortage of industrial facilities during a period of economic expansion has created attractive opportunities for real estate investors, says Steven Marino, senior vice-president, portfolio management, with GWL Realty Advisors.

“We’ve been continuing to see substantive appreciation in rents across the asset class, and in many of our key metropolitan markets across the country there continue to be substantive supply constraints,” Marino said. “We’re seeing insatiable demand from large users of space.”

He said he has rarely seen such strong performance in industrial real estate.

“The performance we’ve been able to effect over the last couple years has been truly extraordinary. And, certainly, tailwinds continue to be in place for the foreseeable future.”

Marino takes a direct real estate investing approach, looking for opportunities in industrial, commercial office, retail and multi-family residential spaces. Each category comes with its own risks and rewards, he said.

When it comes to office space, he said the jury is still out on which changes to expect in the wake of Covid’s work-from-home mandates. Tenants may look for new workplace designs and amenities to meet changed employee expectations.

“Users are going to want real estate that creates value for their business,” he said. “So, maybe we’ll be changing the number of boardrooms that might exist on a typical floorplate. Maybe we’ll be changing the number of breakout areas that exist to help accommodate more collaborative sessions amongst workers.”

The pandemic was a painful experience for a lot of retail operations, particularly in enclosed spaces like malls, he acknowledged. But he was pleased with the performance of his grocery-anchored retail strategy, saying that such stores usually draw steady traffic.

“Grocery-anchored centres have performed exceptionally well,” he said. “They become key destinations that provide the ability for cross-shopping, ultimately driving sales for the entire centre.”

Finally, in multi-family dwellings, he acknowledged that some segments of society found it difficult to pay rent during Covid, but overall, rental collection remained robust through the crisis. The combination of government support, urban growth and strengthening local economies gives him confidence in the sector moving forward.

In Canada, the bulk of his investment follows his “MTV strategy” — Montreal, Toronto and Vancouver — and he also invests in Ottawa, Calgary, Edmonton and Halifax, as well as other communities.

“The economic outlook for Canada is strong, the attractiveness and stability of Canada’s financial system, together with a highly educated population, a strong immigration commitment and a transparent political system, positions Canada as one of the leading international targets for real estate investments,” he said.

Marino said he prefers direct investing as opposed to using instruments like REITs. Direct ownership creates an ability to drive performance at the property level, he said, as owners can acquire, lease, manage, and in some cases redevelop properties to drive income.

“It’s really a unique characteristic of direct real estate to have the ability to have these spaces completed to support their ongoing valuation,” Marino said. “By comparison, indirect real estate investing is generally valued on the basis of the market’s assessment or sentiment of market value.”

Direct investing also maximizes real estate’s historical value as a strong hedge against inflation, he said. And with inflationary pressures continuing to be felt in global markets, the prospect of interest rate increases remains on the horizon.

“It will certainly be interesting to watch to see how the Fed and the Bank of Canada will ultimately manage monetary policy moving forward,” Marino said.

This article is part of the Soundbites program, sponsored by Canada Life. The article was written without sponsor input.

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