World Winning Cities Series I 2014
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The Canadian Quartet:
Playing on the World Stage
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The Canadian Quartet: Playing on the World Stage
Contents
Foreword
5
1.0
6
Canada’s Cities in the Global Context
Small cities, big impact
Shaking off historic perceptions
2.0 3.0 A Tale of Four Cities: The Canadian Quartet in Global Competitiveness
A powerful combination of competitive advantages
Business and investor friendliness – Canada’s edge
A notable track record of job creation
Attracting talent and cultivating new sectors – a diversity dividend
Stable players in finance – the ‘Swiss effect’
‘Liveable urbanism' – a Canadian specialty
Innovation – a competitive urban ecosystem
Prospering, but not complacent
Connecting across continents and oceans
Infrastructure – the ever present challenge
Where did all the tourists go?
The Quartet – performance in global indices
The Quartet: Policies, Personality and Property – Playing to Win
8
16
Montreal
Toronto
Montreal's City Dynamics:
The Cosmopolitan Heart of the Country
• The creative remedy
• A revitalized city
• Knowledge in numbers
• Governance and leadership – reviving the
global vision
• Strategies and mindsets for the future
• A new value add
Toronto's City Dynamics:
Canada’s Business Metropolis
• A global Toronto
• Financial services underpin success
• Strength in diversity
• Solid employment growth
• Places to grow – a strategy for a healthy
wealthy city?
• Effective policies but new funding needed
Montreal's Real Estate Dynamics:
A Dense, Dynamic and Welcoming City
• Condominiums to boom
• A retail foothold
• Office vacancy rates and affordability on the rise
• Industrial shows improvement
Toronto's Real Estate Dynamics:
Defying the Laws of Economics?
• The financial core expanding up – and out
• TOD to transform the market
• American retailers discover their neighbour
• Upwards but not onwards – mortgage regulation
to cool residential growth
JLL | World Winning Cities Series
Calgary
Vancouver
Calgary's City Dynamics:
The Energetic ‘Capital’
• A changing urban form
• A growing and diverse city
• A robust economy
• Infrastructure at an inflection point
• ‘New urbanism’
• LNG – a game changer
• Future strategies
Vancouver's City Dynamics:
The Pacific Gem
• Turning outwards
• The Olympic boost
• Port Metro Vancouver – connecting to the world
• A sparkling attraction
• ‘Vancouverism’ – an exportable skill?
• The ‘real’, real estate catalyst
• The globalization deficit
Calgary's Real Estate Dynamics:
A Magnet for Growth
• Office market could expand 25% by 2020
• Retailers respond to growth in consumer wealth
• Multifamily takes hold
• Choice and affordability – a winning combination
Vancouver's Real Estate Dynamics:
A Market in Transition
• A highly prized market
• Legislative support for market expansion
• Stuck in a time warp?
• Survival of the refitted
• A non-convertible sector
• A retail remaking
• Transit-gentrifying neighbourhoods
• No cooling effect on the luxury residential market
4.0 Canada’s Investors: Global Reach and Domestic Dominance
Real estate volumes at record levels
44
5.0
50
Investment market dominated by domestic institutions
Foreign investors need a new approach
A global leader in cross-border capital
Smart partnering – uniquely Canadian
Not just pension funds
Equity, equity, expertise
The lure of the United States
A global playing field
The value-add approach – retail and industrial favourites
A capital pool to leverage around the world
Visions for the Future
The Quartet’s evolving real estate markets
The Quartet’s future urban visions
A symphonic opportunity
Postscript 54
Canada's wider city system
3
4
The Canadian Quartet: Playing on the World Stage
Edmonton
Calgary
Vancouver
Saskatoon
Regina
Winnipeg
Ottawa
Toronto
Hamilton
JLL | World Winning Cities Series
Foreword
The Canadian Quartet:
Playing on the World Stage
Cities in Canada are collectively entering a newly energized, globally connected
and impactful era. Of its 12 main commercial hubs1, we have identified the
Canadian Quartet – Montreal, Toronto, Calgary and Vancouver – as holding
most promise as future world cities.
These cities represent the country’s four largest metropolitan economies; they
have the deepest corporate bases, the highest global connectivity, the most liquid
commercial real estate investment markets and each is already featured in the
Global Top 50 cities for commercial property investment volumes. Furthermore,
they are all experiencing above average population growth that will underpin
demand for years to come. The Quartet will offer significant opportunities for
international investors as new waves of construction and of reinvestment in
older stock help modernise these cities and as sustainable practices and new
technologies are employed to make them smarter and greener.
Quebec City
Montreal
Halifax
The shape and form of these cities is changing – whether by densification
and the creation of a newly mixed-use core as in Calgary; a heavy focus on
efficient and dense residential development in transit corridors as in Toronto; the
impact of the green agenda on the built form as in Vancouver; or the creative
influences in business and culture adding to the attraction of Montreal, multiple
and significant opportunities are evolving. Converting these opportunities will
take the kind of innovative developer and operator partnerships that Canadian
capital is renowned for around the world. If focused on domestic markets, such
partnerships will take these cities to the next stage of internationalization. While
the relative stability and safety for which these markets are recognized will
endure, the next 5-10 years will see a transformation of the Quartet into larger,
stronger, more attractive and dynamic cities that will firmly secure their leadership
positions on the world stage.
We invite you to take a fresh look at the Quartet cities and why they are cities of
the future.
Brett Miller
President, JLL Canada
5
6
The Canadian Quartet: Playing on the World Stage
1.0 Canada’s Cities in the Global Context
Small cities, big impact
A quiet urban revolution has been taking place north of the 49th parallel; Canada’s four key cities have been
determinedly nurturing their economic foundations, their urban identities and their global connectivity. The result is
that today they can not only claim international recognition in their respective specialist fields of culture and education,
financial services, energy and green urbanism, but also in their different ways, as showcases of reinvention. Montreal,
Toronto, Calgary and Vancouver are creating the momentum they need to succeed in the new global economic cycle
and to strengthen their global positions in the new city hierarchy.
Canada’s Quartet is already punching above its weight on the world stage:
• All four cities sit in the Global Top 50 city rankings of direct commercial real estate investment volumes
• Levels of real estate investment intensity in the Quartet – investment volumes relative to the size of their
city economies – are among the highest globally and are, in general, well above those of U.S. cities
• Each of the cities has a distinct profile in which it excels globally; all rank in the world’s top 45 in
aggregated indices on business links, financial services, liveability, brand and destination
• All four cities are ranked in the top 25 of the Global Financial Centres Index2, which makes Canada the
second most competitive system of financial centres in the world
• The weight and influence of outward-flowing real estate capital from Canada’s top 10 pension funds
underpins a new era of visibility and impact for the country and its cities
• Canadian cities have amongst the highest levels of real estate transparency in the world – classified as
‘highly transparent’ in JLL’s Global Real Estate Transparency Index3
• Canada’s overall marginal effective tax rate on new business investment is by far the lowest in the
G-7, about 17 percentage points lower than that of the United States, and will continue to bolster the
commercial competitiveness of the Canadian Quartet4
• The Quartet’s economies are projected to grow by 2.8% per year over the next five years (2014-2018)
exceeding the global average of 2.4%5 for advanced economies.
JLL | World Winning Cities Series
Shaking off historic perceptions
Until recently the strengths and the global relevance of Canada’s leading cities has been underestimated and
overshadowed by a historic perception of a lack of dynamism and a dependence on their rather larger neighbour.
The reality, in what was once perceived as America’s attic, is proving to be altogether different. Urban Canada –
around 70% of Canadians live in a city, of which almost 40% are in our Quartet cities6 – has seen a 25-year cycle
of successful and empowering internationalization which began with the 1989 and 1994 free trade agreements
with the United States and Mexico.
The boost that these agreements gave to cross-border trade was accompanied by a consistent policy of
openness towards immigration and investment. Canada’s major hubs became more diverse, productive and
global in orientation, and while this has not been without challenge, the Canadian business community has over
the last quarter century gained a worldwide reputation for its prudent, stable and resilient management and
regulatory practices.
Canada’s Quartet is now highly competitive and globally networked, not only in the energy and finance sectors
but also in science, technology, medicine, education and the green economy. What has emerged is a unique
grouping of globalizing cities whose attributes more closely resemble those of the international front-runners
for quality of life and commercial opportunity – the Zurichs and the Melbournes – than they do their American
neighbours. Canada’s domestic real estate markets may be relatively small, but the impacts of their urban best
practices and investment capital are widespread.
A second cycle of internationalization is in progress and, in our view, the growing strengths of the Quartet on the
one hand and the global influence of Canadian capital on the other, warrant a fresh look.
Figure 1: Direct Commercial Real Estate Investment
Investment Intensity
Investment Volumes 2011-2013
Global Rank
1
2
3
4
5
City
London
New York
Tokyo
Paris
Los Angeles
Global Rank
1
2
3
4
5
City
London
Oslo
Munich
Stockholm
Copenhagen
19.6
19.6
17.4
10
11
12
Hong Kong
Toronto
Düsseldorf
9.2%
9.0%
9.0%
US$ billions
93.8
85.4
46.6
42.6
35.8
% of GDP
16.7%
16.1%
15.4%
13,0%
12.2%
13
14
15
Boston
Toronto
Sydney
35
36
37
Philadelphia
Vancouver
Austin
7.3
6.9
6.8
18
19
20
San Jose
Vancouver
Austin
7.6%
7.5%
7.3%
40
41
42
43
44
45
46
Guangzhou
Calgary
Brisbane
Warsaw
Copenhagen
Montreal
Perth
6.5
6.1
6.1
6.1
6.0
5.3
5.2
24
25
26
New York
Calgary
Washington DC
7.0%
7.0%
6.9%
53
54
55
Dallas
Montreal
Helsinki
4.4%
4.2%
4.1%
Source: JLL, 2014
Source: JLL, 2014
Deals over US$5 million in offices, retail, industrial, hotels
and mixed-use schemes.
Commercial real estate investment volumes (2011-2013) as a
percentage of the economic size of a city (GDP PPP).
7
8
The Canadian Quartet: Playing on the World Stage
2.0 A Tale of Four Cities:
The Canadian Quartet in Global Competitiveness
A powerful combination of competitive advantages
The Canadian Quartet is among the strongest group of national performers across a wide range of international
benchmark studies, a surprising outcome especially given their relatively small economic size. An unusual
strength lies in the very clear differences in the competitive bases of the four cities. They are mutually supportive
in economic terms, yet while they share similarities, their differences in some fields mean they have more in
common with international rivals than with each other. The collective and individual positioning of the cities in
these benchmarks highlights the many marked successes of recent years, and also exposes weaknesses to
be addressed. As investors, developers and corporates face an ever increasing choice of cities in which to do
business, these indices give a useful starting point for discussion.
JLL | World Winning Cities Series
Business and investor friendliness – Canada's edge
Canada’s cities have gradually emerged over the past decade as among some of the most attractive
to business across all national boundaries. Toronto and Montreal excel for business friendliness, and
achieve a top five ranking in two major global assessments of openness to business transactions.7 This
is supported by a reliable national framework for starting and growing businesses, a stable tax system,
and a declining federal corporation tax of just 15% (down from 28% in 2000). Canada’s marginal
effective tax rate (METR) for new business investment is now the lowest, and hence the most taxcompetitive among the G-7.
A notable track record of job creation
Over the last 15 years the leading Canadian cities have by and large been successful at creating jobs
and building new sectors (Figure 2). Calgary has been the most successful job creator, growing its
employment base by more than one-third since 2000, while the employment records of Vancouver
(+23%), Toronto (+22%) and Montreal (+17%) have also been above average among North American
cities. It is significant that the Canadian Quartet have all continued to create jobs in the years following
the Global Financial Crisis, while many of their American counterparts have struggled to do so.
Figure 2: Employment Change in Canadian Metropolitan Areas and Competing Cities, 2000-2012
2000 = 100
140
Perth
Brisbane
CALGARY
130
Melbourne
120
Seoul
VANCOUVER
TORONTO
Sydney
MONTREAL
110
Seattle
Busan
Boston
100
Chicago
90
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Brookings Institution, Global MetroMonitor 2, 2012
9
10 The Canadian Quartet: Playing on the World Stage
Attracting talent and cultivating new sectors – a diversity dividend
Successive generations of immigration mean that Canadian cities boast very high diversity, even compared to American
and Australian centres. The country’s proactive immigration policies seek to attract skilled and entrepreneurial migrants,
and the high standard of public services open to them is certainly an appeal. All four cities have over 20% foreign-born
populations, with Toronto and Vancouver’s share exceeding 40%, placing them both on a par with London, New York and
Sydney.8
With an estimated 58,000 and 21,000 international students respectively to add to their growing domestic student
population, Toronto and Montreal also already possess a highly diverse potential graduate pool. Over the next decade
however, this will be further strengthened as Canadian universities are set to attract significant student influxes from
China, Brazil, India, Mexico and South Korea.
Vancouver, Toronto and Montreal rank in the top 10 cities in the AON People Risk Index9 and score well, as shown in
Figure 3, in measures of ‘student attraction’, ‘human capital’ and ‘talent’, with Toronto topping the charts in the Youthful
Cities Index.
Figure 3: Talent and Workforce Benchmark Performance of 15 cities, 2012-2014
Number of Cities
AT Kearney Global
Cities Index,
'Human Capital'
EIU/Citigroup
Hotspots,
'Human Capital'
QS Best
Student Cities
AON People
Risk Index
Youthful
Cities Index
Apr-12
66
Feb-12
120
Dec-13
50
May-13
131
Jan-14
25
1
Boston
7
11
8
7
2
Toronto
10
23
13
2
3
Singapore
13
36
3
3
4
Montreal
16
25
9
4
9
5
Vancouver
22
21
6
Chicago
8
18
23
8
7
Sydney
9
39
4
19
8
Melbourne
11
38
5
16
9
Berlin
37
34
11
41
10
Stockholm
32
27
27
16
11
Barcelona
22
29
24
47
12
Madrid
33
14
31
46
13
Seoul
24
69
14
45
14
Amsterdam
50
28
36
19
15
Milan
38
48
24
58
1
6
2
10
Sources: AT Kearney, “2012 Global Cities Index”, (Human Capital), 2012; Citigroup & Economist Intelligence Unit, “Hotspots 2025:
Benchmarking the future competitiveness of cities”, (Human Capital), 2013; QS World University Ranking, “Best Student Cities”,
2012; Youthful Cities Index, 2014
Stable players in finance – the ‘Swiss Effect’
All four cities are ranked in the top 25 of the Z/Yen Global Financial Centres Index which makes Canada the second most
competitive system of financial centres in the world after the United States. The Xinhua-Dow Jones International Financial
Centers Development Index also records an impressive rise for all three of the country’s largest finance hubs.10 With a
renewed focus on building sustainable banking and on innovation and transparency, each city is likely to see its financial
services base grow.
JLL | World Winning Cities Series
‘Liveable urbanism’ - a Canadian specialty
Liveability is Vancouver’s world renowned strength. While Toronto, Montreal and Calgary match Vancouver
for health and education system performance, Vancouver outperforms them in terms of the quality of urban
environment and infrastructure.11 Even beyond Vancouver however, Canada’s cities are attracting global
admiration for their excellence in liveability. In a major 2013 global public opinion survey (Figure 4), three
Canadian cities feature among the top 20 most esteemed among citizens of developed nations, the only
national group to achieve this feat.12 Toronto is second only to Sydney among the highest regarded cities for
combined economy, environment and government, while Vancouver in 14th and Montreal in 18th place have
also impressed a global audience, ranking higher than New York, Paris and Barcelona.
Figure 4: Top 20 Cities by Reputation in G-8 Nations
1
Sydney
11
Geneva
2
Toronto
12
Helsinki
3
Stockholm
13
Munich
4
Vienna
14
Vancouver
5
Venice
15
Melbourne
6
Florence
16
Frankfurt
7
Edinburgh
17
Oslo
8
Zurich
18
Montreal
9
London
19
Amsterdam
10
Copenhagen
20
Dublin
Source: Reptrak, 2013. Based on 100 cities globally
Innovation – a competitive urban ecosystem
While no Canadian city can yet be described as a global high-technology leader on a par with Boston, Tokyo
or San Francisco, marked progress is being made in growing innovation and technology skills and outreach.
Toronto is Canada’s biggest centre of innovation, possessing the highest proportion of high-tech employment
(approaching 6%).13 The country’s financial capital is also the most prolific city for patents and is now in the
top 10 in the world for the maturity of its start-up ecosystem.14
Vancouver is also showing strong signs that it can compete with other high-quality mid-sized cities to become
an entrepreneurial destination. High-tech companies such as Amazon, Salesforce and Facebook have
entered the market with relatively large footprints and some have already expanded further. The city’s intrinsic
appeal is furthered by the greater ease, compared for example with nearby Seattle, of securing Canadian
work permits for much needed skilled labour from overseas. Like Toronto, Vancouver is now ranked in the
leading 10 cities for start-ups and in 2013 also improved its position in commercial innovation to 35th globally.
Prospering, but not complacent
The influential Toronto Board of Trade ‘Scorecard on Prosperity’15 shows the fluctuations in the positioning of
the four cities since the Global Financial Crisis. It analyses 33 indicators to provide a detailed understanding
of how key Canadian cities measure up in liveability and economic performance against 24 global
metropolitan areas. Each city shows different strengths and weaknesses but importantly the Quartet all have
a consistent ranking in the top 10 for ‘human capital’, and, with the exception of Montreal placing at 11th, for
‘labour attractiveness’. Calgary’s continued placing in the top five demonstrates the evolving transformation of
the city and underpins the high expectations for it as a future winner in the new global economic cycle.
11
12 The Canadian Quartet: Playing on the World Stage
Figure 5: Canadian Cities in the Toronto Board of Trade ‘Scorecard on Prosperity’, 2009-2013
2009
2010
2011
2012
2013
Calgary
1
5
3
4
2
Toronto
4=
4
8
5
6
Vancouver
8
12
14
16
14
Montreal
13
15
20
18
17
Source: Toronto Board of Trade, 2013
Connecting across continents and oceans
As the country’s largest city and financial capital, Toronto benefits from considerably more direct air links
to other global regions than Vancouver or Montreal; but Montreal still attracts more rotating international
conferences each year thanks to the strength of its university and research base. Calgary’s international airport
is the fastest growing in Canada and the new international terminal will add 22 aircraft gates when finished
in 2015. However, the further internationalization of the city is currently held back somewhat by limited direct
global air connections.
Vancouver’s strong transport links with China underline its role as Canada’s gateway to the Asia Pacific region.
The current average of 54 weekly flights to six Chinese cities – Beijing, Chengdu, Shanghai, Guangzhou,
Shenyang and Hong Kong – is more than from any other North American city.
Port Metro Vancouver, the largest export port in North America, has been successful in increasing trade
relations with Europe through the Comprehensive Economic and Trade Agreement (CETA), and is looking
to expand opportunities with Asia through the Trans-Pacific Partnership (TPP). The growth at Port Metro
Vancouver provides evidence of the strength of the Canadian economy and the success of trade development
policies and infrastructure advancements.
Infrastructure – the ever present challenge
Collectively, Canadian cities have an infrastructure deficit in excess of C$100 billion and a new infrastructure
gap of at least a further C$100 billion, of which the country’s Quartet accounts for close to half. This relates
mostly to roads and bridges, waste management systems, and wastewater and storm water systems. Toronto
has heavily-strained electric power resources, and new demand combined with an outdated grid has resulted
in more frequent blackouts in recent years. Underinvestment is a factor in high traffic congestion; Montreal is
among the 20 most congested of 200 developed cities globally, while Vancouver and Toronto are 33rd and 35th
respectively, just ahead of Hamburg and Boston, with spatially dispersed Calgary at 96th.16
A 2013 central government budget renewal of long-term infrastructure funding worth about C$50 billion over
10 years is highly welcome for Canada’s Quartet. It includes a C$22 billion gas-tax revenue-sharing fund that
offers a predictable long-term funding stream for urban infrastructure investment, but this is only a start if these
cities seek to match the modern efficient infrastructures that key Asian rivals can offer.
JLL | World Winning Cities Series
Where did all the tourists go?
Tourism is acknowledged to be one of the world’s healthiest, fastest-growing and most promising businesses, yet
according to a report by Deloitte, ‘Passport to Growth’, the number of international travellers to the country has
declined 20% since 2000; a trend borne out in global benchmarks which show that Toronto has slipped over 15
places in the ranking of international visitors since the Global Financial Crisis, overtaken by Seoul, Mexico City and
Mumbai. At the same time, Vancouver has dropped several places in Euromonitor’s 2014 assessment, to 84th, while
Montreal, which was in the top 100 in 2007, has fallen from this group over the past five years.17
The reasons for the decline and causes for concern, as cited by many commentators, include a lack of government
commitment to tourism, the underfunding of the Canadian Tourism Commission (CTC), the strong Canadian dollar
discouraging large numbers of visitors from the U.S., and the lure of emerging markets and new destinations,
especially to the young footloose traveller. These concerns are well justified given the importance of tourism, which
accounts for around 9% of global GDP but only 2% of Canada’s GDP in 2012.
The CTC has changed its focus in the last few years to concentrate on 11 markets they believe have the maximum
potential for return on investment; they include Brazil, Mexico, India and the UK. In 2012, travel to the country by the
under-25 age group increased by almost one-quarter, which indicates that the new strategy may well re-energize this
vital sector.
Figure 6: All-Round Performance of Canadian Cities versus International Counterparts
Business Links
Globalization and World Cities
$
Finance
Z/Yen: Global Financial Centres Index
Liveablilty
Mercer: Quality of Life Survey
Sustainability
Siemens/ EIU: Regional Green City Index
Brand
Reputation Institute: Global RepTrak®
Destination Power
International Congress and Convention Association
Source: The Business of Cities, 2014
1
Sydney
2
Vienna
3
Zurich
4
Geneva
5
Vancouver
6
Toronto
7
Frankfurt
8
London
9
Stockholm
10
Singapore
11
Tokyo
12
New York
13
Munich
14
Copenhagen
15
Oslo
16
San Francisco
17
Berlin
18
Boston
19
Melbourne
20
Amsterdam
21
Hong Kong
22
Paris
23
Washington DC
24
Helsinki
25
Montreal
26
Seoul
27
Rome
28
Seattle
29
Brussels
30
Chicago
31
Osaka
32
Dubai
33
Cape Town
34
Los Angeles
35
Madrid
36
Milan
37
Rio de Janeiro
38
Kuala Lumpur
39
Dublin
40
Shanghai
41
Taipei
42
Sao Paulo
43
Santiago
44
Calgary
45
Lisbon
Cities are ranked according to their average percentile position within each of the six indices. Cities are only included if they appear in a
minimum of five of the six indices.
13
14 The Canadian Quartet: Playing on the World Stage
The Quartet – performance in global indices
Montreal – The Cultural Capital
Strong
$
Moderate
Weak
Low
Business & Finance
Global firm links
Financial
Services
FDI
Knowledge economy
R&D
Qualified
workforce
HE
institutions
Quality of life
Liveability
Entertainment
Health &
security
Environment &
sustainability
CO2
Pollution
Land use,
waste & water
Costs, wages &
affordability
Net income
Affordability
Transport &
infrastructure
Transport
Core
infrastructure
Destination power
Number of
visitors
International
links
Image / Brand
Culture & diversity
$
!
Events &
meetings
Source: The Business of Cities
Toronto – Chasing the Global Leaders
Strong
$
Moderate
Weak
Low
Business & Finance
Global firm links
Financial
Services
FDI
Knowledge economy
R&D
Qualified
workforce
HE
institutions
Quality of life
Liveability
Entertainment
Health &
security
Environment &
sustainability
CO2
Pollution
Land use,
waste & water
Costs, wages &
affordability
Net income
Affordability
Transport &
infrastructure
Transport
Core
infrastructure
Destination power
Number of
visitors
International
links
Image / Brand
Culture & diversity
$
!
Source: The Business of Cities
Events &
meetings
JLL | World Winning Cities Series
Calgary – Turbo-boosting to the Top
Strong
$
Moderate
Weak
Low
Business & Finance
Global firm links
Financial
Services
FDI
Knowledge economy
R&D
Qualified
workforce
HE
institutions
Quality of life
Liveability
Entertainment
Health &
security
Environment &
sustainability
CO2
Pollution
Land use,
waste & water
Costs, wages &
affordability
Net income
Affordability
Transport &
infrastructure
Transport
Core
infrastructure
Destination power
Number of
visitors
International
links
Image / Brand
Culture & diversity
$
!
Events &
meetings
Source: The Business of Cities
Vancouver – The Pacific Gem
Strong
$
Moderate
Weak
Low
Business & Finance
Global firm links
Financial
Services
FDI
Knowledge economy
R&D
Qualified
workforce
HE
institutions
Quality of life
Liveability
Entertainment
Health &
security
Environment &
sustainability
CO2
Pollution
Land use,
waste & water
Costs, wages &
affordability
Net income
Affordability
Transport &
infrastructure
Transport
Core
infrastructure
Destination power
Number of
visitors
International
links
Image / Brand
Culture & diversity
$
!
Source: The Business of Cities
Events &
meetings
15
16 The Canadian Quartet: Playing on the World Stage
3.0 The Quartet: Policies, Personality and
Property – Playing to Win
Canadian cities and their real estate markets may have a reputation as being steady and lacking excitement,
but a closer look at the Quartet’s urban attributes and their real estate fundamentals indicates not only
healthy markets and liveability, but also increasingly positive long-term outlooks. Their competiveness as
shown in the city benchmarks is underpinned by determined urban strategies and positive visions for future
development. A review of the Quartet’s city and property market dynamics highlights the potential to capture
substantial opportunities from the next wave of globalization.
$
$
$
Montreal
Toronto
Calgary
Vancouver
Gross Metro
Product (C$)
169.9 billion
298.2 billion
99.2 billion
118.1 billion
City
population
1.7 million
2.8 million
1.2 million
0.6 million
Metropolitan
population
4.0 million
6.0 million
1.4 million
2.5 million
City density
per sq km
4,500
4,400
1,400
5,200
Real estate
investment
(US$)
5.3 billion
19.6 billion
6.1 billion
6.9 billion
Office stock
sq ft
92.7 million
171.6 million
63.9 million
52.3 million
Shopping mall
stock sq ft
93.7 million
218.5 million
72.1 million
63.5 million
Industrial
stock sq ft
348.4 million
855.9 million
112.3 million
161.6 million
320,993
553,193
460,338
846,978
Average house
price (C$)
Source: JLL, Oxford Economics, Statistics Canada, CREA
JLL | World Winning Cities Series
Montreal
17
18 The Canadian Quartet: Playing on the World Stage
Montreal's City Dynamics:
The Cosmopolitan Heart of the Country
The creative remedy
One of Montreal’s distinctions is its reputation as a creative city, with its wide cross-section of media, fashion
and design firms combining with its restaurant, art and nightlife to offer a markedly vibrant scene. With over
200,000 students and cultural industries' workforce larger than Sydney’s, Montreal is alone in the northern
half of North America for having a visible late-night Mediterranean culture.18 While it does not quite match
Vancouver and Toronto in liveability indices, the city is still attracting numerous multinational firms looking
to take advantage of a highly educated workforce. In 2013 for example, Swedish telecom giant Ericsson
announced its project to build a C$1.3 billion, 40,000 square metre global R&D centre in Vaudreuil-Dorion just
west of the Island of Montreal.19 The city’s growing embeddedness in the global corporate economy sees it
placed 58th in the biannual ‘Globalization and World Cities’ assessment, a significant 24 place improvement
since 2008, putting it in a similar league as Berlin and Dallas for global business links.20
A revitalized city
Montreal effectively lost C$50 billion of corporate assets to Toronto in the 1970s. Inheriting large debts from the
previous expensive cycle of projects, the city was left in the economic doldrums for nearly a decade. Since the
1980s, Montreal’s business and political leaders have sought to reposition and revitalize the city as Canada’s
cosmopolitan and innovative nerve centre.21 A signal of some success is that Greater Montreal was awarded
the prize for 'Best Major American City for Foreign Direct Investment (FDI) Strategy' in fDi Magazine's American
Cities of the Future 2013/14 rankings, coming ahead of the other 126 major cities across the Americas that
enter for this category.
New IT and biopharmaceutical R&D sectors have been highly successful in driving the new post-industrial
economy, especially in districts such as Old Montreal, Lachine and Cité du Multimédia. Today, new hubs are
emerging in the CBD and Midtown markets. For example, the Montreal Technopole / Quartier de la Santé,
located on the east side of the CBD, is being fuelled by the construction of the new CHUM hospital and will
be characterized by government-owned research and development buildings. Elsewhere, located on the
south-west border of the CBD, the Quartier Innovation is a joint effort by McGill University and ETS (École de
technologie supérieure) to create the largest concentration of information technology and multimedia workers in
Canada.
Knowledge in numbers
The success of Montreal’s affordable higher education offer outstrips that of its domestic rivals, reflected in
it having the highest number of university students per capita of any city in North America. The city’s R&D
incentives are world-leading and, alongside Boston, it is the only North American city in the top 10 in the QS
University rankings. With a large and diverse student population, Montreal gets its strongest score in the
‘student mix’ category of the Best Student Cities index. This notable student appeal wins it a 9th placing in
popularity and a 21st position in the world in the wider university rankings.22 Universities have a strong link
to future real estate opportunities as they often act as a focal point for and around which other real estate
developments will emerge, a benefit which Montreal can leverage as ‘knowledge cities’ become an important
focus of future investment.
JLL | World Winning Cities Series
Governance and leadership – reviving the global vision
Montreal has a complicated system of isolated municipalities and layered governance, and a radically
decentralized system has seen power transfer from the mayor’s office towards the city’s 19 boroughs. As a
result, a variety of plans from the central city and large suburban boroughs overlap and the Montreal Metropolitan
Community faces challenges of co-ordination as a metropolitan planning agency. At the same time, the lack of a
unified metropolis has constrained the city’s global vision.
Add to this the much publicized problems of corruption, mounting debt, infrastructure and payroll costs, and the
challenge for new Mayor Denis Coderre to regain true leadership of the city is clear. Mayor Coderre has made
an impression even in his first three months and the 2014 city budget could mark a shift towards greater fiscal
responsibility. There is growing optimism and hopes for a better relationship and a sharing of resources between
the city and its boroughs, as well as a more unified approach to competing for big projects and forming strategies
to retain talent, families and businesses.23
19
20 The Canadian Quartet: Playing on the World Stage
Strategies and mindsets for the future
Despite strong global city rhetoric, the city still lacks a defining image, even though it has established itself as a
proficient centre for design, innovation, project management and cultural expression. Downtown Montreal does
not attract the same concentration of corporate activity or high-density housing as seen in Toronto and Vancouver,
and the business community is arguing for far greater emphasis on the central city as the stimulus for the rest of
the metropolitan economy. This process is made harder by a decline in public trust in the political process and
the municipal administration, although this has recently begun to be addressed.
The Montreal Development Plan (MDP), however, does take stock of the city’s strategic vision for the next
20-year cycle. It calls for investment-led transformation of underground and surface infrastructure, cultural and
sports facilities, and economic positioning. It looks to lead the city towards values of sustainable public and
private sector-led development, while embracing innovation, creativity, research and education. It recognizes
the city’s assets to be its downtown cultural vibrancy, inclusivity, diverse knowledge economy, distinctive
neighbourhoods, green space, and capacity for transport-led growth.
“Montreal has a reputation as a city with an
enviable quality of life. The mix of activities,
housing and parks, the proximity of shops
and services and community facilities and an
efficient public transit system, along with vibrant
neighborhoods and a climate of social tolerance
and inclusiveness, all contribute to this reputation”
Draft Montreal Development Plan, 2012
A new value add
The MDP identifies the land availability and development potential around metro and train stations and areas
near the highway 15-40 and 25-40 interchanges as key to achieving greater density and diversity by 2020. It
also prioritises expansion of the port zone in the l’Assomption district to build the city’s role as a shipping and
logistics hub.
In terms of economic development, a lot of momentum has built up around the consolidation of seven high-value
metropolitan clusters. These clusters – aerospace, audio-visual, clean technology, financial services, ICT, life
sciences and logistics – are seen by business and Quebec province representatives to possess the critical mass
for the city to be competitive through the next cycle.
JLL | World Winning Cities Series
Montreal
Montreal Development Plan
In downtown Montreal and its central
neighbourhoods, it is important to continue
strengthening economic, cultural, education,
research and healthcare activities. In
addition there are opportunities in the
Western and Eastern employment and
economic centres and areas near the
highway 15-40 and 25-40 interchanges
that will make it possible to achieve greater
urban diversity and density.
Montreal Development Plan, April 2013
21
22 The Canadian Quartet: Playing on the World Stage
Montreal's Real Estate Dynamics:
A Dense, Dynamic and Welcoming City
Montreal’s commercial and residential real estate market is the second largest in Canada, and although the city
has been facing some political instability in the last 18-24 months, investors and developers still see opportunities
for attractive real estate investment returns. Montreal saw the strongest growth in direct commercial real estate
activity among the Quartet cities in 2013 with volumes nearly double those of 2012 levels.
Condominiums to boom
In terms of residential real estate, Montreal remains a dense, dynamic and welcoming city benefiting from one
of the best standards of living in North America. Home prices and average rents continue to be lower than other
major Canadian cities and the market is expected to see moderate growth over the next several quarters. The
condominium sector will continue to experience the biggest boom in the next two years with the market forecast to
expand by nearly 15%. This acceleration is arriving as unit deliveries in cities such as Toronto and Vancouver are
poised to begin decelerating.
A retail foothold
Montreal continues to be an attractive market for American and European brands looking to open a first location
in Canada. Although personal incomes in the city remain slightly lower than the Canadian average, the city has
recovered the jobs lost during the Global Financial Crisis. The level of construction is stable and consumers have
not reduced their discretionary spending as much as anticipated; the vitality of the sector will continue to benefit
from a steady increase in income and expenditure per person. Investors expect a rise in retail rents and values
equal to or slightly higher than the general rate of inflation over the coming years.
Office vacancy rates and affordability on the rise
The Montreal office market is the second largest in Canada and represents roughly 19% of the country’s total
office space. Although net absorption was positive in 2011 and 2012, the market experienced deteriorating market
conditions and weaker leasing momentum in 2013. As a result, and in combination with increased amounts of
new supply, the total vacancy rate has risen above 10% for the first time since 2006.
With corporate demand for modern top-tier facilities, another 2.75 million square feet of new office space is set
to be added to the market in the next two years. Despite the space left behind following upgrading, we expect
the vacancy rate to continue rising. On the upside, with an average gross rental rate below the national average,
Montreal remains affordable relative to the other cities in the Quartet.
Industrial shows improvement
The industrial market has also seen improving market conditions since the Global Financial Crisis. The strength
and diversity of its economic structure and its surplus inventory has allowed Montreal’s industrial market to post
decreasing availability rates while maintaining affordable total rents. Despite this, new projects centred on recent
infrastructure and transportation developments are being delivered off the Island of Montreal.
JLL | World Winning Cities Series
23
Toronto
24 The Canadian Quartet: Playing on the World Stage
Toronto's City Dynamics:
Canada’s Business Metropolis
A global Toronto
Toronto is clearly Canada’s most dynamic global city. It forms part of a chasing pack of global cities behind the
‘Big Six’ (of London, Paris, Tokyo, Singapore, New York and Hong Kong), with its closest global rivals in this
second-tier group being Sydney, San Francisco, Amsterdam and Frankfurt. It is the only city in the country that
regularly features in indices of the world’s 20 most important business and financial centres. For example, the
city ranks 17th globally for international business links, 19th in JLL’s Commercial Attraction Index24 and 14th
in terms of direct commercial real estate volumes. The Economist Intelligence Unit forecasts Toronto to be the
10th most competitive global destination in 2025.
Financial services underpin success
Toronto’s credentials for world city status have been built on its hugely successful financial services sector
which has broadened the city’s scope and created an excellent reputation for stability and reliability - the city sits
in 14th position in the influential Z/Yen Global Financial Centres Index. Major banking, life insurance, pension
funds and securities firms are the lifeblood of the city economy, with 230,000 people employed directly in
centrally located head offices, and a further 100,000 in dependent roles such as accountancy, law and IT.25
The city’s five largest banks generate nearly one-third of their revenues overseas, while J.P. Morgan, Credit
Suisse, Morgan Stanley, Macquarie Group and Barclays all have a presence. In vivid contrast to many other
global financial centres, financial services have seen strong growth over the past five years in Toronto, with an
annual average employment growth of 2.1%. However, despite the vibrant health of the sector, consolidation
and new developments supporting higher employee densifications have led to banks taking up less space when
their leases expire.
Strength in diversity
Having been a quintessentially English city until the 1950s, Toronto is now the most ethnically and culturally
diverse of Canadian cities. For three decades it has welcomed mixed populations, and celebrated diversity and
multiculturalism without demanding national assimilation. This ‘buzz’ has seen it become a global magnet for
higher education students and young graduates seeking to commercialize their knowledge, and has helped to
build a highly committed and responsive civic workforce.
Toronto’s world-class strengths now extend to the medical, life sciences and ICT sectors, and are supporting
its emergence as a top-tier enterprise hub; placing 11th in the world in the ‘2think Now’ Innovation Index is a
clear indication of the city’s growing strength as an influential technology centre, with high-tech employment
approaching 6%.26 As a result, demand for modern, millennial-ready real estate is set to grow significantly in
coming years.
JLL | World Winning Cities Series
Solid employment growth
Toronto’s population growth, fuelled significantly by young people and immigrants, saw metropolitan
employment rise by 3.8% in 2013 (and by 2.7% in the inner city), far faster than the national average.27 Much
of this growth has been led by the vibrant downtown corridor, where high-income jobs in the financial, medical
and education sectors offer unprecedented opportunities for well-qualified job seekers. Multinational firms are
choosing Toronto to grow their businesses. Cisco Systems has cited the province’s skilled global workforce,
strong engineering and business schools and stable economy, along with its competitive business environment,
as factors behind the company’s expansion plans.28
'Places to Grow' - a strategy for a healthy wealthy city?
Despite some co-ordination challenges between city and region, the Province of Ontario has been active in
launching development approaches that are pushing the region slowly towards 'smart growth'. Its ‘Places to
Grow’ legislation includes an urban growth boundary, a 7,000 sq km green belt and 25 designated focal areas
for investment in public services, high-density employment, and commercial and recreational development. The
city’s urban expansion has been fairly well shaped by this legislation and is resulting in higher-density, mid-rise,
mixed-use redevelopment. Greater densification of development is also likely to bring with it dividends in the
form of buoyant property values that are more resilient in the face of market downturns; it will also avoid the
multitude of costs otherwise associated with ever sprawling development.
Effective policies but new funding sources needed
The city’s economic success is bolstered by its very strong system of institutions – hospitals, universities,
business schools and cultural bodies – working with different tiers of government to ensure the right mix of
policies and investments are brought online. An urgent collective concern is to find new sources of revenue to
fund transport and housing expansion across the region. These could include a fuel tax, a share of sales tax,
parking levies, HOT (high-occupancy toll) lanes or highway tolls. The funding of growing commitments means
that net city debt is set to peak at over C$4 billion in 2018.29
Toronto will best maximize its future growth prospects if it can effectively manage growth into dense corridors
with transit-oriented development (TOD) and other 'smart growth' initiatives, while adequately funding the
infrastructure required for this new model. Achieving such will ensure that Toronto continues to build on its
success as a magnet for immigration, while growing its appeal to diverse populations and businesses.
25
26 The Canadian Quartet: Playing on the World Stage
Toronto
Collaborating for Competitiveness
If we can successfully implement new policies
and tools, we can create a positive cycle of
sustained economic growth that will generate
new jobs, increase city revenues, and improve the
quality of life for residents, business owners and
employees within the City. Toronto can stand out
amongst large complex urban places by having
a fast development cycle compared to alternate
locations and a cost competitive structure of
municipal costs.
Collaborating for Competitiveness, January 2013
JLL | World Winning Cities Series
Toronto's Real Estate Dynamics:
Defying the Laws of Economics?
Toronto’s commercial and residential real estate markets continue to defy the laws of economics. In fact,
according to Emporis, Toronto led North America with the most high-rise buildings under construction in 2013.30
More specifically, almost 7 million square feet of office space is currently under construction in the Greater
Toronto Area, of which over 5 million square feet is in the CBD. This represents the largest boom in office
construction since the early 1990s. With these office developments scheduled for completion over the next four
years, the CBD market is estimated to grow by over 7%, bringing the total inventory to 75 million square feet.
The financial core expanding up – and out
The majority of new office developments are located just south of Toronto’s ‘financial core’ in an area previously
deemed as ‘too far’ by many firms; this will inevitably lead to a new and expanded core area. The three
developments currently under construction have already signed leases with high-profile tenants such as Royal
Bank of Canada, Cisco, Apple and Sun Life Financial. This expansion is creating more opportunities for
investors to develop high rises in the next cycle, and/or to purchase high-quality income-producing real estate in
a stable and growing economy.
Figure 7: Toronto’s Office Supply Pipeline, 2014-2017
‘000s sq ft
2,500
Downtown East
Downtown West
2,000
Financial Core
Downtown South
1,500
1,000
500
0
2014
Source: Altus InSite
2015
2016
2017
27
28 The Canadian Quartet: Playing on the World Stage
TOD to transform the market
Aside from the CBD, suburban markets in the Greater Toronto Area
(GTA) are seeing an abundance of transit-oriented developments (TOD)
and proposals spurred by the ‘Big Move’ – a C$50 billion, 25-year plan to
significantly improve public transportation in the GTA and Halton region.
While we have witnessed previous TOD attempts in the GTA failing to
reach their expectations, we see a great deal of potential in and around
the Yonge-University-Spadina subway line (running north-south). York
University, for example, has allocated 140 acres of land for mixed-use
development that will be anchored by the new Steeles West subway
station.
In Vaughan, just north of the city, 442 acres have been earmarked for
the development of the Vaughan Metropolitan Centre (VMC), a transitoriented development featuring ‘urban living, inspiring offices, residential
complexes, restaurants and cafés, hotels and pedestrian shopping’. The
first building to be constructed is the 300,000 square foot KMPG Tower
and, by 2031, VMC is expected to accommodate 12,000 residential units,
25,000 residents and 11,500 jobs.
Over the next 10-15 years we expect a gradual but significant change to
the area surrounding Vaughan City Centre. In addition to new commuter
lines, a new airport link will connect Pearson International Airport to
downtown Toronto’s Union Station. The completion of this project is
expected in the summer of 2015, in time for the PanAm Games.
American retailers discover their neighbour
Toronto can claim approximately 50% of the country’s retail space under
construction. These developments and renovations are largely a result
of the influx of American retailers, specifically department stores, which
are expected to arrive in the next few years; notably, Saks Fifth Avenue
will open its flagship store in the Toronto Eaton Centre and Nordstrom will
be replacing various Sears locations. In addition, Toronto’s Bloor Street
is the most expensive retail street in the country and is home to luxury
retailers such as Tiffany’s, Hermès and Hugo Boss.
JLL | World Winning Cities Series
Upwards but not onwards – mortgage regulation
to cool residential growth
Toronto’s residential sector has arguably been the most exciting in
the country to track and ‘predict’. The market remained quite stable
during the 2009 Global Financial Crisis, accelerated thereafter, and has
continued to realize strong appreciation ever since. Much of the new
residential supply under construction has been high-rise condominiums,
as available land for single-family homes in the downtown area remains
extremely rare. As 2013 drew to a close, some 64,000 condominium
units worth some C$25 billion were estimated to be under construction
across Greater Toronto; around 20,000 of these units may be completed
during 2014. In addition, numerous five-star hotel and condominium
mixed-use properties have opened in the past few years including
the Residences at the Ritz-Carlton Toronto, Four Seasons Private
Residences Toronto, Shangri-La Toronto Residences, and Trump Toronto
Residences.
With this volume of supply set to hit the market over the next two years,
coupled with price growth and increasing concern about the debt-todisposable income ratio, the Canadian government has introduced
additional measures to cool the residential sector. Regulatory actions,
which include the reduction of the maximum amortization period for
government-insured mortgages and limitations on guarantees to banks
on mortgage-backed securities, have led to the more recent tapering
of new condominium starts; Toronto’s multifamily residential sector is
expected to experience a ‘soft landing’ provided interest rates do not
spike and the market is able to absorb the current completions. Despite
the aforementioned cooling measures, foreign investors continue to view
Toronto’s condominium market as a good investment.
29
30 The Canadian Quartet: Playing on the World Stage
Calgary
JLL | World Winning Cities Series
Calgary's City Dynamics:
The Energetic ‘Capital’
A changing urban form
Calgary is Canada’s oil and gas capital and one of the most important energy cities in the Western Hemisphere.
Whereas the densities of Toronto, Montreal and Vancouver are all fairly similar (comparable to Chicago
and Boston), Calgary’s urban form is spread out over a much wider area (more like Houston and Dallas).
Traditionally more than 90% of real estate development has been in the suburbs.31 Three-fifths of existing
dwellings in the city are single detached houses, compared to one-third in Vancouver and Montreal.
Calgary’s new Municipal Development Plan (MDP) adopted by the City Council in 2011 is beginning to have
significant impacts on the nature of development in the city. The plan’s strategic goals are to create a better
framework for sustainable development that will take Calgary from 1.4 million to a projected 2.3 million residents
in 204132 and towards a built form that is similar to Vancouver or Portland.
A growing and diverse city
Calgary is receiving an increasing share of Canada’s new immigrants and is witnessing the proportion of visible
minorities and new immigrants rapidly grow. According to the city’s ‘Diversity in Calgary’ report, the proportion
of the population that identifies itself as a visible minority rose from 22.3% in 2006 to 28.1% in 2013. Based on
the average rate of growth for the last three federal census cycles, the visible minority population is projected to
reach upwards of 40% in Calgary by 2020. Increasingly, new residents are seeing Calgary as a viable place to
settle in the long term, as opposed to a location for temporary work and short-term relocations.
A robust economy
As a largely energy-based city, Calgary today has a similar economic profile to successful energy-rich cities
such as Oslo, Aberdeen and Brisbane. The city continues to enjoy the highest employment rate of any large
Canadian city, at 71%, compared to only 60-63% in Toronto, Montreal and Vancouver, and the house-price-toincome ratio remains very favourable in comparison to Vancouver and Toronto.
The oil and gas sector is still directly responsible for one-third of the Metropolitan GDP, but the city has begun
to evolve from basic extraction and distribution functions into a diversified business centre that also hosts
management, finance, engineering and R&D operations. Calgary’s robust energy sector has encouraged its
growth as a dynamic investment banking and M&A centre and helped to place it 22nd globally in the Z/Yen
Global Financial Centres Index.
Calgary’s income, property, business and payroll taxes are much lower than in the other three cities in the
Quartet, partly enabled by Alberta’s provincial legislation. Although consumer prices have risen significantly
faster than in Toronto or Montreal over the past decade, costs are more than compensated for by very high
remuneration: median family income is approaching C$100,000 which is more than 30% higher than Calgary's
national peers.
31
32 The Canadian Quartet: Playing on the World Stage
Infrastructure at an inflection point
Rapid growth has ensured that infrastructure has long been at the heart
of the city’s political debate. The leadership at City Hall has its sights
set on making the C-Train a viable and effective alternative to car travel
in a traditionally automobile dependent city; currently only a sixth of
commuters use public transport.
Much of Calgary’s success has been achieved despite fiscal austerity,
and the city is now urgently searching for ways to increase the rate of
infrastructure financing to cope with rapid growth. The city’s Capital
Budget, two-thirds funded by the city and the rest by the provincial
government, is insufficient to meet demand, and more than half of
its planned cultural infrastructure projects up to 2023 do not have an
agreed upon funding source.33 There is nevertheless optimism that
the Alberta Municipal Government Act (MGA), currently under review
with changes due in 2015, will bring about a new method of funding
municipal infrastructure. Leaders of both Calgary and Edmonton are
seeking changes at the Provincial level to allow for more municipal
freedom in diversifying their tax structures in order to cover escalating
operating costs and to ensure more consistent, long-term funding for
infrastructure projects, most notably in expanding Light-Rail Transit
(LRT) systems in both cities.
‘New urbanism’
In October 2010 the city elected Naheed Nenshi as Mayor, which
marked Calgary’s leadership transition towards the principles of
‘new urbanism’. The proactive and collaborative Mayor Nenshi
strongly favours, for example, tax increment financing to pay for the
development of unused downtown land, and the city leadership also
supports other densification measures such as high-rise development
around public transport stops, and the conversion of low-rise malls into
mid-rise retail and residential buildings.
The MDP and Calgary Transportation Plans have set the objective
of having 50% of future development taking place within the existing
footprint of the city, while its transportation priorities are to make public
transport a comfortable travel alternative. Success in both objectives
will have a great impact on the spatial and physical structure of the
city. Progressive developments like Quarry Park and Seton in the city’s
south-east already show a remarkable shift towards more transitoriented, mixed-use, and compact forms of development - a style of real
estate which has traditionally only characterized the city’s downtown
and Beltline areas.
JLL | World Winning Cities Series
LNG – a game changer
Getting liquid natural gas (LNG) products to the world’s markets, where
prices would be substantially higher than can be achieved in North
America, has become a critical issue for Canada and especially for
Calgary’s future economy. The opportunities are vast, as is the energy
industry’s interest in pursuing them. If the multiple complexities of
introducing LNG ports on the West Coast and the required feeder
system of pipelines to them from Alberta can be agreed, then the
dividends for the industry, the economy and for Calgary’s future
prosperity will be substantial. As the potential for a turbo-boost to the
industry comes closer, 2014 will be an important year, as decisions are
expected on a number of pipeline applications.
Future strategies
Calgary’s major strategic challenge is to use its resources profitability
to become a properly diversified and resilient economy. The city’s firms
continue to seek investment, including from China, to develop upstream
(exploration and production) and downstream (refineries, chemical
plants, product distribution and retail) sectors in the oil and gas industry.
But with conventional oil production growth forecast to decelerate, new
capabilities need to be built up around oil sands and alongside scientific
applications and research innovations.
With a progressive redevelopment strategy and the possibility of
a successful big-city charter, Calgary may be given more financial
autonomy which will give the municipal government the proper tools
to respond to the challenges presented with rapid growth. For such a
young city and with great change afoot, Calgary appears to be handling
well its transition into metropolitan adulthood, taking responsibility in
shaping its future as it grows into a much larger player in the Canadian
economy as a whole. Changing demographics, a more sustainable built
form, and a focus on diversifying the city’s economy will be hallmarks of
Calgary’s future.
“Calgary is everything we love about the
West. It’s young. Exuberant. Uninhibited.
Vibrant. Energetic...”
Tourism Calgary - Strategic Plan 2013 - 2015
33
34 The Canadian Quartet: Playing on the World Stage
Calgary
Municipal Development Plan
Calgary will continue to be Canada’s ‘energy
capital’, focusing on both renewable and nonrenewable energy resources. However, Calgary’s
economy has also recently diversified… these
sectors are the key drivers that will continue to
support business investment and job creation
in Calgary over the long term and attract
international immigration, population growth and
demand for housing, services and mobility.
Municipal Development Plan, February 2014
JLL | World Winning Cities Series
Calgary's Real Estate Dynamics:
A Magnet for Growth
Commercial real estate in Calgary has been increasing in popularity for investors and tenants from Canada and
around the world. Although the smallest of Canada’s Quartet, Calgary is, by a large margin, home to the highest
number of head offices per capita in the country at 9.3 per 100,000 people, with Toronto being the next highest at
4.7 per 100,000.
Office market could expand 25% by 2020
Though tenant demand for office space is softening, this is not expected to be a long-term trend as the city is
forecast to lead the country’s GDP growth over the next five years, mainly driven by the strength of the local
resource sector. The downtown core has around 38.5 million square feet of office space, and currently the City of
Calgary is in the process of approving development permits for just shy of 9.7 million square feet of office in the
downtown core and Beltline. This will increase downtown office space by 25%, with build-out presumably being
completed by 2020 should all of these projects move forward.
Retailers respond to growth in consumer wealth
Calgary’s retail sector has and continues to be a main contributor to the city’s commercial real estate
attractiveness. Retailers are noticing the rise in the city’s consumer wealth and are proactively responding. For
example, Nordstrom’s first store in Canada will be in Calgary’s Chinook Centre, opening this year. Furthermore,
retailers are likely to continue opening large distribution centres in Calgary to service Western Canada. In fact,
Walmart Canada has just announced plans to build their second distribution centre just north of the city. Clearly,
retailers and real estate investors are taking advantage of the opportunity that exists to profit from Calgary’s
expected economic growth.
Multifamily takes hold
Over the last decade, the majority of Calgary’s new residential construction has been single-family homes.
However, the multifamily trend that has been sweeping across the rest of Canada has finally emerged in Calgary
over the last few years. In 2013, condominium sales were up by 30% from the previous year. This trend is
expected to continue as the waves of younger workers migrating from other provinces prefer a more affordable,
centrally located condominium to a single-family home in the suburbs. Market acceptance of multifamily units is
increasing considerably among long-term residents as well. In recent years, multifamily housing starts have been
matching the volume of single-family housing starts, a major indicator that Calgary’s built form is shifting and
becoming denser.
35
36 The Canadian Quartet: Playing on the World Stage
Figure 8: Calgary’s Annual Housing Starts
140%
Single-Family Freehold Starts
All Multifamily Starts
120%
100%
80%
60%
40%
20%
0%
-20%
2009-2010
2010-2011
2011-2012
2012-2013
2013-2014 F
Source: JLL, CMHC
Choice and affordability – a winning combination
Traditionally, Calgary’s downtown core has been very business-oriented with a very small residential component.
However, with large-scale residential projects breaking ground in the East Village, widespread condominium
development in the Beltline and many inner city neighbourhoods, and more dense mixed-use projects around
LRT stations and in the suburbs, there is now considerably more choice in office, retail and residential space in
the city. Although there is current competition from office developers in the core, residential developers still face,
in general, lower supply constraints than are found in the other primary Canadian cities. Though Calgary’s house
prices are the third highest in the country, the Royal Bank of Canada reports that the city is still one of the most
affordable markets due to simultaneous growth in average household income gains. This speaks volumes for the
vigour of Calgary’s current economic boom.
JLL | World Winning Cities Series
37
Vancouver
38 The Canadian Quartet: Playing on the World Stage
Vancouver City Dynamics:
The Pacific Gem
Turning outwards
The 1986 Expo marked Vancouver’s transition from a resource-based economy to a transnationally-oriented
service economy. The city has been rapidly internationalizing ever since. While its downtown does not have a
large base of corporate headquarter offices, it does support a diverse SME-oriented services sector including
specializations in higher education, marketing, engineering, IT, film and video. Companies in these new sectors
began the process of positioning Vancouver in the Asia Pacific market and successive mayors have continued
to support the connections.
The government of British Columbia (B.C), in recognition of these trade ties, recently became the first foreign
government to issue a ‘dim sum’ bond denominated in Chinese Renminbi. This successful high-profile move
was designed to deepen ties with China and to attract more Chinese investment to the province and to the City
of Vancouver. Already since 2001, B.C.’s goods exports to China have risen 750% (from roughly C$800 million
in 2001 to some C$6.7 billion in 2013), by far the largest increase among Canada’s top 10 trading partners. The
impact on real estate in Vancouver has been very real, not only in the well-publicized residential sector but also
in real estate investment across all asset classes, with the city regularly featuring among the world’s 30 most
active investment markets.
The Olympic boost
The city’s winning bid for the 2010 Winter Olympics saw a more globally visible wave of internationalization.
This phase required that Vancouver assert itself as a global sustainability leader that could also offer highquality amenities and convivial experiences. The city delivered this with redevelopments such as the Downtown
Eastside and the C$2 billion 19-km rapid transit Canada Line from Vancouver to Richmond (and improvements
to the international airport) a project which has initiated large-scale construction of condominium blocks near its
stations. Furthermore, the Olympics accelerated a cycle of investment in the city’s port gateway role which has
also boosted Vancouver’s Asian trade credentials.
Port Metro Vancouver – connecting to the world
Port Metro Vancouver continues to demonstrate year-on-year growth with repeated record volumes in
its container and bulk sectors. The focus in 2013 was to advance the port’s ongoing capacity building
infrastructure projects, participate in community engagement activities, and update and extend environmental
initiatives. Port Metro Vancouver has also increased trade relations with Europe through the Comprehensive
Economic and Trade Agreement (CETA) and is looking to expand opportunities with Asia through the
Trans-Pacific Partnership (TPP). The sustained growth at Port Metro Vancouver provides further evidence
of the strength of the Canadian economy and the success of the country’s trade development policies and
infrastructure advancements.
A sparkling attraction
The city’s liveability is premised on openness, pluralism, lifestyle, luxury and sustainability. This urban
personality has encouraged a highly successful ecosystem of industries and attracted a new generation of
entrepreneurs, especially from the Asia Pacific region. Along with existing Vancouverites, their commercial
success has created a substantial number of high-net-worth individuals. While on the one hand these
individuals are held somewhat responsible for the rising real estate values, on the other they do positively
contribute to the buoyancy of the residential and commercial (investment) real estate markets.
JLL | World Winning Cities Series
‘Vancouverism’ – an exportable skill?
‘Vancouverism’ is now synonymous with towerpodium architecture, green space, and breathtaking views. But the much-admired Canadian
city’s real secret of success may be its valuebased development process.
Patrick Kiger, ULI Magazine, February 2014
‘Vancouverism’ is no accident but instead has been the result of decades of what Kiger refers to as “Vancouver’s
secret success of developing a deliberative, values-driven evolutionary process, in which local government
planners, developers, and the citizenry have laboured over the past few decades to form a consensus vision of
what their city should be like - and then come up with creative solutions for achieving it.”
To this end Vancouver has set in motion it’s ambitious ‘Greenest City 2020 Action Plan’ to make its
environmental footprint as globally impressive as its liveability, and to build the city’s identity around
sustainability. The Plan aims to double the number of green jobs between 2010 and 2020, as well as to reduce
carbon emissions by a third and radically improve solid-waste disposal. City Hall has helped many resourcebased firms headquartered in Vancouver to grow their sustainability departments and create green jobs, while
initiatives to create an environmentally-friendly atmosphere in the city centre have already been very effective
for branding purposes.
In pursuing the city’s vision, there will inevitably be funding challenges, tensions between the city and regional
authorities and the pressure to conform to the very high sustainability standards, but the clarity of purpose also
offers an attraction that many other cities are far from achieving.
The ‘real’, real estate catalyst
In addition to the sustainability objectives, the ruling Vision Vancouver coalition has a broad plan to use the
city’s real estate holdings to attract and incentivize businesses in technology and a variety of entrepreneurial
sectors. Having previously projected a shortage of office space by 2031 if land-use policies were to remain
the same, the Metro Core Jobs & Economic Land Use Plan now manages downtown land-use much more
strategically. This growth management approach has helped the city to concentrate on harnessing Vancouver’s
“momentum as a centre of innovation and entrepreneurship.” Meanwhile, Vancouver’s first ever digital strategy
plan, launched in 2013, also seeks to foster digital innovation by expanding open data, recruiting digital talent
and attracting investment into the sector. 34
The globalization deficit
Vancouver’s challenge is to ensure that its growth path can manage the demand-led costs of globalization
– namely affordable housing, social inclusion, and opportunities for a new generation of entrepreneurial
participation. Inequality and affordability in the city have become critical public policy concerns. The city’s
leaders have a task to galvanize divided regional stakeholders around what its specializations are and should
be in order to achieve long-term competitiveness.
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40 The Canadian Quartet: Playing on the World Stage
Vancouver
Regional Growth Strategy
The key challenge is to accommodate
growth in ways which both advance
liveability and sustainability… The challenge
for the Regional Growth Strategy is to ensure
an adequate supply of space for industry and
commerce throughout the region, located
appropriately to their needs and in a manner
that supports an efficient transportation
system on which the economy depends.
Metro Vancouver 2040, July 2013
JLL | World Winning Cities Series
Vancouver Real Estate Dynamics:
A Market in Transition
Vancouver’s commercial real estate market, much like the rest of Canada, continues to see record activity.
Historically, this market has displayed some of the lowest office vacancy rates in the country and, as a result of
limited land availability and weight of capital, some of the highest property values.
A highly prized market
Vancouver’s CBD office market comprises 24 million square feet, roughly equivalent to the size of Dallas or
Minneapolis. The prime grade-A market accounts for 13 million square feet, while the secondary grade market
is sized at 11 million square feet. In recent years, demand for high-quality office space has outpaced supply,
allowing for numerous new development opportunities in the CBD and periphery markets.
Legislative support for market expansion
Today, 2.1 million square feet is in the development pipeline with deliveries scheduled through 2014-2016.
To put this in context, new development represents an 8.8% increase to existing inventory levels in the CBD
and will bring the total to 26.1 million square feet at the end of 2016. This is impressive considering the
aforementioned land constraints and has been made possible by new zoning bylaws enacted in 2009, along
with the tightening of residential development in Vancouver’s CBD.
Stuck in a time warp?
The profile of Vancouver’s downtown inventory is aging – over 50% of stock is in excess of 30 years old.
Increasingly, the city’s building stock represents the design and characteristics of the 1980’s or earlier, and while
a proportion of the office stock has or can be refurbished to meet the requirements of future space users, a
portion of the stock will see increasing vacancy rates as buildings, with time, become less desirable to tenants.
Figure 9: Vancouver’s CBD Office Buildings by Age
30%
25%
% of Total
20%
15%
10%
5%
0%
>40 Years
30-39 years
Source: JLL, Altus InSite
20-29 Years
10-19 Years
<10 Years
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42 The Canadian Quartet: Playing on the World Stage
Survival of the refitted
The owners of these older buildings will be pressured either to
inject capital to revitalize their ageing stock or to offer cheaper
rents and/or incentives in order to compete with the range of
new, highly efficient and sustainable supply. Given the City of
Vancouver’s priority to increase jobs in the CBD and to restrict
the growth of residential units through disallowing residential
conversion of significant office buildings and hotels, this will
create additional pressure on these landlords especially if all
the projected new premium-grade office supply proceeds.
A non-convertible sector
There is a question mark over the fate of these buildings as
large-scale adaptive re-use is not possible under Vancouver’s
current planning legislation. In the short term this issue
does not appear to be impacting investor demand for office
product. Private buyers dominated in 2013, with over 50%
of all assets sold having been purchased by this group. With
the wall of foreign capital chasing office product in Vancouver,
we anticipate that, despite the prospect of future vacancies,
demand for capital placement will not be dampened, even with
the strong appreciation of recent years.
A retail remaking
Vancouver is also a key player in Canada’s retail sector. The
luxury outlet craze that has swept across the United States
has hit Canada in the past few years, and will finally make its
way to the city in 2015 when a new outlet centre developed
by McArthurGlen Group - Europe’s leading owner, developer
and manager of designer outlets - will open near Vancouver’s
International Airport. Another major retail development,
Tsawwassen Mills and Tsawwassen Commons, is scheduled
to open in 2016 just south of Vancouver. Tsawwassen Mills will
include 1.2 million square feet of retail space with 16 anchors,
including Bass Pro Shops, while Tsawwassen Commons will
include 550,000 square feet of outdoor retail with regional,
national and international retailers, including Walmart and
RONA. In addition, Nordstrom will be opening its 230,000
square foot Canadian flagship store in downtown Vancouver’s
Pacific Centre Mall in 2015. These milestone developments
will significantly strengthen Vancouver’s retail market and are
an acknowledgement of rising disposable incomes and the
substantial opportunities to capture Asian consumer spend.
JLL | World Winning Cities Series
Transit – gentrifying neighbourhoods
Since the construction of the 1986 Expo line, Vancouver
has had a strong focus on connecting its neighbourhoods
through public transportation infrastructure. Today, the
SkyTrain system joins several outlying neighbourhoods such
as Richmond, Burnaby and Surrey with the downtown core
and airport. SkyTrain has not only been successful in moving
people in and out of the city, but also in spurring massive
growth around the stations and transforming areas such as
Richmond into popular mixed-use neighbourhoods. Several
mid-rise apartment towers have been constructed and by
2040 the area expects to see 30,000 more people living
around the line.
In addition to residential growth, several commercial transitoriented development (TOD) projects have also been
completed and more are in the pipeline. JLL releases a
bi-annual Rapid Transit Index which studies office buildings
within 500 metres of the SkyTrain and Canada Line stations
outside of downtown Vancouver. The 2013 report discovered
that, on average, asking net rental rates were over 20% higher
in rapid transit serviced buildings, while vacancy rates were
approximately 3.2% lower compared to buildings outside
of the Rapid Transit Index survey area. This continuing
trend has made development sites near rapid transit
stations increasingly sought after, and many developers are
proceeding even without lead tenants.
No cooling effect on the luxury
residential market
In terms of the residential sector, Vancouver is the second
least affordable market (after Hong Kong) in the world
according to the Demographia International Housing
Affordability Survey.35 Nonetheless, foreign investors,
especially from Asia, remain attracted to and markedly
support Vancouver’s luxury single-family and condominium
properties. Even though the federal government has
recently cancelled the Immigrant Investor Program, whereby
permanent residency was offered to wealthy business people
who were willing to lend C$800,000 interest-free to the
Canadian government, it is not expected to have a drastic
impact on Vancouver’s luxury residential market given that
only around 3,000 applications across Canada were approved
each year. It is also believed that the primary reason for the
cancellation was to scrap the 65,000 person backlog. Thus,
the programme’s cancellation is not likely to have a significant
impact on the luxury residential market, and prices might even
be pressured upwards with the expectation that the Canadian
government will announce a new Immigrant Investor Venture
Capital Fund in the near future.
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44 The Canadian Quartet: Playing on the World Stage
4.0 Canada’s Investors: Global Reach and
Domestic Dominance
Real estate volumes at record levels
Direct commercial real estate investment in Canada was at record volumes in 2013, and the Canadian Quartet has
continued to attract high levels of investor activity. Investment is overwhelmingly dominated by domestic pension and
insurance funds, REITs and property companies and, such is the strength of domestic institutions, Canada has one
of the lowest proportions of foreign capital invested in its real estate market in the world. However, this should not
be interpreted as a lack of demand by foreign investors, many of whom remain keenly interested in the Canadian
market, but merely a lack of success in transacting.
Figure 10: Direct Commercial Real Estate Investment Volumes, 2011-2013
2011
US$ billions
2012
US$ billions
2013
US$ billions
Total
US$ billions
Global
Rank
Toronto
6.999
5.741
6.810
19.550
14
Vancouver
2.031
2.229
2.612
6.872
36
Calgary
1.927
2.200
1.986
6.113
41
Montreal
1.299
1.646
2.307
5.252
45
Source: JLL, 2014
Investment market dominated by domestic institutions
Compared to other countries with similar property markets and transparency attributes, such as Australia, Canada
stands out as being one that foreign groups find particularly difficult to penetrate. For example, while inbound
investment in Australia has regularly exceeded 30% of total investment, only 10% on average of all transactions in
Canada (since 2007) have involved foreign groups, with 2012 marking a low point of only 1%.
Figure 11: Cross-Border Commercial Real Estate Investment Activity; Canada versus Australia (% of total)
32%
28%
22%
18%
9%
6%
2007
Pre-crash
2010
Recovery
Canada
Source: JLL, 2014
2013
Current
Australia
JLL | World Winning Cities Series
Canada’s lack of inbound capital may, in part, be due to its proximity to the United States where the size of the
market offers greater investment opportunities and capital can be more easily deployed. Moreover, Canada’s
real estate market has not witnessed the distress and price corrections over the past five years that has
attracted foreign investors to the UK, United States and continental Europe. In fact, the Canadian real estate
market has recorded one of the world’s highest rates of return (according to IPD) since the Global Financial
Crisis.
Figure 12: Real Estate Returns, 2007-2012
South Africa
Canada
Switzerland
South Korea
Australia
Sweden
France
Poland
Germany
Italy
Netherlands
USA
UK
Japan
Spain
% pa
-2
0
2
4
6
8
10
12
14
Source: IPD, 2013
Foreign investors need a new approach
Strong real estate fundamentals and a stable macroeconomic environment make Canada an attractive
proposition for foreign investors, but new approaches to accessing product will be needed if they are to be
successful. The Canadian’s outbound approach has been to look for best-in-class partners; however we are
yet to see those partners fully use the relationships they have established to gain access to opportunities in
Canada.
Does the lack of foreign investment hold the domestic market back? It is difficult to generalize but certainly the
most liquid markets – the ones that possess a good mixture of domestic and foreign capital – tend to generate
more opportunities for both domestic and cross-border investors. Foreign groups can also be an excellent
source of new concepts, new tenants and global best-practice.
A global leader in cross-border capital
Canada’s pension system, which was overhauled a decade ago, has revolutionized and accelerated the amount
of capital available for real estate investment. The top 10 Canadian pension funds now control over C$800
billion, with a higher than average allocation to direct real estate.
The divergence between the volume of Canadian capital and the size of the domestic investable universe
means that investors have been forced to allocate increasing amounts to overseas opportunities. Canadian
investors have been at the vanguard of the expansion of cross-border real estate investment in recent years,
helping to drive significant transaction activity in major cities from Sydney to New York. In 2013, Canadian
offshore investment accounted for 20% of all global cross-border investment activity.
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46 The Canadian Quartet: Playing on the World Stage
Smart partnering – uniquely Canadian
The approach that many Canadian investors have adopted overseas is to look to match their capital with local
experts, a match of equity and expertise, such as Oxford Properties working with Related on the Hudson Yards
redevelopment in New York, one of the largest in the city’s history. This has allowed more money to flow out of
Canada than would have been the case if they had demanded 100% control, and has enabled investors to work
with some best-in-class property and asset managers. This trend increased in 2013 primarily due to an increase
in the competition for top-quality assets, which has necessitated a more flexible and pragmatic approach – two of
the qualities for which Canadians are well known.
Not just pension funds
The size of the pension system in Canada means that other offshore investors from the country have been
somewhat overshadowed by the large institutional groups. However, Canada has one of the most active offshore
REIT communities in the world; Dundee in Germany, H&R in the United States, Maplewood in the Netherlands,
Granite in Europe and CAPREIT into Irish residential show that the offshore intentions are not limited to the major
pension funds.
This push outside Canada by these listed groups reinforces the international nature of the Canadian economy
and the business community. The fact that these groups have been able to raise the capital to invest offshore
demonstrates the global demand for property investment in the country as well as their flexible nature in finding
efficient routes to deploy capital. Indeed it is likely that the Canadian pension funds will use these international
REITs as part of their investment strategy to gain access to sectors and markets they find attractive but hard to
access.
Figure 13: Canadian Overseas Direct Investment, 2003-2013
US$ bn
12
60%
10
50%
8
40%
6
30%
4
20%
2
10%
0%
0
2003
2004
2005
2006
2007
2008
Canadian Outbound Investment
Source: JLL, 2014
2009
2010
2011
2012
2013
% of All Canadian RE Investment
JLL | World Winning Cities Series
Figure 14: Canadian Overseas Direct Investment and Joint Venture Proportions, 2007-2013
US$ bn
12
10
8
6
4
2
2007
2008
2009
2010
Direct Cross-Border
2011
2012
2013
JVs Cross-Border
Source: JLL, 2014
Equity, equity, expertise
These joint ventures and partnerships have not always been with just one source – Canadian investors have
joined up with other capital sources from the Middle East and Asia to pursue individual deals around the world.
Such is the focus on this form of investing that they have built up a network of over 130 partners outside of
Canada. The world map shows a sample of the groups with whom Canadian investors have worked.
Figure 15: Canadian Global Partners
Global
Blackstone
LaSalle
Investment Management
United Kingdom
The Crown Estate
Hammerson
Grosvenor
Meyer Bergman
The Rockefeller Foundation
Westfield
Netherlands
APG Group
European
Union
SEGRO
Verdion
China
China Investment Corporation
Spain
Japan
CapitaLand
Global Logistic Properties
Intu
United States
Callahan Capital Partners
Citigroup
DivcoWest
DTLA Holdings
Goldman Sachs
Greystar RE Partners
Kimco
Morgan Stanley
RXR Realty
The Rockefeller Foundation
SL Green
TPG Capital
Unico
USAA
Westfield
United Arab
Emirates
ADIA
Brazil
Aliansce
CapitaLand
CCP
Cyrela Commercial Properties
Global Logistic Properties
MultiPlan
India
Piramal
Shapoorji Pallonji
Singapore
GIC
Australia
AMP Capital
Charter Hall
Goodman Group
This map illustrates the breadth of Canadian investment partnerships globally, both by country of activity and/or home country of the partner
Source: JLL, 2014
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48 The Canadian Quartet: Playing on the World Stage
The lure of the United States
Unsurprisingly the United States attracts a huge amount of Canadian capital; having the most liquid real estate
market in the world as a neighbour is an attractive prospect and one taken advantage of by Canadian investors.
They have poured over US$20 billion into U.S. commercial property over the last 10 years, making them the most
active foreign investor, with on average 40% of all Canadian overseas investment flowing into the United States.
Over the last couple of years, Canadian capital has become even more important as a true market-mover in the
United States; in 2013, Canadian investors purchased nearly one-third of all foreign investment there - more than
the next four capital-source countries combined.
A global playing field
Although the United States has been the single biggest destination for outbound Canadian capital, investors have
also looked further afield for a substantial amount of their acquisitions, with sizeable capital flows finding their way
into European and Australian property markets. At the same time, Canadians have been somewhat unusual in
exploiting the emerging markets of Latin America – Rio de Janeiro, Sao Paulo, Bogota, Medellin and Santiago –
have all recorded Canadian investment recently. Interestingly the industrial sector has seen a larger than normal
amount of activity, particularly in Northern Mexico, from where trade-flows into North America are growing rapidly.
Canadian investors have also established a presence in emerging markets in Asia Pacific and Africa through a
number of investments in fund and indirect vehicles. This once again shows the pragmatic nature of Canadian
offshore groups; where possible they will go direct and where not possible they will use the most efficient and
effective ways of finding the property exposure they require. This has included PSP investing into China and
Africa using indirect platforms, and CPPIB using funds to gain exposure in India.
The value-add approach – retail and industrial favourites
Compared to many other cross-border investors, Canadians have shown a greater willingness to invest in the retail
and industrial sectors. Cross-border investors will normally concentrate a large part of their allocation to core,
CBD offices, but outside of a few markets in the United States and Australia, Canadians have typically looked for
more value-add opportunities. This is highlighted by CPPIB’s purchases of shopping centres in Germany and
the UK over the last two years. The focus on retail and industrial differs slightly from office investment which has
generally targeted the biggest cities of the world.
JLL | World Winning Cities Series
Figure 16: Canadian versus Typical Offshore Investors’ Allocations
Office
Retail
Hotels
Industrial
Other
Canadian
allocations
by sector
44%
35%
4%
16%
1%
Typical offshore
investor
allocation
50%
25%
7%
14%
4%
Source: JLL, 2014
A capital pool to leverage around the world
The dilemma that Canadian capital now faces is that the cash available for real estate investment is growing at
a significantly more rapid rate than properties are being built in Canada to absorb it. The transformation that
pension and superannuation plans are undergoing globally means that more money is flowing into them and we
are seeing the results of this on a daily basis in commercial real estate markets.
With Canadian investors having established efficient outposts around the world, they are in a good position to
continually deploy money. However the market is becoming more competitive; domestic capital in Europe has
recovered and new sources of capital are emerging continuously, especially in Asia. Given the size of Canada’s
capital base, Canadians will continue to be amongst the most important global commercial property investors.
Their formula of working with best-in-class partners has proved extremely important, successful and beneficial,
and we expect other nationalities to follow this recipe. Nevertheless, Canadian investors have first-mover
advantage and are likely to protect this with even larger outflows in the years ahead.
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50 The Canadian Quartet: Playing on the World Stage
5.0 Visions for the Future
The Quartet’s evolving real estate markets
Office: The majority of Canadian office markets can boast single-digit vacancy rates, and while the Quartet, led
by Calgary, Toronto and Vancouver, will see an increase of 4-11% to their total office stocks by the end of 2018,
vacancy rates are not expected to go up significantly. Some assets will inevitably see higher vacancy rates as
tenants upgrade to new, more efficient developments and, as such, rents in the lower end of Class A and in Class
B will see a correction. But new investment ‘doors of opportunity’ will open here as well, with potentially more
abundant value-add repositioning opportunities materializing with the market shift.
Industrial: Demand has historically outpaced supply and, with both exports and imports on the rise, demand is
expected to remain strong. The influx of U.S. and European retailers will support demand for warehouses and
distribution facilities and initiate investment opportunities across the Quartet. Similar to some office markets, older
industrial stock is becoming more and more obsolete and the repositioning of these assets will also increase.
This trend is already unfolding in Montreal where industrial properties are being converted for both office and
residential use.
Retail: Canada will experience many dynamic changes to its retail market throughout the remainder of this
decade. With the influx of foreign retailers, bold expansion plans are being revealed that will introduce heightened
competition across the domestic market. New formats and concepts – large outlet centres for example – will take
hold, while significant pockets of newly-created affluence will attract significant numbers of luxury retailers to enter
these markets. At the same time, the impacts of ecommerce will also be felt. New competition, evolving shopping
centre formats, retailer business models and growing purchasing power will combine to create a new landscape of
opportunities for property investors and retailers alike.
Residential: The sector is and will continue to be a much discussed topic, and while there is no doubt that the
market will inevitably see a correction in house prices over the next five years, ultimately this adjustment is both
necessary and healthy. In general, the sooner this process gets underway, the better. Gradually increasing
interest rates will be an important catalyst, and will add to the multiple regulatory actions already in place. Over
the next several years, Canada’s primary real estate markets will also become more affordable, provided that
interest rate increases are not too dramatic.
JLL | World Winning Cities Series
The Quartet’s future urban visions
The Quartet’s city visions confirm a shared enthusiasm for development-led economic growth. Looking ahead,
they are well placed to turn their temporary upswing in competitive fortunes into multiple cycles of success and
development.
Montreal
is becoming a hotspot for education and research; this will stimulate vibrant growth across its urban core,
particularly if it can also build an adjoining system for commercial innovation. The 20-year Montreal
Development Plan makes a much firmer commitment towards shared public and private sector-led development
of its downtown, stimulated by a transformation of underground and surface transport.
Toronto
has in many respects been a beneficiary of the U.S. centred Global Financial Crisis, and is well on the way to
becoming a talent capital with areas of cutting-edge entrepreneurship. Its next cycle of leadership will need to
develop the international visibility of its specializations to withstand the recovery of New York and Chicago. This
will require a purposeful strategy of engaging the world as a confident global financial centre and securing jobs
for its middle classes. The new economic growth plan – Collaborating for Competitiveness – focuses on high
value and quality jobs to be developed in consultation with private sector leaders. A key to success will be the
reduction of the industrial and commercial property tax ratio.
Calgary
has a clear path for urban core development, which can be best aided by investing in a more diversified
economy and a higher value positioning in the commodities value chain. The city’s long-term growth path,
as laid down in the Municipal Development Plan and transportation plans, is towards densification. Half
of Calgary’s future development is earmarked to fit into the existing urban footprint, a strategy that will be
supported by the RouteAhead, the long-term (to 2040) C$13 billion public transport strategy – the first of its kind
for the city – that will eventually deliver a new north-south and east-west rapid transit network.
Vancouver
will continue to offer extraordinary quality of life and a compelling pathway towards green urbanism through
its Greenest City 2020 Action and Metro Core Jobs & Economic Land Use Plans. These plans aim to double
the number of green jobs and to house them appropriately by approving more office space. The city’s
strategy will be to use its own real estate holdings to attract and incentivize businesses in the technology and
entrepreneurial sectors.
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52 The Canadian Quartet: Playing on the World Stage
A symphonic opportunity
Real estate is key to each city’s vision and central to all of the Quartet’s strategies. Our belief is that the
four cities will attract increasing global attention as a sequence of conditions combine to consolidate their
growing importance as international commercial and real estate markets.
• Economic growth will continue at a relatively robust pace, underlining the stability of the markets at
a time when many consider reliable returns as important as capital value growth.
• Across the Quartet, 20 million square feet of new Class-A office space will be completed through
2014-2018, translating into a 10% increase in the investable universe of higher-quality space. This
historically significant expansion will open up some compelling opportunities for both investors and
corporates – domestic and foreign alike – which have not existed previously.
• Canada’s very well recognized business friendliness, real estate transparency and attractive tax
rates will continue to bolster the commercial competitiveness of the Canadian Quartet.
• A marked shift in international interest in Canadian cities will occur over the next five years. This
will strengthen the influence of international capital in these cities which have, especially since the
Global Financial Crisis, been tightly held domestic markets.
• The unique nature of the Quartet cities, and their marked differences from each other, provides an
unusual opportunity to diversify within a single national boundary.
• The growing importance of Canadian cities as gateways to Asia, along with the expected increase
in trade, investment and educational connections, will create an important boost to their global
profiles.
• The liveability premium in the Quartet will offer an added attraction to investors and corporates who
are increasingly including quality of life as a key factor in long-term performance.
• The pre-eminence of the Quartet in the fields of sustainability, finance, education and culture will
act as magnets for young talent.
• Entrepreneurs and start-ups will be attracted to the affordability and lifestyle offers in Montreal
and Calgary in particular, while best practice in creating a green economy in Vancouver and
the vibrancy and growing importance of financial services and technology in Toronto will help to
enhance each city’s global appeal.
• Continued growth in the Quartet’s real estate markets over the next five years will offer unique
investment opportunities in urban and suburban areas that have been fuelled by widespread public
infrastructure investments.
• For real estate investors, stable long-term income should be more predictable in cities such as
those of the Canadian Quartet as they continue to grow, innovate and succeed.
JLL | World Winning Cities Series
An opportunity restated
The next decade will see Canada’s Quartet offer international
investors a compelling opportunity as their real estate markets
expand. Not only are they among the most dynamic cities
in the advanced world, they also possess the attributes that
investors increasingly recognize as essential ingredients of
city success with clear advantage in transparency, liveability,
sustainability and innovation capabilities. We anticipate
that over the next decade the Quartet cities will firmly secure
their places on the world stage with all four cities regularly
featuring among the world’s Top 30 real estate investment
destinations. They will join an elite group of mid-sized cities
that will leverage their skills base and their geographic and
cultural advantages to create economic momentum that will
ripple across all real estate sectors.
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54 The Canadian Quartet: Playing on the World Stage
Postscript – Canada’s wider city system
While we have concentrated on the clear opportunities for the Quartet in the short to medium term, up to 2020, we
are carefully watching the progress of Canada’s other eight important urban centres which each add value to the
Canadian city system and are worthy of attention and monitoring over the next decade.
Figure 17 summarizes their characteristics and indicates key areas of dynamism, with commodities, knowledgebased industries and government providing the mainstays of their economies. Edmonton, Alberta’s provincial
capital and a major oil and gas centre, and Ottawa, the federal capital, stand out in terms of economic weight
and commercial real estate activity. Meanwhile Saskatoon and Regina have among the nation’s fastest growing
populations and continue to outpace other Canadian cities by GDP growth. Research and technology sectors
are driving forces in several cities, including Edmonton, Winnipeg, Ottawa and Quebec City, while Halifax is
attracting outsourcing activity as one of Canada’s most competitive cities for doing business. We plan to report on
these cities in more detail in the coming months.
Figure 17: Beyond the Quartet – The Next Eight
Metropolitan
Population
Commercial
Real Estate
Investment
Office Stock
Shopping Mall
Stock
millions
US$ billions,
2011-2013
million sq ft
million sq ft
City Dynamics / Drivers
1
Edmonton, Alberta
1.29
3.1
23.5
24.0
Oil and Gas, Provincial Capital
2
Ottawa, Ontario
1.31
2.9
44.0
18.3
Federal Capital
3
Quebec City, Quebec
0.79
1.1
18.3
9.9
Provincial Capital
4
Winnipeg, Manitoba
0.77
0.6
10.7
11.0
Transport, Provincial Capital
5
Halifax, Nova Scotia
0.41
0.5
9.6
8.9
Outsourcing, Provincial Capital
6
Hamilton, Ontario
0.76
0.1
5.0
6.0
Manufacturing
7
Regina, Saskatchewan
0.23
0.5
4.1
4.7
Oil and Gas, Provincial Capital
8
Saskatoon, Saskatchewan
0.29
0.4
4.0
4.3
Potash, Oil and Gas
Ranked on the basis of four economic and real estate measures shown above
Source: JLL, Oxford Economics, Statistics Canada
JLL | World Winning Cities Series
55
Footnotes
Canada’s 12 key cities – Calgary, Edmonton, Halifax, Hamilton, Montreal, Ottawa, Quebec, Regina, Saskatoon, Toronto, Vancouver and Winnipeg
Global Financial Centres Index, Edition 15. http://www.zyen.com/research/gfci.html
3
JLL Global Real Estate Transparency Index. http://www.joneslanglasalle.com/GRETI/en-gb/Pages/GlobalTransparencyIndex.aspx
4
http://www.international.gc.ca/investors-investisseurs/advantage-avantage/advantage-avantage.aspx?lang=eng
5
Oxford Economics, 2014
6
Statistics Canada, 2013 estimates
7
PwC & Partnership for New York City, “Cities of Opportunity”; (Ease of Doing Business), 2012
fDI Intelligence, “Intelligence American Cities of the Future 2013/14”; (Business Friendliness), 2013
8
Statistics Canada. http://www12.statcan.gc.ca/nhs-enm/2011/as-sa/99-010-x/99-010-x2011001-eng.cfm
9
AON Hewitt, “People Risk Index”, 2013
10
Xinhua-Dow Jones International Financial Centers Development Index. http://www.sh.xinhuanet.com/shstatics/images2013/IFCD2013_En.pdf, 2013
11
EIU Economist Intelligence Unit, “Hotspots: Benchmarking Global City Competitiveness”, 2012. The MORI Memorial Foundation, “Global Power City Index”, 2013. Mercer, “Quality of living”, 2014
12
http://www.reputationinstitute.com/frames/events/2013_City_RepTrak_Press_Release.pdf, 2013
13
http://www.bot.com/advocacy/Documents/Scorecard/Scorecard_2013.pdf p.29
14
Startup Genome, “Best Start-up Ecosystems”, 2012
15
Toronto Board of Trade, “Scorecard on Prosperity”, 2013
16
Inrix Traffic Scorecard. http://scorecard.inrix.com/scorecard, 2013
17
Euromonitor International, 2014
18
http://www.bot.com/advocacy/Documents/Scorecard/Scorecard_2013.pdf p.51
19
http://business.financialpost.com/2013/06/03/ericsson-plans-new-montreal-area-centre-to-support-wireless-rd/?__lsa=d5c9-c7
20
http://www.lboro.ac.uk/gawc/world2012t.html
21
Pierre Hamela and Bernard Jouveb (2008). In search of a stable urban regime for Montreal: issues and challenges in metropolitan development. Urban Research & Practice. 1(1).
22
QS World University Ranking. http://www.topuniversities.com/subject-rankings/2014
23
http://www.montrealgazette.com/news/Taxes+Montreal+Mayor+Denis+Coderre+first+city+budget/9444288/story.html ; http://www.btmm.qc.ca/~/media/
Files/News/2013/memoire_PDM_aout2013_en.pdf
24
JLL Index of 300 cities based on the weighted score of population, GDP, corporate presence, air connectivity, real estate investment volumes and commercial real estate stock. www.jll.com/cities-research
25
http://www.tfsa.ca/resources/pdf/TFSA_2013_TMX_Brochure_.pdf
26
http://www.innovation-cities.com/innovation-cities-global-index-2012/7237
27
Toronto Star (2014). ‘Toronto’s jobs growth among the highest in Canada — but so is the jobless rate. What gives?’. Jan 15.
28
http://www.theglobeandmail.com/report-on-business/cisco-taps-toronto-as-one-of-four-global-innovation-hubs/article17311981/
29
http://www1.toronto.ca/staticfiles/City%20Of%20Toronto/City%20Manager's%20Office/City%20Manager%20Profile/Overview/2013%20IMFG%20
Presentation_Final%20for%20posting.pdf
30
http://www.emporis.com/
31
Marcus Gee (2011). ‘Naheed Nenshi's challenge: Making Calgary a liveable city’. Toronto Globe and Mail. Feb 5. Available at
http://www.theglobeandmail.com/news/politics/naheed-nenshis-challenge-making-calgary-a-liveable-city/article565256/?page=all
32
http://www.calgary.ca/PDA/LUPP/Pages/Municipal-Development-Plan/Municipal-Development-Plan-MDP.aspx
33
http://www.calgaryinfrastructure.com/cp_mapping.html
34
http://www.vancitybuzz.com/2013/10/interview-with-mayor-gregor-robertson-jobs-tech-industry/)
35
http://www.demographia.com/dhi.pdf
1
2
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