How Changing Dynamics in Commercial Real Estate Are Affecting Property Management

Canada’s commercial real-estate market is changing the landscape of property management. As an increasing number of businesses migrate outside of the downtown core, many downtown commercial properties are left empty. Vacancy rates in some cities are hitting the highest level in more than 30 years. With such significant vacancy rates throughout Canadian cities, it’s becoming a highly competitive market. To keep up with the shifting dynamics, you need to be creative about the incentives you offer.

Here’s a look at the current situation and its affects on commercial property management.

Commercial Property Development Pipelines Shift Supply and Demand

According to Avison Young, Canada’s commercial real estate sector is being shaken by uneven employment growth, disruptive technologies, low dollar rates, and unstable energy prices. While the economy was weaker than expected in 2015, the development pipeline remained active, resulting in a 10.6% vacancy rate by late 2015. This year, Canada’s planned constructions will add almost 20 million square feet of commercial office space to the market. As a result, it’s projected that vacancy rates will climb just over 12% by the end of 2016.

Though development-laden cities are causing higher vacancy rates, they’re also creating a fight for quality. Avison Young predicts, “[the] scarcity of urban land will shift developers’ focus from single-purpose towards mixed use, transit oriented projects, spurring joint-ventures.” They say, demand will stem from broadening requirements, including co-working spaces that appeal to millennials and cost-effective properties that interest American companies looking to establish a foothold in Canada.

Alberta’s Soaring Vacancy Rates Propel Creative Commercial Property Management

Due to the falling prices of crude - from $64 per barrel in March 2015, to $36 per barrel in December 2015 - layoffs hit over 36,000 jobs in the industry. In an attempt to cut costs, many companies are subleasing or vacating offices. Downtown Calgary’s office vacancy rate increased by 4% to 16.3% in 2015. By the end of 2018, the completion of five developments will add another 3.5 million square feet of office space to downtown Calgary, causing vacancy rates to reach an estimated 21.7%.

Albeit, some tenants remain optimistic, viewing the increased supply as an opportunity to reduce space and rental costs, increase existing footprints, move into higher quality spaces, or consolidate operations into one building. Edmonton and Lethbridge exemplify this shift.

Downtown Edmonton

Rogers Place, the new home of NHL’s Edmonton Oilers, and two towers - Kelly Ramsey Tower and Edmonton Tower - are transforming the ICE District in Edmonton’s downtown core. Despite the anticipated surplus of vacancies, both towers are more than 80% pre-leased. To compete in this fight for quality, landlords of older spaces are compelled to upgrade their properties.

Lethbridge

In 2015, Lethbridge saw a slight decrease in vacancy rates, from 17% to 16.6%, which is a direct reflection of creative commercial property management. In an effort to retain and attract tenants, landlords are offering incentives like project management, free rent, and improvement allowances. In this competitive market, property managers are expected to contrive unique, viable, and appealing offers.

Downtown Calgary

Lucas Beck, a commercial office property manager for Colliers International, confirms that creative commercial property management initiatives are also catching on in downtown Calgary. He told The Globe and Mail that more companies are starting to sublease excess office space using a range of incentives. Some offer fully furnished spaces and others offer free rent on the condition that subtenants cover all bills related to operating costs.

Still, a few companies hold on to empty office space so their employees and investors aren’t scared, while others hold on in an attempt to ensure they have enough space when oil prices rise again. Greg Kwong, regional managing director at CBRE, told CTV News that it’s difficult to tell just how high vacancy rates are because the unknown amount of near-empty office space isn’t accounted for.

Effects on Commercial Property Management

Rising vacancy rates are causing a shift in the landlord-tenant balance. Commercial property management professionals must compete for tenants more creatively. Today, your role extends beyond the direct financial and operational performance of properties. Peter Leroux of Avison Young says that a property manager’s role also encompass budgeting, cash management, collections, reporting, contractor management, staffing, day-to-day operations, and tenant satisfaction.

There’s a software that can help you keep up with the increasing demands of today’s competitive market. 360 Property Management Software© (360PM) is an all-in-one business solution that effectively replaces your various, individual programs, allowing your company and staff to manage day-to-day operations through a single, unified, property accounting platform.

360PM is industry-tailored for Commercial, Industrial, Retail, Condominium, Strata, Residential, Development, and Mixed-Use Properties.

360 Property Management Software enables you to streamline business processes and establish best practices in an easy to use and quick to implement solution. This will ensure your property and asset managers effectively utilize their time, and improve collaboration and communication between management and accounting.

Call (905) 907-3600 or click here to learn more about 360PM software today.

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