Mark Rose, the chief executive and chairman of Avison Young Canada Inc., is feeling optimistic about the future of office real estate. Despite the challenges brought by the pandemic, Rose sees signs of a turnaround in the market.
One reason for his optimism is the experience of previous cycles. Before the pandemic, office occupancy rates appeared high, but the actual space being used was only 40 to 50 percent of maximum capacity. Additionally, Rose notes that more people are now returning to downtown areas, as evidenced by their data and vitality index.
However, Rose acknowledges that there will be distressed assets in the market. For investors, the specific challenges and opportunities lie in repositioning, renovations, and adaptive reuse conversions. Well-situated assets with high-grade finishes and a focus on social value and the environment are more likely to attract current demand and drive costs.
The impact of rising interest rates and inflation on different types of real estate investments varies. Grocery-anchored retail centers are performing well, while regional malls are still figuring things out. Industrial and multi-family sectors have slowed down but had previously experienced strong growth. Office properties face more fundamental challenges but are working towards solutions.
The issue of price discovery is crucial in the current market. Uncertainty surrounding interest rates makes it difficult for buyers and sellers to agree on a price, as banks struggle to assess the value of assets. However, once central banks signal no more interest rate increases, stability will return, allowing for more accurate asset underwriting and attracting savvy investors.
Looking ahead, Rose emphasizes the importance of the public sector’s role in the commercial real estate industry. Public-private partnerships are necessary to address the vision for culture, heritage, and sustainable development. The recovery of the office sector and cities as a whole relies on these collaborations.
While challenges remain, Rose believes in the resilience of the real estate market. Lessons have been learned, and with open communication, adaptation, and cooperation, the future of office real estate holds promise.