Real Estate: How has it survived the pandemic so far, and what lies ahead?
"The TD Securities Real Estate Conference helps public securities investors kick off the year by facilitating an interactive and informative dialogue with our public issuer clients in an efficient virtual forum," says Armen Farian, Managing Director and Head of Canadian Real Estate Investment Banking. "Real estate cash flows across majority of the asset classes have demonstrated an impressive resiliency throughout the pandemic and the conference provided an opportunity for investors to learn from management teams and industry experts about their latest experiences, trends and fundamentals of various markets, as well as find out about companies' plans in 2022 and beyond."
From an investment perspective, it was noted that most asset classes are transacting at or above pre-pandemic pricing, including some of the hardest hit sectors, like seniors housing. This is in line with the general sentiment from the conference regarding confidence in the real estate sector to emerge from the pandemic on solid footing.
Sam Damiani, Jonathan Kelcher and Lorne Kalmar from our Equity Research team noted the following sector themes across the two days of industry panels:
- Multifamily/Apartments: Overall, management teams indicated the Omicron variant has had little impact on demand, although December and January tend to be slower leasing months. Though inflation remains a concern with pressure on insurance, utilities and wages, a general increase in wages across all sectors helped support higher rental rates.
- Industrial: Many management teams are seeing continued strong rent growth across Canada's major markets. In Q4/21, national vacancy declined to another record low of 1.8% (the first time in history it has crossed below the 2% level). Average market rents also achieved a new record high at $10.47/sf. In Europe, management teams are seeing signs of strengthening rent growth, while both asset values and replacement costs are rising.
- Office: Fundamentals appear to be stabilizing with sub-leased space as a percentage of total vacancy declining. In downtown Toronto, vacancy declined for the second consecutive quarter since the onset of the pandemic. During the keynote presentation by Colliers, it was noted that larger tenants with termination clauses have not been exercising them as tenants do not want to risk giving up space.
- Retail: Most REITs have yet to see significant impact from the Omicron variant to date, including on January rent collections, although some smaller tenants have initiated requests for assistance. While outlook commentaries were correspondingly restrained, many REIT management teams reiterated their optimism for the balance of the year, assuming this current wave subsides as quickly as it came.
- Seniors Housing: The Omicron variant has resulted in a greater number of outbreaks and cases among staff and residents – but fortunately the cases are generally milder. The issues are currently around staffing levels, as more staff have been forced to self-isolate due to contracting or being exposed to COVID-19. The use of agency staff (which can typically be 75%-100% more expensive than regular staffing costs) may impact near-term quarterly costs and operating margins.
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Managing Director and Head of Canadian Real Estate Investment Banking, TD Securities
Managing Director and Head of Canadian Real Estate Investment Banking, TD Securities
Managing Director and Head of Canadian Real Estate Investment Banking, TD Securities
Director, Equity Research, TD Securities
Director, Equity Research, TD Securities
Director, Equity Research, TD Securities
Director, Equity Research, TD Securities
Director, Equity Research, TD Securities
Director, Equity Research, TD Securities
Vice President, Equity Research, TD Securities
Vice President, Equity Research, TD Securities
Vice President, Equity Research, TD Securities
