Canada's commercial construction industry evolving amidst a digital disruption

Dailycommercialnews.com
Sept. 28, 2017
By Warren Frey

Altus Group vice-president of data operations and solutions Raymond Wong spoke at the CanaData East economic forecast conference, held on Sept. 21 at the Liberty Grand in Toronto, about the changing landscape of commercial construction.

Office vacancy rates are down in most major markets across Canada, with one exception.

While Toronto, Vancouver and Montreal are all feeling the squeeze, Calgary continues to offer plenty of room but is experiencing much less demand due to the recent downturn in the oil and gas industry.

National office completions were at 17.3 per cent in Toronto and 16.5 per cent in Montreal.

Vancouver had only 8.6 per cent in completions, a phenomenon Wong ascribed to a lack of space in the downtown core.

"The issue is there's no place to build in Vancouver," Wong said.

But Calgary is flush with office space and Wong noted while oil and gas companies are not looking to expand, the technology sector is moving into Calgary office space due to both low rental costs and newly available talent who have left the resource sector.

Wong also noted office space is used differently than in the past. While lobbies used to serve as waiting rooms or large, empty areas, many are now repurposed to new uses.

"Buildings are becoming more interactive, with lobbies becoming more important for gathering and social interaction. Hallways and common areas are more in use and there is less dead space," Wong said.

Office rental is also shifting from traditional models to borrow concepts from the technology sector.

"Several companies are becoming 'Airbnb office space' which used to just be in the tech space but is now spreading across to other areas," Wong said.

Demographics are also having an impact as a substantial number of millennials enter the workforce and begin to have children.

"There will be a big push on the housing market once the millennials want a backyard," Wong said, citing shifts to Mississauga and Vaughan, Ont. because of affordability.

While the millennial generation wants to be downtown, he added, "land prices are through the roof, which makes house prices higher. Developers are still speculating on the housing market and the recent Bank of Canada interest rate increase won't dampen that."

On the industrial front, Wong said, vacancy remains constrained, even in Calgary.

"Calgary is not only where things get made, but it's also a distribution hub for Western Canada," he said.

Developers are not overbuilding, he added, and industrial activity is "in check."

"They're very conservative in what they're constructing," Wong said.

The exception to this trend is Vancouver, where industrial "mixed-use" structures are planned and built, due to the high price of land in the region.

"This could only happen in Vancouver," Wong remarked.

Retail building patterns continue to shift with major retailers in decline but pockets of growth.

"If there's an experience attached, people will go," Wong said.

The "clicks to bricks" phenomenon continues, he added, with online retailers like Amazon purchasing upscale grocery retailer Whole Foods and opening their own physical bookstores. A hybrid model is emerging where clothing retailers like Nordstrom and Indochino use their buildings as a showroom, while products are shipped directly to the home.