Real estate

REIT’s and Real Estate Developers Strategy for 2015

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According to the Emerging Trends in Real Estate 2015 Report issued this past December, one significant trend we should expect to see in Canada’s real estate markets include increased mixed-use development in the cores of downtown city areas.

Here’s why.

Two-thousand-and-fourteen (2014) saw a steady influx of people moving into cities across Canada in efforts to have easier access to work and play. Realizing this flow, businesses in various industries decided to follow. With all this activity, the demand for commercial and residential real estate in city cores has steadily increased.

Real estate developers and REITS see the demands and are responding. Fuelled by an increase in investment funding from both domestic and foreign investors, developers such as Bentall Kennedy LP, Kingsett Capital and Allied Properties REIT are looking into core areas of robust cities across Canada to acquire properties and turn them into mixed-used developments. This creative solution not only meets commercial and residential real estate demands simultaneously, but also increases the value and attractiveness of the properties to existing and potential tenants.

But not every REIT is following the mixed-use development plan. With a focus on credit quality, True North Commercial REIT, for example, has put its focus on acquiring office buildings housing government and other rated tenants with long term leases and has no intention of adding a residential area to those buildings. Its residential component, True North Apartment REIT, will continue to focus on acquiring apartment housing in both Canada and the United States with the strategy of promoting them as affordable housing options.

The real estate developers following the mixed-use development plan will need to design or redesign their properties to appeal to both the residential tenants looking for convenience in every area of the lifestyle they seek, and the commercial tenants trying to attract them.

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The BIGGEST MISTAKE Tenants Make When Their Commercial Tenancy Agreement is up for Renewal

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It happens more often than it should. Once commercial tenants sign a lease, they tend to put it to the wayside for five or 10 years…when they know their Commercial Tenancy Agreement is due to expire or be renewed. Some tenants may start reviewing their Commercial Tenancy Agreement approximately six months to a year prior to the renewal date, but then find themselves either scrambling to negotiate and make physical changes to the current facilities or moving into new facilities in order to meet the new standards or needs of the company, or simply renewing the same Commercial Tenancy Agreement for another five to 10 years in the hope that the current agreement will be sufficient to meet their current and future business needs.

The truth is making such important decisions in a relatively short amount of time could prove to be costly in the long run. Not allowing enough time to explore and consider all the options available to the organization in relation to their facilities is the biggest mistake tenants make when their commercial tenancy agreement is up for renewal.
So, how can commercial tenants avoid this mistake?
First, do not take your commercial space for granted. Believe it or not, your commercial space contributes to the current and future success of your business, so you need to allow enough time to consider whether or not your current space is designed to meet your current and future business needs as well as explore other commercial spaces that could potentially meet those needs. This alone could
take anywhere from six to 12 months.
Second, recognize that if you are considering alternate commercial facilities, your current commercial tenancy agreement may contain a notification clause stipulating a time period by which you must inform your current landlord of your intentions. Similarly, if you are choosing to stay, it will take time to renegotiate the terms of the agreement. Either decision could involve anywhere from three weeks to six months of time prior to the actual renewal date.
Third, consider your team– Not just your internal team who could eventually be affected by your decision to renew or not renew the commercial tenancy agreement, but also your external team—the commercial real estate agent who would be involved in researching commercial facilities, arranging property analyses and negotiating or renegotiating your commercial tenancy agreement; the design,
construction and moving teams or full service renovation and relocation company that would be involved in your relocation or renovation of your facility. You not only need time to find the right team members, but every team member involved would require sufficient time to do their part in making the final result of your decision happen.
So how much time is enough time to review your commercial tenancy agreement? We suggest a minimum of two years prior to the renewal date. That way, your company is in a better position to thoroughly consider all its options and be confident that the final decision whether,renewing or exiting a commercial tenancy agreement, is the best decision for the company.

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