2017 Real Estate Trends: Trump

Did you hear the US has a new president?  Unless you’ve been living under a rock, you’ve no doubt heard about incoming president Donald Trump.  The unlikely victory by the polarizing figure has sparked protests across the US and the world.  No doubt, this a volatile time.  Regardless about how you feel about him and his term as president, there is change coming.  Today, we are going to discuss how some of that change could affect our real estate market.

Disgruntled US Citizens Moving North Of The Border

During the campaign season, you heard over and over from non-republican voters that they would consider moving to Canada if Trump became president.  Although this sounds great, I don’t think we will see a material population of Americans trying to move to Canada.  There are too many logistical issues such as immigration, etc that would prevent it.  Overall we don’t expect to see much impact from this.

Immigrants Choosing Canada Over The US

As two countries with lots to offer immigrants, Canada and the US sometimes battle over the most skilled applicants.  With Trump being viewed unfavourably by much of the world, these cream of the crop immigrants may choose Canada over the US.  This could be good for growth in Canada and therefore our real estate market.

Focusing On The Economy & Jobs

The emphasis on much of the policy Trump is expected to be putting forward centres around jobs and the economy.  He doesn’t really mind if he ruffles feathers in the process of gaining or keeping jobs in the US.  We’ve already seen announcements from different manufacturers about moving jobs back to the US or deciding the keep them there instead of moving to a lower cost jurisdiction.  Most of this rhetoric is aimed at low cost producing countries such as Mexico or China.  Canada is a higher cost producer and has a pretty balanced trade relationship with the US.  Therefore we do not see Canada as a trade target of the Trump Administration.  If we see a resurgence in manufacturing in the US, that could benefit our economy by proximity and inter-country companies building components in both countries, making it mutually beneficial.  As a border town, this could benefit our local manufacturing sector and therefore our real estate market.

General Uncertainty

Markets and companies don’t like uncertainty, which without a doubt, the incoming Trump administration has brought about.  People like to invest in stable economies.  During this period with Trump, Canada could look very attractive as a place to invest for companies and real estate investors.  Our real estate market could benefit from this perceived relative stability.

The times they are a-changing.  Those are some of the takeaways we see from the changing landscape under Trump.  What are your thoughts?

More Real Estate & Related Predictions for 2017

Last week we made a few real estate and related predictions about 2017.  This week we will take a crack at a few more.  So without further ado…

New Construction of Rental Units

With the vacancy rate dropping again last year to a minuscule 2.9%, conditions are ripe for new construction of multi-family units.  Very little has been built in our area since the 70s.  Combine that with some incentives being offered, like no development fees in the downtown core area, and investment is sure to show up.

The Residential Vacancy Rate Flattens Out

After topping out north of 15% back in the recession of 2008-09, the local vacancy rate has continued to plummet in the last 7-8 years all the way to 2.9% in 2016.  As the law of small numbers would dictate, additional improvement will be small from here.  Combine that with an increased number of sales of condos and homes to investors and new construction coming online, the supply of rental units should increase to flatten excess demand.

New Construction Of Industrial Space

The vacancy rate for quality industrial space has really plummeted to near zero levels locally.  Suppliers are worried that they don’t have the floor space to produce enough to meet contracts.  The market might finally be ripe for a wave of new buildings being built.  Increases in rent prices are almost at the point to justify new construction costs for landlords.

Office Shows Modest Improvement But Still Too Much Supply

With the local economy being much improved, demand for office space is getting better everyday.  Having said that, there is still too much supply in the market.  We expect to sop up some of that inventory, but not materially so.

Windsor-Essex Real Estate Market Continues to Get Positive Media Exposure

Last year was the first year where local and national media really started to notice the renaissance going on in our local real estate market.  General inquires for real estate are rolling in everyday.  With continued migration, immigration and a buoyant local economy, things look rosy for 2017 and therefore we should see continued positive media.

There are some more predictions for 2017.  Hopefully we get some of them right!  Do you agree or disagree with any of them?

Real Estate & Related Predictions for 2017

Happy new year everyone!  Hope you all had a great holiday season and are rested up for a busy 2017.  While the year is still young, we wanted to consult our crystal ball and take a stab at making some real estate predictions.  Here goes.

Interest Rates Edge (Modestly) Higher

Since interest rates are near all time lows, common sense would dictate that they don’t have anywhere to go but up.  We think this year that happens, albeit in a limited fashion.  With the combination of higher bond yields, and some of the government mandates coming down on the financing industry to curb runaway real estate markets in parts of Canada, this will finally be the year for higher rates.

Buyers Get Multiple Offer Fatigue

During 2016, it seemed like every listing had 5-10 offers on it and bidding wars ensued.  While the market dynamics forcing this are still in place, we feel a segment of the market is growing tired of the constant competition.  This will result in a lesser number of the crazy bidding wars we saw over the past year (hello 31 offers!).

Cap Rates Flatten Out

We remember back 6-7 years ago when obtaining an apartment building with a cap rate of 10%+ was common place.  Those days are long gone and prices have been bid up consistently since then, compressing cap rates.  Today you have a hard time finding an apartment building with a cap rate over 6%.  This dynamic has also been seen in retail plazas, office buildings, and other commercial properties.  We don’t see much more room to run on cap rate compression going forward.

Continued Sticker Shock On New Construction Costs

With new construction going through a boom in the last few years in our local market, builders and related trades are very busy.  Combine that with increased prices for land and imported material costs rising because of the low Canadian dollar, buyers will find their price range won’t get them as much when considering a new build.  We don’t see this subsiding anytime soon and if anything expect further price increases.

New Condo Projects Coming Online to Meet Demand

Build it and they will come.  It wasn’t always this way in our local market, as condo ownership was slow in being generally attractive to buyers.  But times have changed and the condo market may be the tightest of them all.  The market can now support more condo developments and developers will respond to this demand with multiple new projects in our area that we expect to be met with brisk demand.

Those are some of our predictions for 2017.  Time will tell if our crystal ball was right.  What are your predictions?

Dear Santa: Our Real Estate Wish List for 2017

Can you believe it's Christmas this weekend already? Wow, the fall really flew by. Hopefully you are staying warm out there as our area has really gotten an unseasonably cold and snowy start to the winter.  Anyways, in honour of everyone’s favourite present-bearing, cookie-eating jolly fellow, we present our real estate wish list for a prosperous 2017.

Continued Economic Growth
2016 was a great year for our local economy.  A strong economy is the backbone of a healthy real estate market.  Things look primed to continue in 2017 and hopefully that rings true.

Continued Migration To The Windsor Area
Without a doubt, the local real estate market has gotten a boost from retirees moving here for the low real estate prices and warmer climate.  We are also seeing a return of people who went out west (Alberta) for jobs and are returning after our local economy is creating jobs again.  More immigrants are also choosing the area as opposed to the large centres (GTA, Calgary) for the same reasons.  Hopefully this trend continues for 2017 and beyond.

More Industrial Inventory
The industrial market started 2016 very tight and only got tighter as the year went along.  Everyone seems to need more space for the contracts they have and they’ll have to start turning away work due to not having the space to produce.  The area seems ripe now for new construction of industrial buildings.  This ties into our next wish…

More Serviced Industrial Land
Continuing the theme of industrial space shortage, the only way to meet the current demand seems to be to build more buildings.  The problem is we don’t have much in the way of serviced industrial land that is “shovel ready”.  This is a complicated problem that involves city zoning, planning, servicing, etc and needs to be discussed.  Companies could start skipping over the area as a potential destination for their plant due to not being able to get the facilities they need.

Local Employers Successfully Filling More Open Positions
Everyday we deal with business owners.  The most common complaint we hear is, “I can’t find or keep staff”.  Across all industries and all sizes, this seems to be a consistent problem.  This, like the previous wish, is a complicated problem. We need to do a better job producing workers as a city and country that matches the needs of employers.  Some of this could be solved by wish number two, but not entirely.  This isn’t a problem specific to this area but seems to be striking in an area that went through a long period of high unemployment.  The future of our economy depends on this getting figured out.

Well, that does it for our posts for the year.  Hopefully you’ve been good! What’s on your wish list for Santa?

2016 Local Real Estate Stats Examined

Last week we made a few general observations about our local real estate market from 2016.  This week we are going to dive a little deeper and look into some relevant statistics.  Note: Some of these statistics are based on the first 11 months of the year, as we still have a couple weeks left in December.  Also, these stats refer to our home market of Windsor, Ontario.

Units Sold Increased 10% Year Over Year

The headline is pretty self explanatory.  The number of units (houses) sold are on pace to top last year by 10%.  This is generally positive as more transactions are taking place so the market is more active.  Obviously this is a great thing for sellers.

Listings Increased 2% Year Over Year

Again a pretty straightforward headline.  The number of houses listed for sale are on track to increase by 2% compared to last year.  All other things being equal, this is positive for buyers as there is more inventory for sale and negative for sellers as there is more competition when selling your home.  When comparing the increase in listings with the increase in sales, sales have increased significantly more than listings, so one should expect to see an increase in prices during this period.

Average Sales Price Increased 13% Year Over Year

Good news for sellers!  Average Prices increased from $200,823 to $226,193.  After seeing sales up 10% and listings up only 2%, there was not enough supply to meet demand and there was upward pressure on prices.  Some of this gain can also be attributed to a higher share of high priced homes being sold this year compared to last year.  Obviously this is not so good for first time home buyers, or people who have been renting for the last year as it will be more expensive for them to find a home.

Housing Starts Increased 30% Year Over Year

This is great news all around.  Sales of new construction houses have really boomed this year.  This is also great for the local economy as the builders hire skilled trades which boosts local employment, the city or town expands its tax base, and additional services must be added (retail) to service this additional density and demography.  Hopefully this continues.

The Rental Vacancy Rate Decreased from 3.9% to 2.9% Year Over Year

This is another overwhelmingly positive statistic.  On a percentage basis this means there are 25.6% less vacant apartments in the area.  This continues the improving trend from 2009 when vacancy rates were 12%+.  Vacancy rate declines are generally indicative of economic growth and population growth (both province migration ie Alberta to Ontario, and immigration).  With an improving economy, robust sales activity and a tight rental market, it is clear people are moving to the area.  The area now seems ripe for new construction of rental units.

So after reviewing the stats it's clear to see that 2016 was a pretty healthy year for the real estate market.  Those are our takeaways from the stats.  What are yours?

*Sources WECAR & CMHC

2016 Year End Real Estate & Related Observations

 As the holidays draw closer we are going to do a few posts wrapping up the year.  And what a year it has been for our real estate market and many other markets in Canada and the US.  Today we are going to discuss some observations we’ve made throughout the year.

The Year of Multiple Offers

Multiple offers seemed to be a way of life this year.  Bidding wars were everywhere, in all parts of town and all price ranges.  This even spread to the commercial market as some retail, multifamily, and industrial buildings had multiple offers.

New Construction Is Back In A Big Way

New construction was a bit of a tough business since the recession of 2008 in our market.  That changed in a big way as sales of new construction boomed all over the area.  Clearly there was some pent up demand from the last several years and that translated into huge numbers.

The Local Economy Is Finally A Tailwind

We deal with lots of business owners, and so many of them talk about having way more business than they can handle.  This applies across all industries.  The local unemployment rate has plummeted from being one of the worst in Canada to below average.  This bodes well for a continued buoyant, local real estate market.

We Need to Build More Condos

There are not enough condos out there to meet demand.  With an aging demographic, mixed with the  acceptance of condo living by Millennials, the once stagnant demand for condos locally is long gone.  We expect to see more new condos being constructed in the next few years with brisk demand to meet them.

Downtown Is Still A Sore Spot

The downtown hasn’t really been able ride the coattails of the improvements in the local economy and real estate market as much as it was hoped for.  We still need more people living down there to change the demographics to support more retail and attractions that people like to speak about.  Hopefully the University opening in the near future will be a catalyst, but time will tell.

Those are some of our observations from 2016.  What were yours?

Real Estate & Related Terms Explained: First Right of Refusal

As  we wrap up this series on leasing terms for the year, another confusing term/subject is on deck.  Although the definition is pretty literal, the application of it in the commercial leasing world isn’t so straightforward.

What Exactly Is A First Right of Refusal (FROR)?

A right of first refusal is a contractual right of an entity to be given the opportunity to enter into a business transaction with a person or company before anyone else can. If the entity with the first right of refusal declines to enter into a transaction, the owner of the asset is free to open the bidding up to other interested parties.  In the real estate world, this business transaction refers to the real estate premises in subject, be it commercial space, land, etc.

When Would A First Right of Refusal Apply?

The most common time when you see a first right of refusal applicable would be when a tenant is leasing a space, the landlord decides to sell, and the tenant has a first right of refusal to purchase the property.  Another common application would be when a tenant in a building is growing and as a neighbouring space becomes vacant, the tenant would have a first right of refusal to lease the additional space before the landlord can lease it to another tenant.

What Else Should I Know About A First Right of Refusal?

A first right of refusal is a term of a lease agreement that should be negotiated along with other terms at time of lease negotiations.  It usually states a date that relates to the first right and the mechanism for administering it.  The more thoroughly stated the better, so there are no disagreements later.  

To use an example: if a tenant has a first right of refusal on the building they occupy that states that should the landlord get a bonafide offer to purchase from a third party, the tenant will have seven days to match the terms of that offer.

The actual clause in the lease agreement will be more detailed but that covers the basis of it.

Obviously, a first right of refusal is a benefit to a tenant if they desire to own the building they are in someday.  It is a nice perk.  It is also a benefit to have a first right on neighbouring space, as being able to expand without moving is attractive.

On the landlord’s side, it is sometimes a detriment to have a first right of refusal when selling their building.  If a third party buyer knows that the tenant has a first right of refusal to match their offer, they might decide to not bother.  It really depends on the situation though.

As always, make sure to hire an experienced commercial realtor to negotiate terms in your lease, including first right of refusals!  Once again, this wraps up our series on explaining leasing terms for the year.  Hope it was informative.  If you ever have questions don’t hesitate to drop us a line.