OLD HOTELS, NEW USES

Condo developers snapping up old hotels
By Garry Marr
Financial Post August 15, 2012

The condominium market seems to be gobbling up a new victim — old hotels.

A new report from Colliers International Hotels suggests more than half the sales activity in the sector can be chalked up to developers buying hotels to convert to alternative use with a large segment going to condo units.

“This theme has been fuelled in part by the strength in the residential condominium market in Toronto and Calgary,” said Colliers, in its mid-year report on transaction activity.

Alam Pirani, executive managing director of Colliers Hotels, said the conversion of hotels to alternative use has become a national story.

“We are not just talking about Toronto, it’s across the board. There are two hotels in Calgary, one sold for apartment the other for retail,” said Mr. Pirani. “The trend here is hotels for alternative use.”

In its report, Colliers said there was $627-million in sales activity over the first six months of the year. That amount was up from $599-million a year earlier. Of that figure, 53% of the transactions, worth about $335-million, were for new development.

The trend comes as a slew of new high end hotel/condominium developments hit the market like Trump Tower, Ritz-Carlton, and Shangri-La in Toronto.

“We will continue to see the conversion of hotels that have a higher and better use for residential and in some cases retail,” said Mr. Pirani. “That conversion has made way for some of the new product that has come in. The good news from a supply perspective is the older product is converting which is creating less of a strain on supply. Everyone is concerned about the number of new luxury hotels opening up but the flip side is you have conversion to alternative use.”

Colliers said the demand for existing hotels from developers helped push sale prices in the first half of the year to $125,000 per room, a 19% increase from a year ago. The market did slow down to a degree in the second quarter with the $253-million in sales activity about 40% of the year to date number.

Hotel conversion activity comes after 2011 was a relatively weak year for that type of sale with only about 7% of transaction last year going towards redevelopment opportunities.

There have been some high level defections to the condo market like the Sutton Place Hotel but also smaller deals like a Travelodge in Calgary which was sandwiched between some great retail opportunities making it a prime target to be converted to shopping space.

Colliers is expecting alternative use strategies for hotels will continue the rest of the year and expects that be good news for the overall market.

“Looking through the second half of the year, we expect sales activity to remain robust, given a good mix of institutional-quality urban and suburban assets currently on the market and being met with strong buy-side demand,” Colliers said in its report.

AN EXPRESSION ON VACANCY

Demand for Calgary office space remains strong
Mario Toneguzzi
Postmedia News Jun 6, 2012

CALGARY • Demand for downtown office space is expected to remain strong through 2012, even if it’s unlikely to match last year’s frenzied pace.

“At this point, all of the economic indicators are still very, very strong,” said Todd Hirsch, senior economist with ATB Financial, who spoke Tuesday at the Calgary Real Estate Leasing Conference. “We look at that office-space vacancy and how it’s come down. We look at the building permits, they’ve been picking up. Everything at this point, the momentum is all moving in the right direction.”

The one threat, he said, is a continual slide in oil prices that could soften demand.

According to Colliers International, office space absorption was a positive 2.8 million square feet in the downtown market in 2011. The Beltline and suburban office markets accounted for about one quarter of that amount. The first quarter of this year saw about 866,000 square feet of office space fill up.

In the fourth quarter of 2011, the downtown office vacancy rate was 4.5%. It fell to 4.2% for the first three months of this year.

Randy Fennessey, president of Colliers International in Calgary, said the downtown office market is expected to remain strong given the ongoing low vacancy rate overall.

“But having said that, we’re get-ting a sense that things are starting to taper off a little bit just because commodity prices, particularly oil, have fallen recently and a series of geopolitical conditions are not conducive to rising oil prices,” said Mr. Fennessey, who spoke at the conference. “So it makes one wonder how long this level of heady demand is going to continue.”

COMMERCIAL LEASING REMAINS STRONG

Demand for Calgary downtown office space remains strong
Second Eighth Avenue Place tower nears being fully leased
By Mario Toneguzzi
Calgary Herald April 27, 2012

CALGARY — Continued demand for Calgary downtown office space has been so strong that the latest skyscraper project is getting closer to being fully leased.

Joe Binfet, managing director for Colliers International in Calgary, said the commercial real estate firm has received “tremendous traction” in leasing the West Tower of the Eighth Avenue Place development.

“There are only seven unencumbered floors left on which we can do lease deals on and remember this is a 40-floor, 841,000 square foot office tower. So that’s a significant sign of the strength of the Calgary economy downtown,” he said.

There’s about 150,000 square feet of vacant space in the second tower on the site which just recently began construction.

The owners of the project, which comprises a 49-storey tower on the site of the former Penny Lane block, recently said initial occupancy on the 40-storey second tower is planned for the spring of 2014.

The project is co-owned by Alberta Investment Management Corp., Ivanhoe Cambridge and Matco Investments Ltd.

The existing 49-storey tower, comprising 1.1 million square feet of office space, was completed in early 2011. Its construction began without any pre-leasing.

“There’s continued demand for AA and A space,” said Binfet.

“It’s not a frenzied pace like we were seeing earlier in the year but we are seeing cautious optimism in the marketplace and that bodes well for downtown office space right now.”

A downtown office report by Colliers said there has been 866,351 square feet of absorbed space in the first quarter of this year, marking the 10th consecutive quarter of positive absorption. The overall downtown vacancy dropped from 4.49 per cent in the previous quarter to 4.20 per cent “despite projections that the completion of The Bow, Encana and Cenovus’ new head office, would push the vacancy rate up across all building classes,” said Colliers.

It said AA and A class markets remain very tight with the AA vacancy rate at just 0.59 per cent. This is the lowest AA vacancy rate since 2006.

“Many companies with a long-term outlook for Calgary, and Alberta alike, are looking to new developments as their best leasing solution, given the limited availability within existing buildings,” added Colliers.

A downtown office market report by Avison Young said new office construction is not just possible but necessary.

“Vacancy models assuming even modest annual absorption in the area show downtown vacancy below three per cent for the next five years,” it said.

“It is likely that given the modest absorption rate we will reach sub one per cent vacancy in the downtown by mid-2013. What this means is that at least some major developments currently in pre-leasing will likely commit to construction within the year.”

Avison Young said this has already happened with Cadillac Fairview’s City Centre project while other major downtown developments could move ahead as well.

“Likely candidates include: Brookfield’s Herald Block, Oxford’s Eau Claire Tower, Aspen’s Palliser West and H&R REIT’s Bow South. All these developments are on a four-year or longer timeline so vacancies will remain very low.”

Photo by: Surrealplaces