EVERYTHING about real estate, with expert Claude Sirois (more!)

Ashleay: Welcome to iA Financial Group's “In Your Interest!” podcast, where we aim to share with you the essentials of economic news and its impact on your finances. My name is Ashleay, and this week we're talking about real estate with Sébastien Mc Mahon, Chief Strategist and Senior Economist, and Claude Sirois, Managing Director, Real Assets and Private Equity at iA Financial Group. Hi, Sébastien. Welcome back, Claude.

Sébastien: Hello, Ashleay.

Claude: Hello, hello. Good morning. Good afternoon. Good evening. I just don't know when this podcast will be listened to, so I'm covering all angles.

Ashleay: Absolutely. That's smart.

Sébastien: Yeah. That's the way to do it.

Ashleay: So, recently we talked about real estate and we had a lot of questions for you, Claude. So, we prepared a second episode that talks a little bit more about real estate trends in Canada and elsewhere. So, Claude, can you share with us what are the current global trends in the real estate sector?

Claude: I will do my very best. So, in terms of trends, obviously the pandemic has generated a lot of extra space for certain categories of assets, mainly like you look at the shopping center industry and our office, there is some extra space and that obviously brings people to think to another level about what do we do with that space. So, you probably heard a lot about mixed use. Right? Which is a trendy solution to some of that extra space, mainly in the shopping centre business where there is some extra land where we bring on the same site, the office use, hotel use, residential use, senior home use and create this "milieu de vie" as part of a holistic solution to that extra space and really bring to people different kinds of services in order for them to work, live and play in that same environment. It's the famous 15-minute solution that we hear a lot from different cities.

Sébastien: So, it's not about just having one building where you have office, residential, and shopping at the ground level. It's more than that. It's rethinking the way that neighbourhoods are built.

Claude: Totally, and also because it is a very important element today, it also brings all the ESG components to those mixed-use projects to ensure that obviously the transportation making sure that it is using state-of-the art equipment that, you know, meets high level of criterias in terms of sustainability. So, there's all those elements being realized across the country and in the US, which incorporates all of those elements into one place.

Ashleay: And what's the high impact of high residential density without a balance of commercial space and mixed-use patterns?

Claude: I mean, density, I think it is a topic, you know, there are many articles written about density. Some like it, some don't like it. But at the end of the day, we need to create supply. Especially on the residential side. You know, if I use the example of a cost of, per square foot, on a residential across the country, you know, you start in Quebec City and it's about $2 circa plus or minus 5%, circa $2 a square foot. So, that means that if you occupy a 1000ft², it's $2,000 a month. In rent.

Ashleay: In rent. Yeah.

Claude: Okay? So, if you go across the country and then you end up in Montreal, that same $2 oops, then becomes $3.75, $4 a square foot. Then you go to Toronto, it's $5.50, $5.25, $5.50, $5.75, a square foot. Yeah. And then if you like the West Coast, then it's, you know, $5.75, $6 a square foot. Okay? So, if you take $6.00, that's $6,000 a month. That's $72,000 a year. For a roof.

Sébastien: After tax.

Claude: And that's why people don't necessarily occupy 1000ft² in Vancouver. But it's a wardrobe and the bed that flips. Yeah. Okay.

Sébastien: Or you share the space.

Claude: You can tour the apartment by standing by the door. So, that's obviously the… That's why you have those micro condos being built in order to allow accessibility for a population that obviously is very challenging.

Sébastien: And I hear that on the West Coast, they are just like us. They need to eat too, right?

Claude: And entertain themselves. They go out, too. On top of it.

Sébastien: So, that's a challenge. And again, you know, we always talk demography, we always talk population growth, immigration. And if we have, it's not going to be 1 million a year. There was some catching up because of the pandemic, but we had 1 million more Canadians last year because of immigration. And you know where they go to; they tend to go to where like the big centres where they will have facilities, where they will have friends, family members. So, it's usually Vancouver, Toronto, Montreal. They don't go, you know, in a regional like in the… They don't go deep into…

Claude: Yeah but Baie-Comeau is a great place.

Sébastien: Baie-comeau, it's nice in January here.

Claude: it's very quiet. They don't have a Simons though.

Sébastien: No, I don't think so. But you can order online.

Claude: Yeah. True. Yeah. Good point.

Ashleay: And how does Canada compare with the U.S.?

Claude: We are going through the same things that are happening in the U.S. at a different degree. Obviously, there is much more real estate in the U.S. and it's fascinating because they're impacted differently across the country. You look at, let's say the return to office, okay? In Europe, you know, it's 90%, 85%, 90%, London, 85% back to the office. Then you go to the U.S. before pandemic. Okay? Like New York was like, you know, all the offices were occupied. Today, it sits at 70%. And then you go to West Coast, San Francisco, 30%.

Sébastien: We hear a lot about San Francisco being…

Claude: Yeah, there's a lot of articles and a lot of concerns about San Francisco that may become the next Detroit there. So, they're impacted differently. The shopping center business also is impacted differently, despite all the good malls. Dominant malls are more dominant, bigger and stronger. But there's a huge transformation that's happening because they have, like on a per capita basis, they have 24ft² of retail per person. We have 13. Okay? So, there's a ton of space that will be given back to the market and people will have to be pretty creative to give it a second life.

Ashleay: I see. And how does the home ownership capacity differ between regions and provinces here in Canada?

Claude: Well, it's yes, when we just talked about it, the accessibility is a concern. Affordability is a concern. There are different initiatives that will have to be taking place. Our government will have to step in to help and assist in order for the numbers to pan out eventually. But it's clearly a problem. And I like to think that all the real estate developers and investors are all part of the solution in order to increase the supply to ensure more accessibility. Because, you know, you mentioned about immigration earlier. There's a ton of pressure in the system and people are complaining about rental increases. But shoot, I mean, it's a, it is a fact. It is a reality and it costs more money and people are, you know, migrating, you know, outside the core. And obviously, that creates another problem with the core because across the country, if there's one common denominator it’s the downtowns; The CBDs of Montreal, Toronto, Calgary, Vancouver, shoot. They're still suffering, at a different degree, but they're still suffering.

Sébastien: So, it's at the city level likely that the solution is for that, you know, the red tape and all of that. This is, this would be a huge part of the solution.

Claude: One great initiative in Calgary is the city came up, because they have a third… if our vacancy rate in Montreal for office is about it's about 16%, 17%, it's 32% in Calgary. Okay? So, they said, shoot we’ve got to do something. So, they came up with an initiative where they subsidize the developers that are willing to convert office towers into residential to bring back people to the downtown Calgary. Because let me tell you, they roll back the sidewalks early in Calgary these days. There's not a lot of people. So, they have to bring the people back. And that initiative had a lot of success. So, is this is something that can be replicated across the country? I don't know.

Ashleay: Yeah. Very interesting. Well, thank you, Claude. And thank you, Sébastien. To our listeners, thank you for being here. And once again, if you like this episode, we invite you to share it with your friends or to give your opinion on the listening platforms Apple, Spotify or Google Podcasts. Thanks, and we'll see you next week for a new episode.