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Emerging Trends in Real Estate 2017

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16 Emerging Trends in Real Estate ® 2017 and delayed consolidation and rationalization decisions. For the latter, companies will either adopt empty Class A spaces or move to lower-cost locations in midtown in the coming years. As for the city's large stock of Class B and C buildings, these often face high redevelopment costs and lower demand. Instead of older offices, investors and pension funds are fo- cusing on redeveloping old hospitals, schools, and industrial properties into multiresidential rental properties and hotels. The residential rental conversion market is strong, thanks to demand from millennials and downsizing retirees. Hotel properties remain popular with investors and developers, and the sector is expected to get a boost from increased tourism thanks to the low Canadian dollar and the city's 375th anniversary celebra- tions in 2017. Montreal continues to absorb the city's condo stock, and "pure" condominium plays have given way to mixed-use develop- ments. Respondents told us that more mixed-use development is on the horizon, especially around transit hubs, and the trend is increasing cooperation between investors and developers. Montreal retail property, as elsewhere, is challenged by the changing nature of retail itself. Some developers are embracing the idea of destination retail, or "retail-tainment," as a way to both attract shoppers and keep them buying: combining retail, res- taurants, entertainment facilities, and hotels, developers hope to turn shopping into an experience that can lure shoppers away from their screens. Ottawa 3.62 poor good 2 3 4 '17 '16 '15 '14 '13 '12 '11 '10 '09 '08 fair excellent 5 Ottawa Ottawa's economy is expected to grow modestly in 2016 and beyond as the city recovers from government spending restraints that have resulted in the loss of thousands of public service jobs. GDP is projected to grow 1.6 percent in 2016 and 2.1 percent in 2017, according to the Conference Board of Canada. Respondents said they're focused on smart develop- ment and plan to intensify where communities already exist. As Ottawa's major transit rebuilding effort progresses over the next ten to 15 years, respondents anticipate that the city's real estate market will regain momentum, driven by the rise of high-density mixed-use developments focused around key transit hubs. The city's office sector has been hit hard by federal and municipal downsizing, and vacancy rates hover around 25 percent—the highest in Ottawa's history. Both the public sector and private sector have been cutting costs and embracing "workplace 2.0" approaches that don't require the same level of space. With Class A space upgraded and still available, compa- nies holding B and C buildings are resorting to major incentives to attract tenants. Survey respondents said that Ottawa's retail sector is struggling and that the market is oversupplied with retail space. While the Rideau Centre has secured its position by focusing on high-end retail, retail vacancies in the rest of the East End are very high. This is in contrast to the West End, which is closer to Ottawa's high-tech sector and new government offices; there, space is in shorter supply and rents are rising. The residential market is seeing little movement. Demand for new homes is down sharply since there aren't enough families interested in buying single-family homes. Ottawa housing starts have fallen for three straight years, and some developers are currently shelving their development plans for up to five years. Millennials and retiring boomers are seemingly looking for mixed-use developments, such as the project on the former site of the Lansdowne Park football stadium. Yet even there, developers have had to offer sizable incentives to bring people in. Many condo owners are turning to rentals, and this is further dampening the city's residential market. In some cases, rents for units in brand-new buildings are less expensive than traditional residential housing, leading would-be buyers to rent instead. Quebec City Quebec City should see improved economic growth this year on the strength of an improving manufacturing sector and the continued strength of its finance, insurance, and real estate sec- tors. The city's GDP is projected to grow 1.9 percent in 2016 and 2.1 percent in 2017, according to the Conference Board of Canada. Nonresidential opportunities are still robust. Le Phare de Québec—a $600 million, multitower skyscraper project—is projected to start in the next few years, and spending on renova- tions to the Place Ste.-Foy shopping center has topped $110 million. As well, the Quebec City Jean Lesage International

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