Turner Drake Blog

Earlier this year, I had the opportunity to vacation in Europe. An unexpected change in plans meant that I ended up “living” in Naples for a week and a half. Unbeknownst to me at the time, my short-term stay coincided with the Champions League football playoffs, which ended with the Società Sportiva Calcio Napoli (an Italian professional football club based in Naples) winning the playoffs and clinching the Serie A title; a first in 33 years! Needless to say, the city exploded with fans, loyal locals, and unsuspecting tourists (aka: me!) getting caught up in the days-long celebrations. Due to the sheer volume of people, public transit was limited and entire portions of the city were shut down to road traffic for several days.

Not to be hindered, I set out on foot to explore as much as I could of the area around my Airbnb on the outskirts of the city. Like the typical tourist, I was instantly enamoured with the obvious natural beauty and rich history of the popular tourist sites. But it was on my routine walks to the local grocer, bakery, pharmacy, and café when I began to truly notice and appreciate the resourcefulness and ingenuity of the local residents and business owners. Never before have I seen such great examples of using what you have, and adapting resources to fit changing business and cultural needs. If you’ve ever been to the city, and especially in the suburban areas, you’ll often feel like you’re stepping back in time because, well…you are. The old cobblestone streets have become main roads, decades- and centuries-old houses and apartment buildings are still fully inhabited, areas so densely populated and buildings built so closely together that it’d be near impossible to redevelop land to build something more modern. Yet, this has not hindered progress and the availability of modern amenities.

By the end of my trip, the commercial real estate side of my brain was swirling with ideas and a better appreciation of the concept of adaptive reuse. That is, by definition, reusing an existing building for a purpose other than for which it was originally built or designed. (As an aside, one of my favourite examples of adaptive reuse was the building housing the Naples National Archeological Museum; I highly recommend visiting, if you get the chance.)

In the months since I’ve been home and back to “real life”, I have noticed and appreciated more examples of adaptive reuse here. Specifically in Halifax, there are several local developers who have started to incorporate elements of this architectural concept into their projects in a more visible way.

Atlantic Canada, with our rich history and stunning landscapes, possesses a wealth of potential for more adaptive reuse in commercial real estate. As the region seeks to revitalise urban centers and historic areas, there is much we can learn from Europe, where adaptive reuse has long been a successful and transformative trend. In the next few paragraphs, I will explore some ways I believe Atlantic Canada can- and should- draw inspiration and insights from European adaptive reuse practices to shape our own commercial real estate landscape.

Preservation of Heritage: Europe has a deep commitment to preserving its historical architecture. Atlantic Canada, with our own unique heritage, can learn the value of preserving historic structures when at all possible. Europe demonstrates that adaptive reuse not only safeguards historical landmarks but also attracts tourists and stimulates economic growth. As has already been done in some areas, Atlantic Canada's historic buildings can be repurposed as boutique hotels, museums, or cultural centers to further promote tourism and celebrate our rich history.

Mixed-Use Developments: European cities excel in creating mixed-use spaces that combine residential, commercial, and recreational areas within the same building or district. In an earlier blog post, I wrote about the opportunities Atlantic Canada has to embrace this trend to maximise efficiency for owners and tenants, address urban sprawl, reduce commuting, and foster vibrant communities. By converting old warehouses and factories into mixed-use spaces, we can create vibrant neighborhoods where people live, work, and play.

Sustainability and Green Initiatives: Europe leads the way in sustainable building practices. Atlantic Canada can adopt these practices to reduce environmental impact and lower operating costs. Incorporating energy-efficient designs, renewable energy sources, and green building materials into adaptive reuse projects can align with the region's commitment to environmental preservation and attract eco-conscious tenants and investors.

Cultural Transformation: European cities have successfully turned former industrial areas and disused structures into cultural hubs, art galleries, and event spaces. Atlantic Canada can follow suit, revitalising its industrial waterfronts into bustling cultural centres; transforming and invigorating local arts scenes, promoting community engagement, and boosting tourism.

Innovation and Technology Centers: Many European cities have repurposed old industrial sites into thriving innovation and technology hubs. With Atlantic Canada's growing tech sector, we can continue to take inspiration from Europe's successes. Converting old industrial, commercial, or office spaces into collaborative workspaces, incubators, and tech hubs; fostering entrepreneurship and innovation in the region.

Community Involvement: European cities often involve the community in decision-making processes for adaptive reuse projects. This fosters a sense of ownership and ensures the projects align with local needs and values. Atlantic Canada can engage its communities in similar ways to create projects that resonate with its residents.

Atlantic Canada stands at a pivotal moment in its urban development journey. While the new modern commercial developments provide great value in their own rite, it can sometimes be hard to see the big picture as well as the opportunity to capture history and bring it into the present. While we may not have the centuries-old architectural history Europe does (and will face our own set of challenges and costs to face when undertaking local projects), we can still draw inspiration from their adaptive reuse trends in commercial real estate. We can find our own ways to further capitalise on our unique history and natural beauty to revitalise our urban centers, promote sustainability, and foster economic growth. As Atlantic Canada embraces these lessons from across the Atlantic, we have the potential to create vibrant, innovative, and sustainable communities that thrive for generations to come. The future of Atlantic Canada's commercial real estate landscape is rich with opportunities, waiting to be unlocked through the lessons learned from successful adaptive reuse practices around the world.

My University Co-op Experience

Over the past 17 weeks, my focus has been on expanding my knowledge in the realms of real estate and business in a broader context.  The journey has been immensely rewarding, equipping me not only with valuable insights that will help me in future years of schooling but also with skills that will undoubtedly shape my lifelong journey.  Prior to starting my work term at Turner Drake, I was unsure of what to expect.  I was welcomed in with a very friendly staff and even had my own designated workspace.

As some people may have put together by my last name (Turner), I am the grandson of Mike and Verna Turner and the nephew of my uncles Mark and Nigel Turner.  This lineage nurtured within me a curiosity about the real estate industry from an early age.  This curiosity was manifest during my middle school's seventh grade "Take Your Kid to Work" day, when I chose to spend the day at Turner Drake rather than the customary classroom setting with my parents (both of whom are teachers). That experience left a memorable impression on me, and I returned home to share my enthusiasm for the very friendly staff and the interesting jobs they had me do.  From that moment, I knew that Turner Drake could be a potential future job for me.  Flash forward many years and I was applying for a summer co-op position at Turner Drake.

My work term at Turner Drake looked very different than that of other co-op students in the past.  In year’s past, co-op students were predominantly engaged in data processing tasks at Turner Drake however in 2023 the co-op format at Turner Drake was revamped to include access to multiple divisions of the firm.  As the guinea pig for the new program, I was rotated through Lasercad, Economic Intelligence, Valuation, Property Tax, and Data Processing. This unique structure provided me with a comprehensive understanding of the breadth of expertise within Turner Drake.

The progression of my summer was as follows:

- I began my summer working with Sarah in the Data Processing Division.  My responsibilities there included updating lease and sales information, as well as familiarizing myself with the various databases integral to Turner Drake's operations.  This phase proved to be the bedrock of my summer, as concepts acquired under Sarah's guidance were applicable across many different divisions.

- I then transitioned to the Economic Intelligence Unit where, under Colin's guidance, I engaged in data extraction for market surveys and contributed to database updates.  This exposure not only deepened my understanding of report construction but also shed light on some of the sources of these critical data points.

- I then moved into the Valuation Division, where I worked with both Nigel and Austin.  In this division, I engaged in the assembly of documents showcasing comparable property sales and contributed to data collection for valuation reports.  This phase unveiled the determinants underlying property valuation, providing insights into the fundamental principles of property valuation.  This was a very interesting division to work in, as it allowed me to see what makes one property more valuable than another, as well as understanding some of the basic fundamentals of how to properly evaluate a property.

- My final stint was in the Property Tax Division, working with Mark.  My main focus there was on reviewing property assessments to determine if there were adequate grounds upon which to pursue an appeal, and then helping to formulate those arguments.  This experience not only allowed me to explore the realm of property taxation but also provided me with a unique perspective to recognize the disparities that frequently arise between a business's tax responsibilities and the potential avenues for reducing costs.

My time at Turner Drake has been very beneficial for me, as it allowed me to not only gain work experience in a field I am interested in, but also provided me the opportunity to pick up a variety of new skills too.  I extend my sincere gratitude to the exceptional staff at Turner Drake for their inclusive environment, where my involvement went beyond that of a typical summer student, making me feel like an integral part of the team.  This sentiment was consistently evident, whether in staff meetings or casual lunches with team members.  With all that being said, this is definitely a place I would love to work at after I have finished my time at university.

The Significance of SPACE

Space measurements should always be considered during lease negotiations because there are significant impacts on both the landlord and tenant side of the equation. Accurate and clear space measurement ensures transparency and fairness, which in turn can prevent conflicts that may arise from misunderstandings or discrepancies between landlords and tenants.

For tenants, understanding the precise dimensions of the leased space allows them to plan effectively, ensuring that their operations, equipment, and staff can be accommodated comfortably.  It also enables tenants to accurately assess and compare different lease options, thereby making informed decisions about the most suitable space to accommodate their needs.

Landlords, on the other hand, benefit from providing precise measurements as it establishes trust with potential tenants, enhances their reputation, and facilitates smooth lease transactions.  The space measurement process provides an accurate inventory of your square footage, and can sometimes identify/uncover space you didn’t know existed.

How can you benefit from what we do?

The Building Owners and Managers Association (BOMA) have meticulously crafted a suite of measurement standards to address a wide variety or property types (office, industrial, retail, mixed use, etc.).  Here in the Lasercad® division of Turner Drake & Partners Ltd. we identify and employ the appropriate BOMA standard for your building, ensuring space is accurately measured in accordance with the proper/accepted standard method of measurement.

BOMA certifications set properties apart from other non-certified ones.  Landlords can leverage the certifications in marketing and promotional efforts, highlighting the building's functionality and the benefits it offers to tenants.  This can attract a broader pool of potential tenants and increase the property's visibility in the market, potentially leading to higher rental rates and long-term tenants.

BOMA certifications indicate that a property is well-managed and adheres to industry-recognised standards.  This can make the property more appealing to potential tenants, leading to an increased tenant demand, reduced vacancy periods, higher occupancy rates, and the ability to attract high-quality tenants.

What tools and processes do we use?

In order to ensure we’re getting the most precise measurements; we use high-quality lasers measuring systems which are capable of measuring over 300 feet with an accuracy of 3 millimeters.  There are systems on the market that scan and draw the unit in a single step—fully automatic with little human input but alas….computers are not perfect and algorithms and assumptions are built into the software!  We prefer the precision of a laser system which is backed up by the human element.  We employ lasers for the on-site measurement, then double check closing errors by hand before leaving the job site.  Back in the office, we download the data into a CAD program and draft the floor plans, once again checking to ensure minimal closing errors.  These extra layers of quality control greatly reduce the risk of any potential human and technological error.

Why is this level of precision so important?

Since 1976, we have measured and certified over 10,000 buildings and tenant spaces in Atlantic Canada and Ontario and have discovered it is not unusual to find that 50% of the leases in a building show incorrect Rentable and Occupant areas.  This can occur because of one (or multiple!) of the following factors: inaccurate measurement (e.g. “counting the ceiling tiles”), space modifications on lease renewal which were not corrected in the new lease, or use of a non-standard or inappropriate Method of Measurement. The latter can result in the same space having a rental rate of $16.82/ft.², $15.00/ft.², $14.89/ft.², $13.33/ft.², $12.74/ft.²…simultaneously…because it is measured using any one of the non-standard methods in use.

At a rental rate of $15.00/ft.² net absolute, every 1,000 ft.² “lost” could reduce the value of the property by $250,000.  Over a typical 5-year lease term, this could also mean a “lost” rental revenue of over $65,000!

Over the years, technology has changed significantly.  The lasers we use have become smaller, faster, and more accurate.  There is an astounding amount of space measurement technology currently being produced, and we’re keeping our eyes on options which may further improve our processes.  Overall, however, we will always place a high value on the “human element” of our resources.  Our goal is to ensure we are creating a service and product which will increase the accuracy and efficiency of space in the Canadian commercial real estate market, and will benefit our clients and their tenants, now and in the future.

Turner Drake & Partners Ltd. started in 1976 with the mission to “provide solutions to real estate problems”. Initially we focused on valuation practice, but as real estate and its challenges have become more diverse, so too have we. Over the decades we’ve added complementary practice areas—Counselling, Property Tax, Brokerage, Lasercad®—expanding our perspective and deepening the expertise we bring to our clients. Our Economic Intelligence Unit was added in 2006, then in 2014 we added Planning. Rooted in the economic perspective that all our divisions share, our market analysis and planning practices are unlike any other in Atlantic Canada.

Planning and Economic Intelligence work closely together. In many ways we are one division – we share a collection of GIS resources and expertise in the analysis of demographic, economic, and real estate market data.  Working with a variety of private and public sector clients, we have been involved in some of the largest planning and development projects in the Region. And some of the smallest. We’ve even picked up a few awards along the way. The challenges and outcomes are varied, but one thing is always common; an approach grounded in real estate economics.

Alas, there is much work to be done, and so we decided to expand our team! At Turner Drake, we hold our own feet to the fire—we strive to maintain/surpass the quality of work upon which we have built our reputation. Our new recruit should help us do just that.

Say Hello to the Newbie – Palmer Lumb

Hello readers, my name is Palmer – Turner Drake’s newest Planning and Economic Intelligence team member!  

I grew up in the big city of Toronto, but – unlike most Torontonians – I’ve always had a passion for the outdoors. I was never the kind of kid who played video games in the basement or stayed inside with my nose stuck in a book. I always wanted to be outside exploring.

When I was ten, my mum signed me up for a canoe kayak summer camp that was close enough to ride to with the neighbourhood kids. I immediately fell in love with the lifestyle—being on the water with friends, playing games around the club, looking up to the older paddlers. Little did I know at the time, our club had a five-time Olympic Games coach for spring canoe kayaking.

I pursued the sport and stuck to the club’s development program. I started competing provincially, then nationally, and over time I started winning races. This only further fueled my passion to train. I began racing for Ontario and eventually for Team Canada at Junior Worlds and Junior Pan Ams. Although, I did not reach my goal of racing at the Olympic Games, I left with something that I did not anticipate when my mum signed me up: a sense of community. I was surrounded by coaches, teammates, and competitors who were all driven just like me. Although I wanted a change in my life, I continue to carry those soft skills – responsibility, self discipline, and time management – with me today.

Eventually I decided to put paddling on hold, go to university, and finally live a “normal” life. I was accepted into the Community Design program at Dalhousie University. Coming from a high-performance sport, I continued to be competitive and exceled in my program. I am most proud of my honour’s thesis that investigated suitable locations in the HRM for electric vehicle charging stations.

I couldn’t stay away from the water for long and so to replace paddling, I took up surfing so I could enjoy the ocean and Nova Scotia’s beautiful scenery. When there aren’t any waves, you will still find me outside, either hiking, camping, or riding my bike. Nova Scotia is truly Canada’s Ocean Playground and I am happy to call Halifax my new home!

At Turner Drake, I plan to continue my competitive work ethic. I love playing with data and finding the incredible results it can produce, which is why the Planning and Economic Intelligence divisions were so appealing to me. So, if you or your organisation are wondering how our expertise in development economics and real estate market analysis can enhance your planning process, just give us a call!

Is there a variance in valuation concepts and methodologies in different parts of the world? This is a question I had before moving to Canada.

I have had the opportunity to provide real estate Valuations in two different countries; U.A.E. and Canada. Now that I am a part of the Valuation Division at Turner Drake & Partners, I understand that there are a lot of similarities in the property interests and valuation methodologies used in the two countries.

The concepts remain the same whether it is freehold or leasehold interests – although there is a difference in the terminologies used. For example, the term “Fee Simple interest” in Canada (which offers outright ownership of a property) is very similar to the term “Freehold interest” used for properties in Dubai. Interestingly U.A.E. also has a “Non-Freehold interest”, which refers to properties that can only be owned by the Gulf Cooperation Council or U.A.E. nationals. What is this all about you ask? Well, until early 2000 the ownership of real estate in U.A.E was restricted to nationals, however in early 2000 the freehold law was introduced which allowed foreign nationals to own property in certain freehold areas of Dubai.

Leasehold interests are also similar between Canada and U.A.E, whereby a lessee (tenant) has certain right of use for a property for a specific period of time. In Canada, the term of the lease is simply negotiated between the parties however in U.A.E leasehold interests generally refer to industrial land which is leased to investors for a period of 10 years or more. Investors would construct properties for their own use or to sub-lease for rental income. A review of lease contracts in both countries shows the terms and conditions related to renewal, termination, rights of the lessor and lessee, governance, force majeure etc. are very similar and both aim to protect the rights of each of the parties of the contract.

So how do the two countries differ with respect to Valuation methodologies?  In U.A.E., we generally employed five methodologies for property valuation: the Market Approach, Investment Method, Profits Method, Residual Method and the Depreciated Replacement Cost (or Contractors) method. The Contractors method was one of last resort and was reserved for properties where no other method could be used due to lack of data or reliability.  The other four approaches were used extensively. In Canada, we generally employee three approaches to value: the Direct Comparison, Income and Cost Approaches. The Direct Comparison Approach in Canada is the same as the Market Approach in U.A.E while the Income Approach is similar to the Investment Method and Profits Method. The methodologies adopted are very similar, however there are some differences in the application.

In U.A.E., the market approach was mainly used for properties such as apartments, houses, offices, retail and development land. If there was reliable data available, this method was used to derive values of industrial properties and labor accommodation. In Canada, the same method is used to value all types of properties along with additional methods such as the Income and/or Cost Approach (when applicable). One difference that I noticed quickly when I started work in Canada was the valuation of land for residential apartments. In Dubai, we had always valued land either by plot area or permissible gross floor area (ie: value per square metre), however, in Canada it is typically valued based on the number of permitted units that can be built on site (value per unit). A new application perhaps, but still one that follows the same rules of Direct Comparison or Market Approach.

In U.A.E the Investment Method or Income Capitalization method was used to value properties having an income stream or rental income. Under this method, the value of the property is derived by capitalization of the potential rental income of a property using a market yield. This method was used for properties such as multi-unit buildings, commercial properties, industrial buildings or any property generating rental income. The same methodology is used in Canada for the same type of properties following the same concepts.

The Profit Method used in U.A.E is employed for properties having a trading potential i.e., properties that are usually sold as a part of a business such as hotels, restaurants, bars, educational facilities etc. The valuation of these properties is based on the potential operating income or commonly known as the EBITDA (earnings before interest, taxes, depreciation and amortization). Valuation of these types of properties is complex and requires a specific set of knowledge and skills. In U.A.E. we used this method to value hotels and educational institutions by employing a discounted cash flow model using a 10-year time horizon. The same concept is adopted in Canada for properties having a trading potential along with the Direct Comparison or Cost Approach.

One major difference in valuing properties between the U.A.E and Canada is the building construction! It is evident that the weather conditions of a country play a pivotal role in dictating the type of construction and materials used. For instance, in U.A.E., houses and buildings were reinforced concrete frames while in Canada, most buildings are constructed with wood/steel frame, or concrete. The biggest difference though was in the heating systems—in the U.A.E these are non-existent! With its hot climate (hitting well over 40 degrees in the summer months), U.A.E had only air-conditioning systems. As I continue to inspect different types of properties in Canada, I am being introduced to different types of heating systems, materials used and construction techniques.

The first few months at Turner Drake & Partners have definitely been a learning experience, but along with that comes a realization that valuation concepts remain very similar across the world. Yes, there may be differences such as the market dynamics, regulations, laws etc., however the basics of the real estate industry do not stop when you hit the border or jump on a plane. Conclusively, I could arrive at an understanding which tells me that the methodologies for property valuations remain the same in any part of world and it is just the application of these concepts that tends to be slightly different.

Over the past two and a half years, many of us (especially those who live and work in urban areas) have become more cognizant of the need to be in communities where we can operate our day-to-day activities without straying too far from home. Perhaps, this has been born out of necessity for those who faced multiple lockdowns, or perhaps out of convenience for others who discovered that working from home meant more time to fit in those mundane daily tasks between the sixth and seventh Zoom calls of the day. We’ve all heard stories of the lunch break gym sessions, popping in a load of laundry while your computer runs its weekly update, and using the previously-typical evening commute time to visit the neighbourhood grocery store for that night’s dinner necessities. Saving time and checking off the to-do list is a win-win!

So, how can current real estate development make all of these habits even more accessible and convenient? Enter the Mixed-Use building. By common definition, a Mixed-Use development is “any building, or series of buildings in a complex or estate, which incorporates both residential and commercial units, often with common or shared facilities”. Take a drive down virtually any street in an urban centre (at least in the HRM!), and you’ll doubtless see a number of newly-constructed or recently-renovated multi-level buildings with one or two lower levels of commercial space (typically occupied by retail or service tenants), and several floors of residential units stretching into the sky above. Developers and tenants are becoming increasingly drawn to this type of building because of the convenience of amenities and numerous other benefits they tend to offer. Commercial units in Mixed-Use buildings help create a sense of community for building residents, but also serve those who make their daily commute into the business district. Mixed-Use buildings located in densely-populated areas often make more efficient use of their land footprint, help improve the walkability score of the neighbourhood, and provide residents with greater levels of convenience and variety which otherwise would be out of reach.

Mixed-Use developments are by no means a new concept—one of the earliest recorded examples is the Ancient Roman Trajan’s Market; a multi-level complex built in 110 AD and comprised of retail shops, offices, and apartments—however more and more iterations of the concept are cropping up in our markets. It is crucial to both landlord and tenant that space within these buildings is accurately measured and accounted for. Over the past several years, our Lasercad^® Division has been contracted to undertake the measurement of tenant spaces in these unique developments, with particular focus on the lower-level commercial portions. However, accurate measurements can only be achieved with proper tools, and most notably an established and an internationally recognised Measurement Standard.

The Building Owners and Managers Association (BOMA) is the most recognized name in the field of space Measurement Standards.  Though most commonly known for their Office Standard, BOMA has developed a series of Measurements Standards which are designed to address the need for accurate measurement within many classes of building.  In 2012, BOMA released its first Mixed-Use Measurement Standard.  In the simplest of terms, the Mixed-Use Standard worked as follows:

Step 1: Split the building up into its various single use components (ie office, retail, residential, etc.).

Step 2: Identify the various common areas which service multiple uses within the building.

Step 3: Allocate the Mixed Use Common Area amongst the various uses.

Step 4: Apply the single use Measurement Standard to each of the various building uses.

For example—let’s consider a Mixed-Use building which has office and retail levels, and apartments above.  The Standard works by breaking this building into three buildings—a retail building, an office building, and an apartment building, then allocates the common areas between those three “buildings”, and then applies a Retail Measurement Standard to the retail building, the Office Standard to the office building, and the Apartment Standard to the apartment building.

Of particular note with the Mixed-Use, is that it is designed to allocate each common area only to those who benefit from it. For example, if a building containing office, retail, and residential tenants has an elevator room on the roof, which only services the residential units, but not the lower-level office and retail tenants, the elevator mechanical room would only be allocated amongst the residential tenants. Similarly, if that same building has a loading bay which only services the retail units on the lower level, the area occupied by the loading bay will only be allocated to the retail tenants, an not to the office and residential tenants.

After years of exposure and use within the industry, the need for refinements to the Standard became evident.  And so in 2021, BOMA released an updated version of their Mixed-Use Measurement Standard. The updated Standard has simplified the methodology for determining the allocation of Mixed-Use Common Area and provided greater capability to ensure space is being fairly and accurately distributed amongst tenants. The simplification and clarity of the 2021 Standard also enhances the ability of our team to provide advice to building owners and managers faced with challenging building layouts and the division of space.

If you are a building owner or manager interested in ensuring your space is used efficiently and common areas allocated accurately, reach out to our Lasercad^® Division today. We would be happy to provide advice, or schedule an on-site visit to certify your property to the latest BOMA Standard Method of Measurement.

There’s an old episode of the Freakonomics podcast entitled Why Are Japanese Homes Disposable?, which originally aired in 2014.  The upshot of the pod is that while land in Japan retains its value over time (sort of…the pod is worth a listen!), the houses on it do not, so when “used” houses are sold, they are frequently demolished and replaced.  When I came across the episode, we were in the midst of record high lumber prices, not to mention a climate crisis, and I had a hard time wrapping my head around the idea of houses only lasting 40 years or so.  And then I thought I’d like to look a little more into construction costs and their impact on housing prices here.   

There are three common methods of valuing property: the income approach, the direct comparison approach, and the cost approach.  The income approach is only relevant for valuing income producing properties, so not applicable to housing prices per se (though would be relevant for rental properties, but that’s another story).  The direct comparison approach and the cost approach are both based on the general premise that similar things will have similar values.  In direct comparison, you’d pay for a house what everyone else is willing to pay for a comparable house in the same or a similar location.  In the cost approach, the premise is that you’d pay for a house the same amount it would cost to buy some comparable land and build the same house.  Thus, rising construction costs should push up housing prices and vice versa. 

One of the key components of most houses in Atlantic Canada is lumber.  The following graph shows the Nasdaq prices for Random Length Lumber futures contracts (i.e., lumber prices on the stock market) over the past five years.  The orange line shows the daily closing price (values on the left axis) and the blue line shows the aggregate demand for the stock (values on the right axis, measured in thousands of dollars), which I calculated by multiplying the closing price by the volume traded that day, so it’s a rough estimate because prices fluctuated throughout each day.  I find it interesting that as prices climbed in 2020, the gap between the lines for price and aggregate demand grew, and that while there are definitely some sharp spikes in it over the past two years, aggregate demand did not follow the same upward trajectory as did prices.  There is only so much money to be spent on lumber, and when prices go up, demand drops.  But, more to the point on housing prices: when lumber prices go up, so too does the cost to construct, and thus on a cost approach to valuation, house values rise.  

Source: https://www.nasdaq.com/market-activity/commodities/lbs/historical with slightly questionable calculations displayed by the author…maybe those demand spikes occurred when there was a price drop on a particular day, and volume traded shot up, then I’m calculating it on the end of day price…it’s an imperfect analysis!

Labour costs also feed into the cost to construct, and with a noticeable shortage of availability of skilled trades in recent times, it stands to reason that labour costs are up.  The following table shows average hourly wage rates for industrial, electrical, and construction trades; percentages at the end of the lines are the total change over the period 2017 – 2021.    Note the convergence in wages amongst the three Maritime provinces: could this be a marker of increased willingness to move around within the region? 

Source: Statistics Canada. Table 14-10-0340-01  Employee wages by occupation, annual

These are inputs into construction prices, which have tidy price indexes available, and it’s interesting to look at the difference in price changes between types of residential construction: single family houses and townhouses have had the sharpest increase, followed by low-rise apartments, with high-rise apartments bringing up the rear.  The intuitive difference maker is construction material: high-rises are not typically made of wood (yet – here’s one sample article of many on the topic).  The following graph shows the construction price index, quarterly, for a composite of eleven CMA cities, including from Atlantic Canada Halifax, St. John’s, and Moncton.  The patterns for each of these cities individually are similar. 

Source: Statistics Canada. Table 18-10-0135-01  Building construction price indexes, by type of building

Back in February, we published a blog that looked at interest rates and housing prices.  For a quick reference point, I’ll recycle one of the charts from that post:

Source: Turner Drake & Partners Ltd. Compuval™ Residential Database; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada.

The next chart brings a few of the previous factors together.  It’s got lumber prices looking like the heart rate of someone doing sprints, the mortgage rate looking quite lifeless in comparison, and the year-over-year percentage change in house prices annually throughout the chart.  Benchmark MLS^® prices are shown with little diamonds and are July to July changes; these prices will include some new construction, but the majority of the inventory feeding into the data is existing housing stock (the sort that might be torn down and replaced in Japan).  New construction prices are shown with circles and are October to October changes.  Notice how the two housing price metrics track each other, and also follow the change in the price of lumber, especially towards the end of the period, when lumber prices were particularly volatile.      

Sources: www.nasdaq.com; Statistics Canada. Table 10-10-0145-01  Financial market statistics, as at Wednesday, Bank of Canada; The Canadian Real Estate Association; CMHC Starts and Completions Survey.

Our Planning team is currently working on a Housing Needs Assessment for the province of Nova Scotia.  Neil Lovitt wrote a blog post on that topic in April of this year, and in it, he noted that “housing affordability has rapidly eroded over the course of the pandemic, and was being degraded more slowly for years before that.”  Lumber prices appear to be coming back to relatively normal levels, though that can change in a heartbeat (take a look at late 2021 to early 2022 on the chart above); interest rates are certainly on the way up, and potentially holding there for a prolonged period.  Inflation has been at generational highs over the past few months, and labour costs will have to continue to increase if wages are to keep pace with the cost of living.  The latter three make construction less appealing, but we cannot afford to slow provision of new housing options if we want any semblance of affordability or attainability in the housing market.  In overly simplistic terms, a lot could be riding on lumber prices.    

Picture this: your business is booming, clients who have held off on visiting your office over the past two years are comfortable with meeting in-person again, and your business projections for the next few years look promising. Sounds great, right? But with all of this positivity comes a fairly significant challenge: your current lease is soon coming to an end, and you need to upsize your spatial footprint to keep up with rapidly-increasing business demands.

After setting aside some time in your busy schedule to scout out new locations, you find the building you think may be the perfect place for your company’s new home. It’s a brand-new building (the last sheet of Gyproc was just put up yesterday), close to all amenities and complementary services, and you’d be located in a great part of town. All you need to do is decide how you’d like to demise the space for offices and your showroom, find suppliers for your furniture and lighting needs, hire a contractor to put up a few demising walls and install a staff kitchenette and bathroom. You have the names of some reliable contacts for all the services you think you’ll need, so you’re confident that the finishing process will move quickly and everything will fall into place. A couple weeks later, however, after spending far too many hours of valuable time researching all your options, you reach the conclusion that you’re just a little bit outside of your comfort zone and need a professional to carry some of the load.

That’s where a broker can step in to help. First, they will review your space wish list. They’ll provide you with any other space options they believe will match your wish list, and can inquire as to the details of any vacancies you’ve had your eye on. Some of the options they suggest may currently be built-out with full offices, boardrooms, meeting rooms, kitchens, washrooms etc., but when you review your options, you may decide that none of them completely suit your needs, especially compared to your original choice: the brand-new space, fresh on the market, that’s ready to be built-out in such a way that you can achieve the exact layout desired to maximise efficiency in your space.

Brokers will tour through the space with you, taking stock of all the key components that will need attention: they notice the unfinished concrete floor, exposed ceiling, unpainted Gyproc walls, and anything else that catches their trained eyes. They’ll notice the HVAC, plumbing, and electrical that is only running to your unit, not yet throughout the whole building. They will discuss potential layouts based on your needs, and the landlord may provide a space planner to help bring to life your vision for the space. Once a solid plan is in place, you’re feeling confident that the price of the project will be pretty manageable. When the space plan comes back and the budget is calculated, you are shocked with the quote from the general contractor… “I could build a new house for that price!”.

According to recent research, the average cost to fully build out a typical office space ranges between $221 and $323 per square foot, depending on geographical location and the desired quality of finishes.  This figure has increased significantly over recent years, due in part to supply-chain shortages, rising costs of materials, general fluctuations within the market, and inflation; however, we can use it as a starting point.  Typically, a landlord will include a tenant improvement allowance within the asking net rent to help offset these costs.  The remainder is to be paid by the tenant.  There are a few options of handling these costs: a tenant can cut a cheque for the entire amount (this may have an accounting benefit), the tenant may amortise the amount over the lease term and pay back to the landlord as part of the rental payments (this helps spread the costs over the lease term, but the landlord typically charges interest on this amount) and/or a combination of both options. The landlord will make these concessions based on the strength of the covenant of the tenant and the length of the lease term.

Construction items to consider when building a space from a raw state:

Partition Walls (Metal Studs and Gyproc):  Even in an open concept space, washrooms, meeting rooms, etc. must be partitioned from the main space.

Flooring:  Flooring can range from carpet tiles to laminate flooring to ceramic tiles and anything in between. Carpet tiles can be among the more cost-effective flooring options, while ceramic and porcelain tile are among the more expensive flooring types.

Paint: Fortunately, paint is paint.

Ceiling Tiles: A suspended T-bar ceiling grid can help improve sound nuisances within an office.

Lighting: There are many lighting options available today, including more efficient LED lighting.

Electrical Distribution: In a new build, the landlord typically brings electrical into the unit, but in some cases, it is the tenant’s obligation to install a transformer and then distribute the electrical throughout the unit (outlets, drops, etc.).

HVAC Distribution: Again, the landlord will typically run HVAC to the unit, but it then becomes the tenant's responsibility to distribute the HVAC throughout the unit. This will depend on the unit layout; an open concept office will require less distribution and diffusers than a fully built-out space with all private offices.

Plumbing: The landlord will have a plumbing stack to the unit, but it then becomes the tenant’s responsibility to distribute throughout the unit. It is more cost effective to keep all plumbing in the same vicinity as this avoids the need to cut into concrete to run pipes (which significantly drives up construction costs).

Millwork: Millwork comprises of kitchen cabinets, storage cabinets, washroom counters, etc. These items will depend on the space design.

All of these items add up, and tackling them by yourself may be quite overwhelming. That is why a broker is committed to working tirelessly on your behalf to ensure your vision can come to life, while sticking to your budget as closely as possible!

Our Brokerage Team has extensive experience in handling complex leasing and sales transactions, which often include assisting clients in navigating the sometimes-complex build-out and fit-up process. If you need help with your commercial property acquisition or leasing requirements, a member of our Team will be happy to assist you through every step of the transaction. Contact Ashley, Emily, or James via email or at (902) 429-1811.

Recently, you may have come across some news coverage of a project we’ve started; from now until early 2023 we will be working on a Housing Needs Assessment for the entirety of Nova Scotia. It’s a bit unusual for us to be fielding media requests about the beginning of a project, usually the interest comes at the end when we actually have some results to talk about… if the interest comes at all. Yet, we shouldn’t be too surprised. Housing challenges continue to grow across Canada, and in many ways Nova Scotia has been particularly impacted. This is an issue we’ve been engaged in for some years now, building up our experience from Truro, NS to Terrace, BC. We are very excited at the opportunity this project creates for us to set a new standard for conducting these types of analyses, all right here in our home province.

I would be remiss to not prominently mention the collaborating firms we have on our team. While Turner Drake is getting the name recognition due to our role as project manager, the reality is this is very much a combined effort. In fact, the budget for this project is more directed to public engagement than data analysis – my excel file doesn’t care if I load in data for 1 municipality or 49, but talking to people can’t scale like that. We have an enormous geography to cover, and a diversity of stakeholders in each community to engage with. So, we are thrilled to have Upland Planning & Design Studio as well as Colab undertaking that process with us. Back closer to our focus, we are excited to be collaborating with MountainMath on the analytics and data dissemination.

Beyond the team itself, the scope of work we have gives us even more to look forward to. The RFP issued by the Province for this study was thorough enough to ensure the right questions will be answered, but was also flexible enough that we were able to put our own spin on things to ultimately propose a Needs Assessment as we think they should be done. We can’t get into everything, but here are a few highlights:

• We are excited to finally undertake this work with the benefit of data from the 2021 Census as it is released over the course of this year. While data sets related to the housing market and inventory are updated at least annually, this is not the case for many important socio-economic indicators that tell us about the people who are trying to access and maintain that housing. The 2021 Census will give us a contemporary view into these factors, something that has been an increasing challenge with this work over the last number of years. Until this point, we’ve had to rely on the 2016 Census, which predates virtually every important trend affecting our housing situation today.

• We are also eager to introduce a much more detailed understanding of Short Term Rental activity (i.e. AirBNB) across the province. This is a fraught topic; the use of our housing stock for short-term rental purposes has very clear negative and positive impacts, and these are highly variable between communities, and even across different neighbourhoods in the same community. Up to this point a lack of detailed data has prevented us from clearly understanding where the problems are, and how severe they may be. We’re looking forward to pulling back the curtain on this facet of the housing market!

• Finally, this project is an opportunity for us to up the ante in terms of making our work useful and accessible. While government is our client, housing issues are top of mind for many across the province and we want our efforts to benefit anyone working toward housing solutions. It is incredibly difficult to write a static report that presents such a breadth of information (both thematic and geographic) in a way that is useful to more than a few end users. That is why we are exploring how to better share our results so more people across the province can adapt it to their needs, interests, and locations. A more dynamic, web-based, and customizable approach to disseminating housing-related data and insights is one of the outcomes I am most excited for.

While this project will provide our client with key information they need to design and target public policy responses, the unfortunate reality is that our work will take time, and across the board we are playing a game of catchup where time is the most precious commodity. Housing affordability has rapidly eroded over the course of the pandemic, and was being degraded more slowly for years before that. Take a look at trends just in the owner-occupied market (which has lagged the rental market in terms of demand pressure):