Russia-Ukraine crisis: How will it impact Canadas economy?

Fergal McAlinden
other

The conflict has sparked a sanctions regime against Russia and left financial markets reeling

 It’s a development described by Bank of Canada governor Tiff Macklem as injecting “new uncertainty” into the global economy: the Russian invasion of Ukraine on February 24, a move that sparked a wave of international sanctions against Russia and left financial markets reeling.

The likely global economic impact of that conflict remains difficult to predict, mainly because its outcome – and longevity – are so uncertain. Still, immediate spikes in energy prices and new global supply chain snarls have already been registered, exacerbating a problem that’s existed throughout the COVID-19 pandemic.

Canada has joined a host of other nations in cracking down on Russia’s aggression, imposing a wide-ranging sanctions program aimed at crippling the country’s economy and imperilling its advance into Ukraine. But just how significant an impact is the crisis likely to have on the Canadian economy?

That’s a question that largely depends on what scenario unfolds in Ukraine, according to CIBC World Markets’ deputy chief economist Benjamin Tal (pictured top), who told Canadian Mortgage Professional that Canada was more removed economically from the crisis than other major world players.

“If there is some sort of continued fighting and Russia takes over, it’s a major event for Russia and for Ukraine. It’s not a major event for Canada, economically speaking,” he said.

“The number one impact is on Russia and Ukraine because of sanctions and what’s happening to Ukraine. Then there are Germany and France, once removed. We are twice removed.”

That means that the impact of a prolonged conflict on economic growth and GDP in Canada would not necessarily be very large, Tal said – although it could pose a significant inflationary threat.

The Bank of Canada has referenced the Russia-Ukraine crisis in its last two policy rate announcements, with its most recent statement describing the unfolding chaos as a “major new source of uncertainty” and noting rising oil and commodity prices in addition to the potential for further inflation.

Read more: Bank of Canada hikes rate

“Negative impacts on confidence and new supply disruptions could weigh on global growth,” the announcement said. “Financial market volatility has increased. The situation remains fluid and we are following events closely.”

Markets are currently pricing in multiple new central bank rate increases throughout 2022 – and Tal said the crisis in Ukraine was unlikely to deter the Bank from its current course on rate hikes, unless a significant development occurs such as a cyberattack on Canada.

Federal finance minister Chrystia Freeland has been candid about the possible effect the sanctions targeted at Russia could have on the Canadian economy, describing the potential for negative repercussions as a result of those measures.

“If we are truly determined to stand with Ukraine, if the stakes in this fight are as high as I believe them to be, we have to be honest with ourselves [and] I have to be honest with Canadians,” she said, “that there could be some collateral damage in Canada.”

All Russian petroleum products have been banned by the Canadian federal government, with a new ban on financial dealings between Canadians and “so-called independent states” of Luhansk and Donetsk also coming into force.

Read next: Inflation hits milestone high in Canada

Tal said Canada could potentially see some economic benefit from the wave of international sanctions, particularly in areas such as energy, agriculture, fertilizers and natural gas.

Canada’s central bank will undoubtedly be closely watching the United States’ response to the crisis, with Federal Reserve chairman Jerome Powell telling the US Congress recently that energy prices are likely to rise in the short term but that the Fed stands ready to curb the threat of higher inflation.

There had been some speculation that the Fed’s March meeting would see the central bank opt for a half-point rate hike, although Powell’s words to the Senate Banking Committee appear to have poured cold water on that prospect for now – partly because of the need to move “carefully” due to the Russia-Ukraine crisis.

“I would be recommending and supporting a one quarter of 1% increase,” Powell said. “I do think it’s going to be appropriate for us to continue to proceed along the lines that we had in mind before the Ukraine invasion happened, and that was to raise interest rates at the March meeting and continue through the course of the year.

“In this very sensitive time at the moment, I think it’s appropriate for us to be careful in the way we conduct policy,” he added, “simply because things are so uncertain and we don’t want to add to that uncertainty.”

 

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Wesbild hits paydirt with Vancouver industrial build

Frank O’Brien
Western Investor

First of two stacked 170,000-square foot industrial-office buildings nearly sold out as groundbreaking begins

First of two stacked 170,000-square foot industrial-office buildings nearly sold out as groundbreaking begins

Wesbild has hit paydirt early with its plan to build Canada’s largest multi-storey, mixed-use industrial-office complex on Marine Drive in Vancouver.

Marine Landing, a stacked strata project with two buildings broke ground March 4, but nearly 100 per cent of the first 170,000-square-foot building has already sold out. The industrial units are selling for $750 to $800 per square foot, while the office space on the top three floors sells for $950 to $1,000 per square foot. Marketing for the second tower is underway.

A partnership with KingSett Capital, with marketing by Colliers and Rennie, Marine Landing offers a total of 236 light industrial and office strata units near SkyTrain to a market facing a 0.4 per cent industrial vacancy rate. The design features flexible strata workspaces ranging from 600 square feet to 34,000 square feet.

“The demand has been phenomenal. I’m excited to take this project forward, build it out and build a community,” said Kevin Layden, president and CEO of Wesbild.

Dan Jordan, senior vice-president of Colliers, attributed part of the quick sell out to micro-units smaller than 1,000 square feet, which is rare in most new industrial-office projects, extra wide walkways and loading bays and 8,000-pound capacity freight elevators, plus amenities that rival residential strata projects. These amenities include a 15,000-square-foot rooftop patio with dog park, gym and end-of-trip cycling facilities, 42 electric-vehicle charging stations, a large lounge space for meetings and socializing, a full kitchen and on-site bakery with café.

Jordan said the micro-units have been sold to several local light-industrial companies including a fishing lure manufacturer, dental crown manufacturer, an action-figure importer and fashion wholesalers.

Breka Bakery is also setting up a new commissary and 24/7 café at Marine Landing.

The new strata complex is being built as industrial vacancy reaches an all-time low for Greater Vancouver and rental rates for industrial space have increased 18.8 per cent from a year ago, Jordan noted

Wesbild development manager Brennan Finley, who is overseeing construction of the twin six-storey project at 8188 Manitoba Street in southwest Vancouver, estimated it would cost from $110 million to $120 million to build and be complete by 2024.

 

© 2022 Western Investor

Green lending criteria will support low-emission buildings

Peter Mitham
Western Investor

B.C. buildings well-positioned thanks to electrification push

Vancity is offering preferential terms to developers that seek financing for buildings with low greenhouse gas emissions. / Shutterstock

A new construction financing program from credit union Vancity is encouraging green buildings through preferential lending terms.

Vancity quietly launched the low-carbon construction financing pilot late last year. An online information session on March 9, sponsored by the Zero Emissions Building Exchange in partnership with the Urban Development Institute and green design collaborative LFV Solutions, will mark its public debut.

“What we’re trying to do with [the program] is try and incentivize lower-emission, more climate-resilient buildings,” said Alison Coates, director, climate strategy and performance, with Vancity. “As part of that, we’ll look to incent building a building without the use of fossil fuels for heating, water heating and for cooking, and also look at embodied carbon and … [consider] future climate scenarios.”

Buildings that don’t require fossil fuels for heating or cooking (except in emergencies) will be eligible for preferred financing terms, including reduced interest rates and fees, extended amortization periods and higher loan-to-cost ratios.

Buildings must also be designed with 2050 climate projections in mind and submit lifecycle carbon assessments to qualify for preferred financing terms.

Coates hopes the information session next week will attract the interest of builders who would like to take advantage of the program.

The initiative aligns with Vancity’s participation in the three-year-old Partnership for Carbon Accounting Financials. PCAF includes 228 financial institutions worldwide that have pledged to assess and disclose greenhouse gas (GHG) emissions in their loans investments. It includes 15 lenders based in Canada that manage more than $5.8 trillion in assets.

Besides Vancity, the country’s big five banks, BDC and the Investment Management Corporation of Ontario are members of PCAF. BC Investment Management Corp., which manages the province’s public sector pension funds, is not a member but it has not ruled out the possibility of joining.

Vancity is among the lenders that have already issued disclosure statements regarding the investments. Its first statement, published last May, noted that its $18.6 billion in loans related to real estate accounted for the largest volume of emissions tracked.

However, real estate loans were relatively clean compared to vehicle loans. Vancity reported 9.6 tonnes of emissions per dollar of commercial real estate financing versus 179 tonnes per dollar attributed to motor vehicle loans.

“The advantage that we have in British Columbia is that we have a clean electricity supply, so the messaging is a little different,” Coates said. “It’s about electrification and switching.”

Vancity will issue its second report this spring. RBC has pledged to report carbon emissions associated with its loans for this fiscal year in 2023.

Other institutions will follow, with financing terms promising to tilt in favour of green buildings in the coming years.

“Today, GHG emissions have no discernible impact on the availability or cost of financing, but that is set to change,” Paul Morassutti, vice-chair with brokerage CBRE Ltd. said in the company’s 2022 outlook presentation this week. “[PCAF] will have significant impacts to commercial real estate because lenders will have to report on and include GHG emissions for the assets on which they end. The price and availability of debt will reflect this.”

 

© 2022 Western Investor

How many more Bank of Canada hikes are likely in 2022?

Fergal McAlinden
other

The central bank made a landmark increase to its policy rate in Wednesday’s announcement

The Bank of Canada’s decision to hike its policy rate for the first time since 2018 will grab headlines – but it was the “right move” and one that was in line with its January pronouncement, according to a prominent mortgage industry executive.

James Laird (pictured), RateHub.ca co-founder and CanWise Financial president told Canadian Mortgage Professional that the announcement contained no deviations from the Bank’s indication of its course in January, except for references to the Russia-Ukraine crisis that has escalated since then.

“I think it was the right move and except for the conflict [Russia’s invasion of Ukraine], it was a very close continuation of their January announcement,” he said. “They foreshadowed this in a lot of detail in January, and all of the exact themes continued except for Russia-Ukraine.”

The central bank noted in Wednesday’s statement that economies across the world were beginning to recover from COVID-19 setbacks earlier than anticipated, even despite the continued prevalence of the virus and possible emergence of further variants.

It also said that Canada’s economy had posted a stronger-than-expected performance in 2021’s fourth quarter, with economic growth of 6.7% showing that slack has largely been absorbed.

That’s set the stage for further Bank rate hikes throughout the year, with the annual rate of inflation – currently at its highest level for over 30 years – remaining a considerable concern. Laird said he expected four to six quarter-point benchmark rate increases during the 2022 calendar year.

Read more: Bank of Canada hikes rate

“Global and Canadian economic recovery is doing well. Slack in the labour market is quite low, so the labour market is strong. Omicron seems to have waned significantly, so most economies and businesses are now open with few restrictions,” he said.

“As [the Bank] said in January, they feel the need for ultra-low stimulus rate policy is over, and that theme continued. Throw in inflation, and it definitely looks like more rate hikes to come.”

Six quarter-point rate increases would restore the Bank rate to its pre-pandemic level, 150 basis points higher than the 0.25% it remained at for nearly two years.

Still, even a return to relative normality in Canada’s rate landscape wouldn’t necessarily temper activity hugely in the housing market, Laird said, with a host of considerations set to keep things busy for the foreseeable future.

“[Would] the rate being 1% higher at the end of the year change the market dynamic… to a buyer’s market? No. It’s a factor, but it’s one of many, and other factors are more material – most obviously supply and demand,” Laird said.

“There just aren’t enough houses, and demand from the existing population is strong. Immigration targets are [also] big, and those new Canadians are going to add to the demand side of the equation.”

The federal government recently revealed its intention to welcome record numbers of new Canadians in the next three years, with over 431,000 expected to arrive this year, followed by around 447,000 in 2023, and 451,000 in 2024.

Read more: Major banks hike prime rates

“This rate policy that we’re talking about, four to six rate increases. Does it take a few buyers out of the pool? Sure. But it doesn’t just change a hot housing market to a cold one,” Laird said.

The benchmark rate is closely tied to banks’ higher prime rate, with leading lenders including RBC, TD and BMO all indicating on Wednesday that they would hike those rates in line with the Bank of Canada decision.

Variable-rate mortgage payments, which are tied to the prime rate, will now increase following the Bank’s move – although Laird said that the spread between variable- and fixed-rate products was still sizeable enough that variable would remain an attractive option despite the hike.

“We still have this huge gap between fixed and variable – so even this week, when this rate hike was all but certain, variable rates are still very popular,” he pointed out. “We need five or six more rate hikes for the two rates to be equal and people [who choose variable] save money in the meantime.

“To me, the number-one dictator of popularity between fixed and variable is just the spread between the two. When it’s more than 1%, a lot of people will take the variable and when it’s less than 50 basis points, that’s when very few people take it.”

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Two self-storage facilities near Victoria sell for $36.2 million

William Wright Commercial
Western Investor

Class B storage sites cover a total of 77,500 square feet on a combined 11.34 acres in industrial zone of Saanichton, B.C. and the recreational area of Mill Bay, B.C.

Property type: Self-storage

Number of properties: 2

Location: 6822 Veyaness Road, Saanichton, B.C., and 1185 Shawnigan Lake,  Mill Bay Road, Mill Bay, B.C.

Size of property (rentable space): 77,500 square feet (total approx).

Land size, in acres: 11.34 acres (total approx).

Sale price: $36.27 million

Brokerage: William Wright Commercial, Victoria, B.C.

Brokers: Connor Braid and Patrick Wood

 

 

© 2022 Western Investor

Coquitlam BCmultifamily complex sells at 273K per door

Royal Pacific Realty
Western Investor

Coquitlam, B.C., multi-family complex sells at $273K per door

Royal Pacific Realty
Western Investor

Well maintained 54-unit apartment complex on a 39,600 square-foot in Austin Heights neighbourhood sold for $14.75 million at 3.4 per cent capitalization rate.

Property type: Multi-family rental

Location: 1055 and 1065 Howie Street, Coquitlam, B.C.

Number of units: 54

Size of property: 40,000 square feet

Land size: 39,600 square feet

Land size in acres: 0.91 acres

Zoning: RM2

BC Assessment value: $13.10 million

List price: $15 million

Sale price: $14.75 million

Date of sale: February 28, 2022

Brokerage: Royal Pacific Realty, Vancouver

Broker: Jordan Guo

© 2022 Western Investor

West Vancouver zoning proposal encourages breweries, food processors

Brent Richter
Western Investor

Commercial zoning change will address the district’s lack of light industrial space

 Commercial zoning change will address the district’s lack of light industrial space

New zoning policies are on tap in the District of West Vancouver that will see craft breweries, wineries, cideries and distilleries allowed on some commercially zoned lots.

The proposed changes will allow alcohol manufacturing in the C1, C2 , AC1 and AC2 zones, most of which are located along Marine Drive and in Horseshoe Bay. The zoning changes will also allow food manufacturing to take place in these areas engage if the company also offers retail or wholesale sales.

Most municipalities require breweries and distilleries to operate on lots with light industrial zoning. West Vancouver has no light industrial zones, however. Council is serving up the cocktail of changes in hopes of stimulating more economic activity and vibrancy in the district.

West Van is the only Lower Mainland municipality to have missed out on the decade-old craft beer revolution, despite having been home to the first micro-brewery in Canada. Horseshoe Bay Brewing opened in 1982 in the basement of the Troller Pub. It closed in 2000, but the founders went on to start other breweries that still exist today.

Mayor Mary-Ann Booth said she’s already received an enquiry from an entrepreneur hoping to open a craft brewery in what is today an auto repair garage on Marine Drive at 25th Street.

The changes proposed in West Van mirror those in other Lower Mainland municipalities that have allowed craft breweries and small-scale food processors to thrive in traditional industrial areas.

Vancouver updated its zoning bylaws for the Mount Pleasant neighbourhood in 2017 to create additional opportunities for craft breweries and other manufacturing businesses. The changes supported the revitalization of the area as a destination for tech companies.

Similar benefits have been seen in Burnaby, Port Moody and other municipalities over the past five years.

Other proposed changes to West Vancouver’s zoning bylaws include a rule that limits financial institutions (include currency exchanges), beauty salons and real estate offices to no more than 20 per cent of the ground-level commercial frontage in Ambleside and Dundarave and Royal Avenue in Horseshoe Bay. The rules will also be tweaked to allow businesses that manufacture products on-site, like bakeries, to wholesale to other businesses, which is not currently permitted.

Home-based artist studios will be given the district’s blessing to offer retail sales of their art from home. And the district will allow home-based daycares for up to eight children to operate on residential properties that also have a secondary suite – as long as the operator lives on site.

Changes to the zoning bylaw are subject to a public hearing, scheduled for March 29.

© 2022 Western Investor

TD reveals Q1 financial results

Fergal McAlinden
other

The announcement caps an eventful week for the Canadian banking giant

 Toronto-Dominion Bank (TD) has made it a clean sweep for Canada’s leading banks in topping analyst expectations in 2022’s first quarter, becoming the latest to post strong financial results at the beginning of the year.

The bank announced a 13% growth in adjusted earnings to $3.8 billion in its Q1 financial results, while also revealing adjusted diluted earnings per share of $2.08 – surpassing pre-release analyst projections of around $2.04.

Its total adjusted revenue, meanwhile, clocked in at $11.3 billion, surging past pre-release estimates of about $10.8 billion.

Continued growth in TD’s Canadian retail banking division spurred that performance, with the bank reporting an 11% year-over-year net income increase to $2.25 billion in that area. It also said its recovery in US retail had been strong, hauling in $1.27 billion – up 27% over the same quarter last year.

Read next: TD strikes $17bn deal for US bank

Those results more than made up for a minuscule decrease in TD’s net income on the wholesale banking front, which totalled $434 million in a 1% decline over 2021’s first quarter.

TD president and chief executive officer Bharat Masrani said the company had made a strong start to the year, with revenue growth across all its business segments as customer activity ramped up even further.

“With a focus on growth, we continue to make investments in technology and new capabilities, positioning us well to meet our customers’ and clients’ evolving needs,” he said.

The news caps an eventful week for TD that saw the bank announce a deal to purchase US-based First Horizon Corp for $17 billion, a move that will reportedly establish it as the US’s sixth-largest bank by deposit.

“I am… pleased to have announced our deal with First Horizon earlier this week,” Masrani said. “A bold acceleration of our US strategy to acquire a premier regional bank, with a strong presence in highly attractive markets across the US Southeast – a terrific strategic fit for TD.”

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Victoria’s commercial real estate market turns bullish

Andrew Duffy
Western Investor

 The Victoria skyline. DARREN STONE, TIMES COLONIST

CBRE outlook report highlights strong demand, below-average availability rates

Optimism has returned to Victoria’s commercial real estate market, according to a new market outlook released this week by commercial real estate company CBRE Ltd.

The outlook covered the prospects for industrial, office and retail real estate as well as multi-family residential development. It suggests there is plenty of demand in Greater Victoria, B.C,.across all sectors.

The outlook noted the region’s industrial sector is limited only by available land. Development underway this year should result in an additional 220,000 square feet of space. But the lack of land is expected to drive up the sale price of industrial land to $400 per square foot, while the availability rate is expected to drop to below one per cent from 1.7 per cent last year.

The report notes the region’s industrial availability rate is below the national average, despite new facilities such as the Western Speedway redevelopment in Langford and Amazon’s facility near Victoria International Airport.

“The market is effectively out of industrial-zoned parcels,” the report said. “Developers who are able to move forward will see their projects well received by the market.”

Throughout the pandemic, Victoria’s office space has remained fairly stable, according to the report, and 2022 will start to see the vacancy rate drop as workers return to downtown office space. “Victoria’s office market has remained stable with a heavy government presence and an active tech sector,” the report said. “Capitalizing on historically low interest rates, some users have started seeking space to purchase versus lease.”

The outlook suggests the Plexxis Tower being built in Langford is a prime example of this as is the recently approved Telus Ocean building, slated for downtown Victoria.

The office vacancy rate is expected to drop to 5.7 per cent this year from 6.5 per cent last year, while rental rates will climb to $29.75 per square foot, from $28.20 last year for Class A space.

The outlook also suggests there are rosier days ahead as the retail sector returns to normal.

“The slowdown of tourism and activity in the downtown core has been impacting retailers and reshaping the main shopping districts, including Old Town and Government Street, causing family-owned store closures,” it said. “The easing of pandemic-related restrictions has renewed optimism for the sector, however. The Coho ferry resumption of service in late 2021 as well as the hopeful return of cruise ships to the Island are set to see tourism breathe life into the downtown core once again in the year ahead.”

The outlook said more people moving to the region from other provinces has added to the heavy demand on multi-family housing.

“Despite the current projects under construction, Victoria’s residential market is anticipated to remain under supplied,” it said, adding the vacancy rate is forecast to remain steady at about one per cent; the average rent for a two-bedroom condo could rise to $1,665 per month from an average of $1,571 last year.

Nationally, commercial real estate investment transactions in Canada are expected to hit an all-time high of $58.5 billion in 2022. The activity builds off last year’s momentum, when a record $57.9 billion of investment took place due in part to the availability of capital.

 

© 2022 Western Investor