Capital and operating strategies across all real estate sectors are grounded in economic viability, technological capabilities, market demands and regulatory dictates. The changing landscape of property and asset management  — a topic tackled in a panel discussion at last December’s PM Expo in Toronto — arises from these fundamental forces. Managers, in turn, are contemplating tenants’ evolving expectations and trying to ensure their staff and service providers can respond.

“It doesn’t matter whether it happens to be in Seattle or Toronto or even Regina, we are seeing common trends,” observed Cheryl Gray, senior vice president overseeing Bentall Kennedy (Canada) LP’s residential services, who served as the discussion moderator.

Ready availability of information in a world increasingly hooked into social media fuels what Gray terms a “general sophistication” with heightened awareness of emergent trends and what the competition has to offer. Nevertheless, tenants still place priority on keeping occupancy costs as low as possible.

Panellists with expertise in office, industrial, retail and seniors’ housing properties reflected on shared experiences as well as management issues more specific to their sectors. Newly constructed facilities of all types pose a challenge on several fronts for owners and managers of existing buildings since new buildings typically incorporate the most efficient technologies and/or in-demand features in the most cost-efficient way — i.e. at the design/build stage versus a complicated retrofit.

Tenants’ agendas

“We are seeing a lot of change now where tenants are leaving to go to new buildings,” acknowledged Michael Byass, director of property operations with First Gulf Corporation.

In keeping with Gray’s hypothesis, he reports tenants are seeking more input in operational decisions and even in the design of new buildings. He likened the leasing-up of new developments to an RFP process in which prospective major tenants establish the criteria. Performance ratings are used to assess and validate contract fulfilment and to compare and benchmark landlords.

“Tenants are now sort of partnering with landlords and demanding landlords are more proactive with what they are building,” Byass said. “The service level agreement is becoming the norm. Most clients and tenants are now signing agreements along with leases.”

A general decline in space-to-worker ratios is another trend placing pressure on both building systems and landlords’ bottom lines. For a company like Allied Properties REIT, notably ensconced in the brick-and-beam market niche, it presents perhaps even steeper technological challenges to accommodate more occupants in buildings often of early 20th-century vintage. However, distinctive architectural ambience, including higher ceilings and ample natural light, supports the flipside of shrinking individual workspace, which is a greater emphasis on common space and amenities.

“I think a lot of businesses are now looking at costs not on a square-foot basis, but on a per capita basis,” said Tina Skinner, Allied REIT’s vice president, national building standards and procurement. “Our portfolio has many attributes that attract what seems to be a lot of young, entrepreneurial companies. A lot of their talent is young as well.”

Industrial dynamics

Downtown, transit-oriented locations cater to that Gen Y/Millennial workforce, while other burgeoning, if not meteoric, digitally driven trends could be resuscitating older industrial buildings recently dismissed as obsolete. Ease of access to customers may outweigh ceiling height for E-commerce retailing dependent on same-day delivery.

“Old buildings are usually very centrally located. That’s paramount,” asserted Michelle Chu, vice president, property management & leasing, with Blackwood Partners. “We are certainly building high-ceiling buildings, but they are way out in suburban locations.”

IT infrastructure is the non-negotiable business necessity. “It’s costly to bring in fibre, but we’re not going to lease any space if it doesn’t have that capability,” she said.

Suburban industrial space built in the late 20th century or early 2000s could be more challenged than much older urban competitors given the steady climb in ceiling heights that has typified new industrial construction for the past several years. Today’s  48-foot elevations significantly surpass market norms of decades past.

“Until we start charging on cubic footage, that’s the way we are going to go,” Chu maintained. It’s a trend that’s creating business opportunities for speciality retrofitters, however, as a few building owners in the Greater Toronto Area have already turned to roof-lifting companies.

“They actually go in and raise the roof,” Chu explained. “It’s an expensive option, but it really is a viable option.”

Seniors’ housing trends

Required redevelopment in Ontario’s seniors’ housing sector likewise promises business for the construction sector in the coming decade. Approximately 300 of 633 long-term care homes in the province will need upgrades or major renovations to comply with new space standards that call for the phase-out of the once common four-occupants-per-room configuration by 2025. Many older facilities will require an extensive expansion of space to accommodate the same number of residents.

“The [Ontario] government has told us we have to rebuild them,” reported David Beirnes, principal with CBG Seniors Realty Advisors.

Mandated redevelopment of physical accommodations is part of general reforms in the delivery of long-term care (also known as nursing homes) occurring in most Canadian provinces, which has translated into requirements for operators to strictly monitor for compliance with governing statutes and regulations. Transparency, data collection and reporting are now management imperatives with associated administrative costs.

Meanwhile, the market is driving change in the retirement home sector, in which senior residents live more independently and do not receive medical care as part of the facility’s services. Owners/managers of older buildings face a of surfeit of less popular studio units and are looking at ways to convert space that’s more difficult to rent into one-bedroom or two-bedroom units.

“Both sectors are regulated, but long-term care is highly regulated. The focus in on care,” Beirnes said. “In retirement residences, there is a heavy emphasis on hospitality.”

Despite the sector’s boom on the back of an aging population, the residency base reveals that the greater majority of seniors are still living elsewhere. “The market in both cases (retirement and long-term care) tends to be really 85+. If anything, you are seeing that people are getting older when they are coming into both types,” he noted.

Accordingly, managers often deal with two overlapping yet distinct client groups: residents and their children. The latter tend to prioritize vigilance — favouring new technological options and digital platforms for monitoring their parents’ activities — whereas residents themselves generally aren’t the social media demographic.

IT & green evolution

Keeping pace with steady IT advancements is an operational issue for managers in all sectors — with additional business implications for light industrial/warehouse space once needed for document storage. Across the board, tenants demand technological capabilities, while the universal and unavoidable connectivity of smartphones has changed the nature of service provision.

“They expect us to be on-call 24/7,” Chu noted.

Byass sees the similar attitudes extended to concierge services. “The tenant wants you to be a one-stop shop,” he said.

Tenant-driven demands for sustainability vary more from sector to sector, or within sectors depending on tenants’ environmental, social and governance (ESG) mandates. In some major urban centres, LEED certification has become something of a default expectation for both new office construction and existing space. In industrial space, it’s still more of a market differentiator.

Gray agrees that’s a good strategy for reasons ranging from operational savings to competitiveness to risk management.

“In residential, I don’t think people will necessarily pay for it, but, like all of us, they want to be more environmental,” she reflected. “If you’re not, you will start to be penalized in the market. And if you don’t do anything, regulations are coming.”

The panel discussion was sponsored by the Toronto Chapter of the Real Estate Institute of Canada (REIC).