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Developers push forward with construction programs

High construction costs offset by robust land banks
Concert Infrastructure is building five schools for the Alberta government set to complete next year, part of record level of construction for the pension fund-backed company.

Despite high construction costs and other headwinds, strong demand for new residential, industrial and institutional assets means plenty of opportunities for developers.

Projects in B.C., Alberta and Ontario have pushed current construction volumes at Concert Real Estate Corp. of Vancouver to record levels.

Concert is building 2.2 million square feet of residential space, representing 2,600 units, and 690,000 square feet of institutional space, including five schools in Alberta. This is nearly five times its previous record of approximately 600,000 square feet, Concert president and CEO David Podmore said this week.

The projects all stand to generate long-term revenue for Concert, which is owned by 19 union and management pension funds.

“It’s a really good fit for our pension fund owners. They don’t want us to take too much risk, and they would like nice, steady income,” Podmore said.

While more than half of the residential units are market condos, all but 65 of which have been sold, Concert will retain and rent 1,200 units. This will boost its existing rental portfolio to approximately 7,200 units.

The institutional facilities will join Concert’s infrastructure portfolio on completion. Concert will manage them under long-term contracts that allow them to generate revenue for up to 30 years after completion.

“In a changing environment right now, we’re actually in a very good position,” Podmore said.

Strong demand and low inventories support development activity.

According to a report issued this week by Morguard Corp. of Toronto, interest in multifamily residential rentals will remain elevated in 2023, “given healthy demand fundamentals and constrained supply.” Demand for industrial space also remains positive, due to a constrained supply and ongoing low vacancies.

But the key challenge in supplying the market with new product is land.

“The cost of land, even in the current environment, is still very expensive,” Podmore said. “A lot of the land that we’re working on [for] this construction program … are instances where we purchased those lands quite some time ago at very favourable terms. There may be opportunities that arise now where we can do the same thing again.”

This requires planning ahead by at least five years, given the lengthy planning and approval timelines facing projects.

Concert isn’t alone. Recent investment sales reports from Altus Group indicated strong demand for residential sites in Metro Vancouver despite the pause in overall investment activity during the second half of 2022, while ICI land led investor demand in Calgary, Edmonton and Toronto markets.

Strong and strategic land holdings in line with end-user interest is also keeping industrial projects moving in these markets, as well as underpinning expansion by players such as Northland Properties Ltd.

“We’re going to double our size in eight years,” Northland president Rob Pratt told the Western Canada Lodging Conference in October. “The trick is assets and capital. Fortunately for us we have a lot of assets, very low leverage, and we have great relationships with our banks.”

Podmore shares Pratt’s optimism, noting that a cautious approach means Concert’s owners are confident in the development program it’s pursuing.

“We’re generally quite positive for the future,” he said. “We’re well-positioned in terms of funding and the arrangements in place today, allowing us to carry forward with programs like this."