Toronto’s downtown office vacancy hits record with more supply
The vacancy rate for downtown Toronto office buildings reached a record high at the end of last year as a flood of largely empty space from newly completed projects hit the market.
The downtown office vacancy rate in Canada’s financial capital rose to 17.4 per cent as nearly 58,100 square metres of new space came to market during the fourth quarter, according to data released Tuesday by brokerage CBRE Group Inc.
The poor performance of the Toronto market helped push Canada’s national downtown vacancy rate to its own record last quarter, hitting 19.4 per cent, the data show.
Toronto was home to one of North America’s biggest office building booms before the COVID-19 pandemic ushered in a major shift toward remote work that may weigh on demand over the long term. Because office towers take many years to construct, Toronto’s still working through office projects that began before the pandemic.
With the city accounting for nearly half of all new office construction nationwide, Canada’s net-absorption rate, or the pace that office space gets leased when it becomes available, would have been positive without the impact from Toronto’s new supply, the data show. Instead, that rate was negative in the period.
Market close: TSX moves down more than 100 points, while U.S. markets mixed
Weakness in financial stocks weighed on Canada’s main stock index, which lost more than 100 points, while U.S. markets were mixed.
The S&P/TSX composite index closed down 103.93 points at 20,970.98.
In New York, the Dow Jones industrial average was down 157.85 points at 37,525.16. The S&P 500 index was down 7.04 points at 4,756.50, while the Nasdaq composite was up 13.94 points at 14,857.71.
The Canadian dollar traded for 74.68 cents U.S. compared with 74.78 cents U.S. on Monday.
The February crude oil contract was up US$1.47 at US$72.24 per barrel and the February natural gas contract was up 21 cents at US$3.19 per mmBTU.
The February gold contract was down 50 cents at US$2,033 an ounce and the March copper contract was down five cents at US$3.76 a pound.
The Canadian Press
JPMorgan-backed AppDirect gets $100 million from Caisse to fuel expansion
AppDirect Inc., an online marketplace for buying, selling and managing apps, obtained US$100 million in debt financing to propel its growth.
Canadian pension fund Caisse de Depot et Placement du Quebec is providing the funding to help AppDirect expand the financing it offers to users, the San Francisco-based startup said Tuesday. It adds to the US$80 million received from CDPQ in 2021.
AppDirect, backed by JPMorgan Chase & Co., Foundry Group and Peter Thiel’s Mithril Capital, works as a subscription-based marketplace for a range of software. Its platform connects over 1,000 tech providers to five million subscribers through 10,000 technology advisers who refer or resell solutions from its catalog.
The startup, which was founded in 2009 and reached a US$1 billion valuation in 2015, is piloting a marketplace for artificial intelligence apps and plans a full rollout in the coming months. The AI offerings will allow customers to build AI bots based on their choice of large language model, from the likes of OpenAI’s GPT-4, Meta Platforms Inc.’s Llama, Alphabet Inc.’s Lamda and Cohere.
“Combining our marketplace expertise, digital commerce platform capabilities, and the massive application of AI, AppDirect is in a distinct position to accelerate and democratize AI adoption for non-technical users,” chief executive Nicolas Desmarais said via email.
Canada Post sells third-party logistics business SCI to Metro Supply Chain
Canada Post Corp. has signed a deal to sell SCI Group Inc., its third-party logistics business, to Metro Supply Chain Inc.
Financial terms of the agreement were not immediately available.
Montreal-based Metro Supply Chain calls the deal a transformational acquisition that will strengthen its position in strategic contract logistics services.
SCI has more than 75 locations and employs about 3,000 people.
The deal comes after a detailed review and assessment of Canada Post’s long-term strategic plan.
The transaction is expected to close in the first quarter of 2024, subject to customary closing conditions.
The Canadian Press
Brookfield sells 19 manufactured housing sites in U.S. for $325 million
A Brookfield Asset Management Ltd. property fund sold a large chunk of a manufactured housing portfolio as the company seeks to capitalize on growing demand for the sector.
The $325 million deal consists of 19 manufactured housing communities across seven U.S. states, totalling 3,166 home sites, according to a Brookfield spokesperson. The sale resulted in a gross internal rate of return of roughly 24 per cent, the spokesperson said. The company declined to name the buyer.
Brookfield snapped up the bulk of its manufactured housing communities in 2017 and bought more in 2021. But the opportunistic property fund has recently been seeking to sell some of those assets, striking a deal in August to offload 23 communities. The sector has been helped by strong demand, according to Swarup Katuri, a managing partner at Brookfield Real Estate.
The latest sale “reflects the ongoing strength of the manufactured housing sector as well as the execution of our strategy to earn a favourable return and return capital to our investors,” Katuri said in an emailed statement.
Midday markets: TSX moves down, led by financials, as U.S. markets also down
Weakness in financial stocks helped move Canada’s main stock index lower in late-morning trading, while U.S. stock markets were also down.
The S&P/TSX composite index was down 134.77 points at 20,940.14.
In New York, the Dow Jones industrial average was down 236.58 points at 37,446.43. The S&P 500 index was down 15.41 points at 4,748.13, while the Nasdaq composite was down 25.66 points at 14,818.11.
The Canadian dollar traded for 74.61 cents U.S. compared with 74.78 cents U.S. on Monday.
The February crude oil contract was up 95 cents at US$71.72 per barrel and the February natural gas contract was up seven cents at US$3.05 per mmBTU.
The February gold contract was down 50 cents U.S. at US$2,033 an ounceand the March copper contract was down four cents at US$3.78 a pound.
The Canadian Press
Energy regulator hears arguments Friday from Trans Mountain on critical pipeline variance
The Canada Energy Regulator will hear arguments Friday from the company building the Trans Mountain pipeline expansion on its request for a pipeline variance.
The Trans Mountain pipeline is Canada’s only oil pipeline to the west coast, and its expansion will boost the pipeline’s capacity to 890,000 barrels per day from 300,000 bpd currently.
The project’s completion had been expected in the first quarter of this year, but Trans Mountain Corp. has run into construction difficulties related to hard rock conditions in British Columbia.
The Crown corporation previously requested permission to use a different diameter, wall thickness and coating for a 2.3-kilometre stretch of pipeline, but the regulator denied its request citing safety concerns.
But Trans Mountain Corp. has asked the regulator to reconsider, saying it now believes that without the change, the project could face a worst-case scenario of a two-year delay in completion.
The Canada Energy Regulator will listen to Trans Mountain Corp.’s arguments in an oral hearing scheduled for Calgary on Friday morning.
The Canadian Press
Canadian bank CEOs expect to put more money aside for loan losses
Canadian bank chief executives expect to put more money aside for potential bad loans this year but still see borrowers overall managing well through higher interest rates.
Royal Bank of Canada chief executive Dave McKay, speaking at the bank’s CEO conference, says he expects to see credit loss provisions peak this year as parts of the commercial side of lending remain strained.
He says that borrowers on the mortgage side are having to adapt to higher payments with an average $400 a month for its clients renewing this year, but that higher wages along with savings are helping to soften the impact.
McKay says he expects 2024 to be a little worse on a number of fronts, especially commercial real estate in the United States, some multi-family residential markets, capital markets and some on the unsecured consumer lending side.
Scotiabank chief executive Scott Thomson says the bank also expects higher provisions for bad loans, but sees a more steady path this year after 2023’s restructuring efforts.
Thomson says the bank’s markets in Latin America are already seeing rates fall to help reduce risk and provide a tailwind on loan loss provisions.
The Canadian Press
Markets open: Global stocks at risk of ‘reverse Goldilocks’ scenario
Wall Street fell Tuesday, pulling back after a tech-led bounce on Monday as Treasury 10-year yields fluctuated above four per cent and oil rose
The S&P 500 extended this year’s losses and was down 0.67 per cent Tuesday. The Nasdaq fell 0.65 per cent after Samsung Electronics Co. posted its sixth straight quarter of declining operating profit. The Dow Jones Industrial Average was down 0.71 per cent.
A growing mismatch between aggressive pricing for U.S. interest rate cuts and resilient economic fundamentals reducing the need for such easing risks creating a “reverse Goldilocks” scenario for global markets, according Max Kettner at HSBC Holdings PLC.
“We’re likely seeing a ‘head fake’ in the market right now,” said Matt Maley at Miller Tabak + Co. “We just don’t know yet if last week’s decline was that ‘head fake’ or if yesterday’s bounce was it. Thankfully, the battle lines are very well drawn and we’ll know which situation was the head fake once one of two lines is broken in a meaningful manner.”
In Toronto, the S&P/TSX composite index was down 0.68 per cent on broad-based sector declines.
Canada’s trade surplus halves in November
Statistics Canada says the country’s merchandise trade surplus narrowed to $1.6 billion in November as imports rose and exports fell.
The result compared with a revised surplus of $3.2 billion in October. The initial reading for October released last month had been for a surplus of $3.0 billion.
For November, total imports rose 1.9 per cent, helped by an 11.6 per cent increase in imports of energy products, boosted by imports of uranium from Kazakhstan.
Imports of refined petroleum energy products also rose 18.8 per cent, on higher imports of gasoline and aviation fuel from the United States.
Meanwhile, total exports fell 0.6 per cent in November as exports of metal and non-metallic mineral products dropped 6.5 per cent, mainly on lower exports of unwrought gold, silver, and platinum group metals. Exports of aircraft and other transportation equipment and parts fell 16.8 per cent.
In volume terms, total imports in November were up 1.6 per cent, while exports were down 0.1 per cent.
The Canadian Press
Stantec to buy engineering firm Morrison Hershfield
Stantec Inc. has signed an deal to buy engineering and management firm Morrison Hershfield.
Financial terms of the deal were not disclosed.
Stantec said the deal expands its presence in most major Canadian markets and strengthens its U.S. presence in buildings engineering.
Morrison Hershfield, based in Markham, Ont., is a 1,150-person company with offices in 22 cities in Canada and the United States, and one office in India.
The acquisition is subject to court, regulatory and Morrison Hershfield shareholder approvals.
The deal is expected to close in the first quarter of 2024.
The Canadian Press
Canadian banks’ ‘sustainable finance’ label misleading, OSC complaint alleges
Canada’s Big Five banks are potentially misleading investors with their use of terms like sustainable finance, according to a complaint to securities regulators by a climate advocacy group.
Banks are using the term “sustainable finance” too broadly and not backing up the claims with data, Investors for Paris Compliance said in its submission Jan. 9 to the Ontario Securities Commission and the Autorite des marches financiers of Quebec.
Canadian banks including Royal Bank of Canada, Toronto-Dominion Bank, Bank of Montreal, Canadian Imperial Bank of Commerce and Bank of Nova Scotia have all made pledges on sustainable finance that together total $2 trillion by 2030.
Sustainable finance covers a range of lending activities aimed at advancing mostly environmental and social causes. The financing can be anything from green bonds funding a specific renewable energy project to loans that go to general corporate use but are tied to sustainability-linked performance targets.
The commitments form a key part of their sustainability efforts, but banks are providing little to back up their effectiveness, said Matt Price, executive director of Investors for Paris Compliance.
“They’re putting this in the window as one of their core responses to climate change and net zero, when they’re not rationalizing or justifying or providing any evidence or proof about that.”
The advocacy group is concerned not only with the overall lack of disclosure, but that some of the deals that have been disclosed have been with oil and gas companies whose emissions are on the rise.
Ian Bickis, The Canadian Press
Stock markets before the opening bell
Stocks and bonds retreated before a key United States inflation reading this week and under a wave of heavy government and corporate debt supply.
U.S. stock futures dropped with Europe’s Stoxx 600 benchmark as investors shrugged off tech-led gains that rolled across global markets.
As Monday’s bounce proves short-lived, investors are back to worrying about risks from inflation to bond volatility as a tsunami of corporate and government debt washes over the market.
In Canada, the S&P/TSX composite index closed up 137.36 points at 21,074.91 on Monday.
What to watch today
RBC Capital Markets holds its Canadian bank CEO conference in Toronto.
Data on Canadian merchandise trade balance and building permits for November will be released this morning. In the United States, expect the NFIB small business economic trends survey for December and the goods and services trade balance for November.
Cannabis company Tilray Brands Inc. reports earnings today.
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Additional reporting by The Canadian Press, Associated Press and Bloomberg