Commercial real estate

Building value: Real estate investments that increase productivity

Investor returns of nearly 500% have been the hallmark of Canadian real estate for the last 15 years. That’s more than double the increase for the U.S. market over the same span and more than triple the return from investments in the Toronto Stock Exchange.

Yet, as shown in other research, Canada as a whole has a productivity problem that could ultimately affect commercial real estate performance and our standard of living. Consider the following:

• Canadian labour costs are 30% higher than in the U.S.; that alone could threaten our manufacturing industry including the potential for job losses and any re-shoring opportunities with businesses returning from the Asian marketplace;
• Even after Canadian manufacturing, financial services and mining, oil and gas firms increased spending on Information and Communication Technology (ICT) by at least 50% between 2000-2010, on average those industries invested just 68% of what their U.S. counterparts poured into ICT on a per worker basis;
• Overall, Canadian productivity is 23% lower than U.S. figures.

Commercial real estate: A catalyst to transform business and enhance profitability shows that when businesses invest in their real estate, they can use this opportunity to transform their business and processes to drive productivity growth. For example, if an office tenant decides to relocate or renew its lease, this is a single opportunity to redesign its workplace and business processes to drive productivity growth. This could include additional investments in technology, communications, furniture and fixtures, among other things, to help its workforce gain productivity.

Deloitte’s recommendations include the following:

• When making a commercial real estate investment, use this opportunity to enhance information technology investments, and reorganize workplace and business process to enhance productivity gains;
• Drive towards capturing future opportunities with strategies like examining all elements of the commercial real estate decision process — site selection, property valuation, lease terms and conditions, office workplace design, manufacturing design, business processes, development and other key elements to enhance business performance. Status quo is no longer sufficient to compete within the global economy;
• Governments and businesses partnering to develop high-value market segment and cluster related businesses;
• Follow Canada’s retail sector example in which Canadian firms invest more than their U.S. counterparts in information and communications technology in order to compete effectively and drive retail growth;
• Innovate and re-invest in the business on a routine basis.