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CRE Expert Discussion: Market Outlook

With Vicente Gamboa, AACI, MBA – Executive Vice President at Colliers International

Finneo: What challenges did the pandemic bring for Office and Retail Valuations? Vicente: Since the onset of the COVID-19 pandemic, many challenges have emerged when modeling cashflows and completing office valuations. Traditionally we have seen well performing office assets with tenants on longer term leases (5/10 year) and stable and predictable cash flows from retail tenants or parking income. With the operational uncertainty for office and retail asset classes due to the varying travel, lifestyle and workplace restrictions, instability has arisen. Finneo: What are the challenges Landlords are experiencing with office and retail asset classes? Vicente: There have been short-term impacts on core office properties such as rent abatements, tenants vacating, and lease renegotiations. Tenants may be scaling back their office footprint once leases near closer to expiry or once the pandemic nears to an end. This dynamic may not have an immediate impact for many office landlords in core markets, but in the long term, how the work from home trend evolves, will be the biggest driver of values for their portfolios and some may look to reduce their exposure to the asset class. Retail components of some office assets once were guaranteed a constant stream of consumers due to locations underground or at the base of a key office building, have seen significant interruptions. Many have found temporary ways to pivot, many have been forced to close shop. For some landlords, retail income is a significant portion of value of an office property. Additionally, for landlords, parking income from either office or retail space is typically not secured by long term leases. As traffic has gone down so too has this once stable revenue line which might not recover until 2022. Finneo: What are your future predictions when it comes to office assets and how they will be valued? Vicente: As we enter a second year dealing with the COVID-19 pandemic, not much can be said with absolute certainty. As such, when valuing and modeling office properties, best judgement and reasonableness needs to be applied. If the pandemic continues for much longer, we might see a renewed interest in the properties that people embraced spending less time for parts of 2020. COVID fatigue and a desire to spend time with co-workers, clients, and friends might emerge as key themes over the near to medium term. About Vicente Gamboa: Real estate professional with Toronto office of Colliers International Valuation and Advisory Services. Highly experienced with valuation of wide range of property types including retail, industrial, office properties and large development sites. Work experience includes appraisal and consulting assignments throughout Canada and Latin America.

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