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The unexpected city that should be on every investor’s radar

by CRE on 18 Jan 2016
For over 90% of real estate investors, the focus of their portfolio is the market they live in. As Toronto-based real estate investors with almost two decades of rising prices, this has worked out very well.

At the same time, Connect Asset Management noticed yields in other Canadian markets were higher, while appreciation is typically lower. Having traveled both the country and internationally over the past few years, we began to develop a strategy for determining the best places to invest as a Canadian regardless of where we lived.

While “location, location, location” is the key to real estate, the most important determinant of long term real estate appreciation is city selection. Buy in a city with a declining economy, your returns will suffer no matter how good the “location” is. While an A site might be easier to sell than a B or C location, property rarely makes money when real estate prices drop in a city.


That is the bottom line for why we chose Waterloo (often referred to as Silicon Valley North) over any other city was that no other market we looked at a significant competitive advantage in any industry the way Waterloo does with technology and the sciences. To quote Dave Caputo, CEO and co-founder of Sandvine Inc, “Waterloo right now, I have to believe, is one of the best places in the world to build a technology company”

This is confirmed by major international companies like Microsoft and Google setting up head offices here, as well as major Canadian technology companies like Shopify that recently opened a 40,000 sq ft office to take advantage of the engineering talent.

The foundation for all this is the University of Waterloo and Wilfrid Laurier two of Canada’s top universities with strong international reputations as well as an industry leading co-op programs. Around these organizations, major research institutions have developed as well as, incubators, angel investor and venture capital networks linked directly to Bay Street and Silicon Valley.

In addition, our research indicates that while Waterloo still has commercial vacancy, the residential market is much tighter with vacancy rates sub 2%. New condos projects targeting students and young professionals which sold out during their pre-construction launches have rented very well with ICON 330 renting over 1500 beds in under two months.

Essentially, in Waterloo, the market for prime student housing has been waitlisted. The shortage in luxury furnished rentals to us seems like one of the greatest opportunities for investors with a strong growth from both student and young professionals. Office space also presents tremendous opportunities but those risks are more significant with there being a significant vacancy backlog.

With Waterloo commercial real estate renting for less than a third of what these companies would be paying in major centres, and the low Canadian dollar, established international companies will continue to establish offices in the region. To use Google as an example, in Mountain View, California where they are headquartered, the average rents are $97 US per square foot in Waterloo they are less than $15 CDN.

This doesn’t even begin to describe the difference in salaries vs Silicon Valley. Even Toronto based companies are looking at a 1/3 of the cost for even B office space.

Combine this with the different tax incentives from various levels of government and the business case for Waterloo will continue to be very compelling for years to come. That, combined with the talent from the education system and the start-up funding ecosystem, will drive the growth of Waterloo for years to come.

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