The most recent weekly report from BMO Economics included a breakdown of office vacancy rates in major Canadian cities. For office REITs, the news was not great.
Economist Sal Guatieri began his report by arguing that an expected economic slowdown, combined with the adoption of hybrid home/office work arrangements, means office buildings will remain the most depressed commercial real estate segment “for some time.”
Nationally, the office vacancy rate jumped to a record 17.7 per cent during the first quarter of 2023, up from 10 per cent in 2019. Calgary’s vacancy rate is the highest of major centers at 32 per cent, but Toronto might be the country’s most problematic market.
The Toronto office vacancy rate doubled to 17.5 per cent during the pandemic – the highest since 1996. In the downtown area, the rate went from 2.0 per cent in 2020 to the current 15.3 per cent. Even these numbers may understate the lack of demand. Shopify Inc. recently made seven floors of space available for sublease and this is not included in the office vacancy rate. Furthermore, 14 office buildings are currently under construction.
Vancouver has the healthiest office market with a vacancy rate of 8.4 per cent. In Ottawa, the rate of 12.3 per cent may be temporary as civil servants are increasingly demanding more freedom to work from home. Montreal’s vacancy rate at 16.8 per cent is almost double pre-pandemic levels.
There are substantial yields available in the office REIT sector – Allied Properties REIT, for instance, pays out 7.9 per cent annually – but risk-averse investors should likely wait until they can be sure vacancy rates are close to their peaks.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Mullen Group Ltd. (MTL-T) It’s not hard to find high-yielding securities in the financial, real estate, utilities, pipeline and telecom sectors. It’s more difficult when it comes to technology, mining and transportation. But there is at least one company in the transportation sector that should appeal to income investors. As Gordon Pape tells us, Mullen Group is cheap on a price-to-earnings basis and a sound company, and the yield of 4.6 per cent is one of the best you’ll find in the sector.
Nutrien Ltd. (NTR-T) If you’re searching for a Canadian stock to sum up the challenges of this unusually murky period in investing history, Ian McGugan points to this big, reliable provider of a vital but boring product. The share price of the giant potash producer has gyrated wildly over the past three years for reasons that have little to do with the company’s own operations. Buying Nutrien as a short-term play makes little sense – not only is it suffering from negative momentum, but there is no obvious catalyst to turn it quickly around. Longer term, though, Nutrien still has appeal.
George Weston Ltd. (WN-T) Month-to-date, the share price is down 9.5 per cent, making it the worst-performing stock in the S&P/TSX consumer staples index. Given the swift sell-off, the stock is now in oversold territory. Jennifer Dowty looks at the investment case for the holding company of Loblaw and Choice Properties Real Estate Investment Trust.
Ford Motor Co. (F-N) CEO Jim Farley has yet to convince investors the automaker’s next generation of electric vehicles can hit 2026 profit targets, but he is already worrying about the third generation of Ford EVs that will launch late in this decade. Even if Ford hits its goal of boosting EV pretax profit margins to 8 per cent, it will lag Tesla Inc’s current margins. That helps explain why investors and analysts who gave Farley good marks for strategy are not yet willing to send Ford shares to a new level, as Reuters’ Joseph White reports.
The Rundown
How firing your adviser to buy index funds could backfire
A guaranteed way to instantly save on investment fees is to dump your adviser and switch to exchange-traded funds tracking major stock and bond indexes. But there’s more to the math of switching from an adviser to index investing. Rob Carrick goes beyond fees with a look at five ways firing an adviser could work against you.
Cash is king. Here’s why we should resist its allure
Cash is appealing when stocks and bonds continue to be buffeted by inflation, weaker corporate profits, U.S. regional-bank failures, debt-ceiling standoffs and a whole lot more. But as David Berman tells us, stay parked in cash for too long and there may be a risk of losing out on bigger gains elsewhere.
Readers are trouncing The Globe in the Investing Club challenge
This is getting embarrassing. Two months into the great Investing Club challenge, our readers have opened up an enormous lead over the finest minds in The Globe’s investing section. The Readers’ Portfolio has rocketed 11 per cent higher since March 13; the Globe Hot List has inched up a mere 1.1 per cent. Ian McGugan updates us on the challenge.
Also see: This Globe Investing Club member learned the key to her success is not overthinking
U.S. debt ceiling crunch threatens to roil complacent stock market
Strategists at some of Wall Street’s biggest banks are sounding increasingly worried about potential market fallout from the standoff over raising the U.S. debt ceiling, even as stocks continue grinding higher, as Reuters’ Lewis Krauskopf reports.
Also see:
S&P 500 seen dipping between now and year-end: poll
Artificial intelligence gives real boost to U.S. stock market
Breakevens say U.S. inflation scare over, but Fed won’t buy it
A key market-based measure of U.S. inflation expectations is back at 2%, suggesting bond investors, at least, are confident the Federal Reserve’s 500 basis points of interest rate hikes since March of last year will pull inflation back to target within two years. The trouble is, U.S. central bank policymakers themselves are nowhere near as confident, reports Jamie McGeever of Reuters.
Others (for subscribers)
Number Cruncher: 10 safe dividend stocks on the TSX Venture
Number Cruncher: 21 ETFs with wide economic moats
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Wednesday’s Insider Report: Chairman invests over $2-million in this depressed high-yielding stock
Tuesday’s Insider Report: Chairman unloads over $42-million in this stock that’s rallied 20% in 2023
Globe Advisor
RRSP season investment fund flows falter to weakest level since 2009 as investors opt for cash
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Ask Globe Investor
Question: My broker includes reinvested dividends in calculating the adjusted cost base (ACB) of stocks in my non-registered account. Since these dividends are declared each year as investment income and I pay tax on them, the ACB that my broker shows on my statement is not accurate. Do all brokers do this?
Answer: I don’t see a problem here. Adding the value of the reinvested dividends to your adjusted cost base is exactly what your broker should be doing. If your broker didn’t increase your ACB each time you purchase shares in a dividend reinvestment plan, you would end up paying more tax down the road, not less
Consider this: If you were to invest, say, $1,000 of your own cash to buy additional shares of a company, you would increase your ACB by $1,000 to reflect the cost of the new shares. Well, reinvesting $1,000 of dividends is essentially the same. It’s your money, and you’re using it to buy additional shares. The only difference with a DRIP is that the purchase happens automatically, without the cash landing in your brokerage account first.
True, you must pay tax on dividend income received in a non-registered account, even if the money is reinvested. But by increasing your ACB, you will reduce your future capital gain for tax purposes – or increase your capital loss – when you eventually sell the shares. So, increasing the ACB is a benefit for you, because it prevents you from getting taxed twice.
I can’t say that all brokers add the value of reinvested dividends to the ACB, but they certainly should. That’s why it’s important to check your broker’s figures to make sure they are correct.
--John Heinzl (E-mail your questions to jheinzl@globeandmail.com)
What’s up in the days ahead
With bond funds leading the ETF sales charts, Rob Carrick will look at a new kind of bond ETF that matures like an actual bond. The big advantage: you know you’ll get your investment back on maturity.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff