The Urban Land Institute (ULI) and PricewaterhouseCoopers (PwC) recently jointly released their Emerging Trends in Real Estate report.
The annual report identifies what investors should look out for in the Canadian and American real estate markets over the following year, drawing on a vast number of sources. ULI, a nonprofit and research organization, and PwC, the global advisory firm, publish the report every fall.
For the purposes of the 102-page report, ULI and PwC surveyed and interviewed over 1,400 industry experts from investors and fund managers to developers and consultants.
Frank Magliocco, PwC’s national real estate practice leader, outlined in a statement some of the changes the Canadian market is undergoing.
“From Canada’s aging population creating opportunities in market sub-sectors like healthcare, to technology transforming the demand for space, the way investors do business and construction itself, industry players that recognize these opportunities will benefit from an evolving market,” he explained.
Here’s a rundown of the trends outlined in Canadian portion of the 37th annual Emerging Trends in Real Estate report.
1. Investors acting with caution
Instead of a real estate bubble burst, ULI and PwC expect to see market activity flow from west to east and towards less speculative investments such as warehouses, malls, and fulfilment centres. “More than anything else, it seems that respondents believe that the Canadian market is due to take a breather rather than take a dive,” according to the report.
2. A shortage of “top-tier” properties for some
Top-tier properties are selling, but buyers like pension funds and real estate investment trusts are throwing their weight around, according to the report. That’s led smaller-scale purchasers to turn towards older, less-coveted properties that require more renovations and upgrades to see a return on investment.
3. The Changing face of office leasing
Given the shortfall of highly sought after properties available to non-institutional buyers, some are simply turning to the properties they already own to improve yield. This has had an effect on the nature of leasing, the report suggested. With landlords’ heightened expectations for returns on current holdings, office spaces are being split up and leases are getting longer. Meanwhile, tenants are allocating less space per employee and foregoing high-end amenities, opting for value instead.
4. The US dollar as a source of some optimism
With uncertain economic conditions in China and Europe, Canadian firms are looking stateside for a boost in investment, even though US recovery from the Great Recession hasn’t been particularly strong. Regardless, the US dollar is outpacing the Canadian dollar, and this could prove beneficial for markets here at home. The eastern market’s industrial real estate markets could reap the benefits of this in 2016, the report predicted.
In an informal BuzzBuzzHome News survey of economists from major Canadian banks this August, oil prices were identified as one of the housing-market factors to watch for the rest of the year. The Emerging Trends report suggests this will continue for 2016. While large-property-holdings activity has been stagnant in Alberta, the drop in oil prices may spur growth in other regions.
In particular gas pump savings could have a ripple effect. Businesses and consumers spending less on fuel might choose to direct those savings elsewhere, bolstering retail, for instance. The end result may be strengthened commercial and industrial real estate markets.
6. Foreign investors eyeing Canadian real estate
Global investors continue to see Canada as a safe haven for their capital, and the lower Canadian dollar only adds to the country’s appeal. Many respondents expect foreign investment to continue to flow into Canadian real estate — not only into the hottest markets in Vancouver and Toronto, but also into Montreal and even Saskatoon, where interest in farmland and development land is rising.
7. Heightening housing affordability concerns
Housing affordability is a key issue in the run up to the Canadian federal election. It’s also a trend to watch in the nation’s housing market, according to The Emerging Trends in Real Estate report. It identified a number of factors that it said are currently driving up housing prices. For instance, in Ontario, greenbelt legislation resulted in a plan to conserve 1.8 million acres of land, affecting land supply. In addition costs associated with development applications and construction are stoking home prices once units hit the market.
8. More and more renters
With housing affordability a concern, attitudes towards renting rather than owning are changing. This shift is spawning a new demographic that the report calls “permanent renters” for some markets. A growing portion of the Canadian population ditching home-ownership aspirations and instead seeking rental units will provide new opportunities for investors.
9. Suburbs’ resiliency
Canada is urbanizing. Still, the suburbs are going strong. As home prices continue to reach new heights in Canada’s hottest real estate markets causing some to look to rentals, others will seek ownership in the suburbs. Improved suburban transit infrastructure will further ignite this interest outside of city cores.
10. The disruptive force of technology
Shopping for a home? There are apps for that. As in virtually every other market, technology is transforming real estate. For instance, the report noted that Google Maps doesn’t just help users get from point A to point B: investors can use Streetview to scope out an area in seconds. Meanwhile, E-commerce start-ups are seeking office space, igniting commercial real estate markets. Retailers are increasingly looking for places to house inventory rather than to sell goods to customers from because online shopping has taken off. More broadly, technology is shaping the built form of cities themselves as it impacts the design and construction processes.