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.
5. The influence of lower oil prices
Oil prices are 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.
Source: PwC
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