We were reading a blog post we came across earlier and thought it would be interesting. It's from PwC Canada and covers various trends coming into Canada in terms of real estate and community development.
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It's About Building Communities
Canada’s urban populations are set to continue to grow and their needs are evolving. There’s a growing consensus that developers have responded by continuing to rethink their approach to mixed-use projects.
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Affordability In The Decline
Housing affordability has become a point of concern in Canada. Significant increases in immigration over the next five years will continue to keep demand high and put even more pressure on affordability unless more supply is made available. As well, a common issue in nearly all regions was municipal red tape and lengthy approval processes, which are also limiting supply and driving up costs.
Technology Disruptors
Technology is changing expectations and how they interact with potential tenants. As one respondent said, “We’re getting to the point where if people don’t recognize technologies are existing and, moreover, how to integrate them, opportunities are being missed.”
Office
As urban cores flourish in cities like Toronto, Vancouver and Montreal, businesses have followed the talent, relocating to the latest Class A space in the core or near transit hubs. Halifax bucks this trend, building its Class A space outside the core. It’s a different story elsewhere. In Calgary, the combination of the oil and gas downturn and oversupply is driving high vacancy rates, as the oil and gas sector slows. Ottawa, hit hard by government spending cuts in recent years, has seen its office vacancy rate reach 25%, an all-time record.
Industrial
The outlook for industrial property is largely positive. The ongoing growth of online shopping is driving demand for fulfillment centers, as retailers clamor for distribution centers with the high ceilings they need for modern logistics. The resurgence of Canada’s manufacturing industry, after a difficult period of consolidation and retrenchment, is also creating new demand.
Condominium
Demand for condos remains robust in Toronto and Vancouver, driven by urban migration and domestic and foreign buyers seeking investment properties. But condominium activity is expected to be more subdued across the rest of the country. Montreal continues to absorb oversupply in its condo market; Quebec City shows little interest in condominiums, preferring rentals. In Calgary, comparatively affordable house prices and land supply continue to dampen condominium growth in that market as buyers opt for single-family homes instead.
Retail
The retail industry remains in flux, challenged by the ever-growing influence of online shopping, changing customer behaviors and expectations, and the influx of new players from the United States and elsewhere. Changing demographics are changing how people spend their money. Developers hope to turn shopping into an experience because consumers, while much smarter now with e-commerce, still crave interaction.
Single-family residential
Respondents remain aware of widespread concerns over the lack of affordable housing, especially single-family homes where price increases are outpacing wage growth. In hot markets like Toronto and Vancouver, mortgage-to-income ratios are forecast to remain well above the Canadian average in 2017 (See Exhibit 1-5 in report). In these high-priced markets, as supply of single-family residential units is constrained, an opportunity exists for the condominium and rental markets to reach those priced out of home ownership.
Expected Best Bets for 2017
Given the state of the markets across Canada, where should developers and investors focus their attention? Our survey and conversations suggest the most promising moves can be made in the following areas.
Industrial property
In the current market, industrial bets are widely seen as the wisest as the growth of online shopping creates more and more need for distribution and logistics hubs. While some worry it’s tough to find property suitable for development, others point out that it’s getting harder than ever to squeeze value out of office and residential developments.
Urban mixed-use developments
As millennials and boomers alike flock to urban cores in search of a vibrant lifestyle, convenience, and proximity to work, respondents believe that the market for mixed-use properties combining residential, retail, offices, and more is a solid play. Increasingly, developers will move away from viewing projects as one-offs independent of their surroundings, in favor of building complete neighbourhoods.
Purpose-built multifamily rentals
With rentals gaining in popularity thanks to rising house prices and demographic shifts, coupled with aging housing stock across the country, the market for purpose-built, multifamily rentals is better than it has been in years. Our survey shows that developers and investors increasingly sense the opportunity and are keen to get new rental projects going, provided the economics work.
Seniors’ housing/retirement homes
A number of respondents, sensitive to the potential in an aging yet wealthy boomer population, believe investing in retirement homes and other senior housing will be a growth opportunity over the long term. Whether they can do so at the scale needed to deliver both care and desired profits remains to be seen.
See The Full Article Here: http://www.pwc.com/ca/en/industries/emerging-trends-in-real-estate.html
Canada’s urban populations are set to continue to grow and their needs are evolving. There’s a growing consensus that developers have responded by continuing to rethink their approach to mixed-use projects.
Housing affordability has become a point of concern in Canada. Significant increases in immigration over the next five years will continue to keep demand high and put even more pressure on affordability unless more supply is made available. As well, a common issue in nearly all regions was municipal red tape and lengthy approval processes, which are also limiting supply and driving up costs.
Technology is changing expectations and how they interact with potential tenants. As one respondent said, “We’re getting to the point where if people don’t recognize technologies are existing and, moreover, how to integrate them, opportunities are being missed.”
Economic Outlook
Canada’s economic performance appears to have rebounded from a weak 2015. The country’s economy continues to realign itself in the wake of falling oil and other commodity prices, as job losses in the natural resources sector have been offset by employment gains in manufacturing and construction. According to the Conference Board of Canada’s Metropolitan Outlook 1, Spring 2016, national GDP is forecast to grow to 1.7% in 2016 and 2.3% in 2017—and stay above 2% through 2020.
Housing starts nationally are forecast to fall to 184,500 units in 2016, down from 194,700 and below the 20-year average, according to the Conference Board of Canada. Housing affordability, weak income growth and high consumer debt levels are all contributing to the dip in residential.
Canada’s economic performance appears to have rebounded from a weak 2015. The country’s economy continues to realign itself in the wake of falling oil and other commodity prices, as job losses in the natural resources sector have been offset by employment gains in manufacturing and construction. According to the Conference Board of Canada’s Metropolitan Outlook 1, Spring 2016, national GDP is forecast to grow to 1.7% in 2016 and 2.3% in 2017—and stay above 2% through 2020.
Housing starts nationally are forecast to fall to 184,500 units in 2016, down from 194,700 and below the 20-year average, according to the Conference Board of Canada. Housing affordability, weak income growth and high consumer debt levels are all contributing to the dip in residential.
Property Type Outlook
While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessment.
While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessment.
Office
As urban cores flourish in cities like Toronto, Vancouver and Montreal, businesses have followed the talent, relocating to the latest Class A space in the core or near transit hubs. Halifax bucks this trend, building its Class A space outside the core. It’s a different story elsewhere. In Calgary, the combination of the oil and gas downturn and oversupply is driving high vacancy rates, as the oil and gas sector slows. Ottawa, hit hard by government spending cuts in recent years, has seen its office vacancy rate reach 25%, an all-time record.
Industrial
The outlook for industrial property is largely positive. The ongoing growth of online shopping is driving demand for fulfillment centers, as retailers clamor for distribution centers with the high ceilings they need for modern logistics. The resurgence of Canada’s manufacturing industry, after a difficult period of consolidation and retrenchment, is also creating new demand.
Condominium
Demand for condos remains robust in Toronto and Vancouver, driven by urban migration and domestic and foreign buyers seeking investment properties. But condominium activity is expected to be more subdued across the rest of the country. Montreal continues to absorb oversupply in its condo market; Quebec City shows little interest in condominiums, preferring rentals. In Calgary, comparatively affordable house prices and land supply continue to dampen condominium growth in that market as buyers opt for single-family homes instead.
Retail
The retail industry remains in flux, challenged by the ever-growing influence of online shopping, changing customer behaviors and expectations, and the influx of new players from the United States and elsewhere. Changing demographics are changing how people spend their money. Developers hope to turn shopping into an experience because consumers, while much smarter now with e-commerce, still crave interaction.
Single-family residential
Respondents remain aware of widespread concerns over the lack of affordable housing, especially single-family homes where price increases are outpacing wage growth. In hot markets like Toronto and Vancouver, mortgage-to-income ratios are forecast to remain well above the Canadian average in 2017 (See Exhibit 1-5 in report). In these high-priced markets, as supply of single-family residential units is constrained, an opportunity exists for the condominium and rental markets to reach those priced out of home ownership.
Expected Best Bets for 2017
Given the state of the markets across Canada, where should developers and investors focus their attention? Our survey and conversations suggest the most promising moves can be made in the following areas.
Industrial property
As millennials and boomers alike flock to urban cores in search of a vibrant lifestyle, convenience, and proximity to work, respondents believe that the market for mixed-use properties combining residential, retail, offices, and more is a solid play. Increasingly, developers will move away from viewing projects as one-offs independent of their surroundings, in favor of building complete neighbourhoods.
With rentals gaining in popularity thanks to rising house prices and demographic shifts, coupled with aging housing stock across the country, the market for purpose-built, multifamily rentals is better than it has been in years. Our survey shows that developers and investors increasingly sense the opportunity and are keen to get new rental projects going, provided the economics work.
A number of respondents, sensitive to the potential in an aging yet wealthy boomer population, believe investing in retirement homes and other senior housing will be a growth opportunity over the long term. Whether they can do so at the scale needed to deliver both care and desired profits remains to be seen.
See The Full Article Here: http://www.pwc.com/ca/en/industries/emerging-trends-in-real-estate.html
