Demand for suburban offices likely to ease as more workers shift to the core, new report says
The live, work, shop shift to the core is playing out across most Canadian cities and its impact will continue to be felt through a number of real estate sectors in 2014, says a new report.
Retail real estate will remain a “buy” next year, especially in Toronto and Calgary, as retailers look to open more stores in the core and catch up with the growing number of people now living downtown, says the 35th annual study of emerging real estate trends by the Urban Land Institute and PricewaterhouseCoopers.
The intensification happening in most major downtowns, combined with reverse migration from the suburbs to the core, is “one of the most forceful and rapidly emerging secular trends in both corporate office and residential real estate,” says the state-of-the market report released Tuesday.
Canada still remains “under retailed” compared to the U.S. in terms of shopping space per capita and foreign retailers remain on the hunt for prime new or reformatted space in what’s seen as a stable, healthy economic environment, it notes.
That will further drive mixed-used redevelopment in downtown areas that allow people to work, play — and shop — close to home.
But the shock waves from the shift are likely to be felt most in sprawling suburban office parks, especially those that aren’t located close to mass transit, says the survey of some 1,000 players in Canadian real estate.
Suburban office face “dimmer prospects” for investment and development, with one person surveyed for the report describing them as “a declining commodity that has no staying power.”
The report notes that those office complexes are, in fact, facing a double demographic whammy: Not only are more employers opting to be closer to the core to cater to younger employees, but they are almost all looking for more open, collaborative space — and much less of it per worker — which could cause the suburban market to soften further.
While the pace of economic and job growth is expected to slow in 2014, it is “not expected to significantly disrupt a stable real estate market,” the survey notes. But “housing will again be a key topic during the year.
“Rising house prices will put more focus on how the nation can continue to provide enough affordable housing to a population base fuelled by strong immigration.”