1. Caution Rules
Having been on a path of continuous growth since the global economic crash, this year’s report points to a shift from west to east rather than a downturn. Investors are being more cautious by seeking out more stable investment opportunities like warehouses, fulfilment centres and neighbourhood shopping centres. However, this heightened level of caution appears to be driven by pragmatism, not pessimism. More than anything else, it seems that respondents believe that the Canadian market is due to take a breather rather than take a dive.
2. Liquidity & Lack of Investable Assets
This year, respondents call out the lack of quality product available for purchase, given the current cost of capital. Prized, top-tier Canadian properties are increasingly in the hands of pension funds, institutional investors, and REITs. As a result, transaction volumes have picked up for secondary assets which are often older and require investment to suit current market needs.
3. Office Leasing: An Evolving Market
With so little top-tier product available, respondents are maximizing their existing holdings and seeking out new tenants and longer leases in order to maximize yield. Leasing itself is changing, in part due to tenants’ own business challenges. Tenants are reducing space per employee, and some tenants are sharing offices, or opting for value over high-end, luxury amenities.
4. Stronger U.S. Dollar Generates Some Optimism
Economic uncertainties in China and Europe have Canadian firms once again looking to the United States to drive growth. It’s not without risk, of course: the U.S. recovery is not especially strong, and many U.S. trading partners are not growing. The U.S. dollar’s relative strength could well benefit Canadian real estate markets, particularly in eastern Canada in the industrial development and distribution centre sectors.
5. Lower Oil Prices: Mixed Impact
The sharp drop in oil prices has led some to speculate that eastern Canada will regain its position as Canada’s economic engine. Investors appear to be biding their time with little to no large real estate purchases or sales taking place in Alberta. Elsewhere, low energy prices may generate growth in certain sectors and their related real estate markets. Gas pump savings could also boost business and consumer spending, potentially benefiting retailers, among others. This could, in turn, drive activity in industrial, office, and commercial real estate, especially in the east.
6. Foreign Investment: Canada Retains its Allure
Global investors continue to see Canada as a safe haven for their capital, and the lower Canadian dollar only adds to the allure. Many respondents expect foreign investment to continue to flow into Canadian real estate—not only into traditional markets like Vancouver, Calgary, and Toronto, but also into Montreal and even Saskatoon, where interest in farmland and development land is rising.
7. Housing Affordability Concerns Rise
While developers are building condominiums and mid-density products like stacked townhouses to meet municipal and provincial urban density demands, it is getting harder for developers to build affordable housing in the urban centers that people covet—which could have consequences for Canada’s urbanization trend. Land prices continue to rise, and many believe that provincial government policies are a key factor. In addition, lengthy approval processes and significant development charges also are limiting supply and driving up costs across the country. And then there are the construction costs themselves, which continue to rise.
8. Rise of the Renter
As concerns over housing affordability grow, a rising number of Canadian households are choosing to rent rather than buy which is creating new opportunities across the country. Renting is no longer seen only as a temporary step on the road to homeownership, but as an alternative. Today, we are seeing the rise of permanent renters—a new demographic in many Canadian markets, especially as a growing proportion of the population cannot assemble the down payment for a new home.
9. Resilience of the Suburbs
The urbanization trend remains strong in Canada, but this year’s report dismisses suggestions that the suburbs are in decline. Suburbs around the Greater Toronto Area are also becoming more expensive due to government policies, immigration, and higher demand. Respondents believe that major investments in transit infrastructure, especially in and around the Greater Toronto Area, will make the suburbs more attractive to a wider group of people. And as demand continues to drive housing prices higher in the core, they expect to see a growing number of people choose more affordable homes in the suburbs. In terms of commercial real estate, though, developers acknowledge that suburbs need more services, better tax incentives, and lower operating costs to compete with the downtown core.
10. Technology Creates New Opportunities and Challenges
E-commerce, cloud computing, mobile, and data analytics are just a few of the technologies that continue to reshape the way that people live and work each day. In the process, they are creating new opportunities—and challenges—for Canadian real estate players. This year’s report highlights numerous ways that technology is changing how market players do business. Specifically, technology is having a direct impact on the demand for space in the office sector as well as demand and store format in the retail sector as e-commerce continues to grow. In addition, real estate players are harnessing the power of data to make better business and marketing decisions and improve their investing and financing decisions as well as financial reporting. They’re also using technology to improve how they design and build new developments and share knowledge across their enterprises.