Residential sales show signs of slowing down in favour of non-residential, mixed-use and commercial investment opportunities unique to each region
TORONTO, Oct. 26, 2016 /CNW/ - Despite the perennial speculations of a housing market crash, there is room for growth in the Canadian real estate market as investors are moving East and towards more mixed-use developments according to Emerging Trends in Real Estate® 2017, jointly released by PwC Canada and the Urban Land Institute (ULI). Canada seems poised for a year of stability regardless of concerns about a possible pullback in the Vancouver and Toronto housing markets.
According to the report, housing affordability, weak income growth, and high consumer debt levels are all contributing to the dip in residential sales in Canada. Compared to the previous year, the average price for housing is expected to decline by -0.9% in 2017 compared to a significant spike of 10.6% in 2016. While Toronto and Vancouver will be hit the hardest by this downward trend in housing price, other markets in the East including Halifax, Ottawa, and Québec City are forecast to grow slightly.
"Opportunities in the Canadian market continue to be abundant but no two markets are the same," says Frank Magliocco, Partner & National Real Estate Practice Leader, PwC Canada " The unique economic and demographic realities in each region are yielding different options for savvy real estate investors across the country who have their eye on emerging needs and trends in the market."
The report highlights six important areas to watch for:
1. Building Communities: Canada's urban populations will continue to grow and their needs are evolving. Mixed-use projects combining residential, retail and commercial parts continue to thrive and there's a growing consensus that developers must do better when designing public spaces.
2. Affordability on the decline: Housing affordability has become a major point of concern in Canada. In Toronto and Vancouver, mortgage-to-income ratios forecast to remain well above the Canadian average. 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, not just in Toronto and Vancouver but also across the rest of the country.
3. Renting for the long-term: Attitudes toward renting are shifting and people are choosing to rent longer as they weigh the costs of homeownership against the benefits. It's a trend that's sparking ongoing interest in purpose-built rentals and raising questions about the size of units and the need for supporting infrastructure (e.g. schools, medical facilities, day care, etc.).
4. Technology disruptors: Real estate firms must take significant steps to adapt to customers' growing tech needs or risk falling behind and we're seeing this in multiple sectors including office, retail and residential markets. Buyers and renters alike are increasingly expecting more energy-efficient properties and amenities, new systems in waste management and energy conservation. Customers now have access to more data online than ever before and development firms are harnessing the power of 3D conceptualization to create virtual tours, reducing the reliance on showrooms.
5. Global uncertainties: While the domestic front has been stable, developers, investors, and property owners alike express concern over global political and economic uncertainties. Most believe that these uncertainties, along with the low Canadian dollar, will continue feeding demand for Canadian real estate; for now, Canada is seen to be a steady, low-risk place for investors to put their money.
6. Oil/gas prices & waiting on deals: Slumping oil and gas prices continue to weigh on the economy, and they're hitting Alberta hard. Oversupply of office space has not stopped some projects from being completed, but the Calgary market has hit the pause button. The impact on Edmonton's real estate market has been softened thanks to the city's more diversified economy and significant investments in redeveloping its downtown core.
Top 5 Markets to Watch
1. Vancouver – This year's report names Vancouver as the top investment, development, and housing market in Canada. Millennials are driving up Vancouver's rental market, searching for new, higher-quality units near amenities and close to transit. Rental units are in incredibly short supply, with vacancy rates consistently around or below 1 percent for the past five years. Another emerging challenge is the lack of amenities from stores to schools in the downtown core.
2. Toronto – The lack of development supply for all residential typologies is seen as a key factor contributing to the market's rapidly rising house prices. Due to the high cost of moving, more homeowners are choosing to stay put and invest in renovations. Many respondents believe that government land use policies are a factor holding back supply. Toronto's condominium inventory has hit a ten-year low and demand remains strong, so respondents expect to see more high-rise multi residential projects enter the pipeline in the years ahead.
3. Ottawa – The residential market is seeing little movement. Demand for new homes is down sharply since there aren't enough families interested in buying single-family homes. Ottawa housing starts have fallen for three straight years, and some developers are currently shelving their development plans for up to five years.
4. Winnipeg – Winnipeg's economy is expected to see sustained growth this year and beyond. Building activity should remain healthy over the short term, propelled mainly by nonresidential projects which will help to offset a slowdown in the residential market.
5. Montreal – Montreal continues to absorb the city's condo stock, and "pure" condominium plays have given way to mixed-use developments. More of these are on the horizon, especially around transit hubs, and the trend is increasing cooperation between investors and developers.
"The Quebec market continues to be quite varied by region but what remains consistent is strong economic growth in Montreal and Quebec City - two of the provinces most active markets," says Annie Labbé, Chartered Appraiser, Senior Vice President, Real Estate Advisory Services at PwC Canada, PwC Canada. "With economic growth comes opportunities and both cities provide non-residential investment options including an increase in mixed use developments in response to changing demographic needs."
"While Calgary continues to redefine its market, Vancouver continues to be a positive outlier in the West and outpace the country in terms of growth," says John Bunting, Partner and BC Real Estate Leader, PwC Canada. "Higher density developments will drive the residential market in most areas of the market while the demand for rental units will see growth due to a high demand from an ever growing number people priced out of home-ownership. Record low rental vacancy rates are expected to continue until significantly more affordable supply comes on line".
Property Type Outlook
Investors are more selective about the types of property in which they invest according to the report. Industrial sector, apartments, and single family homes are favoured by investors whereas the office building sector and hotels are considered to be more volatile investments in general. The most high-quality core real estate investments have become compressed, some investors have shifted funds to various niche asset classes, including medical office buildings, self-storage, student housing, senior living, data storage, and manufactured housing.
"Complexity of issues and factors from public policy shortcomings to shifting market dynamics that are affecting the nature of real estate trends across Canada's urban regions is an ever more dominant theme this year," says Richard Joy, Executive Director, ULI Toronto.
The full Emerging Trends in Real Estate® 2017 report, which includes the latest industry figures and trends can be found here: www.pwc.com/ca/emergingtrends.
Now in its 38th year, Emerging Trends in Real Estate® is one of the most highly regarded annual industry outlooks for the real estate industry. It includes interviews and survey responses from more than 1,500 leading real estate experts, including investors, fund managers, developers, property companies, lenders, brokers, advisers, and consultants.
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About PwC Canada
At PwC Canada, our purpose is to build trust in society and solve important problems. More than 6,500 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with more than 208,000 people in 157 countries. Find out more and tell us what matters to you by visiting us at www.pwc.com/ca.
© 2016 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rights reserved.
PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.
About the Urban Land Institute (ULI) and ULI Toronto
The Urban Land Institute (www.uli.org) is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has more than 39,000 members representing all aspects of land use and development disciplines. The Urban Land Institute is an active and growing organization in Canada. With over 2000 members across the country, Canada's first ULI District Council ULI Toronto (toronto.uli.org) was established in 2005, with a second District Council in British Columbia and another one being created in Calgary .ULI Toronto has over 1500 members.
SOURCE PwC (PricewaterhouseCoopers)
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