A reset for real estate and a deepening affordability crisis dominate trends in real estate Français
Emerging Trends in Real Estate, 2024 report reaffirms industry resilience and adaptability; complex landscape offers opportunity for long-term value creation
TORONTO, Nov. 14, 2023 /CNW/ - This year's PwC Canada and ULI's Emerging Trends in Real Estate (ETRE) report unveils a complex landscape for the Canadian real estate industry in 2024. There is a marked deepening of recent trends such as higher interest rates and more expensive and increasingly scarce capital which are creating a bifurcation of real estate and more difficulties for many companies which is leading to a reset in Canadian real estate.
However, despite the many challenges, key insights from the report reflect the industry's resilience and adaptability. Companies are generally confident about overall demand for real estate, with many pointing to Canada's immigration-fuelled population growth as a source of long-term strength for the industry. Canadian real estate companies are focusing on value creation by optimizing assets, investing in digital transformation, and addressing trends such as generative AI, ESG performance, and housing affordability.
Key Trends in Canadian Real Estate for 2024:
A key trend and issue is the outlook for capital availability in 2024. A significantly higher number of survey respondents expect various types of debt and equity capital will be undersupplied compared to 2023 and previous years, which will add to the financing challenges facing real estate companies and impact their investment strategies and development plans in 2024.
"This year it was all about capital. There is compelling data to show that scarcity of capital has impacted investment volumes. However, this creates opportunity as we saw many new private debt funds established to take advantage of this unique moment in time." said Frank Magliocco, Real Estate Leader, PwC Canada.
There are many factors holding back industry activity including interest rates which are predicted to stay higher for longer, rising financing costs and less capital being made available for real estate. However, this provides real estate players an opportunity to consider ways in which they can add long-term value, whether it is the adoption of transformative technology in construction, process changes and innovation or the adoption of generative AI.
A ray of hope?
Amidst the deepening housing affordability crisis, there is still some hope which the multifamily housing segment offers. Innovative approaches and recent government initiatives, such as GST relief for new purpose built projects are generating interest in this sector. Governments are introducing policies to streamline housing approvals and remove tax barriers, while industry players are exploring innovative solutions to address the issue.
"Market forces are challenging public policy objectives and corporate ESG goals. Industry leaders are keenly watching this space as they look for some respite from the economic headwinds, inflation, and volatile interest rates," added Richard Joy, Executive Director, Urban Land Institute, Toronto.
Balancing long-term sustainability goals with near-term financing difficulties:
Environmental, social, and governance (ESG) considerations continue to evolve within the industry. While some are taking a measured approach, the importance of ESG performance remains significant. Regulatory changes and the potential for ESG to create business value are helping drive industry engagement in this key industry issue. At a time when financing is both less available and more expensive, companies with a strong ESG track record will have an advantage in attracting investment from institutional players and sourcing new forms of capital that continue to grow in Canada.
Retail therapy leads the way for recovery:
A surprising addition to the best-bets list this year is this segment of retail property. Sentiment around the retail asset class overall has improved significantly, especially when it comes to grocery-anchored developments that serve communities seeing strong population growth. Community shopping centres have been ranked particularly high for investment prospects in our survey this year.
Outlook ahead and best bets for 2024:
Industrial and multifamily real estate options continue to lead the way for a second successive year as a best bet, followed by grocery-anchored retail. An honorable mention goes to debt funds given this moment in time. As for office spaces, they continue to decline as a favoured asset class. This trend has been further exacerbated because of the shift to hybrid work, which has had a profound impact on utilization of corporate real estate, including the increase in suburbanization.
At PwC, our purpose is to build trust in society and solve important problems. More than 9,000 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. 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. Find out more by visiting us at: http://www.pwc.com/ca
The Urban Land Institute (www.uli.org) is a non-profit education and research institute supported by its members. The mission of the Urban Land Institute is to shape the future of the built environment for transformative impact in communities worldwide. ULI is a global network of professionals in every sector of real estate development and land use, from private enterprise to public service. Established in 1936, the Institute has more than 45,000 members representing all aspects of land use and development disciplines. The Urban Land Institute is an active and growing organization in Canada. ULI Toronto is the 2nd largest District Council in the ULI network with over 2,200 members in the Toronto region, and Canada's first ULI District Council (toronto.uli.org) established in 2005.
SOURCE PwC Management Services LP
PwC Contact: Anuja Kale-Agarwal, National Director / Head of Communications, PwC Canada, [email protected]
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