Demographic changes determine property opportunities for developers in the future: report

Urbanization is now considered the ‘new normal’ rather than an emerging trend itself, according to the Emerging Trends in Real Estate 2015 report by PwC and the Urban Land Institute (ULI) and discussed in a session at the 2014 Global Property Market & Real Estate Forum today at the Metro Toronto Convention Centre. Looking ahead into 2015, a common trend among all industry players will be the search for opportunities in and around the city cores. With more people moving into city centres for work and lifestyle purposes, companies and retailers are following them and driving new office and commercial developments.

According to the report, urbanization is blurring industry lines as commercial and residential developers discover the opportunities that mixed-use properties bring. The convergence of commercial and residential development is driven by developers’ desire to control more aspects of a project and to add value to their property holdings.

Property prospects 2015

Influencing the merge of commercial and residential development and the different real estate sectors overall is Canada’s changing demographics. Below are highlights of investment and property types for 2015:

  • Suburbia vs. urban core- Urbanization is creating greater demand for offices in downtown cores – thanks to younger workers in particular. While the move to the core is more visible, selecting the proper location is critical for any suburban redevelopment, especially around transportation nodes.
  • Single-family homes – Industry experts worry about the impact of rising interest rates on the market for single family homes. With a lack of supply of building lots, and many baby boomers opting to stay in their homes rather than sell them, the market for detached single family homes will continue to tighten.
  • Condo craze – The continuing urbanization trend and the high cost of single-family homes have fuelled the condo boom in Toronto and other cities like Calgary’s west end. However, the next phase involves young urban condo dwellers starting families and seeking affordable housing. Purpose-built multi-residential rental developments are starting to address this market need.
  • Seniors’ housing- Canada’s aging population means seniors’ housing offers attractive opportunities in the future. Vacancy rates are low and returns can be strong. Some investors may partner with firms specializing in facility management.
  • Office perks – Office tenants are demanding new amenities from builders to deliver workplace configurations and features needed to attract and retain today’s talent.  New spaces being delivered are capable of providing ongoing flexibility and further application of new technology.
  • Retail market- Some retail developers are focusing on existing assets and adding more space for retail and services in residential or commercial properties. Urban retail will also see strong growth with the influx of residents to city cores driving demand for amenities. Mixed-used properties will become increasingly common. 

Outlook on REITs & equity financing

According to the report, stable cap rates allowed the majority of Real Estate Investment Trusts (REITs) to avoid decreases in property values. Further cap-rate compression is likely to be limited in 2015 – making it harder to find investments that meet current yield requirements. Expect to see more development and redevelopment activities in many of the REITs in order to grow their portfolios.

Regarding mezzanine and equity funding, the flow of these finances into Canadian real estate will rise in 2015.  The abundance of funds available means that investors are putting money into the market at very low returns. Large pension and investment funds remain a major source of these funds. However, interest from non-Canadian resident investors is also bringing more money into the market.

Regional roundup

The report highlights Calgary and Edmonton as the top two real estate markets in Canada. Both Calgary and Edmonton scored well for investment, development and housing. Toronto slips in just ahead of Vancouver to hold the third ranking in this year’s survey. Other city highlights include:

  • Toronto’s core- With continuing migration to the urban core, the outlook for suburban office has softened and retailers are following people to the city centre. The condo market continues to be strong, while the lack of affordable housing is expected to spur multi-residential rental development.
  • Vancouver ramps up-  With Vancouver expecting to lead other cities in growth in 2015 and a steady flow of foreign investment, Vancouver issued a record number of building permits in the first half of 2014 (6.7per cent increase over the same period last year).
  • Montreal stabilizes- Montreal’s market is viewed as stable and is expected to coast along in the year ahead. The condo market is projected to see a drop in activity in 2015 as it continues to absorb the new inventory.  Meanwhile, the city is keen to attract high-end retailers via Rue Ste. Catherine, where experts foresee the avenue being transformed over the next five years.
  • Winnipeg wins & woes– Winnipeg’s home sales have declined and there are concerns around overbuilding impacting the city’s finances.  With local construction, the sector will welcome a boost in activity with Winnipeg’s first outlet centre slated to open in spring 2017.


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