2015 Fall Symposium: PwC and ULI’s Emerging Trends in Real Estate.
The Canadian real estate market continues to look strong heading into 2016, with the Toronto and Vancouver markets leading the way. With an influx of immigrants, especially into these two major urban centers, there is a continuous demand for houses, condos and rental units. Foreign investment continues to pour into Canada from across the globe as the country’s stable real estate market remains to be viewed as an attractive investment as it has in recent years. The increasing strength of the US and European currencies has only helped increase its allure to foreign investors.
These were among the major topics discussed at this year’s presentation of PwC and ULI’s annual Emerging Trends in Real Estate report. The presentation marked the opening of ULI Toronto’s Emerging Trends and City Building Fall Symposium. The focus was on economic, demographic and technological drivers that have greatly influenced the real estate market and views were shared by the esteemed panelists. The discussion was moderated by Lori-Ann Beausoleil, the National Real Estate Consulting and Deals Leader at PwC, with Blake Hutcheson, CEO of Oxford Properties Group, Ben Myers, SVP of Market Research and Analytics at Fortress Real Developments and Andrew Warren, Director of Real Estate Research at PwC participating in the panel.
According to PwC’s research, the top markets to watch in Canada have shifted over the past year due to the impact of oil and gas prices globally, said Andrew Warren. Calgary and Edmonton have been hit the hardest, which has paved the way for Toronto and Vancouver to dominate the share of investments and new developments. Montreal has established itself as a city with strong potential as well with a large increase in immigration to the city. Montreal’s housing prices have remained much more affordable, increasing its attractiveness.
In contrast, in Toronto and Vancouver, house prices are rising faster than average salaries and affordability has become a concern. “Toronto has gone from a Lexus to a Lamborghini,” proclaimed Ben Myers. “It doesn’t matter how hard you work, the average family is never going to be able to afford a Lamborghini.”
Even with a large supply of newly constructed residential units in Toronto, there was a 40% decrease in the supply of low-rise housing in 2015. With high-rise condos making up the majority of newly developed units and low-rise house prices continuing to increase, the desire for urban condos and rentals has increased. As a survey by Fortress Real Development indicated, 92% and 97% of condos completed in 2015 and 2014 respectively, have been sold.
As house prices rise, an increasing number of people are looking at renting as a more affordable option – 45% of renters are between 25 and 44 years of age, according to Warren. Myers concurred, noting that high levels of new rental units are under construction.
With the Canadian Dollar falling relative to the US and EU currencies, Canadian real estate has become more affordable to foreign investors, with increasing European, Asian and Latin American investors. According to Blake Hutcheson, $1 billion of the $20 billion of last year’s real estate investments came from abroad.
As larger Canadian developers diversify globally, this has allowed smaller local players and private foreign investors to get more involved. Over the past year, only 28% of land sales have been purchased by top 25 developers, while 39% of sales transactions are from smaller developers.
As stated in PwC’s research, spending on technology has continued to grow. For example, $59M was spent on Building Automation Systems (BAS) last year. Hutcheson explained that for Oxford “technology spending on operations is a huge competitive advantage today.” Improved operational efficiency from more advanced BAS helps to reduce costs and added value from big data further helps to drive better decision making and leads to improving the bottom line.
Oxford’s investing model is focused on Class A office in urban areas, especially in Toronto’s financial district where construction is increasing and vacancy rates are low. Hutcheson envisions office space to become more collaborative, while Warren forecasts office space to condense down to 100 square feet per person.
The current state of Canada’s real estate market does present a significant and unique opportunity for domestic and foreign investors as they can gain from the 45% of renter between 25 and 44 years of age (millennials/young professionals/young professionals with families) that consider renting to be a more affordable option. “Samuel C. Anyanwu”
Canada’s real estate market outlook is overall very positive as both commercial and residential development increases, people are coming to Canada to buy real estate, immigration is up and housing is in demand. Canada continues to be an attractive market and a great place to invest heading into 2016.
Main Source: ULI Toronto News.