A new report by PwC Canada and the Urban Land Institute (ULI) says real estate affordability and land supply are the No. 1 concern of developers, lenders and other real estate industry people interviewed for the annual Emerging Trends in Real Estate report.
It says the real estate sector is carefully monitoring recent tariff negotiations around steel and rising interest rates, which could further exacerbate affordability issues for Canadians.
The report says all levels of government need to increase their focus on the supply side of the land, not just demand. It says markets like Edmonton and Montreal managed to bring new housing supply into balance with rising prices, but markets like Toronto and Vancouver have yet to do so.
“Dealing with the affordability issue is a shared responsibility between government and developers. While government addressed demand by introducing measures like tighter mortgage rules and foreign taxes, they neglected the supply side,” says Frank Magliocco, national real estate leader, PwC Canada. “Reducing regulation and making more land available for development in a timely manner will help address the affordability issue.”
The proportion of household income needed to service the costs of a single-family home grew to 53.5 per cent in the first quarter of 2018, with Vancouver leading the charge at 119.3 per cent, says the report. High housing costs are pushing Canadians, especially millennials, to abandon the dream of owning housing in the city for the suburbs or other markets for more affordable housing, it says.
Richard Joy, executive director at ULI Toronto says, “The real estate industry is at a crossroads where it needs to work with many other sectors in order to thrive in the future. We’re seeing more and more collaboration between architects, construction companies and the technology sector working to redefine how Canadians live.”
On the commercial real estate side, coworking spaces and flex office space continue to see an upward trend and are forecasted to make up 30 per cent of corporate real estate portfolios by 2030.
“Creating a coworking space isn’t so much about cost as it is building a community and sharing experiences and knowledge between different people and industries,” says Magliocco.
The multi-family apartment sector continues to be a strong performer but segments of the retail sector are continuing to struggle and are forced to reinvent themselves. The industrial sector continues to perform well and with Canada’s legalization of recreational cannabis is set to provide opportunities across the country as emerging companies look to find industrial space to grow the plant and retail space to sell product, says the report.
Senior lifestyle housing is among the top development prospects for the next year. There are now more Canadians over the age of 65 than those under the age of 15. In 2017, 31 per cent of Canadians aged 85 and older lived in collective dwellings, a number that is expected to grow.
The report says the emergence of proptech, which covers everything from new lending services to investment platforms and digital brokerages, is another area to watch. According to the report, proptech is forecasted to add US$5.2 billion in new investment globally across 454 equity deals in 2018, after reaching a record US$3.4 billion in 2017 across 367 deals. However, only 10 per cent of CEOs in global real estate are concerned about the speed of technological change.
“While the intersection of real estate and technology has been slow until now, we have seen a significant change in interest and focus in the proptech industry here locally and globally,” says Magliocco.
Drones were the top commercial real estate disrupter identified in the report. There is potential in using drones to show job-site progress and others are looking to integrate docking stations into communities to accommodate last-mile delivery needs. Autonomous vehicles, cybersecurity and construction technology were also identified as top technology real estate disruptors.
The report says the top five markets to watch in 2019 are Toronto, Vancouver, Montreal, Ottawa and Quebec City.