If your commercial real estate holdings “solve a problem,” those properties will continue to experience strong demand according to the Urban Land Institute (ULI) and PwC’s 41st edition of the Emerging Trends in Real Estate 2020 report.
The annual survey drew responses from more than 2,250 North American real estate industry leaders. PwC director of real estate research Andrew Warren discussed the findings at an Oct. 4 event at The Carlu in Toronto.
Warren said there was a small rise in the percentage of respondents (23 per cent) who were less than positive about the coming year, matching the number of participants who believed 2020 would be good to excellent. Of those who had lower expectations, the primary concerns were economic growth, fundamentals, governments, capital markets and strategy shifts.
Warren said navigating political policies and geopolitical uncertainty is becoming more complicated as global economic growth slows and international trade wars loom large.
Expected 2020 issues and trends
The report predicts major issues for the North American real estate industry in 2020 will likely be: job and income growth; regulations; qualified labour availability; the cost of construction, construction materials and land; housing costs and availability; the political landscape; and immigration.
“These are problems that aren’t necessarily new, but the industry is beginning to look at them with a different eye towards the future,” said Warren.
The report anticipates the top property types for 2020 being industrial, rental housing, seniors housing and office.
“I’m not sure if there’s anywhere in the world where industrial may not be the top property type,” said Warren.
Similarly, he advised the best real estate bets for 2020 will be warehousing and fulfillment, seniors housing, affordable apartments and transit-oriented developments.
“If you can solve a problem, it’s probably going to be your best bet in 2020,” he said.
The top Canadian real estate markets in 2020 are expected to be Toronto, Vancouver, Montreal, Ottawa and Halifax. While those first three shouldn’t be a surprise, the last two might be.
“What we’re seeing all across North America is that gateway cities are very competitive, so people are looking for a good alternative,” said Warren.
Warren emphasized real estate is no longer just about space, but also how that space is used. One workspace doesn’t fit all work and office tenants want space which can address different goals.
“We used to like the idea of working remotely,” said Warren. “Now there’s been a shift to ‘How can I make it so nice that people will want to be in the office?’ ”
E-commerce is replacing some existing retail, but retail space is also becoming a new form of distribution and fulfillment space.
Technology enables every dwelling to become a hotel, by renting a home or room to short-term tenants.
“We’re seeing apartment complexes being built now with part of the units being dedicated to short-term, night-by-night and week-by-week accommodation,” said Warren.
Meanwhile, in reference to the dark financial cloud hanging over WeWork, Warren said hotels are now providing co-working access. Unused retail space can also be utilized as an office suite or co-working location.
“No longer is your competition for office space the building next door. It could be the strip centre in a neighbourhood where your workers live.”
Affordable housing and proptech
Multiple solutions are needed on both sides of the supply and demand equation to provide additional affordable housing, Warren said. The real estate industry will need to take a leadership position.
Populist sentiment makes it likely the market could experience more regulation. Unintended consequences which arise could make the problem worse.
While Warren said the number of property technology (proptech) deals have levelled off from 2018, the investment dollars per deal have risen.
He looks forward to 5G technology enhancing Internet speed and reliability. The upgrades will also enable increased broadband access, autonomous vehicles, smart infrastructure, control of remote devices, quiet space for individualized work, machine learning and an enhanced Internet of Things.
ULI and PwC
ULI has more than 40,000 members and is the oldest and largest network of cross-disciplinary real estate and land use experts in the world.
The non-profit research and education organization provides leadership in the responsible use of land and in creating and sustaining thriving communities worldwide.
ULI’s 2020 spring meeting will welcome 4,000 members to Toronto from May 12-14.
PwC is a multinational professional services network headquartered in London.
It has more than 250,000 employees in 158 countries and had revenue of US$41.3 billion in 2018. In Canada, PwC has more than 6,700 partners and staff members.