The Canadian real estate industry is facing both significant challenges and new opportunities.

Housing supply and affordability issues are top-of-mind for many people, while retail, student and seniors housing, self-storage and industrial properties are demonstrating resilience and, in some cases, outperforming expectations.

These topics and more are explored in PwC and Urban Land Institute’s new Emerging Trends in Real Estate report, which was compiled from information provided by hundreds of surveys and interviews with industry leaders.

The report was launched at a recent event at Toronto’s Fairmont Royal York that featured industry executives sharing their thoughts on the state of the market and where they see it going.

“Financing costs, together with tariffs, are making underwriting pro formas very challenging,” said PwC Canada partner and national real estate tax leader Fred Cassano. “Capital was being deployed cautiously, with a focus on operational discipline.”

“What I've seen in the last couple months is a real pick-up in activity and competition,” said KingSett Capital chief investment officer Colin Baryliuk. “We're seeing multiple bids for all asset classes.”

More emphasis on purpose-built rental apartments

Developers are pivoting decisively from condominiums to rental apartments and leveraging Canada Mortgage and Housing Corporation programs, municipal incentives and new financing structures. 

Hazelview Investments managing partner and chief executive officer Ugo Bizzarri doesn’t expect many new condo launches for the next five to seven years. He also expects the housing affordability crisis to worsen due to a lack of supply in the next few years. Hazelview plans to be active in development to do its part to ease the shortfall.

Fiera Real Estate Canada head of real estate development Kathy Black said the majority of developers this year have adopted a “reset and reposition mentality and are taking a look at what it is that you have and how to reposition it, whether it be condo conversions to purpose-built rental or delaying launches.”

Residential rents have softened in some urban areas as supply from construction started earlier in the decade arrives, but mid-market and family-sized units remain scarce and in demand. Black said longer-term average rent increases of four to five per cent will return.

Markets to watch

Calgary is the top market to watch due to its affordability, net migration and record home-building, as well as its location in a business-friendly province with industrial momentum and no residential rent controls.

Bizzarri said Toronto, Vancouver and Montreal still look good for the long term, while other cities can vary from year to year.

Vancouver ranked a surprisingly low eighth in the report due to high costs, the slump in condo sales and constraints related to housing supply and government policies.

Black said she was shocked Vancouver was ranked so low because Fiera has a lot of buildings being developed in the region. 

Black also highlighted the large residential rent increases her company enjoyed in Edmonton last year and said Fiera is exploring Halifax in particular, and Atlantic Canada in general, for multi-family expansion.

Retail and seniors housing are good bets

Grocery-anchored and open-air retail continues to outperform expectations.

“Limited new construction has put space at a premium and some landlords cited vacancies as sometimes being a good idea to help reset rents,” Cassano said. “Experiential centres or entertainment are reinvigorating properties."

Seniors housing and medical office buildings are gaining momentum as demographics and policy measures shift care delivery.

Fengate Asset Management established Seasons Retirement Communities in 2009. It currently owns and operates 25 retirement communities across Ontario, Alberta and British Columbia, with more developments underway.

“Seniors are living longer and they're expecting a better quality of care and quality of life,” said managing director of asset management John-Bosco Agbasi, who believes Seasons is meeting those needs through a range of care and wellness services.

Other trends from the report

Here are some other key sector trends featured in the report:

• Prefabricated and modular construction methods are central to accelerating housing supply under initiatives like Build Canada Homes, but questions remain about their full potential being realized.
• With traditional equity and bank debt constrained, private real estate investment trusts, family offices and private debt are filling the gaps and creative structures like performance-based land pricing and vendor take-back mortgages are bridging bid-ask spreads. 
• Real estate companies are realizing measurable gains in leasing, pricing, maintenance and security through the use of artificial intelligence.
• Self-storage facilities are benefiting from urban densification.
• While the explosive growth from earlier in the decade has slowed, industrial remains a solid asset class and demand for small bay properties is strong.
• Data centre opportunities persist where power and land can be secured via partnerships.