Canadians involved in the real estate industry are significantly more optimistic about its 2021 prospects than their American counterparts, according to PwC real estate research director Andy Warren.
Warren said 83 per cent of Canadian respondents to the Emerging Trends in Real Estate report think 2021 will be a good to excellent year, compared to 55 per cent in the United States. He believes this is probably based on how well the two countries have handled the coronavirus pandemic. COVID-19 has definitely shifted attitudes, however, and Warren said the “reliance on ‘that’s the way we’ve always done it’ is changing.”
Warren gave an overview of the 42nd edition of the report, which included Canada for the 16th year, during an online forum held in collaboration with Urban Land Institute (ULI).
The PwC/ULI report provides an outlook on real estate investment and development trends, real estate finance and capital markets, property sectors, metropolitan areas, and other issues throughout the U.S. and Canada. More than 1,600 survey respondents and 1,350 interviewees contributed to the findings, including investors, fund managers, developers, property companies, lenders, brokers, advisors and consultants.
Companies are reimagining their portfolios and considering what strategies will succeed in this time of uncertainty.
Forty-four per cent of survey respondents feel comfortable making long-term strategic decisions in today’s environment, while 92 per cent agree some changes due to the pandemic will be permanent even after the development and distribution of an effective vaccine.
Outlook for primary asset classes
The industrial asset class has been a strong performer and it’s touted to continue as the best bet for real estate investment in 2021. The sector benefits from expanding fulfillment and last-mile delivery sites due to the growth in e-commerce.
Global supply chains have been disrupted by the pandemic and Warren expects more production to occur closer to the final place of distribution, which should give industrial facilities a further boost.
“Multifamily is going to be there as long as we have affordability issues,” said Warren, citing a need for affordable housing for different groups of people in different locations.
Retail and hospitality were the real estate sectors people were most concerned about in the spring because they were hit hardest by COVID-19 shutdowns and restrictions. While some of those have been lifted, these sectors are still suffering.
The pandemic has accelerated retail restructuring. Retailer bankruptcies have accelerated during the COVID-19 crisis and store closures will shuffle shopping centre rent rolls.
Warren said successful retail will require incorporating the best assets of brick-and-mortar and online formats, and strong retailers will consolidate in the best locations.
The office sector is raising questions, partly attributable to health concerns and an increase in remote working. Medical office properties, however, are expected to remain attractive.
“It’s not going anywhere and demographics are a good tailwind for it,” said Warren. “We’re seeing a need to put it where the people are, so we’re going to need more of it in different places.”
The rise of niche assets
Investors are looking harder at niche assets that show promise, including single-family rental housing, life sciences, self-storage, production studios and data centres.
Single-family rental housing is more common in the U.S., particularly where excess land near big cities is available, but Warren believes it could make more inroads in Canada as people look to exchange small apartments for more space during the pandemic — either to work from home or get outdoors — even if they’re still renting.
With aging populations and heavy funding going to finding a COVID-19 vaccine, research and development space to serve the life sciences industry is a growing investment and development opportunity.
Montreal is an example of a Canadian city that’s created a vibrant cluster of life sciences activities.
As people grapple with space constraints at home during the pandemic and more multifamily housing continues to be built in Canada, demand for self-storage is expected to grow stronger.
Television, film and online production studios have good prospects, given the popularity of streaming services during the pandemic and the need for companies to quickly replenish content.
Impact of remote working
Attitudes are changing about working from home now that more are doing it and it’s generally working. This is also reducing commuting and potentially improving work-life balance.
“If I’m not spending as much time commuting, do I think about maybe living further out where I can get more house for my money?” Warren said.
While there will be a move away from heavy collaboration involving people working in tight groups and areas in offices, it may not mean less space will be needed due to physical distancing measures.
Fifty-one per cent of survey respondents expect to require more office space in three years than they have now, due to both an increased desire for more physical distancing between employees and company growth.
Forty-three per cent agreed companies will look for locations with lower density.
“The office isn’t going away,” said Warren. “The office has been in place since the 1700s and is still serving a function.”
Changing role and impact of technology
Ninety-three per cent of survey respondents believe the pandemic will accelerate the use of technology in their companies’ broader operations. Necessity will become more important than the fear of missing out when it comes to technology, according to Warren.
Among the biggest areas of technology investment have been: solutions to ensure business continuity; customer engagement and sales; tools to manage cost and efficiencies; construction technology; data analytics; cyber-security; and upskilling the workforce.
PwC and ULI
PwC is a multinational professional services network headquartered in London.
It has more than 275,000 employees in 158 countries delivering assurance, advisory and tax services. PwC has more than 7,850 partners and staff members in offices across Canada.
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.