If there has been one common theme throughout 2020, it has been uncertainty.
From the surge in e-commerce and its impact on commercial spaces, to the rise of the remote workforce impacting vacancy rates and investment in home offices, this year has quickly taught us the importance of embracing uncertainty and looking for opportunities in the face of adversity.
As we look to the new year, we have learned that to identify these opportunities and make a difference moving forward, it’s important to focus on the information available to us and what we can control.
What do we know about commercial real estate?
Traditionally, Canadian commercial real estate has been viewed as a relatively safe, low-risk investment.
However, the significant economic uncertainty and pandemic-driven safety measures such as lockdowns, physical distancing regulations and capacity limits have changed the projected trajectory of the commercial landscape in the near, and potentially long, term.
On one hand, the commercial market is seeing retail stores close their doors due to forced lockdowns. In turn, lost revenue as well as a growing consumer shift to online option is triggering increasing demand for industrial properties.
On the other hand, many businesses that have successfully transitioned to a remote workplace are assessing the future need for physical office space and considering a shift to a hybrid or entirely remote setting moving forward. Still others will wait to see how society adjusts in the coming months to make these types of decisions.
While some government measures are in place to help businesses that have experienced a significant drop in revenue in most of these situations landlords are still not made whole.
Additionally, the majority of these measures are only short term, meaning that unless the economy significantly picks up property owners may be forced to sell or restructure existing debt – if that option is available to them.
However, it’s not all bad news for the commercial sector. Industrial properties and warehouses will continue to thrive as the surge in e-commerce persists, further fuelling the need for these types of spaces.
The same can be said for multifamily buildings, which have seen an increase in investment activity since the start of the pandemic and is a segment that is expected to continue experiencing high demand as immigration picks up.
What do we know about residential real estate?
Unlike the commercial landscape, residential real estate has always been inherently cyclical and accustomed to a degree of uncertainty and risk. While the pandemic has added a new level of uneasiness and tightening in the market, the reality is that the fundamentals do not change.
Major cities known for having ample employment opportunities inherited large populations as Canadians attempted to ease their daily commute by living closer to their physical office.
However, the emerging remote workplace has opened new possibilities for Canadians and has resulted in many trading in smaller spaces in urban markets for larger spaces in suburban or rural communities.
As well, if we see an increase in interest rates in the new year, that could lead to an influx of buyers racing to enter the market before rates climb in an effort to avoid higher borrowing costs than the record lows the market is currently experiencing.
A spike in interest rates also has the potential to add risk, meaning previously low-risk borrowers may now be considered higher-risk. This creates new obstacles for first-time homebuyers or homeowners looking to refinance their mortgages.
Finding opportunity amid uncertainty
Trying to make sense of the uncertainty in 2020 isn’t easy, but it’s important to focus on the things we can control.
At FCT, this year has taught us to prioritize two things: safety and innovation. We remain committed to supporting the health and safety of our customers, partners and employees, and to explore new ways to leverage technology to improve and transform the real estate industry as we continue to adjust to our new reality.
As we look forward to 2021, we need to continue to embrace the unexpected and look for opportunities in the face of uncertainty.
It will be a year of transformation and real estate professionals who closely monitor the market and shift strategies to stay ahead of new and emerging trends will have the advantage