Emerging Trends in Canadian Real Estate 2017

Building communities for the future

Frank Magliocco

Partner, National Real Estate Leader
PwC Canada

Investors, developers and property owners are cautiously optimistic about the Canadian real estate market’s outlook for the year ahead. While the rest of Canada faces challenges unique to individual regions, Toronto and Vancouver’s markets continue to experience high demand due to a lack of supply. This has driven up prices and caused affordability concerns. But the main message is that every regional market offers opportunities for savvy developers and investors—as long as they embrace technology and anticipate their future buyers’ needs.



It’s about building communities


Canada’s urban populations are set to continue to grow and their needs are evolving. There’s a growing consensus that developers have responded by continuing to rethink their approach to mixed-use projects.  


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Affordability on the decline


Housing affordability has become a point of concern in Canada. Significant increases in immigration over the next five years will continue to keep demand high and put even more pressure on affordability unless more supply is made available. As well, a common issue in nearly all regions was municipal red tape and lengthy approval processes, which are also limiting supply and driving up costs.


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Technology disruptors


Technology is changing expectations and how they interact with potential tenants. As one respondent said, “We’re getting to the point where if people don’t recognize technologies are existing and, moreover, how to integrate them, opportunities are being missed.”  


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Economic outlook


Canada’s economic performance appears to have rebounded from a weak 2015. The country’s economy continues to realign itself in the wake of falling oil and other commodity prices, as job losses in the natural resources sector have been offset by employment gains in manufacturing and construction. According to the Conference Board of Canada’s Metropolitan Outlook 1, Spring 2016, national GDP is forecast to grow to 1.7% in 2016 and 2.3% in 2017—and stay above 2% through 2020.

Housing starts nationally are forecast to fall to 184,500 units in 2016, down from 194,700 and below the 20-year average, according to the Conference Board of Canada. Housing affordability, weak income growth and high consumer debt levels are all contributing to the dip in residential.



Property type outlook

While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessment. 




As urban cores flourish in cities like Toronto, Vancouver and Montreal, businesses have followed the talent, relocating to the latest Class A space in the core or near transit hubs. Halifax bucks this trend, building its Class A space outside the core. It’s a different story elsewhere. In Calgary, the combination of the oil and gas downturn and oversupply is driving high vacancy rates, as the oil and gas sector slows. Ottawa, hit hard by government spending cuts in recent years, has seen its office vacancy rate reach 25%, an all-time record.

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The outlook for industrial property is largely positive. The ongoing growth of online shopping is driving demand for fulfillment centers, as retailers clamor for distribution centers with the high ceilings they need for modern logistics. The resurgence of Canada’s manufacturing industry, after a difficult period of consolidation and retrenchment, is also creating new demand.

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Demand for condos remains robust in Toronto and Vancouver, driven by urban migration and domestic and foreign buyers seeking investment properties. But condominium activity is expected to be more subdued across the rest of the country. Montreal continues to absorb oversupply in its condo market; Quebec City shows little interest in condominiums, preferring rentals. In Calgary, comparatively affordable house prices and land supply continue to dampen condominium growth in that market as buyers opt for single-family homes instead. 

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The retail industry remains in flux, challenged by the ever-grow­ing influence of online shopping, changing customer behaviors and expectations, and the influx of new players from the United States and elsewhere. Changing demographics are changing how people spend their money. Developers hope to turn shopping into an experience because consumers, while much smarter now with e-commerce, still crave interaction.

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Single-family residential

Respondents remain aware of widespread concerns over the lack of affordable housing, especially single-family homes where price increases are outpacing wage growth. In hot markets like Toronto and Vancouver, mortgage-to-income ratios are forecast to remain well above the Canadian average in 2017 (See Exhibit 1-5 in report). In these high-priced markets, as supply of single-family residential units is constrained, an opportunity exists for the condominium and rental markets to reach those priced out of home ownership.   

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“We aim to cluster various best-in-class operators within proximity of one another—residents, office workers, and traditional retail—to create a unique urban environment that people from all over want to go and enjoy.”


Markets to watch in 2017

Vancouver is expected to lead all Canadian cities with 3.3% in GDP growth in 2017, while Toronto’s economy remains healthy and growing, with construction, transportation, warehousing, retail, wholesale and manufacturing all contributing to this growth.  


Vancouver is expected to lead all Canadian cities with 3.3% in GDP growth in 2017 propelled by strong employment gains and rousing housing starts. Most of these starts will be multifamily units as developers focus on building mixed-use developments and high-density condos. It remains to be seen how the British Columbia government’s additional property transfer tax for foreign buyers will affect the Vancouver market over the long term. While intended to curtail foreign property investment, skeptics suggest the tax will do little to dissuade foreign buyers who can already afford the market’s sky-high prices. Millennials are driving up Vancouver’s rental market, searching for new, higher-quality units near amenities and close to transit. Rental units are in incredibly short supply, with vacancy rates consistently around or below 1% for the past five years. Another emerging challenge is the lack of amenities from stores to schools in the downtown core.

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Toronto’s economy remains healthy and growing, with construction, transportation, warehousing, retail, wholesale, and manufacturing all contributing to this growth. According to the Conference Board of Canada, Toronto’s construction sector growth achieved a 14-year high thanks to a 46% rise in housing starts—most of those multifamily units—with GDP forecast to remain steady at 2.6% in 2016 and 2017.

The residential market generally remains strong, with solid sales volumes and rising prices, buoyed by a strong local economy, steady immigration, and low interest rates. The lack of supply and available land is seen as a key factor contributing to the market’s rapidly rising house prices. Due to the high cost of moving, more homeowners are choosing to stay put and invest in renovations. Many respondents believe that government land use policies are a factor holding back supply.

Toronto’s condominium inventory has hit a ten-year low and demand remains strong, so respondents expect to see more high-rise multiresidential projects enter the pipeline in the years ahead.

Retail is viewed as the most troubling segment of the market. Online commerce is putting enormous pressure on retailers and retail property owners alike.

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Montréal’s economy is poised to achieve its best growth in five years, with manufacturing, financial services, and business services all having a healthy outlook. The region’s GDP is projected to stay at a stable 2% in 2016 and 2.1% in 2017, according to the Conference Board of Canada. Despite high vacancy rates for office space—11% down-town and 17% in the suburbs as per the Conference Board of Canada—demand for Leadership in Energy and Environmental Design (LEED) certification and upgraded technology remains high.

Montréal continues to absorb the city’s condo stock, and “pure” condominium plays have given way to mixed-use developments. More of these are on the horizon, especially around transit hubs, and the trend is increasing cooperation between investors and developers.

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Ottawa’s economy is expected to grow modestly in 2016 and beyond as the city recovers from government spending restraints that have resulted in the loss of thousands of public service jobs. GDP is projected to grow 1.6% in 2016 and 2.1% in 2017, according to the Conference Board of Canada. Respondents said they’re focused on smart development and plan to intensify where communities already exist. As Ottawa’s major transit rebuilding effort progresses over the next ten to 15 years, respondents anticipate that the city’s real estate market will regain momentum, driven by the rise of high-density mixed-use developments focused around key transit hubs.

The residential market is seeing little movement. Demand for new homes is down sharply since there aren’t enough families interested in buying single-family homes. Ottawa housing starts have fallen for three straight years, and some developers are currently shelving their development plans for up to five years.

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Québec City

Québec City should see improved economic growth this year on the strength of an improving manufacturing sector and the continued strength of its finance, insurance, and real estate sectors. The city’s GDP is projected to grow 1.9% in 2016 and 2.1% in 2017, according to the Conference Board of Canada.

Demographic trends are changing the Québec City market, as boomers liquidate assets and move into rental units to preserve their capital outside of real estate. Millennials also are keen to rent in order to preserve a degree of personal mobility and flexibility, opting for units close to transit and service-oriented neighbourhoods.

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Edmonton’s GDP is expected to contract slightly in 2016, as low oil prices contribute to slower activity in a number of sectors. The local real estate market has softened as a result, but the city still remains stronger than other Alberta markets; infrastructure spending and the redevelopment of the downtown core have helped mitigate the impact.

It remains to be seen exactly how the real estate markets will be affected by the Fort McMurray wildfires outside Edmonton earlier in 2016. So far, the impact has been unexpectedly moderate, and residential prices have remained relatively stable rather than dropping or rising sharply.

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The sharp drop in oil prices pushed Calgary’s economy into recession last year, and further contraction is expected this year. GDP growth in 2017 is forecast at 2.1%, with less than 1% employment growth.

Despite this, owners are not in any hurry to sell. Calgary’s real estate market has seen booms and busts before, so respondents believe that developers and investors aren’t in a hurry to sell existing assets or exit the market. As national banks pull back on their investment in the region, regional banks familiar with Alberta’s market understand the opportunities and are getting more involved.

Calgarians continue to resist condominium living, as comparatively affordable house prices attract prospective buyers to suburban residential homes. But signs exist that this attitude may be changing. Millennials in particular are prioritizing value, quality, and maintenance-free living over square footage and yard sizes—a shift that is driving interest in smaller residential properties and upscale townhouses.

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Expected best bets for 2017

Given the state of the markets across Canada, where should developers and investors focus their attention? Our survey and conversations suggest the most promising moves can be made in the following areas.

Industrial property

In the current market, industrial bets are widely seen as the wisest as the growth of online shopping creates more and more need for distribution and logistics hubs. While some worry it’s tough to find property suitable for development, others point out that it’s getting harder than ever to squeeze value out of office and residential developments.

Urban mixed-use developments

As millennials and boomers alike flock to urban cores in search of a vibrant lifestyle, convenience, and proximity to work, respondents believe that the market for mixed-use properties combining residential, retail, offices, and more is a solid play. Increasingly, developers will move away from viewing projects as one-offs independent of their surroundings, in favor of building complete neighbourhoods.

Purpose-built multifamily rentals

With rentals gaining in popularity thanks to rising house prices and demographic shifts, coupled with aging housing stock across the country, the market for purpose-built, multifamily rentals is better than it has been in years. Our survey shows that developers and investors increasingly sense the opportunity and are keen to get new rental projects going, provided the economics work.

Seniors’ housing/retirement homes

A number of respondents, sensitive to the potential in an aging yet wealthy boomer population, believe investing in retirement homes and other senior housing will be a growth opportunity over the long term. Whether they can do so at the scale needed to deliver both care and desired profits remains to be seen.


For a deeper conversation about emerging trends in Canadian real estate, please contact our national real estate leaders:

Frank Magliocco

Partner, National Real Estate Leader
Tel: +1 416 228 4228 | E-mail

Miriam Gurza

Managing Director & National Real Estate Consulting Leader, Consulting & Deals
Tel: +1 416 687 8143 | E-mail

Chris J. Potter

Partner, National Real Estate Tax Leader
Tel: +1 416 869 2494 | E-mail