Markets to watch: snapshots

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Vancouver

According to the Conference Board of Canada (CBoC), Vancouver’s economy is forecast to grow 2.5% in 2018, continuing a steady upward trend seen in recent years. The CBoC cautions that federal and provincial governments’ respective measures to cool the housing market and the drop in the Vancouver resale market in spring 2017 may contribute to a weaker outlook in the near term. But there are also signs that the market is shrugging off the foreign buyers’ tax: the benchmark price for condos rose 19.4% between August 2016 and August 2017, according to the Real Estate Board of Greater Vancouver—though detached home prices rose only 2.2% over the same period.

According to the survey, investor demand and redevelopment opportunities in Vancouver are the highest in Canada. But regional developers and investors anticipate they’ll be more conservative in 2018 due to the impact of policy changes and interest rate hikes. As a result, industry players are preparing for an “eventual downturn” by focusing on operational efficiency, maintaining the status quo by holding off on acquisitions and being more selective and patient when building their portfolios. Vancouver is a seller’s market, observed one interviewee, and that’s driving companies that won’t stay still to move fast to avoid missing opportunities. Overall, interviewees were bullish on industrial and commercial property, as those types “require less management than residential,” as well as mixed-use and residential in “second-core” areas.

In Vancouver, people are split over solutions to the region’s spiralling real estate prices and rents. Some in the region advocate that the government needs to embrace more radical thinking. Housing affordability was a top issue in British Columbia’s 2017 election. During the campaign, the NDP even promised to build more than 100,000 affordable rental, non-profit and co-op housing units over 10 years. Others feel the approvals process for new projects, including condo projects, takes too long and is too expensive—and that housing supply could increase significantly over the short term if municipalities sped up the process and reduced fees.

 

Highlights

  • Survey respondents rank Vancouver the No. 1 market to watch in Canada for investment prospects.
  • The benchmark price for condos rose 19.4% between August 2016 and August 2017.

  • Investor demand and redevelopment opportunities in Vancouver are the highest in Canada.

  • Housing affordability was a top issue in British Columbia’s 2017 provincial election.

  • Vancouver’s economy is forecast to grow 2.5% in 2018.

 

 

“It’s more and more a seller’s market, and speed is increasingly important—which will be challenging for finding good deals and executing.”

Calgary

The CBoC expects Calgary’s economy to grow for the first time in three years: GDP was forecast to grow 2.3% in 2017 and 2.2% in 2018. Certainly, the federal and Alberta governments have been spending billions to try and jump-start the local economy, including two new schools, the Calgary Cancer Centre and the Green Line light-rail transit (LRT) project.

The return of growth is welcome news to real estate industry players, who have been biding their time. “We slowed down our development efforts and are more focused on getting current projects completed before we invest in others,” remarked one interviewee, who added that their company has remained on the lookout for potential opportunities.

But it’ll take some time for construction activity, which has suffered mightily in the past two years, to pick up beyond the work already underway. Residential building in Alberta—and Saskatchewan and Newfoundland and Labrador—ebbs and flows in close sync with oil prices. The CBoC anticipates that oil prices will rise from $53 to $70 per barrel over the next five years, which suggests residential construction may take a while to hit its stride again. Looking ahead, some have suggested there will be opportunities in addressing the lack of supply in retirement housing in and around Calgary.

To date, foreign ownership of real estate hasn’t been an issue in Calgary—or Alberta more widely. But there are hints of frustration about the unwillingness of Toronto’s lenders and investors to support Alberta projects. Luckily, Western Canadian players have been able to step in to keep funds available.

Highlights

  • Survey respondents rank Calgary the No. 9 market to watch in Canada for investment prospects.
  • The GDP is forecast to grow for the first time in three years—up 2.2% in 2018.

  • Growth is good news to industry players, who have been biding their time.

  • Interviewees suggest there will be opportunities to address the lack of supply in retirement housing.

 

 

“We slowed down our development efforts and are more focused on getting current projects completed before we invest in others.”

Edmonton

Rising oil prices have helped Edmonton pull out of its economic slump and return to growth. According to the CBoC, the city’s economy was poised to grow 2.4% in 2017 and forecast to expand another 2.2% in 2018.

In the core, the city is still grappling with an abundance of Class A office space—vacancy rates are near 20% by some estimates, and property owners are pulling out all the stops to attract tenants with a variety of incentives. Expectations are that it’ll take 7 to 10 years for the market to absorb all the new office space. In the meantime, pressure is growing on owners of Class B and C buildings to either redevelop or simply demolish and rebuild. There’s also opportunity in residential, with several condo complexes under construction and the entertainment scene improving.

The Edmonton market is still working through an oversupply of new homes, which will keep new starts down in 2017 before they rebound slightly in 2018. Edmonton builders started construction of 17,000 new homes in 2015, at the start of the downturn. That figure dropped sharply to 10,000 new homes in 2016. For now, builders are largely waiting until their inventories of new and unsold homes shrink before embarking on new builds. In 2017, housing starts were expected to slip to 9,800 before edging up next year as the recovery takes hold.

Highlights

  • Survey respondents rank Edmonton the No. 7 market to watch in Canada for investment prospects.
  • The economy is poised to grow 2.2% in 2018.

  • In 2017, housing starts were expected to slip to 9,800 before edging up next year as the recovery takes hold.

  • The city faces an abundance of Class A office space, with pressure on owners of Class B and C buildings to redevelop or rebuild.

 

 

“The downtown residential market is strong. We’ve reached critical mass in residents now that the entertainment scene is improving rapidly.”

Winnipeg

Winnipeg continues to perform well economically: after achieving 2.6% growth in 2016, local real GDP was forecast to expand 2.2% in 2017 and 2.3% in 2018, according to the CBoC.

Though there’s still weakness in the residential sector, it’s offset by an abundance of non-residential activity. The $467-million Southwest Transitway will link the University of Manitoba to the downtown, and it’s reasonable to assume this transitway will come to be a focus of development in the years to come. Work on the $400-million True North Square, a four-tower mixed-use project in the downtown core, continues as well. On top of this, construction is expected to start on the 45-storey SkyCity Centre mixed-use tower development and a new $165-million, 40-storey apartment building at the corner of Portage and Main. This latter development, slated for completion in 2020, will house retail and office space in addition to rental units.

 

Highlights

  • Survey respondents rank Winnipeg the No. 5 market to watch in Canada for investment prospects.
  • The economy is forecast to expand 2.3% in 2018.

  • The $467-million Southwest Transitway will link the University of Manitoba to the downtown.

  • Construction is expected to start on the 45-storey SkyCity Centre mixed-use tower development.

 

 

Saskatoon

After two years of slumping performance, Saskatoon’s economy is expected to rise 1.7% in 2017 and 2.3% in 2018, according to the CBoC. That’s good news for the local real estate and construction sector, which experienced a sharp downturn through 2015 and 2016 thanks to sagging residential activity and weak commodity prices.

Not that residential activity is picking up any time soon. Unsold inventory of single-family homes is easing but still large, and there’s little sign the situation will improve in the near term. Housing starts are expected to fall to 1,600 in 2017 (the lowest since the Great Recession) before rising ever so slightly in 2018. Apartment inventories are particularly high as product started in better times has come on stream. There’s some brighter news on the commercial front, with plans to build World Trade Centre Saskatoon, a $50-million office tower in the downtown core. It should be finished in 2019.

 

Highlights

  • Survey respondents rank Saskatoon the No. 6 market to watch in Canada for investment prospects.
  • The economy is forecast to expand 2.3% in 2018.

  • Unsold inventory of single-family homes is easing but still large.

 

 

Toronto

Toronto’s real gross domestic product (GDP) was expected to grow 2.7% in 2017 and 2.5% in 2018, according to the CBoC. Despite this slight dip in the economic growth rate, there are few signs of problems on the horizon for the region, and the real estate sector will continue to benefit from this robust economic performance. People, particularly millennial singles and couples, still crave the live-work-play lifestyle in the core; companies, eager to be close to talent, are keen to move into new office spaces nearby to fill the new tech and research jobs they’re creating.

Demand will stay high for the best assets, as institutional capital and other investors continue to seek stable long-term plays. But these same investors will be careful about their decisions, because they’re not about to pay too much for new property—not when they could potentially find better yields at better prices elsewhere. Access to capital certainly isn’t an issue, but finding a good place to use that capital is.

Prospective homeowners may disagree, but industry players don’t feel Toronto is too expensive—certainly not in comparison to current world-class markets, including Vancouver. Most foresee continued immigration and investment, foreign and domestic, contributing to upward pressure on prices overall. And while there may be temporary price dips, no one should expect a major pullback on prices—barring an unexpected event that upsets the global economy or a major change in government policy.

Urban intensification will continue, especially in Toronto, where most interviewees noted the GTA will see significant densification efforts this year and beyond. With land supplies tight, companies that want to grow are looking for great locations with “not-so-great” real estate on them. “The biggest thing is to get governments to focus on increasing supply,” one interviewee added, noting that the city needs to coordinate on density and make more supply available to address growth and affordability.

With intensification happening all around Toronto, several waterfront brownfield projects are generating buzz and freeing up land previously closed off to redevelopment. One is the long-term redevelopment of the Port Lands, an 800-hectare parcel of waterfront property east of the downtown core. Further west, developers in Port Credit recently revealed a draft plan for a mixed-use redevelopment of an expanse of vacant waterfront land.

Highlights

  • Survey respondents rank Toronto the No. 2 market to watch in Canada for investment prospects.
  • The economy is forecast to expand 2.5% in 2018.

  • Interviewees say that while there may be temporary price dips, no one should expect a major pullback on prices.

  • The city will see significant densification efforts this year and beyond.

 

 

“Years from now, we may look back at this as a golden era for Toronto—the moment that sparked the city’s ascendance to the world-class short list.”

Ottawa

The Ottawa market is on the upswing. According to the CBoC, after posting 1.6% GDP growth in 2016, the region was forecast to hit 2.3% growth in 2017 and post an average of 1.8% annual growth between 2018 and 2021. The driving force for much of this growth is the fact that Canada’s public service sector has started hiring again after years of staff cuts and hiring freezes. There’s a strong feeling among industry players and observers that the city has turned a corner and is on the cusp of a mini-boom.

The relative affordability of the Ottawa market is luring people to the city from other areas, particularly high-priced Toronto, as millennials and young families search for a better, less expensive lifestyle. Technology companies are expanding or moving into the market as well, eager to capitalize on the influx of talent—and doing their best to attract more people to the city. “Ottawa is a great place to live, work and raise a family,” notes one interviewee. “It sells itself.”

As we’re seeing in other markets, transit investments are shaping development in Ottawa. The $2.1-billion first phase of Ottawa’s LRT is expected to be completed in 2018. Phase 2 is planned to start shortly afterwards and to be finished by 2023. The new transit network is already sparking more intense development at key locations along the line.

Highlights

  • Survey respondents rank Ottawa the No. 4 market to watch in Canada for investment prospects.
  • The Ottawa market is on the upswing.

  • The relative affordability of the Ottawa market is luring people to the city.

  • The $2.1-billion first phase of Ottawa’s LRT is expected to be completed in 2018.

 

 

“Canada 150 has been a significant driver of awareness for Ottawa, putting the city in a positive light.”

Montreal

The Montreal economy is expected to gain momentum after 2016’s better than expected growth. The local GDP was forecast to grow 1.9% in 2017 and 2018, according to the CBoC.

As we’re seeing in other major urban centres, young Montrealers crave living in the core of the city where they can truly enjoy the benefits of the live-work lifestyle: new condo projects are starting to incorporate new amenities to appeal to a new generation, including car-sharing facilities, services to accept e-commerce deliveries and more. Many institutional players have begun divesting older stock properties to focus on new developments aimed at attracting millennial and seniors’ markets. This is putting some pressure on owners of older buildings to compete and contributing to a growing divergence between new and old.

The Montreal office market is also performing well—at least for Class A properties with the technology tenants need. One factor that will help commercial property developers deliver the technology tenants demand is Bell Canada’s $854-million investment to expand its broadband fibre network across Montreal—the province’s largest ever communications infrastructure project. Owners of older, Class B and C commercial properties currently find themselves in a bit of a bind. While the need to refit and redevelop these older properties to suit modern needs is clear, few investors or owners are ready to spend the money needed for the essential upgrades or construction.

Highlights

  • Survey respondents rank Montreal the No. 3 market to watch in Canada for investment prospects.
  • The economy is forecast to expand 1.9% in 2018.

  • Young Montrealers crave living in the core to enjoy the benefits of a live-work lifestyle.

  • The office market is performing well.

 

 

“During each economic cycle, there are opportunities to seize. You must know how to spot them.”

Quebec City

According to the CBoC, Quebec City’s economy is expected to grow 1.9% in 2018, in line with 2017 and up from 1.6% in 2016. Several major non-residential real estate projects are—or will be—contributing to the city’s economic growth. Chief among these is Quebec City’s three-year infrastructure plan, which brought $587 million in investment in 2017 alone. Le Phare de Québec, a four-tower mixed-use project including hotel, concert hall and public space, is anticipated to begin in late 2017. Finally, pharmaceutical firm Medicago has announced a $245-million facility for vaccine production.

With a history stretching back more than 350 years, Quebec City has long been a tourism hot spot, and the city has welcomed two new hotels recently. With residential, housing inventories remain high, which has convinced some home builders to pull back on new projects. Quebec City is undergoing a transformation with regard to densification in office and residential properties. One interviewee said supply is up as “whole blocks of houses” are being demolished to build low-rise buildings. And in the office space, one trend will be trying to absorb the new construction.

 

Highlights

  • The city’s three-year infrastructure plan brought $587 million in investment in 2017 alone.

  • A tourism hot spot, the city has recently welcomed two new hotels.

  • It’s undergoing a transformation with its office and residential properties.

 

 

“The biggest impact on us and our clients is the speed at which society is evolving.”

Halifax

Halifax is set to deliver steady performance in the near term, with forecast growth of 1.8% in 2017 and 1.9% in 2018, according to the CBoC. Yet thriving in the local real estate market takes a skilful hand. As one interviewee put it, “The golden rule of Atlantic real estate is that appreciation doesn’t exist. You have to be a good operator to make money.”

Halifax’s downtown core is booming, and not only because of the one-million-square-foot Nova Centre convention centre, hotel, shops and office towers. There’s a lot of demand in the core for multi-residential, where high-quality, condo-style rental units are proving very attractive. In fact, there’s little appetite for actual condos, as some claimed the combination of condo fees, property taxes and mortgage payments means buyers pay quite a premium over renting a similar property.

Class A industrial property is also performing very well, as the Halifax market adjusts itself to the needs of modern, technology-enabled companies. Of course, as businesses move into Class A space, property owners and investors find themselves holding a lot of Class B and C space in need of redevelopment.

Despite these bright spots, a degree of caution is beginning to creep into the market, as some in the industry grow wary that after 15 years of solid performance, the local market is poised for a slight downturn. Class A office space is leasing well despite much higher prices. There’s growing concern about the oversupply of old office space in the downtown core, but low demand means there’s no incentive to redevelop. While Ikea’s arrival is a boost for the local retail sector, retail remains in the doldrums, though there are hopes that embracing pop-up stores, temporary tenants and more experiential retail can help offset some of the ongoing challenges.

Highlights

  • Survey respondents rank Halifax the No. 8 market to watch in Canada for investment prospects.
  • The economy is forecast to expand 1.9% in 2018.

  • The city’s downtown core is booming.

  • Class A industrial property is performing well, as the city’s market adjusts to the needs of modern companies.

 

 

“The golden rule of Atlantic real estate is that appreciation doesn’t exist. You have to be a good operator to make money.”

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