Emerging Trends in Real Estate® 2020
“While cash flows, cap rates and NPV calculations are always important in real estate, focusing on the customer experience has become a significant priority.”
“The work environment is becoming more playful, more liveable. If you like going there, you’re going to enjoy working there and you’ll stay.”
A major part of the real industry’s success in building for the future lies in its ability to reshape real estate in response to changes in customer habits and expectations and evolving uses of space.
The changes are playing out in large and small ways across the various property types. As online shopping continues to grow in Canada, the need for dedicated space for packages, including cold storage for food deliveries, is an emerging trend in the multifamily residential sector. Some developers are looking to cut the amount of space otherwise dedicated to kitchens or even eliminate standard appliances like ovens.
Co-living is another rising trend in Canada. Blending features of apartments, dorm rooms and hotels, co-living accommodations offer residents the opportunity to have their own space within common living areas at a more affordable price.
While some customers may be willing to give up space or certain features in the name of affordability or a preference for a more communal lifestyle, there’s still a high demand for quality features and amenities that enrich their experiences, including services like housekeeping, curated events and access to basic household supplies.
The trend toward shared spaces, which has been ongoing for several years in the office sector, offers yet more evidence of rising tenant and customer expectations. Beyond quality services and amenities, more tenants (and their employees) are looking for features like proximity to nice restaurants and less tangible elements, such as a communal vibe.
Much like the introduction of cloud computing revolutionized the software sector, the rise of real-estate-as-a-service (REaaS) is transforming all areas of real estate.
Although co-working is the most common example of REaaS, the concept cuts across property types. As the gig economy becomes more prevalent in Canada, all space, whether residential, office or retail, will increasingly be viewed as a service that’s rentable.
Consider the decreasing desire to own property on the residential side, particularly among millennials and baby boomers. According to Statistics Canada’s latest census figures, home ownership rates in Canada remain very high, but the numbers have come down from their 2011 peak of 69% to 67.8% in 2016. And despite the continued desire of many people to own, there’s much less stigma attached to renting than in the past.
Reflecting the growing movement toward temporary spaces, one interviewee spoke of the potential of subscription-based models for housing in which people would occupy different products at various stages of life.
While affordability is a factor, the REaaS trend also goes back to changing consumer behaviours as people look for more flexibility as their lifestyles and preferences evolve.
With a good Wi-Fi connection, a traditional office is no longer necessary.
Another important aspect of all of these trends is the blurring of lines between property types and uses.
In the past, for example, office space was designed and built to address traditional notions of office-based work. But the new environment, shaped by technology and customer preferences, is changing that approach significantly. Once again, flexibility is key as form follows function.
Some of the ways traditional lines are blurring include:
the evolution of retail spaces to become more of a distribution hub with smaller store footprints
the “surban” trend, in which suburbs are transitioning to include more urban elements with a live-work-play dynamic
partnerships between co-working companies and hotels and retail centres to provide access to underused space as well as services and amenities
The real estate industry is clearly paying attention to these trends as companies make major investments in more flexible business models. But these shifts also represent a significant challenge for many industry players.
When it comes to embracing co-working arrangements in offices, for example, short-term leases can affect property valuations and add to costs when tenants change more frequently. This makes it even more crucial for established industry players to embrace the technologies, services and modernized spaces that can help them compete with newer entrants.
Tap into a variety of information sources, including data-driven insights, to truly understand what your customers want. Embrace customer personalization to take your growth to new levels.
Think about your supply chain. Which parts do you want to own and serve directly, and which can you assign to someone else to undertake on your behalf? Try to minimize the number of layers between your company and the end consumer so you don’t lose control of an important asset.
Explore the ways joint ventures and partnerships can help you access new market opportunities. As larger projects with more diverse uses become more common, partnerships can go a long way in accessing the necessary capital and skill sets while sharing risks.
Partner, Private Company Services, PwC Canada
Tel: +1 905 418 3469