Reimagining portfolios to succeed in uncertainty

How can real estate investors reposition assets for today’s accelerating trends?

“We have seemed to have avoided a major recession, but we cannot ignore what just happened.”

As they prepare for uncertainty in 2021, many real estate investors are being cautious around their next moves. “Now is not the time for an ‘always’ decision,” said one interviewee. “There is no sense of what the long term is going to be or what the future will look like."

While caution is called for in an atmosphere of uncertainty, many interviewees are keeping a close eye on opportunities to reposition their portfolios to stay ahead of trends they can anticipate with more confidence. One area where this is particularly relevant is the retail sector, where the explosion of e-commerce during the pandemic has added new urgency to transform properties and business models.

It’s all about finding the highest and best use for a property, said one interviewee, who felt the biggest opportunity is to unearth value by rezoning the land. Whether it’s pivoting to residential development on excess lands or incorporating new last-mile delivery solutions, real estate in this sector needs to be reimagined.

Retail property owners are also exploring more innovative options to evolve their assets. “The lens through which creative landlords look at their assets has to change,” said one interviewee involved in the retail sector, citing health services as one opportunity for giving new life to retail space.

“We are in a time of price discovery.”

Finding the right deals

Real estate investors are also looking for buying opportunities. But despite widespread agreement about the outlook for some asset classes, interviewees say the right opportunities have been slow to materialize. Why is that? Many believe it's because we’re in a time of price discovery and that until some of the uncertainty dissipates and buyers and sellers converge on the value of an asset, there will be fewer transactions.

Also impacting deal flow is an ongoing flight to quality. Investors are looking carefully for the best assets worth paying more for while making price adjustments for riskier opportunities and those outside their core competencies. Prudence reigns, leading many to take a wait-and-see approach while they line up capital for potential opportunities. As our survey showed, there was a significant rise from last year in the number of respondents who believe capital is undersupplied, which may reflect the current environment of prudence and price discovery.

But overall, there’s a general feeling that debt capital markets are in balance and a sentiment from many interviewees that Canada, which has seen consistent growth in foreign direct investment in real estate in recent years, is in a good position to be even more attractive to investors seeking stability in the current environment.

Emerging opportunities in alternative assets

Another opportunity for real estate investors is in niche assets, whether in Canada or abroad, that show promise, including:

  • Single-family rental housing: As people look for more space during the pandemic either to work from home or get outdoors, many will consider moving from apartments to single-family homes, even if they’re still renting.

  • Life sciences: With aging populations and so much funding going into finding a vaccine for the novel coronavirus, research and development space to serve the life sciences industry is a growing investment and development opportunity. Some Canadian cities, like Montreal, have vibrant clusters of life sciences activities, as do several US markets, where companies are eager to be near the top research talent.

  • Self storage: Several interviewees cited self storage, a subset of warehousing, as a good niche opportunity, especially as people grapple with space constraints at home during the pandemic. Others noted the strong demand for self storage reflects an ongoing trend as more multifamily housing has been built in Canada.

“Niche sectors are very important to create income and differentiate yourself.”

Contact us

Frank Magliocco

Frank Magliocco

Real Estate Leader, PwC Canada

Tel: +1 416 228 4228

Miriam Gurza

Miriam Gurza

Managing Director, Real Estate Consulting Leader, PwC Canada

Tel: +1 416 687 8143

Fred Cassano

Fred Cassano

Partner, National Real Estate Tax Leader, PwC Canada

Tel: +1 905 418 3469

Wesley Mark

Wesley Mark

Partner, Deals & Valuations, National Real Estate Advisory Leader, PwC Canada

Tel: +1 416 814 5877

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