2022 Emerging Trends in Real Estate

Real estate businesses across Canada embrace disruption, and explore new opportunities to cultivate a thriving industry amid uncertainty

Toronto, October 14, 2021 - Key forces of change have been identified in PwC Canada and ULI’s Emerging Trends in Real Estate (ETRE) report. The annual survey of the Canadian real estate industry suggests sentiments of optimism, with business prospects for 2022 returning to above pre-pandemic levels. Although COVID-19 concerns still loom, real estate businesses have been successful. In fact, the housing market has boomed, industrial real estate continues to strengthen, segments of the retail sector fared better than expected and the office sector, while under continued pressure, showed some positive signs.

According to the report, Canada’s leading real estate businesses are going to keep a close eye on key forces that are reshaping real estate: the significant shifts in the workplace and ways of working, the increasing significance of environmental, social and governance (ESG) and rising costs and competition.

“Renewed strategies on innovation, transformation and repositioning portfolios are essential for real estate businesses to successfully embrace these disruptions in the industry,” said Frank Magliocco, National Real Estate Leader, PwC Canada. “Technology and data analytics can assist with analyzing opportunities of growth and making better-informed investments.”

“ESG, digital accelerations and workforce shifts are all mega-trends that will continue to have a transformative impact on the industry,” said Richard Joy, Executive Director of Urban Land Institute Toronto. “Working together to find creative solutions to these challenges will enable real estate leaders to shape the future and uncover new opportunities.”

Commercial Real Estate

Warehousing & fulfilment
Once again, warehousing and fulfillment was the top investment prospect. Due to the accelerated growth and dependence on e-commerce, this shift impacted the market towards new heights. An emerging trend from this year’s report is the blurring between warehousing & fulfillment and retail. This is growing in prevalence as industrial locations are positioned closer to the end customer to facilitate last-mile delivery.

Office space & the changing world of work
Shifting changes in the world of work have occurred since March 2020 and they have had major impacts across the Canadian commercial real estate market. In this year’s ETRE report, there are diverging views on how permanent those changes are.

“Most employees continue to be hesitant to return to the office indicating a preferred hybrid-arrangement even in a post-pandemic world,” said Frank Magliocco, National Real Estate Leader, PwC Canada. “When PwC Canada asked Canadian workers about their ideal work arrangement, the most popular option, selected by 36% of respondents, was to have an even split between face-to-face and remote working, while just 10% chose a traditional in-person environment.”

There is a growing appetite from workers to be employed by places that prioritize flexibility and hybrid-work arrangements into their culture. As such, while overall space requirements may remain as is, reconfigurations that comply with health and safety restrictions can foster safe collaborative environments, and bring employees back into the office.

Retail
Reinvestments are being made by retailers in order to further support their e-commerce and digital capabilities. As Canada reopens and the economy begins to rebound, foot traffic will likely increase. PwC’s Consumer Insights survey reported that Canadians want great in-store experiences again, and will be actively seeking them. The ETRE report shows a complimenting trend towards building mixed-use communities with retail services and offices nearby, something significant for real estate players. Some retail landlords are accelerating efforts to evolve their properties by seeking zoning changes to incorporate other uses into the mix, like condominiums or multifamily rentals in place of parking lots which serves to provide more foot traffic for retailers.

Canada’s Housing Market & Affordability

Home ownership remains a glaring issue, even in Canadian cities where it previously wasn’t. The highest since 1990, ownership costs as a percentage of household income reached 56.8% for single-detached homes in January 2021, according to RBC Economics. While the expectation is that the market will slow down after a buying frenzy during the pandemic, it will remain strong. Compared to single-family homes, affordability has improved for condominiums. However, even with an improving outlook for condos, some developers are cautious about starting new projects, given cost uncertainties. Broadly speaking, real estate players identified multifamily housing as a strong category, and that demand will be steadfast in many cities as people struggle with home ownership affordability.

Single-Family Rental Housing
There is a growing interest in single-family rental housing as a means to offset ownership affordability challenges.  However, interviewees from this year’s ETRE report are divided on whether single-family rental housing in Canada will be a success like south of the border.  Regardless, innovation and collaboration with governments are necessary to help address the affordability crisis in Canada.

ESG

ESG is a growing part of the long-term strategies and value creation within the real estate industry. There remains an imbalanced view on ESG between private and institutional real estate investors. Institutional investors view ESG matters as a key criteria for investment decisions, whereas for private investors there needs to be a ROI to justify the additional upfront costs. For many, the challenge is to set out an approach to ESG performance and reporting that builds trust with their stakeholders and addresses their expectations and priorities.  Achieving ESG performances can also attract premium rents and pricing, accessing lower-cost financing and increasing efficiencies as well preserving value in their assets.

This year’s report takes an assessment of Canadian real estate trends and top markets to watch including: Vancouver, Toronto, Montreal, Ottawa, Halifax, and Quebec City. To learn more about top markets, click here.