It's safe to say that 2020 has been unpredictable, to say the least. This theme carries over to the Canadian real estate market, which still managed to experience unprecedented growth despite many buyers deciding to hold off on purchases amid uncertain economic conditions brought on by the pandemic.
However, the uncertainty of the past seven months -- and the fact that some parts of Canada are now living amid the second wave of the coronavirus -- makes thinking about real estate in 2021 a daunting experience for some.
But to get a better grasp of what Canadian investors, realtors, and mortgage brokers can expect in the new year, PwC Canada and the Urban Land Institute teamed up to share their take on what Canadian real estate trends will take precedence in 2021.
Earlier this month, the groups released their Emerging Trends in Real Estate report, which looks at how Canadian real estate has proven to be resilient as buyers amid accelerated change brought on by the pandemic.
According to the report, the impact of COVID-19 on retail, office spaces, as well as suburbanization has accelerated the pace of change for developers, sellers, and buyers. The report suggests that the best opportunities going into 2021 include warehousing and fulfillment, multifamily residential, and medical office space.
"The coming year will be all about embracing opportunities to be resilient in the face of uncertainty while shifting strategies in anticipation of market headwinds," says Frank Magliocco, National Real Estate Leader, PwC Canada. "For the first time in a few years, we're hearing divergent views from industry players about issues like the future of office spaces and the urbanization and suburbanization trends."
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The 117-page report is based on interviews and surveys with almost 3,000 commercial investors, real estate advisors, banks, and builders, which resulted in a wide-scale summary of the trends that will shape Canadian real estate in 2021.
Here are a few of the most relevant highlights.
Residential real estate
Creating 18-Hour Cities Across Canada
Amid the pandemic, Canadians are now looking at suburban and rural areas as an alternative away from major cities like Toronto and Montreal given the available affordability and space. As more people work from home and look for more affordable housing outside dense cities, there is a stronger demand for areas that offer more space to live, work, and play.
With remote working making it possible for more people to live in the suburbs, the report points to an "18-hour city" trend to pick up across Canada, whether in larger city centres like Toronto and Montreal or in places like Victoria, Quebec City, and Halifax due to accelerated growth. According to Investopedia, 18-hour cities "describe a mid-size city with attractive amenities, higher-than-average population growth, and a lower cost of living and cost of doing business than the biggest urban areas."
Meanwhile, cities like Ottawa are also looking into the "15-minute city" which allows urban residents to meet their daily needs, such as a trip to the grocery store or school, within 15-minutes of their home either by walking or cycling. The report says one way to make this happen is through "gentle intensification of traditional single-family neighbourhoods while encouraging more diverse land uses."
Commercial Real Estate
Retail Troubles and Warehousing Gains
According to the report, warehousing and fulfillment centres were identified as the "number one best bet." With the retail industry being impacted by lockdown measures brought out by the pandemic, COVID-19 accelerated the already growing move to eCommerce, which is now paving the way to a need for increased warehouse space.
Survey respondents indicated that malls with excess lands need to be re-imagined into residential or mixed-use properties, or, some of this space could be used for warehousing, distribution or fulfillment centres -- including last-mile delivery -- to satisfy the growing demand for online shopping. The report says that grocery-anchored strip malls will fare best, as grocers have seen record sales during the pandemic.
Office Space
According to the report, the uncertainty around the "return-to-office process" sparked divergent views from interviewees. Some predict that employees and their strong desire for social connections will result in employees returning to the office, while others question whether the pandemic will spark a renewed interest in suburban office development, as some employees might prefer to work closer to home and plan more work from home in the future.
According to PwC Canada's Workforce of the future survey published in September 2020, 34% of employees said they prefer to work mostly or entirely remotely, 37% want to be in the office most or all of the time, with the remaining 29% looking for an even split between the two options.
"We're hearing different points of views on office space. Companies that have the digital capabilities to have a remote workforce are now reevaluating their real estate portfolio needs," said Magliocco.
Medical Office Space
As hospitals continue to be limited on space amid the pandemic, the report says there may be opportunities to move some health care functions to high-traffic community locations -- such as malls.
While the pandemic has led to the rapid adoption of virtual health services, there will still be an ongoing need for physical space for care that can't be delivered digitally as well as space for diagnostic equipment.
Additionally, the report says an ageing population will continue to put pressure on health services and the shift to virtual care could lead to some repurposing of medical office space as practitioners adjust to digital delivery.
Proptech (Property Technology)
Prior to COVID-19, the real estate industry was on the cusp of widespread proptech adoption and since the pandemic, industry digitization has accelerated.
Looking ahead, proptech trends such as digital solutions to ensure business continuity, customer engagement, and sales platforms and tools to manage costs and efficiencies, as well as construction technology, are expected to generate demand in 2021. Other key areas to watch out for include data analytics and cybersecurity.
The report concludes with the top markets to watch in 2021 including Vancouver, Toronto, Montreal, Ottawa, and Québec City.
You can read the full report here.
