Under the weight of interest rates and inflationary pressures, Canadian real estate has ebbed considerably over the past year, and 2024 is expected to be similarly tricky. Even so, the new year could coax a reset of sorts for the industry, shining a spotlight on unsung asset classes and prompting stakeholders to pave inventive paths to success as economic uncertainty lingers.
In a new report, PwC Canada and the Urban Land Institute speak to some of the high-level trends expected to characterize the “complex landscape” of Canadian real estate in the year to come. They forecast that while the industry will pull back in some regards, it will rally in others.
More specifically, the report identifies that industrial, multifamily, and retail asset classes will be the “top opportunities” for real estate investors and developers in 2024 (with an “honourable mention” going to debt funds.)
Overarchingly, these three asset classes have strong fundamentals in common, the report explains. For instance, the industrial class benefits from low vacancy rates — many Canadian markets are dealing with ageing and limited industrial infrastructure — while the demand for such supply runs quite strong.
Meanwhile, players in the multi-family class will continue to face cost- and financing-related headwinds — however, recent government policy change, such as the GST rebate on new rental projects, “has already started to generate further industry interest,” says the report.
On top of that, there’s no shortage of demand for “niche assets” within the multifamily segment, including student and senior housing, which are habitually underserved.
It’s worth noting that the industrial and multifamily segments were also highlighted last year. The retail class is coined a “surprising” addition to the favoured asset class group in this year's report.
“Sentiment around the retail asset class overall has improved significantly, especially when it comes to grocery-anchored developments that serve communities seeing strong population growth,” says the report. “Neighbourhood/community shopping centres ranked particularly high for investment prospects in our survey this year.”
But sussing out the right real estate investment will be just one piece of the proverbial puzzle for stakeholders in the year to come. Tuesday’s report also cautions that there’s no clear roadmap to success. Unprecedented affordability challenges brought on by interest rates — not to mention, long-standing cost and labour pressures — are expected to not only persist, but deepen.
Coping strategies will vary, and many remain to be seen, but stakeholders are already chipping away at solutions.
“For some, the answer has been to shore up liquidity while others embrace the emerging trend, at least for the moment, of starting up debt funds,” says the report. “Real estate players are also carefully eyeing other ways to create value by strategically repositioning their portfolios, optimizing assets through further investments in digital transformation, and considering the possibilities of fast-evolving technologies like generative artificial intelligence.”
