Ontario Construction News staff writer
Canada’s real estate market is keeping a close eye on opportunities to reposition portfolios, according to PwC Canada and Urban Land Institute’s (ULI) Emerging Trends in Real Estate report. The industry agrees that 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 indicates that the best bets 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, PwC Canada’s national real estate leader, said in a Oct. 15 statement. “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.”
“The tension between longer term trends and fundamentals and short-term realities manifests in this year’s must-read report,” says Richard Joy, executive director of ULI Toronto. “Prudency in the face of uncertainty, while dampening some sectors and trends, is accelerating and expanding others.”
Commercial Real Estate — Retail troubles and warehousing gains
Warehousing and fulfillment centres were identified as the number one best bet according to the report. COVID-19 accelerated the already growing move to ecommerce paving the way to increased warehousing space. Survey respondents indicated that malls with excess lands need to be re-imagined into residential or mixed-use properties, and possibly using some of that space for warehousing, distribution or fulfillment—including last-mile delivery—to satisfy the growing demand for online shopping. Grocery-anchored strip malls will fare best, as grocers have seen record sales during the pandemic.
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 a return to the office, while others question whether the pandemic will spark a renewed interest in suburban office development, as some employees look 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
With hospitals facing a space crunch, there may be opportunities to move some health care functions to high-traffic community locations like malls. While the pandemic has led to rapid adoption of virtual health services, there will be an ongoing need for physical space for care that can’t be delivered digitally as well as space for diagnostic equipment. Additionally, an aging population will continue to put pressure on health services. The shift to virtual care could lead to some repurposing of medical office space as practitioners adjust to digital delivery.
Residential real estate — Creating 18-hour cities across Canada
According to the report, Canadians are looking to suburban areas as a viable alternative away from major cities like Toronto and Montreal given the affordability issues and the on-going pandemic. As more people work from home and look for more affordable housing outside dense cities, there is a stronger demand for environments that combine live, work and play elements.
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 mentioned or places like Victoria, Quebec City and Halifax due to accelerated growth.
Other 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. One way to make this happen is through gentle intensification of traditional single-family neighbourhoods while encouraging more diverse land uses.
Prior to COVID-19, the real estate industry was on the cusp of widespread proptech adoption and since the pandemic, industry digitization has truly accelerated. In 2020, however, equity funding in proptech is projected to fall slightly to US$8.4 billion after years of rapid growth. Areas of investment in 2020 include digital solutions to ensure business continuity, customer engagement and sales platforms, tools to manage costs and efficiencies as well as construction technology. Other key areas to watch out include data analytics and cybersecurity.