Urbanization is here to stay
By Peter Sobchak
October 28th was not a normal weekday. It was the morning after Toronto’s Mayoral election, and the results confirmed that we were saved from another embarrassing four years of Mayoral bumbling. Although early morning, the mood in the trading floor room at the Design Exchange was like a huge weight had been lifted off the collective shoulders of those gathering to hear the results of ULI Toronto’s 10th annual Real Estate Trends and Forecast, where findings from the Emerging Trends in Real Estate 2015 report, produced in partnership with PwC, were discussed.
What quickly became evident in the talking points of the panelists was that urbanization is now considered the ‘new normal’ rather than an emerging trend itself. Looking ahead into 2015, a common trend among all industry players will be the search for opportunities in and around the city cores. With more people moving into downtowns, companies and retailers are following them and driving new office and commercial developments.
As Andrew Warren, director of real estate research at PwC, pointed out (echoed in the report he co-authored), urbanization is blurring industry lines as commercial and residential developers discover the opportunities that mixed-use properties bring. The convergence of commercial and residential development is driven by developers’ desire to control more aspects of a project and to add value to their property holdings. Urbanization is creating greater demand for offices in downtown cores – thanks to younger workers in particular. While the move to the core is more visible, selecting the proper location is critical for any suburban redevelopment, especially around transportation nodes.
Influencing the merge of commercial and residential development and the different real estate sectors overall is Canada’s changing demographics. Ben Myers, Senior VP of Market Research and Analytics at Fortress Real Developments, spoke at length about Canada’s changing residential real estate landscape, pointing out that while industry experts worry about the impact of rising interest rates on the market for single family homes, a lack of supply of building lots and many Baby Boomers opting to stay in their homes rather than sell them, means the market for detached single family homes will continue to tighten. Reiterating what anyone watching the transformation of skylines already knows, the continuing urbanization trend and the high cost of single-family homes have fuelled the condo boom in Toronto and other cities like Calgary’s west end. However, the next phase involves young urban condo dwellers starting families and seeking affordable housing, and as Myers said, purpose-built multi-residential rental developments are starting to address this market need.
“(Ours) is an incredibly competitive market and very hard to get into right now,” said John O’Bryan, chairman of CBRE Ltd. The report highlights Calgary and Edmonton as the top two real estate markets in Canada, scoring well for investment, development and housing. With Vancouver expecting to lead other cities in growth in 2015 and a steady flow of foreign investment, Vancouver issued a record number of building permits in the first half of 2014. In the east, continuing migration to Toronto’s urban core has softened the outlook for suburban office as they and retailers follow people downtown. O’Bryan believes that after their election, Montreal is experiencing a renaissance, supported by Rue Ste. Catherine attracting high-end retailers, where experts foresee the avenue being transformed over the next five years. This example highlights a detail in the retail landscape that O’Bryan noted. “Good locations will always be good locations,” he said. “Shopping is an experiential, not a digital, exercise.”
What will the future hold for Canadian real estate? As Chris Potter, partner at PwC and event moderator playfully noted, some would say we are 17 or 18 years into a seven year cycle, and wonder when the tide will change. Time will ultimately tell, but the report at least gives us some insight into what the industry thinks of its prospects, trends and issues it will face going into 2015.