In the last decade, Canada has had its share of hard knocks. Two economic downturns, a recession, devastating floods, and catastrophic fires. 2020 culminated with the first world-wide pandemic in 101 years.
Admittedly COVID-19 has created devastation, however, it has also created global trends in the economy which have rippled into real estate market industry trends. These trends have both positive and negative effects.
This article summarizes some common trends in the short-term future of Canadian real estate. These trends were sourced from; PWC and Urban Land Institute’s Emerging Trends in Real Estate® 2021 report , and from Toronto Life’s “What’s the short-term future of residential real estate? We asked seven market experts”, Silver, Matthew, August 4, 2020.
Uncertainty, Unemployment and Delays
During phase 1, the pandemic put 1.8 million Canadians out of work. To keep the economy afloat in the short term, the government created subsidies, CERB, and business loans. Although helpful, they won’t last forever, and once they’re gone, Canadians will have to dip into their savings or sell their homes.
Phase 2 realized heightened numbers of reported cases, and subsequent lock downs. There are talks of imminent vaccines, however, the uncertainty of when the pandemic will end creates an atmosphere of uncertainty and anxiety.
BoC Keeping the Real Estate Market Afloat
In an effort to keep the real estate market afloat, The Bank of Canada (BoC) has reduced interest rates and has been pumping billions of dollars into the mortgage market through the purchase of Canada mortgage bonds. Mortgage interest rates are at an unprecedented low of 2.5% for ten-year loans and less than 2% on 5-year term loans. Banks are offering mortgage deferments. Of the Canadians who have accepted these deferments, technically, 24% of Canadian households are in default.
Wedding plans, graduations, celebrations, funerals, and even plans to start a family have been put on hold during the pandemic. Once the pandemic is over, and people are back at work, they will need time to catch up financially, and to save for a mortgage. For many, this means delayed home ownership.
Immigration is Key
Immigration is key to economic development and urban population growth. Immigration plays a significant role in benefiting home sales, student, and multi-family rentals. Despite the travel restrictions, “Canada Immigration received 50,000 invitations to Apply (ITAs), the second-highest record of immigration on total for the first six months of a year.” O’Callaghan, Ambrose, Why Canada’s Housing Market Will SOAR in 2021!, The Motely Fool, October 5, 2020. When the travel bans are lifted, Canada is poised for a surge in real estate sales and rentals.
Home sales create spin off purchases that generate approximately $80,000 in sales and services that are funneled back into the economy. Real estate can be the economic engine that sparks positive economic growth.
Real Estate Trends in 2021
COVID created both niche real estate demands and an oversupply. In 2020 the real estate industry saw a demand for:
- Single-family homes
During COVD, employers discovered they didn’t need office space to keep productivity high. Employees appreciated spending more time at home and less time in transit.
Because working from home could be long-term or even permanent, there has been a trend for people to move up to larger properties in the suburbs that offer home offices, back yards, walking trails and access to parks.
New technologies allow realtors and clients to attend interactive virtual showings and live-streamed open houses. Lower interest rates permit people with means, to buy bigger homes at considerably lower prices.
· Research space
Research for the Corona vaccine and aging populations have created a demand for industrial campus-style offices where the life science industry can conduct research. Research for the Corona vaccine and aging populations have created a demand for industrial campus-style offices where the life science industry can conduct research.
- Personal Storage Space
Living and working in the same space creates constraints that can be alleviated with self-storage.
- Distribution Real Estate
The flood of e-commerce, food delivery, medical supplies, home improvement, created a demand for warehousing, fulfillment, and logistics real estate.
- TV and Film Production Studios
Given the popularity of digital streaming during the pandemic, real estate that offers studio space seems like a good prospect.
The pandemic also produced an oversupply of condos. Since the collapse of Air BnB, people who didn’t have the means to carry the property/mortgage were forced to put their condominiums on the market. This will result in an oversupply of condo’s and a decline in condo rents.
General Economic Trends that Influence Real Estate in 2021
People love convenience, and the pandemic has made us hyper-aware of trending conveniences that save time, and money. Here are three:
18 -Hour Cities:
This is a term used by real estate investors and economists to describe medium-sized cities with a higher than average population growth, lower cost of living and doing business, that have all the conveniences of a big city. Areas like London, Ontario, Ottawa, and Halifax fit this 18-hour city profile.
A 15-minute city is a term that means you can walk or cycle to get anything you need for day to day life within 15 minutes of your home.
Property Technology (Prop Tech)
Video conferencing, interactive virtual tours for renting and selling properties, and remote monitoring of buildings, are being utilized to cut back on costs for essential communication services.
Data sensors used by construction companies fine tune building and design processes, while data analytics provide insights for exiting properties. Data analytics are also used to identify best locations for potential investment opportunities.
Smart homes and buildings create the ultimate in personalized conveniences, but also expose cybersecurity vulnerabilities.
With new technology comes upskilling the workforce to maximize efficiency while minimizing security threats.
Finally, what are the real estate trend predictions for major cities across Canada for 2021?
Real Estate Markets Across Canada
Below is a summary of Markets to Watch from PWC and Urban Land Institute’s Emerging Trends in Real Estate® 2021 report:
- Predicted rebound of 6.5% GDP in 2021
- Real estate prices not dropping significantly
- Strong economy & population growth
- Prices still lower than 2017 for single-family homes, however supply continues to be lower than demand
- Office and Industrial sectors remain strong
- Predicted rebound of 6.2% GDP in 2021
- Affordability a significant concern
- Decrease in the rental market due to curtailed immigration
- Office market major strength
- Industrial markets very strong, vacancy below 2%
- Prior to COVID-19- both condominium and single-family residential activity has not slowed down, resale market is still strong. Vacancy rate 1.8%
- Office and industrial real estate very strong, demand outstripping supply
- Predicted GDP forecasted at 5.9% in 2021
- Single family homes selling at above listed prices
- Strong immigration fuels demand for single family homes and purpose-built rentals
- Purpose built homes & vacancy rates dropped to 8.7%-
- Demand for more local fulfillment centers, because of affordable rents and access to major ports
- Self-storage and Industrial sectors strong
- Predicted GDP forecasted at 6% rebound in 2021
- Warehousing strong – low vacancy rates at 2.6%
- Senior housing – aging population will create a significant demand for condos and multi-family housing
- Predicted GDP 5.2% increase in 2021
- Housing market weak – however, falling inventories of unsold new homes and low interest rates could boost residential markets
- Office vacancy 13.1%
- Projected GDP growth 5.6% for 2021
- Inventories of unsold new apartments hit an 11-year low in March 2020, according to the CB0C, which predicts that the pandemic will cut total housing starts by 12% this year and pause the resale market
- Low interest rates and supportive federal programs should help the housing market in 2021
- Tramway project – has the potential to transform the city and open new development opportunities
- GDP predicted to rise to 6.2% in 2021
- Stable housing market due to low borrowing costs, and trend of reverse urbanization
- Condo market predicted to have more supply than demand
- Office 18.8% vacancy rate in 2020
- Industrial real estate doing well – Edmonton evolving as a warehousing and distribution centre
- Predicted GDP of 5.9% growth in 2021
- Housing market weak – due to rising interest rates and an impact fee
- Strong industrial market with a vacancy rate of 3.9%, demand for warehousing and transportation
- GDP predicted to expand by 6% in 2021
- Single-family housing, aimed at move-up buyers, lower interest rates on mortgages
- Condos more supply than demand
- Industrial market has diversified into warehousing and distribution over the past decade – Calgary becoming a growing distribution hub
- Office vacancy 24.8%
2020 will undoubtably go down in history as the year of Coronavirus 19. The year of the second global pandemic in 101 years. The year that disrupted and reshaped our work and home lives. A year that created trends in real estate and technology developed to keep our economy and workforce functioning while protecting our health and safety.
What will the real estate investment market in 2021 and beyond hold? Forecasts are predicted based on previous and projected outcomes, but we can only know once the pandemic ends and life returns to the new version of “normal”.
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