Most real estate investors and developers signal that 'mediocre' is the new 'good': 2013 Emerging Trends in Real Estate forecast

Nov 06, 2012, 08:00 ET from PwC (PricewaterhouseCoopers)

Calgary and Edmonton displace Toronto and Vancouver as top ranked cities for 2013

Property types: Investors favour apartments and office types, while developers favour retail

Report highlights the potential best bets for investors, developers and property sectors

TORONTO, Nov. 6, 2012 /CNW/ - The Canadian real estate market is expected to remain steady with "modestly good" investment and development prospects across most property sectors for 2013, reflecting expectations of solid supply and demand, according to the findings of the Emerging Trends in Real Estate® 2013 report, released in Canada today by PwC and the Urban Land Institute (ULI).

According to survey participants, Canada's real estate market will follow along in a seeming state of near-perpetual equilibrium compared with other more volatile regions studied in the report, including most obviously the United States.

Lori-Ann Beausoleil, PwC Canada's Real Estate Leader says, "The results of this year's Emerging Trends report reflects the fact that the Canadian real estate community understands real estate fundamentals and knows how to react to fluctuations in monetary policy and capital markets. Canada's real estate industry continues to operate well despite uncertainties in domestic and global economies."

Respondents to Emerging Trends cite a number of best investor bets for Canada in 2013, which include:

  • Hold Core Real Estate in Major Markets. For institutions, Canada's big cities offer opportunities to place money, and they dominate these markets, enjoying consistent payoffs from solid income-producing trophy properties across all property categories.
  • Develop Green Office in Downtowns. Major tenants want this more efficient space and will move from older buildings into layouts with operating-system advantages.
  • Land Bank in Western Markets. Opportunities for real estate investors and developers to take advantage of escalating inflows of workers for available jobs will continue, the exception being an unexpected reversal in energy and commodity markets. Buy and hold sites in and around the larger cities should see values escalate nicely, and infill sites will score development projects more quickly.
  • Secure Infill Sites. Any low-rise inner-city real estate "has got intensification written all over it," especially if located anywhere near mass transit. "Go for the sure-shot redevelopment capital play."
  • Develop Housing Away from Urban Cores. Soaring condo pricing and family-unfriendly units create an opening for homebuilders to meet the underserved market for larger layouts, which can better accommodate children.
  • Buy Luxury Condos in the Dip. With urbanization baked into future demand, upscale space in the best downtown locations will reclaim any lost value quickly.

Markets to Watch
A snapshot of the top five markets ranked by survey respondents and their outlook for each of the markets in investment, development and homebuilding:

Calgary (1). Growth characterizes Calgary's future; it displaces Toronto as the top ranked city for 2013. This has made it challenging to acquire high quality real estate in Calgary, absorption of prime properties has reached record levels, and rents are being pushed due to limited supply. This trend will continue in 2013, especially in office and industrial employment space. Construction will increase in the housing and non-residential arenas, but nowhere near pre-crisis levels.

Edmonton (2). Real estate investors predict a good 2013 for Edmonton investment prospects. Edmonton is an example of a secondary market in search of high-quality real estate investments in strong economic locations. With Edmonton's growth, comes more development and non-residential construction dominates the picture. Participants also rank Edmonton as the number one home building area.

Toronto (3). The number one market to watch in 2012, Toronto delivered mixed results and responses for 2013. Survey results show Toronto taking steps back in all three categories this year. Investment prospect values fell and the city's rank went from first to third among nine Canadian markets. Interestingly, the investment prospect value for 2013 is exactly equal to the Emerging Trends historical average for Toronto. Even though Emerging Trends values are survey driven, this may be a sign that the Toronto market as a whole is in a state of equilibrium.

Vancouver (4). Vancouver's economy has sharpened up and will look to continue that trend into 2013, but Emerging Trends survey results show declines in all three categories. The investment prospect value for Vancouver declined 0.47 points, and the rank dropped from second to fourth. An interviewee notes, "Overbuilt Vancouver is flat. Lots of supply."  Development prospects showed similar movement—down in value and rank, falling from first last year to fifth in 2013. Vancouver's government red tape continues to make it more difficult to develop real estate every year. Homebuilding prospects also do not look as strong year-over-year—down from first to sixth.

Ottawa (5). In 2013, the economic outlook for Ottawa looks weak. Economic slowdowns will affect residential and nonresidential construction, as declines in both areas are expected. With this decline in development, an investor says the "Ottawa market is very tight and will be difficult to enter." Yet despite the challenging economic times, survey participants still believe in some opportunities in this market.

Development prospects were rated "modestly good," up from "fair" last year, and moved from sixth to fourth overall. Even with a continuing slide in housing starts expected to last until 2015, homebuilding remained stable in fifth position, with a slight increase in rating value.

Property Types
Apartments are the preference for investors, and the recent condo buildup has not softened multi-residential markets; "they're stronger than ever." Like "bond investments," landlords reliably can increase rents, supported by high occupancies and steady appreciation. Confident lenders extend financing "for next to nothing," and cap rates reach "shockingly low levels" in some markets.

On the development side, retail leads as already-tight markets will tighten further as U.S. retailers expand into Canada. According to respondents, the entry of new U.S. chains precipitates "a dynamic moving around of tenants" and "sounds the death knell" for some weaker domestic brands in "the most Darwinian of property sectors." All the chains fight for good sites in undersupplied urban centers. The wave of new condo residents demands convenient shopping at familiar brand-name stores, and developers look to accommodate: they pay up for land, but can charge premium rents. Older suburban centers make prime candidates for redevelopment into new shopping formats.

When it comes to office space, rents and values continue to increase, reaching replacement-cost levels as a handful of new towers readily lease up in major markets, paving the way for additional new construction. Developers will look to take advantage of strong tenant appetite for efficient layouts in sought-after green projects, which house more workers in less space and can reduce operating costs.

About Emerging Trends in Real Estate
Emerging Trends in Real Estate is a trends and forecast publication now in its 34rd edition, undertaken jointly by PwC and the Urban Land Institute and reflects the views of over 900 individuals providing an outlook on real estate investment, development, finance, capital markets, property sectors, metropolitan areas and other real estate issues throughout Canada, the United States and Latin America.

For more information and a copy of PwC's Emerging Trends in Real Estate 2012, please visit A copy of the report is also available from the media contacts.

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About the Urban Land Institute (ULI) and ULI Toronto
The Urban Land Institute ( is a non-profit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has more than 28,000 members representing all aspects of land use and development disciplines. The Urban Land Institute is an active and growing organization in Canada. With nearly 1000 members across the country, Canada's first ULI District Council ULI Toronto ( was established in 2005 and a second District Council exists in British Columbia. ULI Toronto has over 500 members.

SOURCE PwC (PricewaterhouseCoopers)