A report issued by PwC Canada and Urban Land Institute reveals the 2024 Canadian real estate market will be complex. It indicates that recent trends will magnify — trends like the division of real estate and difficulties for companies, stemming from rising interest rates and the need for more capital.
That said, the report also outlines insights that show adaptability and resilience in the industry. Generally, real estate companies are confident about demand — thanks to the country’s population growth from immigration — and focused on creating value through digital transformation investment and asset optimization, along with keeping up with trends like generative AI and housing affordability among others.
Here are some key trends outlined in the report.
Outlook for capital availability
Compared to previous years, many more 2024 survey respondents expect various types of debt and equity capital will be undersupplied, adding to the financing challenges real estate companies deal with and affecting their 2024 investment strategies and development plans.
“This year it was all about capital. There is compelling data to show that scarcity of capital has impacted investment volumes. However, this creates opportunity as we saw many new private debt funds established to take advantage of this unique moment in time,” Frank Magliocco, real estate leader for PwC Canada, notes.
Many factors are holding industry activity back, like interest rates predicted to stay higher, longer, climbing financing costs and less available capital for real estate. This presents an opportunity to strategize about how to add long-term value — perhaps by adopting transformative technology in construction, generative AI or process changes and innovation.
All hope is not lost
Some hope can still be found among the everpresent housing affordability issues in multifamily housing. Recent initiatives from government, like no GST on purpose-built housing and housing approval streamlining, are helping, as are solutions from the industry.
“Market forces are challenging public policy objectives and corporate ESG goals. Industry leaders are keenly watching this space as they look for some respite from the economic headwinds, inflation and volatile interest rates,” Richard Joy, executive director, Urban Land Institute, Toronto, mentions.
Long-term sustainability goals balanced with short-term financing challenges
Environmental, social and governance (ESG)’s importance remains high. Considerations around ESG are prominent in the industry, though some industry players are being measured. There is plenty of potential for business value from ESG and regulatory changes are happening. With less available and more expensive financing, those with strong ESG records will benefit from attracting investment and finding new capital sources.
The outlook for 2024
The report notes that multifamily and industrial real estate products will be top choices for the second year in a row, followed by retail anchored by grocery. Office spaces continue to decline as a favoured asset class, which is compounded by the move to hybrid work — something that’s majorly impacted corporate real estate.
Read the full report here.
