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Top Canadian Real Estate Trends to Look For in 2021 – Toronto Storeys

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It’s safe to say that 2020 has been unpredictable, to say the least. This theme carries over to the Canadian real estate market, which still managed to experience unprecedented growth despite many buyers deciding to hold off on purchases amid uncertain economic conditions brought on by the pandemic.


However, the uncertainty of the past seven months — and the fact that some parts of Canada are now living amid the second wave of the coronavirus — makes thinking about real estate in 2021 a daunting experience for some.

But to get a better grasp of what Canadian investors, realtors, and mortgage brokers can expect in the new year, PwC Canada and the Urban Land Institute teamed up to share their take on what Canadian real estate trends will take precedence in 2021.

Earlier this month, the groups released their Emerging Trends in Real Estate report, which looks at how Canadian real estate has proven to be resilient as buyers amid accelerated change brought on by the pandemic.

According to the report, 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 suggests that the best opportunities 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, National Real Estate Leader, PwC Canada. “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.”

READ: Will Canada’s Real Estate Market Stay Hot This Winter? RE/MAX Thinks So

The 117-page report is based on interviews and surveys with almost 3,000 commercial investors, real estate advisors, banks, and builders, which resulted in a wide-scale summary of the trends that will shape Canadian real estate in 2021.

Here are a few of the most relevant highlights.

Residential real estate

Creating 18-Hour Cities Across Canada

Amid the pandemic, Canadians are now looking at suburban and rural areas as an alternative away from major cities like Toronto and Montreal given the available affordability and space.  As more people work from home and look for more affordable housing outside dense cities, there is a stronger demand for areas that offer more space to live, work, and play.

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 like Toronto and Montreal or in places like VictoriaQuebec City, and Halifax due to accelerated growth. According to Investopedia, 18-hour cities “describe a mid-size city with attractive amenities, higher-than-average population growth, and a lower cost of living and cost of doing business than the biggest urban areas.”

Meanwhile, 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. The report says one way to make this happen is through “gentle intensification of traditional single-family neighbourhoods while encouraging more diverse land uses.”

Commercial Real Estate

Retail Troubles and Warehousing Gains

According to the report, warehousing and fulfillment centres were identified as the “number one best bet.” With the retail industry being impacted by lockdown measures brought out by the pandemic, COVID-19 accelerated the already growing move to eCommerce, which is now paving the way to a need for increased warehouse space.

Survey respondents indicated that malls with excess lands need to be re-imagined into residential or mixed-use properties, or, some of this space could be used for warehousing, distribution or fulfillment centres — including last-mile delivery — to satisfy the growing demand for online shopping. The report says that grocery-anchored strip malls will fare best, as grocers have seen record sales during the pandemic.

Office Space

According to the report, 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 employees returning to the office, while others question whether the pandemic will spark a renewed interest in suburban office development, as some employees might prefer 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

As hospitals continue to be limited on space amid the pandemic, the report says there may be opportunities to move some health care functions to high-traffic community locations — such as malls.

While the pandemic has led to the rapid adoption of virtual health services, there will still be an ongoing need for physical space for care that can’t be delivered digitally as well as space for diagnostic equipment.

Additionally, the report says an ageing population will continue to put pressure on health services and the shift to virtual care could lead to some repurposing of medical office space as practitioners adjust to digital delivery.

Proptech (Property Technology)

Prior to COVID-19, the real estate industry was on the cusp of widespread proptech adoption and since the pandemic, industry digitization has accelerated.

Looking ahead, proptech trends such as digital solutions to ensure business continuity, customer engagement, and sales platforms and tools to manage costs and efficiencies, as well as construction technology, are expected to generate demand in 2021. Other key areas to watch out for include data analytics and cybersecurity.

The report concludes with the top markets to watch in 2021 including VancouverTorontoMontrealOttawa, and Québec City.

You can read the full report here.

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Downtown TO office sublease space quadruples in 2020 | RENX – Real Estate News EXchange

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IMAGE: Bill Argeropoulos, Avison Young’s principal and practice leader for research. (Courtesy Avison Young)

Bill Argeropoulos, Avison Young principal and practice leader for research, Canada. (Courtesy Avison Young)

The amount of office sublease space on the market in downtown Toronto has quadrupled during 2020 to almost 2.5 million square feet, and there’s no short-term turnaround in sight.

Across the Greater Toronto Area (GTA), office sublease space on offer has more than doubled this year to over five million square feet.

Avison Young principal and Canadian research practice leader Bill Argeropoulos, who’s been closely monitoring sublease activity since COVID-19 started impacting the real estate market in March, doesn’t see available sublease space returning to previous lows until, perhaps, the end of 2023.

Argeropoulos wrote about the trend in a recent blog post and expanded on his analysis of the peaks and valleys from three past availability cycles in an interview with RENX.

“At the very beginning of the process, people were reluctant to put space on the sublease market because they didn’t know what the outlook was going to be like,” said Argeropoulos, who believes many companies were caught off guard by the length of the COVID-19 pandemic and the slow return of employees to offices.

Sublease space may appeal to some tenants because they can often get shorter and more flexible lease terms. Also, if they can take over space that’s already built out, they’ll save on related capital costs.

Companies have realized if some or all of their employees can work from home until the COVID-19 crisis clears up, they might as well try to relieve themselves of excess space and earn revenue through subleasing. However, lease-up of these spaces has been slow.

Rate of sublease space availability increases

Since last writing about the topic in August, Argeropoulos said available sublease space across the GTA office market increased from 3.7 million square feet to 5.1 million square feet. That’s up from 2.4 million square feet at the end of 2019.

Downtown Toronto sublease availability has risen from 1.7 million square feet to nearly 2.5 million square feet, which is about four times the 652,000 square feet available at the end of last year.

“Deals done with sublease spaces are usually at lower rates than direct landlord space, but we haven’t seen that sort of softening in the rents yet,” said Argeropoulos. “They’re basically on par with direct landlord space for now.

“However, I think the scales will likely tip in the tenants’ favour as more larger blocks hit the market, forcing some landlords to adjust their pricing.

“I think that will come, but given that the majority of the real estate in downtown Toronto is held by well-financed institutions, they’re willing to weather the storm a little bit and not necessarily give up on the rates yet.”

Where sublease space is coming from

Fifty-six per cent of the office sublease availability in downtown Toronto so far is for spaces of less than 5,000 square feet, according to Argeropoulos. Forty-six per cent is in class-A, 32 per cent is in class-B and 22 per cent is in class-C buildings.

“The piece of the pie that we’re closely watching right now is in that greater-than-20,000-square-feet range,” said Argeropoulos. “That number, which we’ve been following over several months, is in the five per cent category.

“Once we see that number rising, then I think there will be pressure on landlords to perhaps come off because they’re going to be competing with larger blocks of space, which can then be used as leverage to drive down rents.”

Argeropoulos said sublease space on the market now is coming from a range of business types, including technology, financial services, telecommunications and professional service firms.

“Even within the technology sector, it’s not just startups. It’s also established blue-chip technology companies that have decided to reduce their footprint — some on a temporary basis and some on a more permanent basis.”

Looking to the past for possible answers

Argeropoulos said there was no relationship between the rate of sublease availability take-up in the last three peak-to-valley cycles, spanning 20 years, in either downtown Toronto or the GTA as a whole.

For the current GTA office sublease market to return to its previous valley by the end of 2023, 256,000 square feet of take-up per quarter would be needed. That wouldn’t be far beyond the fastest take-up rate seen in the last 20 years.

Downtown, however, the necessary figure would be 159,000 square feet per quarter. That would be double the fastest rate recorded in any peak-to-valley period during the last 20 years.

Significant pent-up demand would be required, especially given the amount of new office space which will be delivered downtown between now and 2024.

In its just-released Canada 2021 Forecast report, Avison Young notes about seven million square feet of new office space is being delivered in 2020 and 2021 in the GTA. That report predicts a slightly higher 7.2 per cent overall vacancy rate for GTA office space in 2021 (it was 6.6 per cent at the end of Q3 2020).

Sources of future sublease space

Much of that new space is already pre-leased, but companies that have made those commitments may realize they don’t need all of it and look to the sublease market to take them off the hook.

Companies moving into new offices will also make significant backfill space available. Much of that could come from major banks, especially CIBC, and Infrastructure Ontario, as it moves back into its former buildings which have been under renovation.

“Rumours are that that Infrastructure Ontario space could be as much as an additional million square feet of availability perhaps coming on the market,” said Argeropoulos.

The City of Toronto has also announced it will implement a workplace modernization program, which includes both leased and owned facilities. That could reduce its office space footprint and introduce up to another million square feet to the sublease market.

“Heading into this crisis, Toronto and the downtown market in general was very, very tight and we couldn’t wait to get some availability to come online so we could transact,” said Argeropoulos. “But no one saw this amount of space coming back.”

Argeropoulos is concerned office demand has dried up and the newly available space isn’t moving.

It’s not yet panic time, he added, but smaller landlords or those with near-term risk due to lease rollovers are in an unenviable position.

“Once there’s greater clarity, the pent-up demand that’s waiting will definitely start to eat up the space,” said Argeropoulos. “How quickly is another question.”

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Record month for South Georgian Bay real estate pushing pricing out of reach for many – CTV Toronto

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COLLINGWOOD —
October was another record-breaking month for real estate sales in the region.

Statistics from the South Georgian Bay association of realtors show the number of sales increased 47 percent over October last year. The benchmark price of a single-family home Climbed 21.8 percent to 513 thousand dollars, vacancies are down, while rents are also seeing an increase.

“Rents have been a surprise to me how quickly they have escalated and how out of context they are with the local market, wage rates and labour force,” says community activist Marg Scheben-Edey.

A flood of buyers from the GTA is fuelling the hot housing market. Still, there’s mounting evidence that rising prices make the communities around Southern Georgian Bay unaffordable, especially for service industry workers and single-income families who spend more than half their income on housing.

Pamela Hillier, the Executive Director of Community Connection, says that’s not sustainable and adds calls for help to 211 are up 153 per cent.

“At the end of the month, there’s no money left to buy food, or prescription medicine, or things like that, so people call to see if there are other income sources or help out there to pay for other services that they need.”

Advocates for purpose-built housing, including Gail Michalenko, say a bad situation just got worse in Collingwood.

“Our current council is certainly more supportive and recognizes that there’s a huge issue with this,” says Michalenko, “so now it’s time for some action.”

“There’s a sense of urgency to start addressing the situation,” says Scheben-Edey. It’s not something we can take likely sometimes it’s life and death.”

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Real Estate Brokerage Compass Taps Banks for IPO – BNN

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(Bloomberg) — Compass, a SoftBank-backed company that’s among the largest real estate brokerages in the U.S., has selected underwriters for a potential initial public offering, according to a person with knowledge of the matter.

The New York-based startup is working with Goldman Sachs Group Inc. and Morgan Stanley ahead of a listing that’s slated for 2021, said the person, who requested anonymity because the information isn’t public.

Representatives for Compass and Goldman declined to comment. A spokesman for Morgan Stanley didn’t immediately have a comment.

Compass was founded in 2012 by Ori Allon and Robert Reffkin, a Goldman alum who was once Gary Cohn’s chief of staff at the bank. It positions itself as a real estate firm that uses technology to give its agents an advantage over rivals. The company has used capital from venture investors to expand by acquiring smaller brokerages across the U.S.

Low mortgage rates have fueled a housing rally in the U.S. as Americans seek more space to spread out in the pandemic. That’s boosted residential real estate companies, including Zillow Group Inc. and Opendoor, another SoftBank-backed company. Realogy Holdings Corp., which owns Compass competitor Corcoran Group, has seen its shares rally about 28% this year.

In addition to SoftBank, which participated in a $370 million funding round last year that valued Compass at $6.4 billion, investors include Goldman Sachs, Fidelity, Wellington Management, Founders Fund, Dragoneer Investment Group and Canada Pension Plan Investment Board, according to its website.

Former American Express Chief Executive Officer Ken Chenault and Salesforce.com CEO Marc Benioff are also investors.

©2020 Bloomberg L.P.

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