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  • Emerging Trends in Real Estate 2017

    A Canadian Perspective

    AlbertaJanuary 11 & 12

  • Emerging Trends in Real Estate 2017

    Emerging Trends is the industry’s “most predictiveforecast”

    38th annual outlook - 10th anniversary for Canada outlook

    Based on over 500 interviews and 1,500 surveys of industryleaders - 115 and 246 in Canada respectively

    Sponsored jointly by PwC and the Urban Land Institute

    “Innovation is by far our biggest issue. We strive not

    only to lead – but also to attempt to remain far ahead of the competition.”

    2

  • Market sentiment

    3

  • Profitability expectations

    1.00%

    24.70%

    74.30%

    2017

    abysmal to poor fair good to excellent

    1.90%

    16.80%

    81.30%

    US 2017

    abysmal to poor fair good to excellent

    4Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

    1.00%

    13.70%

    85.30%

    2016

    abysmal to poor fair good to excellent

  • Business prospects

    1.0 2.0 3.0 4.0 5.0

    Real estate security investors

    Real estate lenders

    Real estate services

    Real estate investment managers/advisors

    Commercial real estate developers

    Real estate equity investors

    Residential builders/developers

    Real estate owners

    2017 2016

    5

    1 2 3 4 5

    Abysmal Poor Fair Good Excellent

    Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

  • How would you describe the 2017 real estate market? Here is what respondents said

    6

    Competitive

    Cautious

    Growing OverheatedOpportunity

    Balanced

    NeutralFrenzy

    Troublesome

    Measured Uncertain

    Risky Confusing

    TreacherousContent

    North American Respondents to Emerging Trends in Real Estate 2017 Survey

  • Underwriting criteria adjust to the environment

    17.6%

    52.2%

    30.2%

    43.8%

    47.3%

    8.9%

    0% 10% 20% 30% 40% 50% 60%

    More rigorous

    Remain the same

    Less rigorous

    Debt

    2017 2016

    16.5%

    52.8%

    30.7%

    26.7%

    62.3%

    11.0%

    0% 20% 40% 60% 80%

    More rigorous

    Remain the same

    Less rigorous

    Equity

    2017 2016

    7Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

  • Emerging Trends: Reflect market sentiment

    8

    Ongoing Oil and Gas Woes

    Technology DisruptorsHold a CompetitiveAdvantage

    Affordability onthe Decline

    Waiting for Deals

    Global Uncertainties

    Weigh on the Mind

    Renting for the Long Term

    More than mixed use, it’s about building communities

  • More than mixed use, it’s about building communities

    9

    Focus on mixed use communities rather thanstand alone mixed use buildings

    Tenants are demanding dynamic neighborhoodsthat combine residential, retail, commercial andpublic spaces

    Can lead to partnerships between experts indifferent components

  • Affordability on the decline

    0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0

    Quebec City

    Winnipeg

    Halifax

    Ottawa

    Calgary

    Edmonton

    Saskatoon

    Montreal

    Canada

    Toronto

    Vancouver

    2016 Forecast price-to-income ratio

    10TD Economics, Regional Housing Report – August 2016

    Lower Burden

    Moderate Burden

    High Burden

  • Property Markets Operate in Policy Framework

    Affordable Housing

    Housing Affordability

    Intensification V2

    Inclusionary ZoningNew Mortgage Rules

    Housing Task ForceNew Condo Act

    Brace for ImpactP

    oli

    cy F

    ram

    ewo

    rkP

    olicy

    Fra

    mew

    ork

    Monetary Policy

    Immigration Policy Transit & Infrastructure Policy

    Land Use Policy

    Property MarketFederal

    Government

    Provincial Government

    11

  • Renting for the long term

    0

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    14,000

    1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 2026 2031 2036

    Renters Owners

    12Canada Mortgage and Housing Corporation

    000s of households

    Up 21% or 967,300 HHs

    Up 22% or 2,240,300 HHs

    Up 42%

    Up 14%

  • Technology disruptors hold a competitive advantage

    3.49

    3.61

    3.82

    3.89

    3.98

    3.99

    4.20

    1 2 3 4 5

    Flexibility

    Proximity to customers

    Connectivity

    Labor Cost

    Technology readiness

    Rent

    Labor availability

    Impact on location decision

    13

    1 2 3 4 5

    Not important Limited importance Average importance Important Great importance

    North American Respondents to Emerging Trends in Real Estate 2017 Survey

    “We’re getting to the point where if people don’t recognize technologies are existing and, moreover, how to integrate them, opportunities are being missed.”

  • Increasingly Crowded Unicorn Club - 176 Co’s each valued at $1 Billion+

    Source: CB Insights14

  • Data is King

    “What has happened?”

    “What could happen?”

    “What should we do?”

    2 3

    Support for implementation of strategy

    Modeling techniques that forecast possible outcomes

    Data aggregation to provide insight into past

    $50,000Good economic conditions (.60)

    1

    2

    3

    Purchase

    Apartment building

    Office building

    Warehouse

    $30,000

    $100,000

    $-40,000

    $30,000

    $10,000

    Poor economic conditions (.40)

    Good economic conditions (.60)

    Poor economic conditions (.40)

    4

    Good economic conditions (.60)

    Poor economic conditions (.40)

    1

    15

  • Global uncertainties weigh on the mind

    2.71

    3.32

    3.66

    3.66

    3.7

    3.95

    4.32

    1 2 3 4 5

    Sharing economy

    Global economic Growth

    Taxes and regulation

    Income inequality

    Macroeconomic issues

    Interest rates and cost ofcapital

    Job and income growth

    Economic/financial issues

    16

    2.77

    2.81

    3.20

    3.33

    3.48

    3.54

    3.72

    1 2 3 4 5

    Political landscape

    Education (cost andavailability)

    Immigration

    Government budget issues(local/state/federal)

    Qualified labor availability

    Social inequality

    Terrorism/war /epidemics

    Social/political issues

    2.47

    2.63

    2.99

    3.2

    3.87

    3.91

    3.99

    4.3

    1 2 3 4 5

    Extreme weather

    Wellness health features

    Water regulation

    Sustainability

    Housing cost and availability

    Infrastructure

    Capital availability

    Land and construction costs

    Real estate /development issues

    Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

    1 2 3 4 5

    No importance

    Little importance

    Moderate importance

    Considerable importance

    Great importance

  • Ongoing oil and gas woes

    $20

    $25

    $30

    $35

    $40

    $45

    $50

    $55

    $60

    1/4 2/3 3/4 4/3 5/3 6/2 7/2 8/1 8/31 9/30 10/30 11/29 12/29

    2016 WTI Spot Price

    17US Energy Information Administration

  • Ongoing oil and gas woes

    154.94 173.59

    310.83375.01

    450.50532.84201.06

    236.21

    238.44

    253.94

    267.23

    282.12

    0.0

    100.0

    200.0

    300.0

    400.0

    500.0

    600.0

    700.0

    800.0

    900.0

    1990 2000 2012 2020 (f) 2030 (f) 2040 (f)

    World energy consumption, 1990-2040 (quadrillion Btu)

    Non-OECD OECD

    18

    Energy consumption will rebound, but will price improvement continue?

    US Energy Information Administration

  • Waiting for deals

    11%

    38%

    52%

    14%

    62%

    23%

    0% 10% 20% 30% 40% 50% 60% 70%

    Undersupplied

    In balance

    Oversupplied

    Debt capital for acquisition

    2017 2016

    19

    6%

    26%

    68%

    11%

    31%

    59%

    0% 20% 40% 60% 80%

    Undersupplied

    In balance

    Oversupplied

    Equity capital for investment

    2017 2016

    Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

  • 2017 Expected best bets

    20

    Urban mixed-use developments

    Purpose-built multi-family rentals

  • 2017 Expected best bets

    21

    Industrial property

    Senior housing/retirement

    homes

  • Property type outlook

    22

    Retail

    Commercial

    Condominium

    While there are regional variations in the outlook for different property types, developers, investors and property owners did strike some common notes in their assessment.

  • Investment outlook

    3.22

    3.28

    3.45

    3.34

    3.47

    3.52

    3.08

    3.17

    3.23

    3.33

    3.38

    3.49

    1 2 2 3 3 4 4 5 5

    Retail

    Office

    Hotels

    Single family

    Multifamily

    Industrial/distribution

    Major sectors

    2017 2016

    23

    3.37

    3.60

    3.70

    3.71

    3.73

    1 2 3 4 5

    Midscale hotels

    Medical Office

    Urban/high street retail

    Age restricted housing/Multifamily

    Fulfillment

    Top subsectors for 2017

    Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

    1 2 3 4 5

    Abysmal Poor Fair Good Excellent

  • Development outlook

    2.76

    2.98

    3.31

    3.47

    3.49

    3.65

    2.56

    2.85

    2.89

    3.23

    3.32

    3.57

    1 2 2 3 3 4 4 5 5

    Retail

    Office

    Hotels

    Single family

    Multifamily

    Industrial/distribution

    Major sectors

    2017 2016

    24

    3.00

    3.50

    3.71

    3.71

    3.96

    1 2 3 4 5

    Economy hotels

    Medical Office

    Age restricted housing/Multifamily

    Urban/high street retail

    Warehouse

    Top subsectors for 2017

    Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

    1 2 3 4 5

    Abysmal Poor Fair Good Excellent

  • Markets to watch2017 markets to watch

    25

    2012 2013 2014 2015 2016 2017

    Vancouver 2 4 4 4 1 1

    Toronto 1 3 5 3 2 2

    Montreal 7 5 9 6 3 3

    Ottawa 5 6 6 5 4 4

    Saskatoon 6 7 3 8 5 5

    Winnipeg 9 8 7 7 6 6

    Halifax 8 9 8 9 8 7

    Edmonton 4 2 2 2 7 8

    Calgary 3 1 1 1 9 9

    Canadian Respondents to Emerging Trends in Real Estate 2017 Survey

  • Wendy Waters

    Senior Director, Research Services & Strategy

    GWL Realty Advisors

    January 12, 2017

    26

    ULI Emerging TrendsEdmonton’s Challenges and Opportunities

  • Downtown office vacancy presents a challenge in Edmonton

    10,500,000

    11,000,000

    11,500,000

    12,000,000

    12,500,000

    13,000,000

    13,500,000

    14,000,000

    0%

    2%

    4%

    6%

    8%

    10%

    12%

    14%

    16%

    18%

    20%

    1Q 2

    000

    3Q 2

    000

    1Q 2

    001

    3Q 2

    001

    1Q 2

    002

    3Q 2

    002

    1Q 2

    003

    3Q 2

    003

    1Q 2

    004

    3Q 2

    004

    1Q 2

    005

    3Q 2

    005

    1Q 2

    006

    3Q 2

    006

    1Q 2

    007

    3Q 2

    007

    1Q 2

    008

    3Q 2

    008

    1Q 2

    009

    3Q 2

    009

    1Q 2

    010

    3Q 2

    010

    1Q 2

    011

    3Q11

    1Q 2

    012

    3Q 2

    012

    1Q 2

    013

    3Q 2

    013

    1Q 2

    014

    3Q 2

    014

    1Q 2

    015

    3Q 2

    015

    1Q 2

    016

    3Q 2

    016

    Edmonton DT Office Vacancy

    Occupied Vacancy Rate

    Average Annual

    Absorption

    Years of

    Supply

    To Balanced Market

    (8% vacant)

    2000-2016 44,984 62 33

    2004-2014 102,996 27 14

    • Unemployment rate 7.4%

    • 1.1 Million s.f. added 2016.

    • 600,000 s.f. under construction

    2.8 Million SF of vacant DT

    office space

    27

  • Edmonton’s industrial market is feeling the strain of a prolonged downturn, although occupied

    space (demand) has been resilient

    $20,000

    $22,000

    $24,000

    $26,000

    $28,000

    $30,000

    $32,000

    $34,000

    $36,000

    Retail sales trends

    Calgary Edmonton Vancouver

    Retail Estimates from the Conference Board)

    0.0%

    1.0%

    2.0%

    3.0%

    4.0%

    5.0%

    6.0%

    7.0%

    8.0%

    9.0%

    10.0%

    0

    20,000,000

    40,000,000

    60,000,000

    80,000,000

    100,000,000

    120,000,000

    (SF

    )Industrial Occupied & Vacant Space

    Occupied Vacant Space Availability Rate

    28

  • Despite having fallen 25% from their peak, industrial rents in Edmonton continues

    to be higher than other major markets

    $4

    $5

    $6

    $7

    $8

    $9

    $10

    $11

    $12

    Q1

    2006

    Q3

    2006

    Q1

    2007

    Q3

    2007

    Q1

    2008

    Q3

    2008

    Q1

    2009

    Q3

    2009

    Q1

    2010

    Q3

    2010

    Q1

    2011

    Q3

    2011

    Q1

    2012

    Q3

    2012

    Q1

    2013

    Q3

    2013

    Q1

    2014

    Q3

    2014

    Q1

    2015

    Q3

    2015

    Q1

    2016

    Q3

    2016

    Net Industrial Rents, selected cities

    Vancouver Calgary Edmonton Toronto Montreal

    29

  • Edmonton’s (and Alberta’s) demographic advantage – youthful and large

    working-age population

    .41 = Edmonton dependency ratio today

    .48 = Canadian dependency ratio today

    0.30

    0.35

    0.40

    0.45

    0.50

    0.55

    0.60

    0.65

    0.70

    1995 2000 2005 2010 2015 2020 2025 2030 2035

    Dependency Ratios compared

    CANADA

    PQ

    ON

    AB

    BC

    Edmonton

    30

  • By 2035, the region will add between 200,000 and 530,000

    new residents. This creates opportunities

    31

  • Opportunity: Edmonton has a relatively low ratio of purpose-built rental

    housing

    4.3

    2.4

    4.5

    6.9

    5.5 5.1 4.6

    13.3

    10.1 10.6

    Rental units per capita

    Source: Altus Group. 2014

    GWLRA 2016 National Survey

    • Renters prefer purpose-built rental to condo;

    • 2/3 surveyed would pay extra for PB rental

    120,000

    125,000

    130,000

    135,000

    140,000

    145,000

    150,000

    155,000

    160,000

    165,000

    Edmonton PB Rental Inventory (CMHC)

    Edmonton has grown by

    509,000 since 1991, and has

    20,000 fewer rental apartments

    32

  • housing affordability is relative and elusive

    $400

    $500

    $600

    $700

    $800

    $900

    $1,000

    $1,100

    $1,200

    1990

    Oct

    ober

    1991

    Oct

    ober

    1992

    Oct

    ober

    1993

    Oct

    ober

    1994

    Oct

    ober

    1995

    Oct

    ober

    1996

    Oct

    ober

    1997

    Oct

    ober

    1998

    Oct

    ober

    1999

    Oct

    ober

    2000

    Oct

    ober

    2001

    Oct

    ober

    2002

    Oct

    ober

    2003

    Oct

    ober

    2004

    Oct

    ober

    2005

    Oct

    ober

    2006

    Oct

    ober

    2007

    Oct

    ober

    2008

    Oct

    ober

    2009

    Oct

    ober

    2010

    Oct

    ober

    2011

    Oct

    ober

    2012

    Oct

    ober

    2013

    Oct

    ober

    2014

    Oct

    ober

    2015

    Oct

    ober

    2016

    Oct

    ober

    $/M

    on

    th

    Edmonton Rental Rates

    33

  • Edmonton lost the prominence of its education sector during the early 2000s. Now

    rebounding. Future foundation for economic diversification?

    34

    1.22

    1.08

    1.29

    1.16

    0.86

    1.58

    1.30

    1.00

    1.26

    0.72

    Natural Resources Public Admin Education Transport & Whse Info Culture

    Edmonton. Economic Drivers. Change since 2001

    2001

    2016

    Location Quotients. >1=Driver

  • $600

    $700

    $800

    $900

    $1,000

    $1,100

    $1,200

    2006

    2007

    2008

    2009

    2010

    2011

    2012

    2013

    2014

    2015

    2016

    All IndustriesAverage Weekly Wages

    Canada Quebec

    Ontario Alberta

    British Columbia

    $600

    $650

    $700

    $750

    $800

    $850

    $900

    $950

    Info-Culture “Tech” Average Weekly Wages

    Canada Quebec

    Ontario Alberta

    British Columbia

    Time for Edmonton to house some unicorn

    or Narwhal workforces? Alberta can compete

    for jobs with other provinces

    35

  • Medium term view looks good for Edmonton, either scenario

    1. Diversification Potential

    • Oil & Gas Sector Rebounds

    • Old Edmonton returns

    Edmonton Best Bets either scenario:

    • Industrial• Rental • Multi-family mixed use

    36

    Or 2.

  • Discussion Time

    Questions: [email protected]

    @Wendy_Waters

    37

    mailto:[email protected]

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