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 Overheated
Opportunity
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.
