The attraction of downtown is creating new residential and commercial developments in cities across Canada, a trend that's not about to change, according to the latest report by PwC and the Urban Land Institute.
"Urbanization has become one of the key forces shaping Canada's real estate markets," says the report. "Once viewed as an emerging trend, urbanization today is simply ‘the new normal.' "
Downtown living generally means moving into a condominium, and in Vancouver and Toronto the average condo size has been shrinking in recent years. These affordable units have been attracting mostly young people who are escaping the suburbs so they can live, work and play downtown. As one young resident told me, "These condo buildings are great -- there's a party every night." The biggest drawback? "Well…there's a party every night."
The PwC/Urban Land Institute report says: "Some question what will happen as the lifestyles of today's young urban singles and couples change. Will they move out of the city core in search of larger homes, schools and services, or will they -- like their counterparts in other parts of the world -- simply adapt to small living spaces?"
At a media briefing, PwC's Frank Magliocco said it's too early to tell if developers will answer a call to build larger, family-friendly units downtown. A chart in the report shows that Australia has the largest average home sizes, followed by the U.S. and then Canada at close to 2,000 square feet (reflecting the preponderance of single-family homes). Compare that to the United Kingdom, Italy, China and Sweden, where the average is less than 1,000 square feet.
PwC partner Chris Potter says when you consider the multi-cultural makeup of Canadian immigrants, "Will people adapt because of where they come from? Will we get used to living in smaller spaces?" They have in places like Manhattan and London in the U.K.
The report says a "pressing concern is whether young families will be able to afford single-family homes at all. If baby boomers opt to stay in their homes rather than sell them, the market for detached single-family homes will only tighten. And as the supply of lots available for new detached single-family homes dwindles....prices will only continue to rise -- beyond the reach of ever more Canadians. We may also see an increase in the number of multigenerational homes in the years to come."
Potter says many young families will likely move back out to the suburbs or to smaller cities with more affordable housing.
Developers are also talking more about purpose-built multi residential rental developments, he says. Few such buildings have gone up during the last decade but Potter says there are now several financial drivers that make them more attractive to investors.
"Everyone, it seems, wants to be in the multi residential rental sector," says the report. "And the desire to hold on to these precious properties has resulted in a distinct lack of product on the market. With few opportunities to buy, companies are focusing instead on creating value from within their existing portfolios, often through development or redevelopment."
The Emerging Trends report, now in its 36th edition, says Calgary and Edmonton are the top two real estate markets in Canada, scoring well for investment, development and housing. Toronto is ranked next, followed by Vancouver.
With the urbanization of downtown areas, "as many urban dwellers have discovered, services and amenities haven't kept up with the pace of downtown development -- not only in terms of retail, but also health care, education and other areas," says the report. "In response, residential developers have begun to add retail and other services to their projects in a bid to attract buyers. At the same time, many commercial developments are adding a residential component to their office and retail projects.
"Looking ahead, we can expect to see more and more retail and services along the streets of Canada's city cores and along major transit arteries, especially where new developments predominate.
Major brands are likely to move into these new spaces too, though with new formats and smaller footprints," says the report.
Other "best bets" in Canadian real estate are commercial and office space on the edges of urban cores "as long as it's the right price," says the report. "And in a country with an aging population, seniors' housing -- well managed and in good locations -- offers attractive potential."
Worries about foreign investors driving up costs in the condo market have so far not deterred developers from launching new projects. Magliocco says with the amount of in-migration to the downtown cores, "it's Economics 101 -- with the numbers of people coming in, you always have demand."
He says that "with all the talk about asset bubbles and real estate, not one person (interviewed for the report) worried about a bubble."
He says developers remain "confident and comfortable" with the market.
Written by Jim Adair