Building Magazine


Occupancies hang on at 90 per cent in commercial real estate markets coast to coast, but can the trend withstand another economic crisis?

For 2012, the Canadian real estate market recovery could taper off, only sustained by modest and “not stellar” income growth, according to PwC and the Urban Land Institute’s new forecast Emerging Trends in Real Estate 2012.

“Canadian consumers who have been on a spending and home-buying spree, encouraged by low interest rates, could see their self-assurance ebb and job growth has decelerated in response to all the noise about European and U.S. debt woes. Sensing a general slowdown, respondents to our survey are taking a ‘better-to-be-cautious’ investment approach for 2012,” says Lori-Ann Beausoleil, PwC Canada’s Real Estate Leader.

In its 33rd year, Emerging Trends in Real Estate 2012 reflects the views of over 950 of the real estate industry’s experts, including investors, developers, lenders, brokers and consultants in Canada, the U.S. and Latin America.

While the report calls for flat to slight growth in 2012, many of the Canadian interviewees believe “we’re more immune from shocks and less tied to the U.S. hip than ever before.”

Canadian respondents are concerned about overall jobs growth in 2012 and point to trends similar to those that constrict employment gains in the States. The employment scene looks “extremely flat without any apparent kick start,” and “the fizz could easily go out of the market.”

Occupancies of 90 per cent and higher persist across most commercial markets from coast to coast. But when it comes to investment, sidelined capital finds slim pickings; partnering with local developers may be the only way for frustrated investors to break into closed office markets in 2012.

Now, a big problem for the banks and large public pension funds is where to invest capital in the face of limited domestic opportunities. “Some of the financial community’s biggest investment wins will come from outside of Canada in less-regulated markets, including notably the United States,” says Beausoleil.

The report notes that Canada continues to attract an influx of immigrants who will fuel growth in burgeoning 24-hour cities like Toronto and Vancouver and help sustain “an edge for the economy”. However, concerns are increasing about all of the high-rise residential projects springing up in major cities, particularly in Toronto and Montreal. Buyers in Vancouver and Toronto skew towards Asian investors and speculators who rent most of the units.

But many interviewees contend the condo action can continue, supported by urbanization, “move back to the city trends” and large numbers of immigrant renters. Miniscule residential vacancy rates are evidence to support these views.

The 2012 Emerging Trends report calls out its “Best Bets for investors, developers and property sectors:


  • Hold those Trophies. Husband cash flows, astutely manage properties to control costs and retain tenants and consider retrofitting with energy-saving technologies to ensure future competitiveness.
  • Buy or Hold Infill Land. Intensification policies will continue to propel land values in the gateway cities: available sites look like gold. Prices that may appear “crazy” today could seem like bargains tomorrow. Move-back-in-trends work against outer suburbs and disconnected suburban areas.
  • Don’t Take Chances. There is limited opportunity to score big investment gains and the economy enters a slower growth mode. To be more opportunistic, investors could partner with hands-on operators to take under-used class B-/C apartment buildings and improve NOIs.


  • Turn More Wary. The big-city condo surge looks unstoppable but maybe it’s time to turn a bit more cautious. The investor wave could give out, and pricing may need to take a breather.
  • Be Selective. Outside of condos, other sectors offer few opportunities beyond a choice office building in larger cities like Vancouver and Montreal. Mixed-use buildings get a boost across all major markets as retail developers work on infill projects in tandem with condo construction. New apartments make sense in markets where condo construction is muted. Hotels go nowhere.

Property Sectors

  • Buy or Hold:
    • Apartments. Continuing immigration will fire steady demand.
    • Class A Offices. These are irreplaceable assets in the downtown cores.
    • Fortress Malls and Grocery Anchored Retail. In prime suburban districts with barriers to entry, these properties will continue to excel.
    • Industrial Properties in Toronto. Development opportunities exist for converting well-located low-ceiling warehouses into big-box formats.
    • Hotels. It’s no time to sell.

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