The real estate sector is carefully monitoring recent tariff negotiations around steel and climbing interest rates, which could result in further affordability issues for Canadians. Developers, investors, lenders and other experts are cautiously optimistic about the real estate sector, according to the recent 2019 Emerging Trends in Real Estate report, published by PwC Canada and the Urban Land Institute (ULI). However, the report indicates a positive outlook for flex spaces, PropTech and seniors’ housing.

According to the report, residential land supply is the main concern heading into 2019. The report finds that all levels of government must increase their focus on the supply side of the issue, not just focusing on demand. For example, real estate markets in Edmonton and Montreal were able to bring new housing supply into balance with rising prices, but markets like Toronto and Vancouver have yet to follow suit.

“Dealing with the affordability issue is a shared responsibility between government and developers. While government addressed demand by introducing measures like tighter mortgage rules and foreign taxes, they neglected the supply side,” said Frank Magliocco, national real estate leader for PwC Canada, in a press release. “Reducing regulation and making more land available for development in a timely manner will help address the affordability issue.”

“The real estate industry is at a crossroads where it needs to work with many other sectors in order to thrive in the future,” added Richard Joy, executive director at ULI Toronto. “We’re seeing more and more collaboration between architects, construction companies and the technology sector working to redefine how Canadians live.”

The proportion of household income necessary to be able to manage the costs of a single-family home grew to 53.5 per cent in Q1-2018, with Vancouver leading the pack with a minimum income of 119.3 per cent. High housing costs are leading Canadians, particularly millennials, to abandon the idea of owning a home in the city in favour of the suburbs or other markets with more affordable housing.

Rising interest rates and higher tariffs on foreign steel are top of mind for developers and owners, as they can ultimately place further pressure on housing affordability due to higher input costs on residential and commercial builders.

In the world of commercial real estate, co-working or flex office spaces continue to trend upwards and are expected to make up 30 per cent of corporate real estate portfolios by 2030.

“Creating a co-working space isn’t so much about cost as it is building a community and sharing experiences and knowledge between different people and industries,” said Magliocco.

The multi-family apartment sector continues to perform well, but segments of the retail sector are forced to reinvent themselves following less-than-ideal results. The industrial sector continues to perform well, and the report predicts that the recent legalization of recreational cannabis will provide opportunities across the country as emerging companies look to find industrial space to grow the product and retail space to sell it.

Senior lifestyle housing is one of the top development projects for the next year, as the number of Canadians over the age of 65 have surpassed those under the age of 15. In 2017, 31 per cent of Canadians over the age of 85 lived in seniors’ communities, and that number will only grow in the coming years.

New on the scene is PropTech, which refers to everything from new lending services to investment platforms and digital brokerages, which is changing the way properties are bought, sold and managed. According to the report, PropTech is predicted to contribute US$5.2 billion in new investment globally across 454 equity deals this year, after reaching a record US$3.4 billion in 2017 across 367 deals. However, only 10 per cent of CEOs in global real estate are concerned about the speed of this technological change.

“While the intersection of real estate and technology has been slow until now, we have seen a significant change in interest and focus in the PropTech industry here locally and globally,” added Magliocco.

Drones were the number-one real estate disruptor listed in the report. Potential exists to use drones to show job-site progress and others are looking to integrate docking stations into communities to accommodate last-mile delivery needs. Autonomous vehicles, cybersecurity and construction technology were also recognized as main technology real estate disruptors.

The report also noted other factors including GDP growth and affordability issues impacting various real estate markets across Canada. The top five markets to watch in 2019 are Toronto, Vancouver, Montreal, Ottawa and Quebec City.