Category Research: Real Estate Trends
Proptech practices and possibilities, a rise in institutional investments, and the emergence of reimagined spaces for consumers' evolving needs are some trends in Canada's real estate industry. The following section provides deeper insights into the impact of the identified trends on the industry and why they are considered as trends.
Trend #1: Proptech Practices and Possibilities in Canada's Real Estate
- According to PWC, "proptech will soon not be a novel concept. Technology will be embedded in all aspects of real estate."
- As the home of many tech companies and start-ups, Canada is considered one of the most tech-forward countries in the world.
- As such, it is not surprising that Canada is among the leading countries that are experimenting with tech-driven innovations in real estate, a phenomenon referred to as proptech.
- According to those interviewed by PWC on the state of Canada's proptech adoption, specific emerging technologies in the country include the Internet of Things (IoT) and artificial intelligence (AI).
- Demand for data and analytics is also shaping the emergence of a new wave of technology investments in the real estate sector.
- The majority of those interviewed in the PWC survey mentioned that proptech is a trend that is bound to shape Canada's real estate industry now and in the future.
- The trend has only cropped up recently and is causing disruptions, shaping consumption patterns, and influencing forecasts for the market.
- Business analysts, real estate experts, and players in the real estate industry hold the opinion that proptech is indeed the future of the real estate industry.
- Customers' needs, preferences, and expectations are evolving with time. In Canada's real estate, in particular, customers are demanding for mobile-friendly and digitally-enabled spaces.
Impact on the Market
- PWC's survey report states that players in Canada's real estate market are beginning to try out new applications across the technology spectrum to match up to the evolving market.
- Providers are also looking for ways to improve business efficiency and minimize operational costs through technology. For instance, the implementation of data and analytics in real estate business is associated with significant cost-cuttings.
- Some technologies they are trying out include smart homes embedded with IoT powered sensors and smart building applications aimed at energy efficiency.
- AI applications on smart building systems, when combined with sophisticated sensors, can be adopted to boost energy efficiency.
- There has also been an increase in the number of firms investing in technology companies through accelerators and investment funds.
- For example, three Canadian start-ups selected to participate in the 2019 class of Colliers Proptech Accelerator.
- FastOffice, Finneo, and BRED Token were all selected for the proptech accelerator programs based on the fact that they are ahead of the game in terms of proptech innovations for the real estate sector in Canada.
- VTS, a proptech firm, has expanded its operations to Toronto to take advantage of the customer base in that region. It offers a software solution for identifying potential clients, managing paperwork and running a financial analysis on deals.
Trend #2: Emergence of Reimagined Spaces To For Consumers' Evolving Needs
- Canada's real estate industry is showing signs of response to the evolving use of spaces and changing customer habits and expectations.
- The changes are being experienced across all property types. For instance, the growth of online shopping in the retail sector has given led to the need for dedicated spaces for deliveries e.g., cold spaces for food deliveries in the multi-family residential sector.
- The demand for co-working and co-living spaces has risen in Canada. According to PWC's findings, "blending features of apartments, dorm rooms, and hotels, co-living accommodations offer residents the opportunity to have their own space within common living areas at a more affordable price."
- The trend has been widely mentioned by industry experts, real estate analysts. It also influences operations in the industry and informs decisions made by major real estate players in Canada.
Impact of the Industry
- The pressure is mounting on real estate players to be digitally focused and become innovative amidst the growth of co-working and co-living concepts.
- Such spaces are modern, technology-enabled, and require massive investments to realize.
- Some developers are already working towards developing multi generational co-living projects with provisions for the accommodation of the needs of a particular generation in a separate building. Common community spaces also exist to be shared by all residents.
- The growing demand for high-quality features and amenities that enhance residents' experiences has caused developers to consider providing services such as curated events, housekeeping, and easy access to essential supplies.
- Developers have to move with speed to provide good gyms in office spaces and consider features such as proximity to restaurants, among others.
- In response to the trend of reimagined spaces in the real estate sector, building designers are moving towards office designs that make people feel more comfortable and at home.
- Developers are scrambling to target millennials, who seem to be the group that is particularly interested in reimagined spaces such as co-living spaces.
- One co-living start-up in Canada, known as Node have plans underway to launch first building in Kitchener-Waterloo, with hopes of attracting a pool of young tech professionals in the area.
- Node rents have utilities, and residents have access to shared services, such as an efficient and sleek lounge area and co-working space. Renters, otherwise known as "Nodies" — "are supported by on-site "curators" who co-ordinate social and volunteer events, assist with roommate matching and create partnerships between the Node community and local businesses, including the arts and charities."
Trend #3: A rise in Institutional Investments in Canada's Real Estate
- There is a rise in institutional investments in Canada's real estate industry. Assets in the industry are continually being acquired by financial buyers, including private equity funds, pension plans, and other institutional capital funds.
- The rise of institutional investment cuts across all sector types, such as retail, office, senior housing, and multi-family units.
- The rise in institutional investments is considered a trend because it has just recently began to increase and is causing a direct impact in the real estate industry, as illustrated in the following section.
- Additionally, it has been mentioned by experts and analysts and reputable research firms as having the potential to shape the market now and in the immediate future.
- According to a CIBC Mellon study, "Canadian institutional investors are seeking to further increase their overall allocations to alternative investment strategies, including real estate, private equity, infrastructure, private debt, and hedge funds."
- The trend is also being felt in the global scene. The Pension Real Estate Association's 2019 investor intentions survey found that half of the global institutional investors expected to allocate more funds to the real estate industry.
Impact On The Industry
- One of the effects of the trend is the resultant decrease in the number of publicly-traded investment options from the Canadian real estate marketplace.
- Also, the trend is causing continued downward pressure on capitalization rates.
- One example of the institutional investments is the recent acquisition of Dream Global by equity firm Blackstone.
- Another illustration of the trend is the recent direct investments made by Investment Management Corporation of Ontario (IMCO) in 160 Front Street in Toronto, Ontario.
- One driver of the trend (also impacting on the trend) in the industry is the fact that these investments are vital in sheltering them from short term risks and market turbulence while also getting strong returns.