Friday, January 8, 2021 / by Sushma Khinvasara
Image credit to the owner
While 2020 brought about plenty of obstacles for all businesses with the pandemic and lockdown, it was impressive how the Canadian real estate industry managed to stay strong without a decline in activity and sales. COVID-19 is driving transition across Canada’s real estate industry, as the urbanization movement hits a new age, retail assets face further uncertainty, remote working tempers the future for offices and e-commerce places a lighter focus on industrial real estate.
Looking Back At 2020
Although the pandemic is causing an atmosphere of caution, real estate firms would be better prepared to thrive by adapting their investment and construction plans to remain ahead of developments in where customers choose to be and how they use the property. In 2020, according to the Canadian Press, the Toronto Real Estate Board said the selling price of a Toronto home sold last year set a new high as the number of sales rose 8.4 percent compared to 2019. In Greater Toronto, the average sale price was $929,699 in 2020, up 13.5% from $819,279 relative to 2019, the board's report said on Wednesday – all of which is incredibly impressive given the circumstances the coronavirus had put the world in.
Which begs the question? What’s in the bag for 2021? With the vaccine becoming available and a new strain of the virus which is said to be more infectious than the previous one, what can the housing market of Toronto look forward to this year?
In reports, people found divergent opinions on many significant topics, ranging from a likely rise in suburbanization to long-term changes in office vacancies due to remote employment to the forecast for the recovery of Canada from the COVID-19 pandemic. The increased pace of transition as pre-existing developments, such as deepening retail property struggles, adapt or acquire speed and new patterns emerge in Canada's real estate market, is another phenomenon that has been constant across much of the industry.
Some of the patterns this year are confusing, and it isn't easy to try to make sense of the transition and confusion. In the coming year, in the face of volatility, it will be about welcoming potential to remain flexible while changing tactics to predict and keep ahead of new and accelerating developments.
From a survey conducted by PWC Canada, the trends that are most possible to arise this year are the following: warehousing and fulfillment, multifamily residential and medical offices, respectively.
In the survey this year, warehousing and fulfillment topped the list of both real estate growth and investment prospects. The rise of e-commerce is an important factor, but as a major driver during the pandemic, interviewees often cite supply chain problems as some businesses respond to these difficulties by keeping more inventory.
For multifamily residential, while certain pandemic implications may put a strain on the demand for very dense forms of housing, interviewees stressed that housing remains a crucial need and acknowledged the affordability that can be provided right now by the multifamily group. However, demand may change, with tenants and homebuyers looking to live in townhouses and mid-rise buildings rather than larger towers that have been the norm in urban centers over the past year.
A medical office is a third group that ranked at the top of our survey this year, which can also provide the consistency that many developers and property owners are searching for right now. There could be options to transfer certain health-care functions to high-traffic neighborhood sites such as malls, one interviewee said, with hospitals facing a capacity shortage.
The pandemic has contributed to the widespread implementation of interactive health systems, there will be a continuing need for digitally deliverable physical space for treatment as well as diagnostic equipment. Increasing population would ensure growing demand for health facilities, but as professionals transition to digital distribution, the move to virtual care could lead to some repurposing of medical office space.
In one of the most optimistic forecasts yet for the real estate sector, the Canadian Real Estate Association expects the national average home price to rise 9.1 percent to $620,400 in 2021. In all regions across the country, the real estate association says it expects home prices to either hold steady or climb, citing economic improvements from the lows of the COVID-19 pandemic.
CREA says that even more homes will be sold in 2021, although monthly home sales are likely to ease back to more typical levels compared to the wild swings of 2020. Overall, CREA expects home sales volumes to rise by 7.2% to around 584,000 in 2021. The report also notes that it is expected that mortgage rates will stay low next year, supporting borrowing.
“The strength of demand, particularly for larger single-family properties, will drive the average price higher as potential buyers compete for the most desirable properties,” the report says.
One of the brighter predictions out there is for the association of more than 130,000 real estate brokers, while the sector seeks to make sense of a hot real estate market against a backdrop of lingering unemployment and an elusive end date for the second phase of the COVID-19 pandemic.
Re/Max expects price changes of four percent to six percent in 2021, while fellow home retailer Royal LePage bets on a price spike of 5.5 percent.
Meanwhile, debt market watchers have a greater range of forecasts.
For instance, next year, Ratehub sees rates rising four to seven percent. But that excludes the apartment market, where this year sales have not risen as fast as more Canadians have shed their commutes from home in need of space to work and school.
Next year, Fitch Ratings expects house prices to plunge by three to five percent, forecasting that borrowers will default on mortgages as unemployment renders homeownership unaffordable.
CREA's outlook, however, states that the real estate market not only rebounded to new levels in summer after home prices plummeted this spring, but maintained its multi-year pattern of demand exceeding supply.
In the next blog, we will be looking closer at Toronto Housing Market Trends.