Real estate in Alberta: Time to rebalance, rethink & reinvent

Back in early June, I shared my take on the outlook of Calgary’s real estate market, citing a few key points regarding fast-paced growth, the changing nature of the industry, and the opportunities available to those who are forward-thinking and disruptive. On October 26, PwC released our annual Emerging Trends in Real Estate (ETRE) report, and it got me thinking about what has held steady and what has already begun to change almost 6 months since my last analysis.

PwC’s 2018 ETRE report identifies key trends that owners, developers and investors are currently experiencing, and should keep an eye on in the months to come. While the report surveys industry experts from across the country, I can’t help but focus on what this means for businesses and individuals in Alberta.

As increasing government involvement and technological advances change the industry, the report calls on Canadians to create possibility by rebalancing their portfolios, rethinking how they operate, and reinventing their M.O., so to speak, in order to realize long-term gains. Staying ahead of these trends will help Albertans identify opportunities to grow and stay competitive.

#Rebalance portfolios with the right deals

Commercial centres like Calgary’s core and Edmonton’s downtown Ice District are still feeling the repercussions of Alberta’s economic downturn. Calgary especially is expected to see ongoing high vacancy rates, meaning investors will have to innovate & get creative in their hunt for new opportunities and profitable deals. Some are beginning to search elsewhere for opportunities that could offer superior returns. As one interviewee of our ETRE report says, “During each economic cycle, there are opportunities to seize. You must know how to spot them.” This is not to say you must take greater risks, but perhaps more differentiated risks.

For some (particularly mid-size players), this could take shape through buying lower-quality properties in order to create space for higher-quality developments, with hopes to redeploy capital and improve their portfolios. Others such as real estate investment trusts (REITs) will realize diversification through reducing leverage and payout ratios to more conservative levels, reducing the risk in their portfolio.

A senior analyst from the Real Estate Investment Network (REIN) recently named Edmonton as the top city in Alberta (and within the top 10 in Canada) for real estate investment, citing its diversified economy, opportunities for cash flow, and low mortgage rates. Calgary rang in as a close second for Alberta. All in all, organizations and individuals alike must be nimble in executing profitable deals and just as strategic about existing arrangements that no longer provide the returns necessary to maintain the investment.

#Rethink how to grow in a high price environment

In the midst of exploring diversification opportunities, Canadians are also rethinking their living expectations, and cities are moving forward with large-scale transit and densification projects. Edmonton’s Valley Line LRT will increase density around the corridor, and Calgary’s Green Line plan (if executed) would facilitate the flow of people into the downtown core. With this comes the demand for “placemaking”: a multi-disciplinary approach to planning that promotes high quality of life for all by acknowledging and celebrating the contributions of people and assets to vibrant public spaces and places. Simply put, placemaking creates spaces where people want to live, work and play; it gives them a unique experience and community culture through an engaging environment.

Edmonton’s Ice District is designed to achieve just that. There are 1,400 residential units under construction in the Ice District, along with 2,500 underground parking spaces, 350 hotel rooms, and 270,000 square feet of retail space (Edmonton Journal). This disruption of Edmonton’s previously quiet downtown also means growth opps for other real estate developments - hotels, offices, restaurants, bars, shops and galleries. A new hockey arena and multi-use district could provide the same benefits for Calgary. However, ongoing friction over a potential new arena shows that Calgary will need to provide interim solutions to meet citizens’ needs for creative living and working space, amenities and entertainment in a one-stop-shop.

This could also make both Edmonton and Calgary stronger candidates to become “18-hour cities”. Think of it as the training wheels on a ride towards becoming a “24-hour city” like New York or Berlin, where integrated residential, commercial, retail, services, entertainment and cultural amenities allow people to accomplish their daily tasks and then enjoy themselves well into the night. This transition would affect the real estate sector through demand for amplified transit infrastructure, increased pedestrian space, and the presence of public services and private businesses outside of the standard 9-to-5 period.

#Reinvent how to do business amid technological disruption

From retail, to finance, to agriculture, tech seems to be shaping every industry in a different way and real estate is certainly no exception. The proliferation of tech into the real estate sector empowers its players to make better-informed decisions, understand consumer needs and identify possibilities to profit. For example, blockchain technology stands to make a significant impact on the real estate industry by facilitating money transfers, property registration and the conclusion of agreements, therefore making transactions more transparent, efficient and accessible (BitcoinMagazine.com).

Virtual reality (VR) and augmented reality (AR) technologies also propose benefits to developers and real estate professionals, allowing them to showcase properties to clients before they’re even built or forecast potentially costly mistakes on the construction site. For example, Calgary-based Veerum is a global Industrial Internet of Things (IIoT) company leveraging automated data capture and AI to predict issues in the virtual world before beginning construction in the physical world. The use of tech decreases the need for rework and increases construction safety, overall positively impacting the overall project efficiency and the builder’s bottom line.

Calgary has already seen disruption through the immigration of Silicon Valley giants, such as coworking & collaboration trailblazer RocketSpace, and the city is believed to be the top Canadian contender for Amazon’s HQ2. Edmonton has also attracted global tech talent: Google recently opened a DeepMind lab in Edmonton, making it their first ever international artificial intelligence (AI) research center. Their collaboration with the University of Alberta has the potential to turbo-charge the city’s growth as a technology and research hub, and could make YEG an excellent candidate for Google Sidewalk Labs’ next Smart City project (move over, Toronto!).

I maintain my view that the horizon looks bright for real estate in Alberta. Fortune will favour those who are brave and strategic - who take calculated risks to diversify their portfolio, think differently, and disrupt the industry before their competitors beat them to the punch.

For more insights, check out our Emerging Trends in Real Estate website and download the 2018 ETRE report.

Ian Gunn

@ianhgunn