Welcome to Soundbites, weekly insights on market trends and investment strategies, brought to you by Investment Executive and powered by Canada Life. For today’s Soundbites, we’re talking about real-estate investing with Steve Marino, executive vice president with GWL Realty Advisors. We talked about the outlook for the various sectors of the real-estate industry, and we started by asking about the gap in the supply of affordable housing.

Steve Marino (SM): There was a report, back in 2022, that suggested that we were about 5.8 million housing units short of delivery that’s required by 2030. And there’s about 2.3 million units currently planned, so that leaves a delta of about 3.5 million units that our industry needs to deliver. Regrettably, the increasing cost of capital, labour shortages, the municipal planning approval process continue to be real headwinds to effect the volume of new delivery that we need. So, again, I do believe that we need more of a collaborative approach across multiple layers of government to generate a more-timely solution to the problem that’s at hand. You know, I’m somebody thinks ultimately that the breadth of real estate really depends on the success of our cities, and if we can’t create successful communities, immigrants will go elsewhere and some of our cities won’t be as successful or viable as they need to be.

Current valuations

SM: It’s important to have valuations being done frequently. It’s important that they be independent, and that those values are benchmarked, so that you’re getting the perspective of how do those values compare to other industry participants. And it’s critical that your valuation process remains robust and leading edge in terms of those key elements.

An overview of conditions

SM: For the most part, the Canadian fundamentals are very, very strong, especially in three of the four asset classes. Industrial is one of the stalwarts. Market conditions remain very strong. Vacancy rates are still relatively near historical lows. We’ve seen a bit of easing recently. Part of that has just been a product of the new supply that has finally come online in many of our major metropolitan areas. In that same breath, I would think about the retail sector, and, in particular, that needs-of-life retail segment, so grocery-anchored centres with those neighboring food offerings and pharmaceutical centres. That segment of the retail market continues to be very strong. And then maybe the third asset class that has continued to remain very resilient is the purpose-built rental sector. Strong demand, limited supply has continued to set up for relatively strong conditions, which has effectively allowed us to keep buildings well leased and well occupied. The office sector is probably the asset class that continues to get a fair amount of notoriety. But we are starting to see some more meaningful recovery in the office sector. More and more large organizations have more robust return-to-office mandates, which I think is quite positive. I do think there is some choppiness though ahead of us. You know, vacancy rates across the country, on average today, are just north of 18%. So, you know, that is certainly a heightened number. So, I do think there is going to continue to be a flight to quality, as I would describe it.

Opportunities in the Canadian real-estate market

SM: You know, it really is about sourcing the right opportunities in the right markets. What are the buildings that have rents below market where an investor can step in, invest capital, and create value through that equation? You know, we’re certainly seeing some positive green shoots, I would say, in the office space. So, I feel optimistic about where values are today and where they may be going as the markets continue to recover. In the same breath, we certainly have high conviction around the multifamily and industrial space, just given how strong the fundamentals continue to set up. What I quite like about those two asset classes is the inelasticity of demand that exists within them. Irrespective of what’s happening in the economy, people need places to live. And we know increasingly more and more of our consumers are using e-commerce as a form of fulfillment. And really that inelasticity means that those two asset classes will continue to prosper.

And finally, the bottom line for real-estate investing in Canada

SM: I think the Canadian marketplace continues to benefit from a fantastic economic backdrop, driven by a growing economy with strong demand, and a growing immigration base. Inherently, the real-estate asset class benefits from those tailwinds of demand. But I do think there will continue to be some headwinds: inflation, and a fear that the Bank of Canada or other central banks globally are not yet done their work. It certainly feels to me like we’re getting into an era here where rate increases are subsiding. And I think some relative stability would help to return certainty. And that certainty, I think, will help reignite the flow of capital across a multitude of asset classes.

Well, those are today’s Soundbites, brought you by Investment Executive and powered by Canada Life. Our thanks again to Steve Marino of GWL Realty Advisors. Visit us at investmentexecutive.com, where you can sign up for our a.m. newsletter and never miss another Soundbite. Thanks for listening.


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