PWC Canada: Multifamily, Industrial & Necessity-based retail are where it's @ in 2024

[Austin Gagne]

Interesting outlook piece for 2024 from PWC re: for the Canadian CRE investors out there:

Emerging Trends in Real Estate® 2024

The TL;DR... They highlight three asset classes, which they think offer the best bet for growth in 2024:

1. Industrial Real Estate:
   • - Despite caution, industrial real estate remains a strong investment.
   • - Slower rent growth is expected, but the sector is still attractive.
   • - Opportunities are seen in manufacturing, warehousing, and data centers.
   • - Low vacancy rates across Canada contribute to the positive outlook.
2. Multifamily Residential Housing:
   • - Challenges in condo and rental projects, but fundamentals are solid.
   • - Federal GST relief for new construction projects generates industry interest.
   • - Growing interest in niche assets like student and senior housing.
3. Necessity-Based Retail Property:
   • - Retail sentiment improves, especially for grocery-anchored developments.
   • - Neighborhood shopping centers are highly ranked for investment prospects.
   • - Focus on retail properties serving communities with strong population growth.

... but less optimistically, they describe the Canada’s real estate sector as "facing the years of the great staring contest”, with capital availability being a challenge across the board.

Personally, don't have a strong view on industrial (not generally my focus), but for multi-family and small/local retail, this broadly does align with my view. I think both sectors can benefit population growth, even if real GDP per capita continues to fall. The nuance I would add though is that I wonder if "growth" if too strong of a word. For industrial and multifamily cap rates had generally compressed over the decade prior to 2022, and don't seem to have expanded much despite rising interest rates, I don't see them compressing more, and I think any increases in rents will likely be more than offset by increased debt service costs. For small ("necessity-based") retail, I think less money chasing deals will probably cause the gap between A Class/anchored (or high foot-traffic) property cap rates and everything else to expand.

Interested to hear other's takes.