What Happened to the Credo of “Location, Location, Location”?

Real Estate professionals have long promoted the credo: “location, location, location.” Have recent social and economic trends stemming from the global pandemic made this pillar of real estate obsolete? Homeownership is of central value to most Canadians and perhaps these past 2 years have proven that, at least locally, location has taken on a different meaning altogether.

Strength in the residential housing market:

  • In the short term, buyers are racing to get into the market ahead of anticipated interest rate increases
  • Inventory is extremely low – chronic lack of supply has only gotten worse, and with immigration resuming, demand drivers will increase in 2022
  • Home prices in outlying areas have increased dramatically (the image below illustrates this trend in the GTA, where average prices have increased to $1,163,323 across all home types through November 2021 – up by 21.7% year-over-year)
  • Outside the GTA core, we’ve seen prices rise even higher

Image from WOWA. Data sourced from the Toronto Regional Real Estate Board (TRREB) and the Canadian Real Estate Association (CREA).

The office market is uncertain – How quickly will people come back to the office?

Location isn’t as important as it was pre-pandemic – downtown office buildings continue to have elevated vacancies (and sublease activity). Modified and remote work arrangements may lead this trend to continue, with many job-seekers requesting more flexible arrangements with employers.

  • CIBC’s Benjamin Tal recently noted that there shouldn’t be an exodus from downtown offices, as the rent expenses of large employers are far less significant than the cost of keeping their people paid

Strength in industrial spaces:

This continues to be a strong asset class due to demand for e-commerce warehousing and local manufacturing.

  • There are almost zero vacancies in industrial assets, and new developments can’t be built fast enough to absorb demand

Inflation a key trend coming out of 2021:

  • Supply chain disruptions (product shortages) continue and are exacerbated by natural disasters like the recent floods in BC
  • Economy is now back to near-full employment, giving consumers purchasing power going forward
  • Personal disposable income of Canadians rose by 12.8% during the pandemic (creating pent-up demand and propensity to spend)
  • Real estate at record highs (MLS Home Price Index for Canada rose 23.4% year-over-year through October 2021)

Responses to Inflation:

  • Interest rates set to rise – Multiple rate hikes are projected (but gradually over the next 24 months). While tempering inflation, these won’t materially depress real estate prices.
  • Government assistance programs to taper off:
    • For individuals, this should push lower-income earners back to the workplace
    • For businesses, the loss of assistance could force some employers to restructure and adapt to a new normal

What messages can we take from the current state of affairs?

Location used to mean proximity – to transit, amenities, or the workplace. It has taken on a different meaning through the end of 2021, associated with affordability and more space for young families.
We don’t see this trend reversing in the short term for the following reasons:

  • Canadians love their homes and have continued to invest in housing during the pandemic. Detached home prices, while historically not the strongest residential segment, increased 30% year-over-year in Toronto proving that Canadians have put a premium on their living spaces
  • With lockdowns and business closures, the pandemic has created a situation where home is the safest place to work and even go to school
  • Both urban and exurban markets will continue to be strong in the short term, supported by immigration to cities, and a continued shift to remote work. We will closely monitor the market to determine if and when these trends change


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