December 2, 2025 • 51 mins
Tonight on The Brian Crombie Hour, Brian is joined by Fred Cassano, National Real Estate Leader at PwC Canada, for a timely deep dive into the future of housing and real estate in Canada. Drawing on PwC’s extensive survey of over 1,250 industry leaders, they explore why the condo market has stalled, why purpose-built rentals are booming, and why only top-tier office space remains in demand.
They also unpack the impacts of labour shortages, private equity investment, ESG priorities, and Canada’s growing need for 500,000 new homes a year. Fred outlines why condo sales today could drive higher rents in 2026, how Canada is falling behind in AI and data centre development, and what real estate leaders urgently want from government — faster approvals, smarter permitting, and lower barriers to building. It’s a must-listen conversation for anyone concerned about housing affordability, investment trends, or the future of Canadian cities and the economy.
They also unpack the impacts of labour shortages, private equity investment, ESG priorities, and Canada’s growing need for 500,000 new homes a year. Fred outlines why condo sales today could drive higher rents in 2026, how Canada is falling behind in AI and data centre development, and what real estate leaders urgently want from government — faster approvals, smarter permitting, and lower barriers to building. It’s a must-listen conversation for anyone concerned about housing affordability, investment trends, or the future of Canadian cities and the economy.
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Speaker 1 (00:00):
The views expressed in the following program are those of
the participants and do not necessarily reflect the views of
SAGA nine sixty am or its management.
Speaker 2 (00:18):
Good evening, everyone, and welcome to the Bran crimeby Radio Hour.
I want to talk a little bit about the real
estate industry in Canada today. I was at a really
fascinating breakfast a couple of weeks ago and Fred Cassano,
who is head of the real estate function at TO PwC,
made a really interesting presentation and his opening slide was,
(00:41):
real estate right now is like driving in the fog.
Drive too slowly and you'll get hit from behind. Drive
too fast and you'll fall off a cliff. So it
was a fascinating conversation about where we are in the
real estate business, and I think a lot of us
are a little bit concerned about what's going on. Fred
Cassano was the partner of the National real Estate Leader
for PBC Canada. As the National Restate Leader, he leads
(01:02):
a real estate practice with approximately two hundred and fifty
senior staff focused on real estate, which he says translates
to strong local teams as well as a large national
team to support and deliver PWC's real estate industry focused
team Assurance Tax real Estate Advisory, property tax, real estate valueers,
restructuring experts, and real estate technology advisors that are involved
(01:23):
in key business issues in regards to the industry. And
I got to tell you this presentation made everyone stop
and think and wonder and a little bit of worry.
So Fred, welcome to the.
Speaker 3 (01:36):
Show, Thanks for having me, Thanks for joining me at
the breakfast as well, and I appreciate you reaching out.
Speaker 2 (01:43):
Fred. The emerging trends in real estate that you discussed
was based on a survey of what twelve hundred and
fifty responses around Canada the United States.
Speaker 3 (01:54):
That's incredible, that's correct, twelve proxpbly twelve fifty surveys and
then in depth interview with two hundred and ten this
year in Canada and in over three hundred in the
US one on one CEOs cross section of many different
people that are invested in real estate, whether it's operators, pensions,
(02:17):
private equity, developers. So it's a good cross section of
of of investors in real estate.
Speaker 2 (02:27):
And what was the what was the issue, what were
the emerging trends? What what did you discuss at their breakfast.
Speaker 3 (02:35):
Well, we could start with the top three emerging themes
and trends. One is we're in a new era of
real estate and reinvention, if you will. The cross section
of real estate combining with energy tech manufacturing is really
going to unlock a whole bunch of a different new
(02:58):
ways of business and mentioning rementions of business models, and
we can get into that in a moment. The second
one is a new playbook is emerging on deal deal
making with private equity, private funds, family offices really filling
(03:18):
the void, if you will, of traditional capital, and we
can get into that in a moment as well.
Speaker 2 (03:25):
So what are you saying that this is more private
investment than the public rates that have been so prevalent
in the in the past, or big pension funds and
life insurance.
Speaker 3 (03:35):
Companies, pens of funds and private read certain reads will
still be a big part of the capital, however they're
patient there. Call it redeployment capital and shifting portfolios. What
I'm saying or what we heard loud and clear. The
first movers right now on opportunistic investments are private reads,
(04:02):
family offices, private capitals that that will include private debt.
So those are the first movers. We're also hearing that
pensions are still going to be deploying in Canada especially,
which is good to hear, but more patient rather than
first movers right now. On the private side.
Speaker 2 (04:24):
And you know, I think we've heard this from lots
of people, but I guess you commented that the condom
market is, if not dead, on life support, but purpose
built rental apartment building is under under construction and undervelopment.
Is that the case?
Speaker 3 (04:37):
Absolutely so? Last year we said condos are frozen, the
whole market, investors are gone for a whole bunch of reasons.
I think this year we're hearing is the condom market
isn't in a reset restructuring mode. What's the going to
look like in the last in the next five years.
We don't know. I can certainly talk about that, but
the mood has shifted towards decisive shift towards purpose built rental.
(05:02):
And it's driven by the frozen condo market, but also
lots of incentives from a policy perspective that are that
are fueling capital and investment into purpose bul rental. And
for years we've heard numbers don't work. Right now there's
still call it thin but certainly with CHC financing rebates
(05:25):
on development charges from a municipal perspective to GST rebates
on rental to carboats from a tax perspective on interest deductibility,
there's a lot of policy shifts towards making the numbers
work on purposeful rental, and as a result, there's more
capital being deployed in this area.
Speaker 2 (05:47):
One of the other things that you talked about and
other people at that session and the panel that followed
you talked about was how the office market has changed,
and that you know, I think it was described as
sort of a plus office market in downtown urban areas
was doing spectacularly well, but the C and D market
(06:08):
was not doing well. Can you and suburban office wasn't
doing well. Can you elaborate on that a bit if
you could.
Speaker 3 (06:14):
Absolutely so. It was interesting. Our interviews take place between
May and and of August, and I always get worried
about not missing or not not covering the latest breaking
news on trends, and certainly office to me in the
summer changed the move from we're not out of the
(06:37):
woods yet to wow. Positive investment sentiment on office, especially
Triple A which includes highly meditatized cond office excuse me
to on transit nodes close to residential and retail. So
(06:57):
certainly a few things driven drove that positive investment sentiment.
Number one office mandates, whether it's from the banks and
government agencies, certainly helped the investment sentiment. And people just
started coming back organically from many different organizations. So the
(07:21):
Triple A least seeing velocities started to unfold. And even
today we're seeing office being sold. I think there's nine
active sales in the GTA, all of which are under contract,
and I understand from my prograge friends that those contracts
(07:44):
are with foreign investments. So that's positive sentiment on the
Triple A. Now we hope that that will percolate into
the bees. There's still bees are are challenged because they're
not highly amenntized, and uh, you know maybe perhaps there
on on on in the suburban markets. But we're hopeful
(08:07):
that as lease sing picks up on the Triple A,
that will that will spill over to the bees.
Speaker 2 (08:15):
Well, we're also for people listening today that aren't familiar
with sort of what's an A office versus a B office.
Can you give us a little bit of a description
I think we intuitively know, but maybe it could be
more explicit.
Speaker 3 (08:26):
Absolutely, so the triple A is is is lots of amenities,
whether it's at the floors, floor or the common area
space or it will include retail UH to access to
if you think if you think of the well, you
(08:47):
have access to shopping, also office and close to hotels.
So we have also UH aspects of of sustainability measures
where it's energy efficient. So all those criteria build to
(09:11):
triple triple A or the trophy assets. The bees are
not on transit nodes, don't have amenities that would include
access to gyms or food court, and they're not you know,
close to highly traffic trafficed areas or no. So those
(09:33):
are the bees and commonly right now in the suburbs.
So that's the distinction between UH triple A UH. And
also now you're you're different categories of A B. Now
there's also a C class, which are your older, older
buildings and which you know so not surprisingly but but
(09:55):
because they're called it cheaper from a rental perspective, are
gaining traction because they're more affordable and some of them
people like the brick facade inside. So the seas are
actually gaining more traction, but the bees are in a
challenge and challenge environment.
Speaker 2 (10:15):
You know, it's interesting. I was at a different conference
where the chairman of Allied was speaking and he talked
about mixed use development, and he said that he thought
that the office development of the future would be mixed
use developments like the well where you've got condos, rental, office, retail,
jim all all together in one development. And he also
(10:37):
referenced the new CBC building across from Scotia Bank Arena
and he said, you know, you think right beside you've
got a condo's rental, you've got on the fourth floor,
a big steak restaurant, you've got across the street Union station,
and Scotia Bank Arena, and that people really want not
just a building with a food court, but a building
(10:58):
with a whole bunch of other amenities. What do you
think is that true?
Speaker 3 (11:01):
I think it's it's desirable, but it's also very challenging.
You have a lot of different stakeholders that need to
come together, you know, because it's not only one builder
that's that's at play. So so I I would think
that those are desirable locations, but very challenging.
Speaker 2 (11:23):
Uh.
Speaker 3 (11:23):
You have retail, Uh, you have hotel, office and residential
you know, different policy zoning entitements too, you know, agreements
on on on common spaces. So while desirable, very very
challenging UH to to come together. So kudos to c
(11:46):
ABC and Hinds and I think it's the case and
others on that building and also Real Canada well allied. Uh.
They are very challenging endeavors, but certainly desirable.
Speaker 2 (12:00):
As you say at the breakfast, I thought you did
a great job of sort of elevating and talking about
a numerous you know, economic wide issues that we need
to be aware of as we enter twenty twenty six
that impact you know, the overall economy as well as
just the real estate market. Can you go through some
of those issues for us please?
Speaker 3 (12:21):
For sure, certainly labor shortages, productivity, you know, costs still persist.
So while maybe there was some you know, softening of
labor costs that's offset with with higher tariffs on some
goods that are crossing the border, productivity continues to be
(12:43):
an issue from a construction perspective. Certainly there was a
recent report from CMHC that also talked about that. So
we need to think about how we can improve productivity
to build faster, and also in the labor you know.
While on that point, we still have many retirements are
(13:05):
going to happen in the next few years, so as
as as the construction market slows down, you know, we
may actually accelerate them a number of retirements and potentially
have uh labor shifting to other industries as well. So
I'm really concerned about labor labor as as as a
potential you know issue, and we certainly heard that in
(13:28):
our interviews. Power constraints, and I would say, I would
add water when we start thinking about data centers.
Speaker 2 (13:38):
Water data centers, why do you need I thought you
needed electricity. Why do you need water?
Speaker 3 (13:43):
Absolutely so there's electricity uh impact on the gride, for
for sure. But then also there's lots of heat that
gets generated with data centers, so you need you need
a mechanism to cool it. So certainly uh cooler climates. Uh.
You know, I've heard about this.
Speaker 2 (14:01):
I'm sundered that, you know, these big companies are building
in Texas and Arizona and the deserts. Why are these big,
huge companies building their massive data centers in the desert
in the southern United States when heat is a big issue.
Speaker 3 (14:16):
That's fantastic question. A few reasons. One, you need large
masses of land. Sometimes that's that's cheaper. But also Texas
in particular, you're close to energy, whether it's your fossil fuels,
but other alternative energies that help fuel data centers. But
with those large heat inducing cities, you need to have
(14:41):
water to help cool cool the data center. But certainly
power constraints are becoming an issue when when you think
about data centers being fueled by AI but also being
fueled by coin based technology or bitcoin, the EV world,
(15:02):
and also a decarbonization, which is the continued electrification, so
that's going to put continued pressure on power.
Speaker 2 (15:11):
I would have thought, with you know, our nuclear energy
or hydro energy, our colder climate, the Great Lakes, et cetera,
we should be building data centers here in Ontario.
Speaker 3 (15:23):
Absolutely, and I think you mentioned absolutely we have the
determinants are the key success factors to be attracting a
lot of data center demand and supply, but also nuclear
energy is I want to put a number to it,
but call it a decade away in terms of being
(15:46):
an alternative source of energy to fuel data centers, and
certainly new legislation I think will help fast track that
in Ontario. I think Calgary, which is one of the
reasons why it's on our top market to watch. It's
more it's called business friendly, but also if you bring
your your own power behind the meter, as they say it,
(16:10):
including nuclear, you see a lot more investments and data
centers go to Alberta before Ontario, and hopefully regulation changes
in Ontario to help accelerate that for those type of investments.
Speaker 2 (16:22):
I think it's a huge opportunity that we're maybe not
missing out on, but we're not exploiting to the extent.
And if you take a look at how you know,
AI and expenditures on data centers and things like that
have fueled the US economy and we're just not getting
that benefit in Canada. For some reason, we're just not
investing that kind of money in Canada that we need
(16:44):
to invest to be at the forefront of this new
AI industry. And I think that you and other people
you know on that panel really spoke about that. We're
going to take a break for some messages and we're
going to come back and in the next section we're
going to really focus on if we could thread this
trend to away from condos and toward purpose built rental.
And I really would like you to walk us through
(17:05):
that because I think it is a massive trend within
the housing business in the GTA, but also you know,
frankly across Canada. We're gonna take a brick now for
two minutes back with Fred Cassano of PwC, head of
the real estate business at PwC. In just two minutes,
stay with us, everybody.
Speaker 1 (17:26):
Stream us live at SAGA nine six am dot CA.
Speaker 2 (17:40):
We'll come back everyone to the Bran Crimebrew Radio R.
We're talking about the real estate industry in the g
THA Greater Toronto Hamilton area as well as Frankly across
Canada with Fred Cassano, who is the head of Pricewater
house Cooper's PWC's real estate business. I had the privilege
of listening to him at a breakfast session that the
(18:01):
Urban Land Institute in PwC co sponsored. There was really
a very frank, hard hitting conversation about what's happening in
the real estate business in the GTHA as well as
across Canada. Fred I wonder if we could focus for
the next couple of minutes on this conversation that you
had in regards to you called frozen condo business, I
(18:22):
called the dead condo business. And this trend toward purpose
of a rental because it really is a dramatic change
in what's been occurring in the last ten fifteen years
in Toronto, is it.
Speaker 3 (18:33):
Not for sure? And one of the main reasons is
we're at the record low condo sales. I think we
reported that condo sales in the GTHA are at lowest
level since nineteen ninety.
Speaker 2 (18:49):
Went from like thirty thousand condo sales in like twenty
two thousand and twenty and twenty twenty one less than
a couple of thousand last year.
Speaker 3 (19:03):
That's astounding, but it's driven by investors. Have evaporated because
there's no certainty right now on the resale appreciation UH
and increasing caring costs. So so the condo market predominantly
was was fueled by investors. So if you take the
investors out of the picture, then then it evaporates a
(19:26):
lot of sales. So so also user demand has has changed.
I think we're starting to see and hear more about
the unit sizes need to be bigger and more accommodating
to to the end user demand for for condos.
Speaker 2 (19:44):
So as a result, there was a there's an executive
from Madamey Holmes that followed you that said that in
the last five years, builders were focused on what investors wanted,
not what the people that actually lived in the apartments
or condos wanted, and he said, we needed to refocus
the industry to focus on what the end consumer really wants.
Do you think that's been part of the problem.
Speaker 3 (20:06):
That's part of the problem. Absolutely, And I don't blame
the developers that were feed into the demand because certainly
low interest rates, high density policy drove a lot of
investors to the condo market. However, we're at a stalemate
(20:33):
or again the carrying costs are higher, you know, the
appreciation is not there. In fact, the prices for condos
have have trailed downwards in the GTA. I'm hearing as
low as seven hundred a square foot, and just years ago,
(20:53):
just two three years ago, we were at launches at
twelve fifty to thirteen one hundred of square foot fifty a.
Speaker 2 (21:00):
Seven hundred, that's a five hundred dollars reduction on twelve
to fifty that's that's like almost.
Speaker 3 (21:09):
Absolutely absolutely so that huge as a developer, you know.
That's the other issue here is would you would you
put shovels to the ground when your costs are at
seven hundred square foot if not higher? So the answer
is no, right, So if you're if you're now pivoting
to purpose but rental and putting more of your capital
(21:32):
risk and not relying on the pre sales to help
fuel your construction than people, you know, condo developers are
pivoting to purpose but rental.
Speaker 2 (21:44):
You also mentioned that there was sort of a permanent
rental market that was developing. So some people are thinking
that we're going to go more like the United States
and h and even Europe where we're renting forever. Is
part of you know, the reality of life. And one
person and said that there's no choice for young people,
they have to do that. What do you think of that?
Speaker 3 (22:05):
Well, we kind of predicted that in our report in
twenty eighteen emerging trends the rise of the permanent renter,
and as affordability gets gets tougher from from an ownership perspective,
we will see more decisive shift towards the permanent renter.
But that's healthy. I think from a market to have
(22:27):
multiple choices, and if you have supply that we can
increase from a rental perspective, then the consumer will have
choice and hopefully you'll get we'll get more investors to
come back. Sorry to investors, but more choice also on
the low rise and the condos. It will look look
(22:49):
a lot different in the future. But we need choice
and increase the supply so that everyone can help with
the affordability challenge.
Speaker 2 (22:58):
You suggested that affordability was one of the major shifts.
Can you expand on that?
Speaker 3 (23:04):
Well, So affordability is driven really for the most part
from a supply perspective, and we've heard of status whether
it's CMHC's statistics that show just to just to help
or store affordability, we need to build over five hundred
(23:25):
thousand dollars for five hundred thousand units in the next
ten years just to restore affordability. Well, we're not building
a half. We're only built building half of that amount.
Speaker 2 (23:38):
Sir, Can I interrupt five hundred thousand in total or
five hundred thousand.
Speaker 3 (23:42):
A year, five hundred thousand a year.
Speaker 2 (23:45):
Five hundred thousand a year.
Speaker 3 (23:46):
That's incredible that's incredible.
Speaker 2 (23:48):
That's like twice what we're building now, Is that not correct?
Speaker 3 (23:51):
That's that's correct. We're building approximately half of that. And
and if you don't have just demand, the supply logistics
or economic excuse me, if you don't have that supply,
then you know it'll just continue to fuel demand and
not help restore an affordable price to get into the market.
(24:17):
That's on the whole ownership side. And if we don't
do the same on the purpose of rental, increasing the supply,
then we'll start seeing, you know, rents increase. And for now,
rents have come down. I think in Toronto we're hearing
three point five is square foot for rental, whereas in
(24:37):
few years ago we were talking about five dollars a
square foots So seriously, what.
Speaker 2 (24:41):
So rental prices have gone from five dollars a square
foot down to three dollars and fifty.
Speaker 3 (24:46):
Cents on average? Correct? Right?
Speaker 2 (24:49):
Yes, you know a dollar fifty on five dollars. Is
that same twenty to thirty percent that we were talking
about on condos?
Speaker 3 (24:56):
Absolutely so?
Speaker 2 (24:57):
So.
Speaker 3 (24:57):
But what's feeling that is the shadow market, the rental
shadow market was fueling.
Speaker 2 (25:05):
What's a rental shadow market? Please explain them.
Speaker 3 (25:08):
So the condos were providing supply to the market, and
you had investors investing in condos that would then turn
around and rent them. So that was providing what we're
calling the shadow rental market.
Speaker 2 (25:19):
Right, what is it called the shadow market because.
Speaker 3 (25:22):
It's individuals landlords versus large institutional organizations that have multiple
units that are renting. So we call it the shadow market,
meaning investors that were renting their condo. We're providing a
(25:42):
supply to the rental to the rental market, which is
still good.
Speaker 2 (25:47):
Sorry, go ahead, please go on. You say it's still good,
but what it's not as good as the big purposeful
rental buildings that have got professional management, et cetera.
Speaker 3 (25:56):
But now you have unsold units and record amount of
closings happening in twenty twenty six from a conno perspective,
So so capital is shifting towards rental. But you also
have a large supply of closings happening on the congo side.
So together you're creating a large supply of units for rent,
(26:19):
which is creating a bit of a supply gap, one
of the reasons why rental rates are coming down. However,
as you know, if we don't build enough units on
the rental side, then those rates will likely continue to increase.
(26:39):
That we're I agree with you.
Speaker 2 (26:40):
But one of the things that you know, people I
think too often neglect is this huge amount of sales
four or five years ago turned into construction three or
four years ago, which will turn into deliveries this year
and next year. And so I've seen graphs comparable to
the graph that you showed about condo sales, but that
(27:01):
were deliveries. And my understanding is that twenty twenty five
and twenty twenty six will be some of the largest
year's largest deliveries for any year in history, which means
that this shadow rental market is going to increase dramatically.
And lots of us, you know, many of us have
seen all these cranes around Toronto because they're finishing off
the condo buildings that were sold five years ago, started
(27:24):
construction four years ago, and are going to just be
finished this year and next year and maybe a little
bit in twenty twenty seven, which means that there's going
to be a whole bunch of supply coming down in
the marketplace, which is going to logically decrease rental rates
even more.
Speaker 3 (27:38):
No, it should, but we're also you know, hearing that
there's no shovels of the ground on new construction. So
by twenty eight, twenty nine, the expected deliveries for condos
is less than a thousand, So there's no units that
are being constructed.
Speaker 2 (27:57):
And you don't think it's going to be sort of
you know, picked up by and bridged by construction a
purpose of rental. You don't think all the purpose of
rental buildings will be built to fill up that hole.
Speaker 3 (28:08):
No, And I would point to an Urban Nation report
that says, even with all the purposeful rental construction that's
that's estimated, we're still short annually one hundred and twenty
one thousand units, So we're still short on new units
for rental demand. And then if the condo market fails
(28:32):
to to restart, then we'll have the shadow market also
going down to zero right by twenty twenty nine, which
as a result, if we don't have supply continuing every year,
then we'll be back to potential higher rates of rent
in twenty nine, twenty thirty. So what can we do?
Speaker 2 (28:55):
What can we do to solve this problem?
Speaker 3 (28:57):
I think there's a few things. I really like the
government's initiative around build Canada homes UH investing thirteen billion
UH to unlock and capital to unlock public lands available
to to to to build, whether it's a billing on
Canada lands to Canada post to Canada fence and partnering
(29:21):
with with the private sector to to unlock lands at
at an affordable cost, and whether it's you know, entering
into land land leases or you know incentives UH to
to to build on on on lands that the government owns.
So I really applaud that UH that announcement. The other
(29:44):
thing we need to really focus on is continued cost
reductions on development and in GST is certainly one of
those aspects. We saw both the federal government on Tariro
government provide a re eight for hs T and GST
on new home constructions for first time buyers. I think
(30:08):
they needed to go a bit further. They need to
go further to incentivize all new home construction because that
would then spur more development in the resale or the
excuse excuse me, and the move up market, so that
those individuals that are currently in an older home and
(30:29):
wanted to move up to a new home that that
would then unlock supply on the retail sorry, the resale market.
So I think GST incentives are very important.
Speaker 2 (30:41):
We also I had some people from Build and Rescom
and CMC on my show and they indicated that the
taxation on housing was over thirty percent and clearly and
the tax was taken out sort of day one while uh,
you know, the profit that developers made was five years hence.
(31:04):
And they described that we're taxing real estate development sort
of the way we tax cigarettes and alcohol, almost like
it's a syntax which is to diminish sort of the
consumption of cigarettes and uh and and alcohol. And they said,
what the blank are we doing doing that with housing
when we so desperately need it. What do you think
are we taxing housing development way too high?
Speaker 3 (31:28):
Absolutely between development charges, park levees, GST, land transfer tax. Uh,
it's over It's an overtaxed and over regulated industry. Let's
you know, maybe double click on the development charges for
for for instance, because we've heard a few few times
from the real estate industry, maybe we can maybe we
(31:49):
can use methods that other countries use to help drive
down development park costs because it's hard to just remove
development charges. We need to replace them, and maybe things
like municipal municipal utility districts or call it MUDs that
(32:11):
issue bonds to the issue bonds to help pay for infrastructure,
whether it's sewers and waters, and then those bonds, which
you are at attractive rates, are paid over a period
time through property tax or special assessments as the development
(32:32):
is finished. And what you're doing is you're taking potentially
eighty to one hundred thousand dollars per home, and you're
shifting it away from the developers that have to front
that cost initially to a longer period of time. And
that bond, by the way, is an attractive investment to
(32:53):
pension funds that are looking for a steady return. So
I think initiatives like that Brian are very important.
Speaker 2 (33:01):
I think that makes a lot of sense. I think
that you know, that's the way we fund electricity with
our electricity utilities, et cetera. I think that that's the
way most American municipalities finance those kinds of infrastructure expenditures.
And I think that it's really unfair to have water
sewer et cetera being one hundred percent paid for by
(33:23):
attax on new home purchasers, and you know, that's the
young people that are trying to get in the marketplace,
that are that are spending one hundred hundred and fifty
too hundred grand in development charges, which is a down
payment effectively, and they're and they're forced to do that,
which is a benefit to all of society, not just
to the to the people that are moving in. So
I completely agree with you. I think that's got to
(33:44):
be one of the major changes that have got to
take place. What about just time period. You know, we've
heard a lot about sort of you know, what Carrentie's
going to do to streamline the approvals of pipelines to
the West coast. But then also people have talked about
it takes long longer to approve a project in Toronto
than it does to actually build a project in Toronto.
(34:04):
Is that is that right thing to do?
Speaker 3 (34:07):
No, And you referenced that there was one of the
CEOs from from Madamey talk about, you know, we can
build a home in one hundred and eighty days right
from our own construction processes, but it takes five to
seven years just to go through the approval process. So
I hear that from across the industry that if we
(34:28):
can accelerate time horizons from zoning as of right to
site plan, it'll really improve getting more supply to the
market faster. And I think, you know, certainly, certainly there's
been measures made on both the municipal and provincial level
(34:49):
to help accelerate, but we need more, We need more
to do that, and certainly, you know, one way to
do it could be to use ai as as a tool. Also,
different municipalities have different zoning requirements. Maybe there's more of
an effort to standardize the type of units that are
(35:14):
being built so that we can get through the process quicker.
But certainly soiling approvals as has been a loud and
clear requests from the community.
Speaker 2 (35:24):
No question, We're gonna take a break for some messages
and come back with Fred Casano from PwC, head of
the real estate business there to press Ridis Coopers in
just two minutes, and we're gonna we're gonna switch he
He also did a really interesting chat about emerging disruptors
real estate that are disrupting the real estate industry that
I thought was interesting and again sort of brought people
(35:46):
to some of the other things that are impacting what's
going on in the real estate business. Take We're gonna
take a break and be back with Fred in just
two minutes.
Speaker 1 (35:52):
Stay with us, everybody, No Radio, No Problem. Stream is
live on SAGA ninety sixty AM dot C A.
Speaker 2 (36:14):
Welcome back everyone to the Brian Crime Radio r. We
got to Fred Casana with us. He's the head of
the real estate business at PwC. He made a really
interesting presentation at a urban land Institute PwC co sponsored
sort of trends in the real estate market real estate
business a couple of weeks ago that I found fascinating,
and Fred, in addition to talking about purpose bul rental
(36:35):
and the condo business and tariffs and trades and interest
rates and things like that, you really broadened and talked
about a bunch of other things that are impacting the
real estate business that I've found kind of interesting. And
you mentioned like geopolitical instability. Tell me about some of
these other impacts and how and why they're impacting investments
in real estate.
Speaker 3 (36:55):
Well, one of our leading distructors, Brian is artificial and
tell leigence.
Speaker 2 (37:00):
Artificial intelligence in real estate seriously.
Speaker 3 (37:04):
Number one and certainly from a commercial real estate perspective
where it's very important to look for efficiencies to help
drive n OI. We're hearing we're moving away from pilots
to now predictive analytics, to leasing distract abstraction tools to
help drive efficiencies on leasing velocities, to understanding h VAC maintenance,
(37:32):
UH schedules to maybe use more predictive tools, and and
certainly uh AI to help fuel that as an enabler.
So I think AI as as a destructor is upon
us and it's not only about you know, algorithms. What
(37:53):
we're hearing now like are we previously said it is
AI is driving data, government to power, needs to water
and the whole ecosystem from a from a from a
growth perspective. So AI as a distructor for commercial real
estate is a big item. I also think that the
(38:15):
next stage will be on the construction side. We talked
about labor shortages and struggles on the productivity, combining tech
to help maybe with with procurement scheduling, and then now robotics,
and we talked about also build cannon homes. One of
the biggest things that that build cannon homes is trying
(38:38):
to promote is modern methods of construction, which includes prefab,
modular assembly, and robotics. So certainly if you combine tech
AI that that will also help on the construction of
new homes using call it now modern methods of construction.
So AI is certainly a disruptor.
Speaker 2 (39:02):
Instability. How does geopolitical instability impact the real estate business?
Speaker 3 (39:08):
Well, I mean tariffs would be one of the biggest
things that would result in increased costs, especially on the
lumber side, on the steel side, geopolitical also on the defense.
If you look at our November fourth budget that the
government just produced at the federal level, the level of
(39:30):
the spent dispense defense spending Excuse me, I understand it's
close to eighty one billion dollars over the next five
to ten years. And that's going to be a beneficiary,
I think from an industrial perspective from real estate, because
you're going to start seeing more industrial sites, especially along
(39:52):
defense nodes you know, West and East Ontario and Quebec
potentially for munitions and other things. So if you think
about geopolitical, you're talking about tariffs, you're talking about you know, wars,
you're talking about instability on interest rates and how to
(40:12):
fund and then you have the defense spending. So I
think on all there's a lot of concerns related to
geopolitical but also maybe some opportunities, especially on the industrial
segment segment.
Speaker 2 (40:25):
You also talked about natural disasters and extreme weather and
sustainability regulations, and we had this conversation that sort of
ESG and and and you know, issues about climate change
and things like that had gone away mainly because of
Donald Trump and sort of where the US was. And
(40:45):
then other people said, no, it's real, and it's still
very prevalent in Europe and it's going to be coming
back to Canada. And then one person said, you got
to be listening to sort of that way in Gretzky
comment about looking to where the puck is going rather
than where it's been, and the United States maybe where
it's been, and the world is where it's going. So
what do you think about sustainability regulations, climate change, es G,
(41:07):
stuff like that.
Speaker 3 (41:09):
I think it's super important. I think over the years
we've been focused on the reporting side of ESG. I
think if you hear the rhetoric, not the rhetoric, and
that's probably not the right word, but if you think
of the messaging coming from Europe is about value creation.
It's about understanding your data to help drive efficiencies and
(41:32):
as a result, extend the life of your assets and
maybe you know, create value around your whole portfolio of
real estate. So I think it's it's here to stay.
And also we're starting to hear more about sustainably linked loans.
(41:55):
So if you can articulate how with the use of
data that you're achieving energy savings, then we will reward you.
We being in the financial community, the banks and other
creative financing vehicles to give you reduce UH finance and
charges a few demonstrate efforts. I think we're moving beyond
(42:18):
reporting to roy value creation and actually savings. You mentioned
climate disasters. Every year we're hearing more and more costs
related to climate and certainly when we talk about climate
and resilience, the narrative the conversation changes, especially as it
(42:39):
relates to insurance costs. So so I think if if
companies to can demonstrate actions towards adaptation or measures taken
to not climate proof but climate ready your assets, then
that can lead to favorable discussions with insurance companies of
not you know, increasing previous If you don't take those
(43:01):
actions then as a result in the future, your premiums
will likely go up. So I think ESG is definitely
here to stay. Sustainability, climate, those are big concerns that
you need to get ready for.
Speaker 2 (43:15):
You also focused on another we haven't spoken about that.
You know, lots of people have commented on that the
baby boomers are getting to an age now that they're
looking for seniors housing. Tell me what you think is
that opportunity in seniors housing.
Speaker 3 (43:29):
The silver tsunami.
Speaker 2 (43:30):
I think we've the silver tsunami.
Speaker 3 (43:34):
Called it in the report that baby boomers are turning
eighty this year, and yeah, it's amazing how demographics now
are favoring this massive segment of the residential community for
seniors and building enough seniors housing. No, not enough. It's
been undersupplied for years. It's also not an asset class
(44:00):
for all because it's heavily regulated, it's operationally heavy. There
is lack of supply, which is creating it's creating demand.
So we're starting to seeing larger players move into the
Canadian market. Well Tower in particular that you purchased Amica's
portfolio from Teachers close to five billion. Chartwell Reate Canadian
(44:25):
is also increasing its presence and across the country. So
you were seeing a fueling of capital going into this
category because of under supply, but also demographic shifts to work.
Speaker 2 (44:40):
So to summarize, where do you think the focus should
be for investors looking into twenty twenty six.
Speaker 3 (44:46):
I think it should be focused on operational ascalence, also
in alternative asset classes that will provide yield for the
long term. So purpose built rental, certainly we're hearing and
we're seeing maybe it's the margins are tight. But if
if if supply continues to be restricted and the right
(45:09):
financing is in place, then that you're you're probably sitting
at the right vintage. If you will to invest in
purpose we'll rental in the future. Senior housing, given under
supply and the shifts in demographic is providing an interesting
investable asset class. But you need to partner with with
(45:29):
organizations that know how to operate the asset and and
operate in efficient way or else it'll be it will
be challenging to do it on your own everything storage,
whether it's data storage to self storage, battery storage, cold storage,
(45:50):
you know, the defense storage. I think industrial is going
to have an interesting growth and we've we've seen certainly
industrial retail rental rental rates stabilize over the years, but
there are demand drivers, especially on the devents side, that
(46:11):
could fuel the next wave of industrial and retail has
been very resilient over the years. Has been a good
news story.
Speaker 2 (46:19):
A lot of these malls were, you know, the secondary
malls were closing down, so wide retail.
Speaker 3 (46:25):
Purpose built sorry open air which is excuse me, so
open air retail where you can drive to, uh, necessity
based grocery anchored retail continues to to show signs of growth.
On top of that, there's all the area around your
(46:52):
malls that could be potentially redeveloped into purpose rental that
would then feed retail client base and then vice versus.
The retail would be a great amenity to purposeful rental
is providing attractive, attractive investment thesis around retail. So I
think those those categories purpose mo rental, senior housing, industrial
(47:17):
and retail will be investable assets. But here's the message.
I think it's very very important. If we don't get
shelves to the ground really quickly, it could result in
more layoffs on the construction side. And that's a general
economic indicator that it could then impact other categories that
(47:39):
are doing well, like seniors, like student housing, like hotels,
like industrial. So we need to get the construction workers
back because it's a multiplier for the rest of the
industry and that requires incentives, new business models and both
thinking from government for sure.
Speaker 2 (48:00):
Cred Cassano, PwC. This has been a really interesting conversation.
I appreciate it. If people want to get a copy
of your report, is it available publicly?
Speaker 3 (48:10):
Absolutely, we do have the Emerging Trends in real Estate
Report on the PwC, a website with a link to
real estate and in fact you have links to Canada, Asia, Europe,
all launched in the last few weeks.
Speaker 2 (48:29):
I really enjoyed your presentation at the breakfast, and today's
conversation was really interesting and helpful a lot. Thank you
very much and thank you for the you know, the
challenge that you've put forward to I think governments that
they've got to reduce taxation, that they've got to reduce
the approval time period to developers, that they've got to
make more use of AI, that they've got to be
(48:51):
concerned about sustainability and turn it from a sort of
a reporting process to actually incorporating it, to using AI
not only in leasing velocity, as you said in marketing,
but also in construction from a productivity standpoint and modular
And I think that your challenge that we've got a
problem in Canada that we're not building enough housing and
(49:13):
that's led to an affordability issue, and that we need
to do something about it. And while it may be
helped right now by all these deliveries of condos in
the shadow rental space, if we don't start building a
lot more purpose built rental, we could have another problem
just as profound as you know we've had in the
last couple of years, in twenty twenty nine, twenty thirty,
(49:35):
et cetera. And I think it takes sort of an
all of government and all of economy orientation to reduce taxes,
reduce construction costs, become more innovative, improve on approval time periods,
and build that housing that we so desperately need to
(49:56):
house that next generation, the current young generation of Canadians,
Because you know, even with the declines and condo prices
and rental prices that you've been talking about, there were
really declines from a high in twenty two and twenty three,
and from what you know, most people have said, we're
just back to twenty nineteen levels, and those twenty nineteen
levels were unaffordable. And if we don't do something to
(50:19):
bring up supply and bring down the pricing of our housing,
we're gonna have a whole generation of Canadians or young
people are kids, they can't afford to have that dream
of home ownership. And I think that's a shame and
that's wrong, and that's an intergenerational inequity that exists. And
so fred I really appreciate your presentation, your analysis, and
(50:40):
your challenge to us all.
Speaker 3 (50:41):
Thank you, Thank you, Brian. I do you think that
there's momentum, So in any crisis, there's an opportunity. So
there's certainly positive momentum on the policy side, capital side,
and new forms of business. So I'm actually hopeful that
we embrace them. That will help us propel the next
generation of real estate. So thank you for having me,
(51:04):
and I'm excited to see what's the store for us
for next year.
Speaker 2 (51:09):
That's a show for tonight, everybody. Thank you for joining.
I remind you on Brian Crombie, my show was on
every night six o'clock on nine sixty am. You can
stream me online at Saga ninety sixty am dot CA.
And you can get all my podcasts on my videos
on social media, on my YouTube channel, and on my
website Brancromby dot com. I really appreciate it, Thank you
so much.
Speaker 1 (51:32):
Stream us live at Saga nine sixty am dot ca.
The views expressed in the following program are those of
the participants and do not necessarily reflect the views of
SAGA nine sixty am or its management.
Speaker 2 (00:18):
Good evening, everyone, and welcome to the Bran crimeby Radio Hour.
I want to talk a little bit about the real
estate industry in Canada today. I was at a really
fascinating breakfast a couple of weeks ago and Fred Cassano,
who is head of the real estate function at TO PwC,
made a really interesting presentation and his opening slide was,
(00:41):
real estate right now is like driving in the fog.
Drive too slowly and you'll get hit from behind. Drive
too fast and you'll fall off a cliff. So it
was a fascinating conversation about where we are in the
real estate business, and I think a lot of us
are a little bit concerned about what's going on. Fred
Cassano was the partner of the National real Estate Leader
for PBC Canada. As the National Restate Leader, he leads
(01:02):
a real estate practice with approximately two hundred and fifty
senior staff focused on real estate, which he says translates
to strong local teams as well as a large national
team to support and deliver PWC's real estate industry focused
team Assurance Tax real Estate Advisory, property tax, real estate valueers,
restructuring experts, and real estate technology advisors that are involved
(01:23):
in key business issues in regards to the industry. And
I got to tell you this presentation made everyone stop
and think and wonder and a little bit of worry.
So Fred, welcome to the.
Speaker 3 (01:36):
Show, Thanks for having me, Thanks for joining me at
the breakfast as well, and I appreciate you reaching out.
Speaker 2 (01:43):
Fred. The emerging trends in real estate that you discussed
was based on a survey of what twelve hundred and
fifty responses around Canada the United States.
Speaker 3 (01:54):
That's incredible, that's correct, twelve proxpbly twelve fifty surveys and
then in depth interview with two hundred and ten this
year in Canada and in over three hundred in the
US one on one CEOs cross section of many different
people that are invested in real estate, whether it's operators, pensions,
(02:17):
private equity, developers. So it's a good cross section of
of of investors in real estate.
Speaker 2 (02:27):
And what was the what was the issue, what were
the emerging trends? What what did you discuss at their breakfast.
Speaker 3 (02:35):
Well, we could start with the top three emerging themes
and trends. One is we're in a new era of
real estate and reinvention, if you will. The cross section
of real estate combining with energy tech manufacturing is really
going to unlock a whole bunch of a different new
(02:58):
ways of business and mentioning rementions of business models, and
we can get into that in a moment. The second
one is a new playbook is emerging on deal deal
making with private equity, private funds, family offices really filling
(03:18):
the void, if you will, of traditional capital, and we
can get into that in a moment as well.
Speaker 2 (03:25):
So what are you saying that this is more private
investment than the public rates that have been so prevalent
in the in the past, or big pension funds and
life insurance.
Speaker 3 (03:35):
Companies, pens of funds and private read certain reads will
still be a big part of the capital, however they're
patient there. Call it redeployment capital and shifting portfolios. What
I'm saying or what we heard loud and clear. The
first movers right now on opportunistic investments are private reads,
(04:02):
family offices, private capitals that that will include private debt.
So those are the first movers. We're also hearing that
pensions are still going to be deploying in Canada especially,
which is good to hear, but more patient rather than
first movers right now. On the private side.
Speaker 2 (04:24):
And you know, I think we've heard this from lots
of people, but I guess you commented that the condom
market is, if not dead, on life support, but purpose
built rental apartment building is under under construction and undervelopment.
Is that the case?
Speaker 3 (04:37):
Absolutely so? Last year we said condos are frozen, the
whole market, investors are gone for a whole bunch of reasons.
I think this year we're hearing is the condom market
isn't in a reset restructuring mode. What's the going to
look like in the last in the next five years.
We don't know. I can certainly talk about that, but
the mood has shifted towards decisive shift towards purpose built rental.
(05:02):
And it's driven by the frozen condo market, but also
lots of incentives from a policy perspective that are that
are fueling capital and investment into purpose bul rental. And
for years we've heard numbers don't work. Right now there's
still call it thin but certainly with CHC financing rebates
(05:25):
on development charges from a municipal perspective to GST rebates
on rental to carboats from a tax perspective on interest deductibility,
there's a lot of policy shifts towards making the numbers
work on purposeful rental, and as a result, there's more
capital being deployed in this area.
Speaker 2 (05:47):
One of the other things that you talked about and
other people at that session and the panel that followed
you talked about was how the office market has changed,
and that you know, I think it was described as
sort of a plus office market in downtown urban areas
was doing spectacularly well, but the C and D market
(06:08):
was not doing well. Can you and suburban office wasn't
doing well. Can you elaborate on that a bit if
you could.
Speaker 3 (06:14):
Absolutely so. It was interesting. Our interviews take place between
May and and of August, and I always get worried
about not missing or not not covering the latest breaking
news on trends, and certainly office to me in the
summer changed the move from we're not out of the
(06:37):
woods yet to wow. Positive investment sentiment on office, especially
Triple A which includes highly meditatized cond office excuse me
to on transit nodes close to residential and retail. So
(06:57):
certainly a few things driven drove that positive investment sentiment.
Number one office mandates, whether it's from the banks and
government agencies, certainly helped the investment sentiment. And people just
started coming back organically from many different organizations. So the
(07:21):
Triple A least seeing velocities started to unfold. And even
today we're seeing office being sold. I think there's nine
active sales in the GTA, all of which are under contract,
and I understand from my prograge friends that those contracts
(07:44):
are with foreign investments. So that's positive sentiment on the
Triple A. Now we hope that that will percolate into
the bees. There's still bees are are challenged because they're
not highly amenntized, and uh, you know maybe perhaps there
on on on in the suburban markets. But we're hopeful
(08:07):
that as lease sing picks up on the Triple A,
that will that will spill over to the bees.
Speaker 2 (08:15):
Well, we're also for people listening today that aren't familiar
with sort of what's an A office versus a B office.
Can you give us a little bit of a description
I think we intuitively know, but maybe it could be
more explicit.
Speaker 3 (08:26):
Absolutely, so the triple A is is is lots of amenities,
whether it's at the floors, floor or the common area
space or it will include retail UH to access to
if you think if you think of the well, you
(08:47):
have access to shopping, also office and close to hotels.
So we have also UH aspects of of sustainability measures
where it's energy efficient. So all those criteria build to
(09:11):
triple triple A or the trophy assets. The bees are
not on transit nodes, don't have amenities that would include
access to gyms or food court, and they're not you know,
close to highly traffic trafficed areas or no. So those
(09:33):
are the bees and commonly right now in the suburbs.
So that's the distinction between UH triple A UH. And
also now you're you're different categories of A B. Now
there's also a C class, which are your older, older
buildings and which you know so not surprisingly but but
(09:55):
because they're called it cheaper from a rental perspective, are
gaining traction because they're more affordable and some of them
people like the brick facade inside. So the seas are
actually gaining more traction, but the bees are in a
challenge and challenge environment.
Speaker 2 (10:15):
You know, it's interesting. I was at a different conference
where the chairman of Allied was speaking and he talked
about mixed use development, and he said that he thought
that the office development of the future would be mixed
use developments like the well where you've got condos, rental, office, retail,
jim all all together in one development. And he also
(10:37):
referenced the new CBC building across from Scotia Bank Arena
and he said, you know, you think right beside you've
got a condo's rental, you've got on the fourth floor,
a big steak restaurant, you've got across the street Union station,
and Scotia Bank Arena, and that people really want not
just a building with a food court, but a building
(10:58):
with a whole bunch of other amenities. What do you
think is that true?
Speaker 3 (11:01):
I think it's it's desirable, but it's also very challenging.
You have a lot of different stakeholders that need to
come together, you know, because it's not only one builder
that's that's at play. So so I I would think
that those are desirable locations, but very challenging.
Speaker 2 (11:23):
Uh.
Speaker 3 (11:23):
You have retail, Uh, you have hotel, office and residential
you know, different policy zoning entitements too, you know, agreements
on on on common spaces. So while desirable, very very
challenging UH to to come together. So kudos to c
(11:46):
ABC and Hinds and I think it's the case and
others on that building and also Real Canada well allied. Uh.
They are very challenging endeavors, but certainly desirable.
Speaker 2 (12:00):
As you say at the breakfast, I thought you did
a great job of sort of elevating and talking about
a numerous you know, economic wide issues that we need
to be aware of as we enter twenty twenty six
that impact you know, the overall economy as well as
just the real estate market. Can you go through some
of those issues for us please?
Speaker 3 (12:21):
For sure, certainly labor shortages, productivity, you know, costs still persist.
So while maybe there was some you know, softening of
labor costs that's offset with with higher tariffs on some
goods that are crossing the border, productivity continues to be
(12:43):
an issue from a construction perspective. Certainly there was a
recent report from CMHC that also talked about that. So
we need to think about how we can improve productivity
to build faster, and also in the labor you know.
While on that point, we still have many retirements are
(13:05):
going to happen in the next few years, so as
as as the construction market slows down, you know, we
may actually accelerate them a number of retirements and potentially
have uh labor shifting to other industries as well. So
I'm really concerned about labor labor as as as a
potential you know issue, and we certainly heard that in
(13:28):
our interviews. Power constraints, and I would say, I would
add water when we start thinking about data centers.
Speaker 2 (13:38):
Water data centers, why do you need I thought you
needed electricity. Why do you need water?
Speaker 3 (13:43):
Absolutely so there's electricity uh impact on the gride, for
for sure. But then also there's lots of heat that
gets generated with data centers, so you need you need
a mechanism to cool it. So certainly uh cooler climates. Uh.
You know, I've heard about this.
Speaker 2 (14:01):
I'm sundered that, you know, these big companies are building
in Texas and Arizona and the deserts. Why are these big,
huge companies building their massive data centers in the desert
in the southern United States when heat is a big issue.
Speaker 3 (14:16):
That's fantastic question. A few reasons. One, you need large
masses of land. Sometimes that's that's cheaper. But also Texas
in particular, you're close to energy, whether it's your fossil fuels,
but other alternative energies that help fuel data centers. But
with those large heat inducing cities, you need to have
(14:41):
water to help cool cool the data center. But certainly
power constraints are becoming an issue when when you think
about data centers being fueled by AI but also being
fueled by coin based technology or bitcoin, the EV world,
(15:02):
and also a decarbonization, which is the continued electrification, so
that's going to put continued pressure on power.
Speaker 2 (15:11):
I would have thought, with you know, our nuclear energy
or hydro energy, our colder climate, the Great Lakes, et cetera,
we should be building data centers here in Ontario.
Speaker 3 (15:23):
Absolutely, and I think you mentioned absolutely we have the
determinants are the key success factors to be attracting a
lot of data center demand and supply, but also nuclear
energy is I want to put a number to it,
but call it a decade away in terms of being
(15:46):
an alternative source of energy to fuel data centers, and
certainly new legislation I think will help fast track that
in Ontario. I think Calgary, which is one of the
reasons why it's on our top market to watch. It's
more it's called business friendly, but also if you bring
your your own power behind the meter, as they say it,
(16:10):
including nuclear, you see a lot more investments and data
centers go to Alberta before Ontario, and hopefully regulation changes
in Ontario to help accelerate that for those type of investments.
Speaker 2 (16:22):
I think it's a huge opportunity that we're maybe not
missing out on, but we're not exploiting to the extent.
And if you take a look at how you know,
AI and expenditures on data centers and things like that
have fueled the US economy and we're just not getting
that benefit in Canada. For some reason, we're just not
investing that kind of money in Canada that we need
(16:44):
to invest to be at the forefront of this new
AI industry. And I think that you and other people
you know on that panel really spoke about that. We're
going to take a break for some messages and we're
going to come back and in the next section we're
going to really focus on if we could thread this
trend to away from condos and toward purpose built rental.
And I really would like you to walk us through
(17:05):
that because I think it is a massive trend within
the housing business in the GTA, but also you know,
frankly across Canada. We're gonna take a brick now for
two minutes back with Fred Cassano of PwC, head of
the real estate business at PwC. In just two minutes,
stay with us, everybody.
Speaker 1 (17:26):
Stream us live at SAGA nine six am dot CA.
Speaker 2 (17:40):
We'll come back everyone to the Bran Crimebrew Radio R.
We're talking about the real estate industry in the g
THA Greater Toronto Hamilton area as well as Frankly across
Canada with Fred Cassano, who is the head of Pricewater
house Cooper's PWC's real estate business. I had the privilege
of listening to him at a breakfast session that the
(18:01):
Urban Land Institute in PwC co sponsored. There was really
a very frank, hard hitting conversation about what's happening in
the real estate business in the GTHA as well as
across Canada. Fred I wonder if we could focus for
the next couple of minutes on this conversation that you
had in regards to you called frozen condo business, I
(18:22):
called the dead condo business. And this trend toward purpose
of a rental because it really is a dramatic change
in what's been occurring in the last ten fifteen years
in Toronto, is it.
Speaker 3 (18:33):
Not for sure? And one of the main reasons is
we're at the record low condo sales. I think we
reported that condo sales in the GTHA are at lowest
level since nineteen ninety.
Speaker 2 (18:49):
Went from like thirty thousand condo sales in like twenty
two thousand and twenty and twenty twenty one less than
a couple of thousand last year.
Speaker 3 (19:03):
That's astounding, but it's driven by investors. Have evaporated because
there's no certainty right now on the resale appreciation UH
and increasing caring costs. So so the condo market predominantly
was was fueled by investors. So if you take the
investors out of the picture, then then it evaporates a
(19:26):
lot of sales. So so also user demand has has changed.
I think we're starting to see and hear more about
the unit sizes need to be bigger and more accommodating
to to the end user demand for for condos.
Speaker 2 (19:44):
So as a result, there was a there's an executive
from Madamey Holmes that followed you that said that in
the last five years, builders were focused on what investors wanted,
not what the people that actually lived in the apartments
or condos wanted, and he said, we needed to refocus
the industry to focus on what the end consumer really wants.
Do you think that's been part of the problem.
Speaker 3 (20:06):
That's part of the problem. Absolutely, And I don't blame
the developers that were feed into the demand because certainly
low interest rates, high density policy drove a lot of
investors to the condo market. However, we're at a stalemate
(20:33):
or again the carrying costs are higher, you know, the
appreciation is not there. In fact, the prices for condos
have have trailed downwards in the GTA. I'm hearing as
low as seven hundred a square foot, and just years ago,
(20:53):
just two three years ago, we were at launches at
twelve fifty to thirteen one hundred of square foot fifty a.
Speaker 2 (21:00):
Seven hundred, that's a five hundred dollars reduction on twelve
to fifty that's that's like almost.
Speaker 3 (21:09):
Absolutely absolutely so that huge as a developer, you know.
That's the other issue here is would you would you
put shovels to the ground when your costs are at
seven hundred square foot if not higher? So the answer
is no, right, So if you're if you're now pivoting
to purpose but rental and putting more of your capital
(21:32):
risk and not relying on the pre sales to help
fuel your construction than people, you know, condo developers are
pivoting to purpose but rental.
Speaker 2 (21:44):
You also mentioned that there was sort of a permanent
rental market that was developing. So some people are thinking
that we're going to go more like the United States
and h and even Europe where we're renting forever. Is
part of you know, the reality of life. And one
person and said that there's no choice for young people,
they have to do that. What do you think of that?
Speaker 3 (22:05):
Well, we kind of predicted that in our report in
twenty eighteen emerging trends the rise of the permanent renter,
and as affordability gets gets tougher from from an ownership perspective,
we will see more decisive shift towards the permanent renter.
But that's healthy. I think from a market to have
(22:27):
multiple choices, and if you have supply that we can
increase from a rental perspective, then the consumer will have
choice and hopefully you'll get we'll get more investors to
come back. Sorry to investors, but more choice also on
the low rise and the condos. It will look look
(22:49):
a lot different in the future. But we need choice
and increase the supply so that everyone can help with
the affordability challenge.
Speaker 2 (22:58):
You suggested that affordability was one of the major shifts.
Can you expand on that?
Speaker 3 (23:04):
Well, So affordability is driven really for the most part
from a supply perspective, and we've heard of status whether
it's CMHC's statistics that show just to just to help
or store affordability, we need to build over five hundred
(23:25):
thousand dollars for five hundred thousand units in the next
ten years just to restore affordability. Well, we're not building
a half. We're only built building half of that amount.
Speaker 2 (23:38):
Sir, Can I interrupt five hundred thousand in total or
five hundred thousand.
Speaker 3 (23:42):
A year, five hundred thousand a year.
Speaker 2 (23:45):
Five hundred thousand a year.
Speaker 3 (23:46):
That's incredible that's incredible.
Speaker 2 (23:48):
That's like twice what we're building now, Is that not correct?
Speaker 3 (23:51):
That's that's correct. We're building approximately half of that. And
and if you don't have just demand, the supply logistics
or economic excuse me, if you don't have that supply,
then you know it'll just continue to fuel demand and
not help restore an affordable price to get into the market.
(24:17):
That's on the whole ownership side. And if we don't
do the same on the purpose of rental, increasing the supply,
then we'll start seeing, you know, rents increase. And for now,
rents have come down. I think in Toronto we're hearing
three point five is square foot for rental, whereas in
(24:37):
few years ago we were talking about five dollars a
square foots So seriously, what.
Speaker 2 (24:41):
So rental prices have gone from five dollars a square
foot down to three dollars and fifty.
Speaker 3 (24:46):
Cents on average? Correct? Right?
Speaker 2 (24:49):
Yes, you know a dollar fifty on five dollars. Is
that same twenty to thirty percent that we were talking
about on condos?
Speaker 3 (24:56):
Absolutely so?
Speaker 2 (24:57):
So.
Speaker 3 (24:57):
But what's feeling that is the shadow market, the rental
shadow market was fueling.
Speaker 2 (25:05):
What's a rental shadow market? Please explain them.
Speaker 3 (25:08):
So the condos were providing supply to the market, and
you had investors investing in condos that would then turn
around and rent them. So that was providing what we're
calling the shadow rental market.
Speaker 2 (25:19):
Right, what is it called the shadow market because.
Speaker 3 (25:22):
It's individuals landlords versus large institutional organizations that have multiple
units that are renting. So we call it the shadow market,
meaning investors that were renting their condo. We're providing a
(25:42):
supply to the rental to the rental market, which is
still good.
Speaker 2 (25:47):
Sorry, go ahead, please go on. You say it's still good,
but what it's not as good as the big purposeful
rental buildings that have got professional management, et cetera.
Speaker 3 (25:56):
But now you have unsold units and record amount of
closings happening in twenty twenty six from a conno perspective,
So so capital is shifting towards rental. But you also
have a large supply of closings happening on the congo side.
So together you're creating a large supply of units for rent,
(26:19):
which is creating a bit of a supply gap, one
of the reasons why rental rates are coming down. However,
as you know, if we don't build enough units on
the rental side, then those rates will likely continue to increase.
(26:39):
That we're I agree with you.
Speaker 2 (26:40):
But one of the things that you know, people I
think too often neglect is this huge amount of sales
four or five years ago turned into construction three or
four years ago, which will turn into deliveries this year
and next year. And so I've seen graphs comparable to
the graph that you showed about condo sales, but that
(27:01):
were deliveries. And my understanding is that twenty twenty five
and twenty twenty six will be some of the largest
year's largest deliveries for any year in history, which means
that this shadow rental market is going to increase dramatically.
And lots of us, you know, many of us have
seen all these cranes around Toronto because they're finishing off
the condo buildings that were sold five years ago, started
(27:24):
construction four years ago, and are going to just be
finished this year and next year and maybe a little
bit in twenty twenty seven, which means that there's going
to be a whole bunch of supply coming down in
the marketplace, which is going to logically decrease rental rates
even more.
Speaker 3 (27:38):
No, it should, but we're also you know, hearing that
there's no shovels of the ground on new construction. So
by twenty eight, twenty nine, the expected deliveries for condos
is less than a thousand, So there's no units that
are being constructed.
Speaker 2 (27:57):
And you don't think it's going to be sort of
you know, picked up by and bridged by construction a
purpose of rental. You don't think all the purpose of
rental buildings will be built to fill up that hole.
Speaker 3 (28:08):
No, And I would point to an Urban Nation report
that says, even with all the purposeful rental construction that's
that's estimated, we're still short annually one hundred and twenty
one thousand units, So we're still short on new units
for rental demand. And then if the condo market fails
(28:32):
to to restart, then we'll have the shadow market also
going down to zero right by twenty twenty nine, which
as a result, if we don't have supply continuing every year,
then we'll be back to potential higher rates of rent
in twenty nine, twenty thirty. So what can we do?
Speaker 2 (28:55):
What can we do to solve this problem?
Speaker 3 (28:57):
I think there's a few things. I really like the
government's initiative around build Canada homes UH investing thirteen billion
UH to unlock and capital to unlock public lands available
to to to to build, whether it's a billing on
Canada lands to Canada post to Canada fence and partnering
(29:21):
with with the private sector to to unlock lands at
at an affordable cost, and whether it's you know, entering
into land land leases or you know incentives UH to
to to build on on on lands that the government owns.
So I really applaud that UH that announcement. The other
(29:44):
thing we need to really focus on is continued cost
reductions on development and in GST is certainly one of
those aspects. We saw both the federal government on Tariro
government provide a re eight for hs T and GST
on new home constructions for first time buyers. I think
(30:08):
they needed to go a bit further. They need to
go further to incentivize all new home construction because that
would then spur more development in the resale or the
excuse excuse me, and the move up market, so that
those individuals that are currently in an older home and
(30:29):
wanted to move up to a new home that that
would then unlock supply on the retail sorry, the resale market.
So I think GST incentives are very important.
Speaker 2 (30:41):
We also I had some people from Build and Rescom
and CMC on my show and they indicated that the
taxation on housing was over thirty percent and clearly and
the tax was taken out sort of day one while uh,
you know, the profit that developers made was five years hence.
(31:04):
And they described that we're taxing real estate development sort
of the way we tax cigarettes and alcohol, almost like
it's a syntax which is to diminish sort of the
consumption of cigarettes and uh and and alcohol. And they said,
what the blank are we doing doing that with housing
when we so desperately need it. What do you think
are we taxing housing development way too high?
Speaker 3 (31:28):
Absolutely between development charges, park levees, GST, land transfer tax. Uh,
it's over It's an overtaxed and over regulated industry. Let's
you know, maybe double click on the development charges for
for for instance, because we've heard a few few times
from the real estate industry, maybe we can maybe we
(31:49):
can use methods that other countries use to help drive
down development park costs because it's hard to just remove
development charges. We need to replace them, and maybe things
like municipal municipal utility districts or call it MUDs that
(32:11):
issue bonds to the issue bonds to help pay for infrastructure,
whether it's sewers and waters, and then those bonds, which
you are at attractive rates, are paid over a period
time through property tax or special assessments as the development
(32:32):
is finished. And what you're doing is you're taking potentially
eighty to one hundred thousand dollars per home, and you're
shifting it away from the developers that have to front
that cost initially to a longer period of time. And
that bond, by the way, is an attractive investment to
(32:53):
pension funds that are looking for a steady return. So
I think initiatives like that Brian are very important.
Speaker 2 (33:01):
I think that makes a lot of sense. I think
that you know, that's the way we fund electricity with
our electricity utilities, et cetera. I think that that's the
way most American municipalities finance those kinds of infrastructure expenditures.
And I think that it's really unfair to have water
sewer et cetera being one hundred percent paid for by
(33:23):
attax on new home purchasers, and you know, that's the
young people that are trying to get in the marketplace,
that are that are spending one hundred hundred and fifty
too hundred grand in development charges, which is a down
payment effectively, and they're and they're forced to do that,
which is a benefit to all of society, not just
to the to the people that are moving in. So
I completely agree with you. I think that's got to
(33:44):
be one of the major changes that have got to
take place. What about just time period. You know, we've
heard a lot about sort of you know, what Carrentie's
going to do to streamline the approvals of pipelines to
the West coast. But then also people have talked about
it takes long longer to approve a project in Toronto
than it does to actually build a project in Toronto.
(34:04):
Is that is that right thing to do?
Speaker 3 (34:07):
No, And you referenced that there was one of the
CEOs from from Madamey talk about, you know, we can
build a home in one hundred and eighty days right
from our own construction processes, but it takes five to
seven years just to go through the approval process. So
I hear that from across the industry that if we
(34:28):
can accelerate time horizons from zoning as of right to
site plan, it'll really improve getting more supply to the
market faster. And I think, you know, certainly, certainly there's
been measures made on both the municipal and provincial level
(34:49):
to help accelerate, but we need more, We need more
to do that, and certainly, you know, one way to
do it could be to use ai as as a tool. Also,
different municipalities have different zoning requirements. Maybe there's more of
an effort to standardize the type of units that are
(35:14):
being built so that we can get through the process quicker.
But certainly soiling approvals as has been a loud and
clear requests from the community.
Speaker 2 (35:24):
No question, We're gonna take a break for some messages
and come back with Fred Casano from PwC, head of
the real estate business there to press Ridis Coopers in
just two minutes, and we're gonna we're gonna switch he
He also did a really interesting chat about emerging disruptors
real estate that are disrupting the real estate industry that
I thought was interesting and again sort of brought people
(35:46):
to some of the other things that are impacting what's
going on in the real estate business. Take We're gonna
take a break and be back with Fred in just
two minutes.
Speaker 1 (35:52):
Stay with us, everybody, No Radio, No Problem. Stream is
live on SAGA ninety sixty AM dot C A.
Speaker 2 (36:14):
Welcome back everyone to the Brian Crime Radio r. We
got to Fred Casana with us. He's the head of
the real estate business at PwC. He made a really
interesting presentation at a urban land Institute PwC co sponsored
sort of trends in the real estate market real estate
business a couple of weeks ago that I found fascinating,
and Fred, in addition to talking about purpose bul rental
(36:35):
and the condo business and tariffs and trades and interest
rates and things like that, you really broadened and talked
about a bunch of other things that are impacting the
real estate business that I've found kind of interesting. And
you mentioned like geopolitical instability. Tell me about some of
these other impacts and how and why they're impacting investments
in real estate.
Speaker 3 (36:55):
Well, one of our leading distructors, Brian is artificial and
tell leigence.
Speaker 2 (37:00):
Artificial intelligence in real estate seriously.
Speaker 3 (37:04):
Number one and certainly from a commercial real estate perspective
where it's very important to look for efficiencies to help
drive n OI. We're hearing we're moving away from pilots
to now predictive analytics, to leasing distract abstraction tools to
help drive efficiencies on leasing velocities, to understanding h VAC maintenance,
(37:32):
UH schedules to maybe use more predictive tools, and and
certainly uh AI to help fuel that as an enabler.
So I think AI as as a destructor is upon
us and it's not only about you know, algorithms. What
(37:53):
we're hearing now like are we previously said it is
AI is driving data, government to power, needs to water
and the whole ecosystem from a from a from a
growth perspective. So AI as a distructor for commercial real
estate is a big item. I also think that the
(38:15):
next stage will be on the construction side. We talked
about labor shortages and struggles on the productivity, combining tech
to help maybe with with procurement scheduling, and then now robotics,
and we talked about also build cannon homes. One of
the biggest things that that build cannon homes is trying
(38:38):
to promote is modern methods of construction, which includes prefab,
modular assembly, and robotics. So certainly if you combine tech
AI that that will also help on the construction of
new homes using call it now modern methods of construction.
So AI is certainly a disruptor.
Speaker 2 (39:02):
Instability. How does geopolitical instability impact the real estate business?
Speaker 3 (39:08):
Well, I mean tariffs would be one of the biggest
things that would result in increased costs, especially on the
lumber side, on the steel side, geopolitical also on the defense.
If you look at our November fourth budget that the
government just produced at the federal level, the level of
(39:30):
the spent dispense defense spending Excuse me, I understand it's
close to eighty one billion dollars over the next five
to ten years. And that's going to be a beneficiary,
I think from an industrial perspective from real estate, because
you're going to start seeing more industrial sites, especially along
(39:52):
defense nodes you know, West and East Ontario and Quebec
potentially for munitions and other things. So if you think
about geopolitical, you're talking about tariffs, you're talking about you know, wars,
you're talking about instability on interest rates and how to
(40:12):
fund and then you have the defense spending. So I
think on all there's a lot of concerns related to
geopolitical but also maybe some opportunities, especially on the industrial
segment segment.
Speaker 2 (40:25):
You also talked about natural disasters and extreme weather and
sustainability regulations, and we had this conversation that sort of
ESG and and and you know, issues about climate change
and things like that had gone away mainly because of
Donald Trump and sort of where the US was. And
(40:45):
then other people said, no, it's real, and it's still
very prevalent in Europe and it's going to be coming
back to Canada. And then one person said, you got
to be listening to sort of that way in Gretzky
comment about looking to where the puck is going rather
than where it's been, and the United States maybe where
it's been, and the world is where it's going. So
what do you think about sustainability regulations, climate change, es G,
(41:07):
stuff like that.
Speaker 3 (41:09):
I think it's super important. I think over the years
we've been focused on the reporting side of ESG. I
think if you hear the rhetoric, not the rhetoric, and
that's probably not the right word, but if you think
of the messaging coming from Europe is about value creation.
It's about understanding your data to help drive efficiencies and
(41:32):
as a result, extend the life of your assets and
maybe you know, create value around your whole portfolio of
real estate. So I think it's it's here to stay.
And also we're starting to hear more about sustainably linked loans.
(41:55):
So if you can articulate how with the use of
data that you're achieving energy savings, then we will reward you.
We being in the financial community, the banks and other
creative financing vehicles to give you reduce UH finance and
charges a few demonstrate efforts. I think we're moving beyond
(42:18):
reporting to roy value creation and actually savings. You mentioned
climate disasters. Every year we're hearing more and more costs
related to climate and certainly when we talk about climate
and resilience, the narrative the conversation changes, especially as it
(42:39):
relates to insurance costs. So so I think if if
companies to can demonstrate actions towards adaptation or measures taken
to not climate proof but climate ready your assets, then
that can lead to favorable discussions with insurance companies of
not you know, increasing previous If you don't take those
(43:01):
actions then as a result in the future, your premiums
will likely go up. So I think ESG is definitely
here to stay. Sustainability, climate, those are big concerns that
you need to get ready for.
Speaker 2 (43:15):
You also focused on another we haven't spoken about that.
You know, lots of people have commented on that the
baby boomers are getting to an age now that they're
looking for seniors housing. Tell me what you think is
that opportunity in seniors housing.
Speaker 3 (43:29):
The silver tsunami.
Speaker 2 (43:30):
I think we've the silver tsunami.
Speaker 3 (43:34):
Called it in the report that baby boomers are turning
eighty this year, and yeah, it's amazing how demographics now
are favoring this massive segment of the residential community for
seniors and building enough seniors housing. No, not enough. It's
been undersupplied for years. It's also not an asset class
(44:00):
for all because it's heavily regulated, it's operationally heavy. There
is lack of supply, which is creating it's creating demand.
So we're starting to seeing larger players move into the
Canadian market. Well Tower in particular that you purchased Amica's
portfolio from Teachers close to five billion. Chartwell Reate Canadian
(44:25):
is also increasing its presence and across the country. So
you were seeing a fueling of capital going into this
category because of under supply, but also demographic shifts to work.
Speaker 2 (44:40):
So to summarize, where do you think the focus should
be for investors looking into twenty twenty six.
Speaker 3 (44:46):
I think it should be focused on operational ascalence, also
in alternative asset classes that will provide yield for the
long term. So purpose built rental, certainly we're hearing and
we're seeing maybe it's the margins are tight. But if
if if supply continues to be restricted and the right
(45:09):
financing is in place, then that you're you're probably sitting
at the right vintage. If you will to invest in
purpose we'll rental in the future. Senior housing, given under
supply and the shifts in demographic is providing an interesting
investable asset class. But you need to partner with with
(45:29):
organizations that know how to operate the asset and and
operate in efficient way or else it'll be it will
be challenging to do it on your own everything storage,
whether it's data storage to self storage, battery storage, cold storage,
(45:50):
you know, the defense storage. I think industrial is going
to have an interesting growth and we've we've seen certainly
industrial retail rental rental rates stabilize over the years, but
there are demand drivers, especially on the devents side, that
(46:11):
could fuel the next wave of industrial and retail has
been very resilient over the years. Has been a good
news story.
Speaker 2 (46:19):
A lot of these malls were, you know, the secondary
malls were closing down, so wide retail.
Speaker 3 (46:25):
Purpose built sorry open air which is excuse me, so
open air retail where you can drive to, uh, necessity
based grocery anchored retail continues to to show signs of growth.
On top of that, there's all the area around your
(46:52):
malls that could be potentially redeveloped into purpose rental that
would then feed retail client base and then vice versus.
The retail would be a great amenity to purposeful rental
is providing attractive, attractive investment thesis around retail. So I
think those those categories purpose mo rental, senior housing, industrial
(47:17):
and retail will be investable assets. But here's the message.
I think it's very very important. If we don't get
shelves to the ground really quickly, it could result in
more layoffs on the construction side. And that's a general
economic indicator that it could then impact other categories that
(47:39):
are doing well, like seniors, like student housing, like hotels,
like industrial. So we need to get the construction workers
back because it's a multiplier for the rest of the
industry and that requires incentives, new business models and both
thinking from government for sure.
Speaker 2 (48:00):
Cred Cassano, PwC. This has been a really interesting conversation.
I appreciate it. If people want to get a copy
of your report, is it available publicly?
Speaker 3 (48:10):
Absolutely, we do have the Emerging Trends in real Estate
Report on the PwC, a website with a link to
real estate and in fact you have links to Canada, Asia, Europe,
all launched in the last few weeks.
Speaker 2 (48:29):
I really enjoyed your presentation at the breakfast, and today's
conversation was really interesting and helpful a lot. Thank you
very much and thank you for the you know, the
challenge that you've put forward to I think governments that
they've got to reduce taxation, that they've got to reduce
the approval time period to developers, that they've got to
make more use of AI, that they've got to be
(48:51):
concerned about sustainability and turn it from a sort of
a reporting process to actually incorporating it, to using AI
not only in leasing velocity, as you said in marketing,
but also in construction from a productivity standpoint and modular
And I think that your challenge that we've got a
problem in Canada that we're not building enough housing and
(49:13):
that's led to an affordability issue, and that we need
to do something about it. And while it may be
helped right now by all these deliveries of condos in
the shadow rental space, if we don't start building a
lot more purpose built rental, we could have another problem
just as profound as you know we've had in the
last couple of years, in twenty twenty nine, twenty thirty,
(49:35):
et cetera. And I think it takes sort of an
all of government and all of economy orientation to reduce taxes,
reduce construction costs, become more innovative, improve on approval time periods,
and build that housing that we so desperately need to
(49:56):
house that next generation, the current young generation of Canadians,
Because you know, even with the declines and condo prices
and rental prices that you've been talking about, there were
really declines from a high in twenty two and twenty three,
and from what you know, most people have said, we're
just back to twenty nineteen levels, and those twenty nineteen
levels were unaffordable. And if we don't do something to
(50:19):
bring up supply and bring down the pricing of our housing,
we're gonna have a whole generation of Canadians or young
people are kids, they can't afford to have that dream
of home ownership. And I think that's a shame and
that's wrong, and that's an intergenerational inequity that exists. And
so fred I really appreciate your presentation, your analysis, and
(50:40):
your challenge to us all.
Speaker 3 (50:41):
Thank you, Thank you, Brian. I do you think that
there's momentum, So in any crisis, there's an opportunity. So
there's certainly positive momentum on the policy side, capital side,
and new forms of business. So I'm actually hopeful that
we embrace them. That will help us propel the next
generation of real estate. So thank you for having me,
(51:04):
and I'm excited to see what's the store for us
for next year.
Speaker 2 (51:09):
That's a show for tonight, everybody. Thank you for joining.
I remind you on Brian Crombie, my show was on
every night six o'clock on nine sixty am. You can
stream me online at Saga ninety sixty am dot CA.
And you can get all my podcasts on my videos
on social media, on my YouTube channel, and on my
website Brancromby dot com. I really appreciate it, Thank you
so much.
Speaker 1 (51:32):
Stream us live at Saga nine sixty am dot ca.
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Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com
Are You A Charlotte?
In 1997, actress Kristin Davis’ life was forever changed when she took on the role of Charlotte York in Sex and the City. As we watched Carrie, Samantha, Miranda and Charlotte navigate relationships in NYC, the show helped push once unacceptable conversation topics out of the shadows and altered the narrative around women and sex. We all saw ourselves in them as they searched for fulfillment in life, sex and friendships. Now, Kristin Davis wants to connect with you, the fans, and share untold stories and all the behind the scenes. Together, with Kristin and special guests, what will begin with Sex and the City will evolve into talks about themes that are still so relevant today. "Are you a Charlotte?" is much more than just rewatching this beloved show, it brings the past and the present together as we talk with heart, humor and of course some optimism.
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