Outlook on luxury real estate: Some waiting to pounce, others renovating to stay

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As we enter uncertain economic times, three real estate experts give us their outlook for 2023.

Some wealthier investors are saving money to later capitalize on the right opportunities. Others, they say, are choosing not to sell one of their favourite homes and creating a “forever home” instead, where they can live their optimum life as they age (and because work-from-home looks to be the new normal).

Cailey Heaps, President and CEO, Heaps Estrin

Tell us a bit about your company, and your role.

“I have 25 years’ experience in residential real estate across Toronto. A member of the Young Presidents’ Organization, I am the president and CEO of The Heaps Estrin Team. We are the No. 1 team in Canada by sales volume for Royal LePage, with more than $750 million in sales volume in 2021 and 2022, respectively.

Over the years, we have grown from a small, family-run business into Canada’s top-selling real estate team.

My most cherished role, however, is that of mum to my three children: Mimi, Pippa and Declan.”

How are ultra-high-net-worth individuals dealing with their real estate during these uncertain economic times?

“I am seeing two main responses.

First, many UHNWI are already settled into their “forever” homes. They will stay there for the long term and are in no rush to move.

Second, those who are moving are not impacted by interest rates per se because a few percentage points do not impact them materially. They are, however, generally knowledgeable about the broader real estate market with their eye on homes and will buy if they see something they consider a rare opportunity in terms of the property itself or a good value purchase that they will benefit from financially.

Luxury buyers in Toronto are acutely aware that there is a chronic lack of good inventory and options in the ultra-high-end market, so if the right property presents itself, they will act.”

Can you elaborate on some trends in real estate investment for 2023?

“We are seeing more family offices invest in growing their real estate portfolios by taking risks and buying in a market where others aren’t necessarily willing to take a risk. More specifically, this means capitalizing on the depressed market across different asset classes including residential, condominium, industrial and multi-family units.”

What do you see as the main challenges in real estate investment for 2023?

“We have seen such an evolution in the broader market over the last five years, but especially through the pandemic, making it hard to predict now what will happen in 2023. As a result, the main challenges for 2023 will be remaining nimble as we figure out the unknown, and, by extension, trying to time the market.

I always recommend that my clients take a longer view of the market because those who do will be rewarded when the market returns. Of course, development is challenging in the current climate with costs running high due to various economic forces at play, and sales (condo sales in particular) significantly slower than normal.”

If some ultra-high-net-worth individuals are choosing not to sell at the moment, are they modifying their properties?

“I have seen a real movement towards more creative and authentic design by my UHNWI clients who are choosing not to sell at the moment. And, of course, the focus on incorporating functional and productive home offices continues.

I’m also starting to see demand for “wellness” spaces in homes beyond a basic gym – this could include space for meditation, yoga, hot and cold plunge pools and other self-care activities. Many of my UHNWI clients want to create dedicated space for all aspects of entertainment, including media rooms, wine cellars, and elevated landscaping.

Lastly, given the aging baby boomer population, I’m seeing much more demand for renovations that incorporate age-in-place initiatives, such as elevators. All this to say that UHNWI are making their homes a true oasis for their happiness and well-being.”

Lesley Kennedy, Principal Sales Representative, The Kennedy Sisters

Tell us a bit about your company, and your role.

“In 2007 we started the Kennedy Sisters Team to help families like ours have exceptional real estate experiences in GTA west area. My younger sister and I are both the principal sales representatives, and owner-operators of the business. Over time, our team has grown in talent and number. Our business is based in the town we grew up in: Oakville.

Our passion is to help the people of our community transition to the next stages in their lives. We are proud to say that our Team has been ranked in the 1 per cent nationally for Royal LePage since 2014.”

How are ultra-high-net-worth individuals dealing with their real estate during these uncertain economic times?

“Our ultra-high-net-worth clients are holding on to their real estate assets.

We’ve seen an increase in their interest to invest more of their money into real estate. They’re building up as much accessible capital as possible to be able to capitalize on what we are predicting to be an incredible opportunity to acquire real estate in 2023.”

“They are monitoring the market closely … not from a selling perspective necessarily but more from a buyer perspective. They know there are opportunities on the buy side for the first time in a few years. I expect that a number of our high-net-worth clients will seize the opportunity to buy in the next few months as the scales tip further in favour of buyers.”

Can you elaborate on some trends in real estate investment for 2023?

“Speaking to residential real estate, the focus seems to be on multi-family dwellings, future redevelopment opportunities and waterfront property.

In the suburbs there are more opportunities to purchase single-family homes on large plots of land. We have a finite amount of land. Our investors are waiting for the opportunity to acquire more of these infill lots in prime locations.

In Southeast Oakville single-family home lots are currently selling for over $3 million and new homes being built for end users are starting at $6+ million on prime streets. Over time, this part of our market has seen some of the best rates of return over the last 20 years in the GTA.

The new proposed changes surrounding residential development from the Ford government will completely change the residential real estate investment game. With municipalities being stripped of their ability to enforce many of municipal by-laws around multi-res development, this offers some huge opportunities for residential investors. Regular residential lots which previously allowed only one dwelling will now likely allow up to three units. With multiple opportunities for cash flow, all of the sudden capitalization rates available for investors and developers will be much more attractive.

We are also seeing many of the older real estate investors starting to sell off their portfolios. There are opportunities to buy more than one property at once; bundle deals, often already tenanted and cash-flow positive. Rent in the GTA has had a sharp increase over in the last eight months, rates are up and so is rent. Real estate investing is about patience, waiting for the right property that fits each individual’s needs and goals.”

What do you see as the main challenges in real estate investment for 2023?

“The challenges that I see with real estate investment for 2023 would be high interest rates and investors’ ability to raise access to capital easily when needed.

With the increased cost of borrowing money, investors will need to put more down on properties. Already tenanted properties with previously set rent will be a challenge to make profitable for investors with the current rates.

That being said, the experts are predicting that interest rates will claw back [this] year. We believe that even if the bank of Canada decides to hold the rate at the next announcement, this will improve buyer sentiment and signal to buyers and investors that it is less risky to jump into the market.

Foreign buyers investing in the Canadian real estate market will face a 25-per-cent foreign buyer tax in Ontario.”

If some ultra-high-net-worth individuals are choosing not to sell at the moment, are they modifying their properties?

“Although the luxury market is less effected by the downturn in the market, it is still not an ideal time to be selling your home, specifically your primary residence. Regardless of price point, the buyer’s mentality is that they should be getting a deal right now to mitigate the risk of the market falling further in the next few months.

In the cases where our clients have chosen not to sell, we have found that they’re gravitating towards improvements that enhance their lifestyles. Large exterior renovations with a focus on creating outdoor luxury living spaces has been one of the top trends in the suburbs.”

Sarah Richardson, founder, Sarah Richardson Design Inc.

If some ultra-high-net-worth individuals are choosing not to sell at the moment, are they modifying their properties?

“The advantage to rethinking your existing home space is that you already own it, and it doesn’t require the upheaval of moving (something most people were reticent to do during the pandemic, despite realizing that their home might not actually be set up ideally for being at home 24/7).

Until the pandemic landed as the uninvited guest on our collective doorsteps, most homeowners regarded their space as the place to start and end each day when the work day was over, but they didn’t consider or fully embrace what a true work-from-home would look like, and I think that’s mostly because WFH was something that was tolerated occasionally and seemed like a concession from employers to appease employees rather than a critical necessity to enable businesses to function properly (or at all, especially when government regulations mandated stay-at-home orders).

The most impactful part of WFH was the forced ability for homeowners to truly live in and experience their home outside of any ‘other place’ distractions. Instantly, the underutilized spaces and areas became visible opportunities, and unused square footage could become places to retreat, whether for a quiet and private home office or a new ‘other’ space they hadn’t realized they needed or wanted until they were always home.

Having to live with the Peloton in the bedroom, or tiptoeing around the family member who commandeered the dining table as their personal office became challenging, and it was time to rethink the guest room for guests who don’t check in.

The redesign of these spaces became less about ‘what if we needed x type of room’ and quickly became focused and dedicated, and designing rooms, home offices or wellness areas now had a detailed brief for what they needed to be able to deliver throughout the day.

Wired for connectivity, designed to be ergonomic, efficient, private, and, most importantly, to be able to provide some measure of comfort while expressing personal style – that’s the brief driving any trends towards flex spaces and home offices. Clients are taking a long view now and prioritizing solutions that blend quality and design in equal measure.

The WFH approach is no longer a temporary Band-Aid until we can ‘get back to normal’ – blending a combination of working from a shared office space with spending days alone working from home seems to be the new office program for most of our clients and it seems very few have returned or plan to return to 100-per-cent to office.

The interesting aspect of the WFH office in this new model is that we don’t see clients wanting to set up these spaces for engaging with others in-person, so it’s still a personal space for solitary focused business activities or for communication by phone or video conference. When you factor in the video side of things, one key consideration is environment and backdrop for all these calls. It’s important for the client to like their outlook on their flex space surroundings, but it’s also important to factor in how their WFH background appears to the person they are communicating with, as it’s an intrinsic part of brand identity for many of us. A good backdrop feels aligned with success while a cluttered backdrop can be distracting on a video conference.

We’re seeing a variety of zones being implemented for the workday, both in the office and in home settings.

Instead of being stuck at a desk for the entire workday, clients are prioritizing the ability to move around and be in different places, depending on what they are doing. If you’re on a long call, do you want to still sit at a desk, or does being in a comfortable chair enable you to relax and focus on the dialogue without being distracted? The combination sit-stand desk is still a popular solution, especially for those who don’t move much in their day. And the days of the uber-masculine dark wood banker-style office seem to be gone, and thanks to many people choosing to run their entire work life in a paperless manner, have been replaced by innovative modern designs that are soulful and unique.”

Responses have been lightly edited for clarity and length.

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