Are Canadian Zoomtowns Still Zooming?

The return-to-office movement has slowed the influx of remote workers in Canadian cities, but there’s no great exodus – and these REITs are still benefiting.

Yan Barcelo 19 March, 2024 | 4:42AM
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Zoom meeting

“Zoomtown” is a play on the words “boomtown” and “Zoom”, the videoconferencing software that became ubiquitous during pandemic lockdowns. Because of the pandemic, office towers emptied and the new telework conditions prompted many to flee the city. “People were desperate for the safety and security that comes from home ownership, and for places with more space and less congested with human circulation,” recalls Karen Yolevski, chief operating officer at Royal LePage Real Estate Services.

A common view is that the exodus to more rural areas was propelled by telework technologies and work-from-home practice. But, closer to the ground, the reading is quite different. “I wouldn’t call them ‘zoomtowns’, says Josh Varghese, real estate, capital advisor and board member. “Zoom was only one factor in moving there. The main driver out of Toronto, for example, was affordability.”

It is a reading that Steve Saretsky, real estate agent and blogger shares. “It’s an affordability issue,” he says, “In suburbs, prices are more affordable.” Virtual meeting technologies were a facilitator, not a driver, of the exodus.

Unfortunately, that important shift to zoomtowns is not well documented, Yolevski concedes. “We don’t really have numbers on that. It’s not something that is tracked,” she says.

Top Zoomtowns in Canada

Housing prices, however, as shown in Royal Lepage price statistics, give a certain indication of the trend. Between the fourth quarter of 2019 – just before the onset of Covid – and the first quarter of 2022, when real estate prices hit their peak, major urban centres like Toronto, Montreal and Vancouver experienced price rises of 38%, 43% and 27% respectively. On the other hand, destinations that have been identified as zoomtowns, such as Barrie, Kitchener, London and Halifax have gone through hikes of 68%, 67%, 54% and 69% respectively.

Interprovincial population transfers (excluding immigration) also give an indication, Yolevski suggests. For example, Nova Scotia in the years before the pandemic barely saw between 200 and 2,000 people from other provinces move into the province; but in 2021 and 2022, those numbers nearly tripled at 5,000 and 6,000, respectively. The story is somewhat similar for New Brunswick and Prince Edward Island. However, there is no clear line showing that Ontarians or British Columbians have been leaving their province. Most moves out of major cities happened inside their own provinces to smaller towns. Around Toronto, Yalovski points out, people moved around a two-hour distance to places like Barrie and London.

Zoomtowns Slowing Down

“Now, the trend has slowed,” Yolevski observes, “We don’t see as many moving out. It’s not yet a reversal, but the movement is slowing.” Indeed, house prices in the zoomtowns identified earlier have softened, but certainly not in a way that could lead one to believe that “zoomers” are abandoning their new abodes. But then, prices have fallen everywhere: in Toronto, by the fourth quarter of 2023, they had pedalled back by 12%, in Vancouver, by 16%, in Montreal, they remained stable. In Barrie, London and Halifax, they have ceded only 1.2%, 4% and 2.9% respectively. The only exception is Kitchener where prices have dialed back by 10%.

Interprovincial movements show a sharper halt to the trend, but not quite a reversal. Transfers to Nova Scotia, New Brunswick and PEI have all shifted to zero, but the larger provinces of Ontario, Quebec and British Columbia have not picked up any of the slack.

Affordability Remains the Bottom Line

Now, with companies insisting increasingly on a return – if only partial – to the office, “zoomtowners” are having second thoughts and see the cost of a longer commute to work. “I think of [settling in a zoomtown] as an opportunity cost, that was not budgeted into the plan,” says Brenda Lum, managing director, credit ratings, North American real estate credit ratings, at DBRS Morningstar. “They thought that work from home could be permanent, but it wasn’t.”

But the return to the city and its suburbs has not really happened yet, as Yolevski indicates. Even for those who are ready to make the move, the real obstacle is not so much relinquishing their remote-work lifestyle. Rather, “I think the real issue is going to be affordability,” Varghese asserts. Indeed, median house prices of $1.6 million in Toronto and $1.4 million in the greater Toronto area are not readily accessible to many. “It’s an issue companies face when they try to force people back to the office,” he adds.

The loss of momentum in the zoomtown trend is not clear enough to transpire clearly in specific asset classes. Apartment REITs “have certainly benefited from higher rental rates,” Saretski says, but he can’t link their present success directly to the zoomtown phenomenon, but rather to the highly congested and high-priced situation of housing. “Many have been priced out of home ownership and funnelled through to apartment residence,” he adds.

Settling Zoomers Support Apartment REITs

“Interest in REITS is starting to show up, and you will see more of them in the next year or two, Lum predicts, but investors need to be very selective of which asset class they favour.” Some apartment REITs are showing signs of vitality following the sharp drops of 2023. Following the trough of October 2023, Canadian Apartment Properties (CDPYF) has now moved up from C$29.58 to C$36.06, while Morguard (MRG.UN) has gone from C$13.67 to C$15.97, Minto (MI.UN) from C$13.06 to C$16.69.

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About Author

Yan Barcelo  is a veteran financial and economic journalist with more than 30 years of experience, Yan writes for many publications in Toronto and in Montreal, including CPA MagazineLes Affaires and Commerce.

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