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Cautious Investors and Limited Supply Results in a Slower Pace for the GTA Commercial Real Estate Market

The third quarter of 2018 saw a total of 553 investment transactions over $1 million, representing a total investment value of $4.96 billion

TORONTO – Altus Group, a leading provider of software, data solutions and independent advisory services to the commercial real estate industry, today announced the third quarter of 2018 results for commercial real estate investment in the Greater Toronto Area (GTA). The $4.9 billion invested was an 11% drop from Q2 2018, representing a decline in total dollar volume for the third straight quarter, a result of an absence of significant transactions and a sizable drop in the residential land sector. Year-over-year comparisons indicate deal velocity down by nearly 20%, while overall investment volumes were down 4%, when compared with Q1-Q3 2017.

According to the Altus Group Investment Trends Survey respondents, overall cap rates have decreased moderately. Rising interest rates, increased lending costs and the scarcity of product could all be explanations for the slow activity this quarter. As seen in notable transactions, proximity to transportation nodes continues to be an integral factor in investment strategy. As demand increases for quality assets, some investors are looking towards peripheral markets and continue to re-position their existing portfolios, transactions of which have also been a decreasing factor through 2018.

GTA Property Transactions – All Sectors by Quarter

Graph showing total $ volume of GTA property transactions for all sectors by quarter.

Prior to Q3 2018, residential land had consistently been the GTA’s top performing sector leading the way in capital flows since Q3 2016. The $621 million invested in Q3 2018 brought this sector down to fourth place this quarter and was the lowest total recorded since Q2 2014. This sector saw a significant decline in both the number of transactions and total dollar volume invested and failed to surpass the $1 billion mark for the first time since Q3 2016. While previous quarters have seen significant transactions surpassing $100 million, the largest transaction this quarter was a 96 acre site in Halton Hills that sold for $55 million.

Q3 2018 GTA Property Transactions – Total $ Volume by Sector

Pie chart showing total dollar volume of Q3 2018 GTA property transactions by sector


ICI Land was also down this quarter, seeing a 34% decrease from the same period last year. The largest purchase was 2304-2370 Dixie Road in Mississauga, a 25 acre site which sold for $52 million. The large site area and proximity of this property to major transit and road networks made this an attractive re-development asset.

For the first time in the GTA’s history, quarterly apartment sales eclipsed the ten figure mark. The $1.2 billion in total investments nearly doubled the previous high of $650 million set in Q3 2012, and nearly matched the capital flows of the three previous quarters combined. The record amount can be attributed to The Wynn Group’s disposition of their multi-residential assets, which accounted for two-thirds of the apartment transactions this quarter. Wynn’s offload took place in two separate portfolios, sold to Timbercreek Asset Management and Starlight Investments, for a combined total of $842 million, $814 million of which closed in Q3. As the GTA’s population continues to grow, this sector remains a desirable investment given the demand for housing.

The industrial sector remained steady with a 17% increase in capital flows from the previous quarter. Low rental rates and lack of supply have compressed cap rates in the short term yet have made the GTA’s industrial sector a desirable long term investment given the need for warehouse space driven by e-commerce and logistics. Two notable industrial transactions this quarter were 6625 Tomken Road and 3455 Argentia Road, both in Mississauga, which closed for $45.1 and $41.6 million respectively.

The office sector also saw a gain this quarter, up by 25% in total dollar volume and 64% in terms of number of transactions. The largest transaction was the acquisition of Lansing Square by Elad Canada for $162 million. It is anticipated that they will likely look to add residential towers on the 15.3 acre property which is located near two major highways and public transit.  Another notable office transaction was a portfolio of eight buildings sold by KingSett Capital to the Greater Toronto Airports Authority (GTAA) for $143 million, a strategic investment near the future Toronto Pearson Airport transit hub, which is expected to be completed by 2027.

As the GTA commercial real estate market moves forward, investment activity is expected to remain healthy and perform above pre-2017 levels, despite the recent interest rate hike. Demand for product appears to be strong, particularly for quality assets, however investors indicated a more cautious approach than in previous quarters.

 

 

ABOUT DATA SOLUTIONS

Data Solutions connects the Canadian real estate industry through the delivery of data with unparalleled breadth, integrity and relevance.  We cover new homes, investment transactions and commercial market inventory in key markets, and also provide intelligence on the national housing market and consumer home buying and borrowing patterns.

Our solutions are used by real estate industry stakeholders to gain market intelligence, identify and validate opportunities, benchmark, strategically plan, manage risk and more.

Data Solutions is part of Altus Analytics, the software and data solutions business of Altus Group, where our focus is to empower real estate clients and partners to work collaboratively to enhance decision making, drive performance and optimize transactional efficiency. Our solutions enable firms to better organize and manage data and connect with the right information and analytics to help them gain a complete picture of real estate assets, portfolios and transactions.

For more information on Data Solutions, please visit www.altusgroup.com/datasolutions.

 

ABOUT ALTUS GROUP LIMITED

Altus Group Limited is a leading provider of software, data solutions and independent advisory services to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technology-enabled capabilities. Our solutions empower clients to analyze, gain insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include some of the world’s largest real estate industry participants across a variety of sectors.  Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF.

For more information on Altus Group, please visit: www.altusgroup.com.

 

FOR FURTHER INFORMATION PLEASE CONTACT:

Elizabeth Lambe
Manager, Communications
Altus Group
(416) 641 9787
elizabeth.lambe@altusgroup.com