Image of tall office buildings in a downtown, looking up from a position on the sidewalk below.

Overall National Investment Activity Takes a Breather in the First Quarter of 2019

Q1 2019 registered a total of 1,690 investment property sales transactions over $1M across Canada, representing a total value of $9.8B, a decrease by 18% and 37%, respectively, compared to the same quarter last year

TORONTO – Altus Group, a leading provider of software, data solutions and independent advisory services to the commercial real estate industry, today announced the first quarter of 2019 results for commercial real estate investment across Canada. Total investment volume in Canadian commercial real estate took a downturn by 37in comparison to the same quarter last year, dropping from $13.4B in Q1 2018 to $9.8B in Q1 2019, the lowest level of activity since Q1 2016 which was $9.1B. Supply and demand continues to be in flux due to product shortages and the gap between seller and buyer price expectations, especially in secondary and tertiary markets, contributing to the slower pace in market activity compared to the previous year.

The first quarter of 2019 saw a total of 1,690 investment property sales transactions over $1M, representing a decrease of just over 18% since the same quarter last year. Despite the decline in the number of transactions, several notable deals occurred across all major markets in Q1 2019. These comprised of diverse investors focusing on potential higher-yielding returns pushing overall cap rates even lower to 5.03%, according to Altus Group’s Investment Trends Survey.  Despite the pace of investments, investors continue to focus on seeking quality assets and opportunities in core and peripheral markets in conjunction with repurposing distressed or underutilized assets.

 

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

(National Property Transactions – All Sectors by Quarter)

Investment demand for core office product remains dynamic in major markets. Office product was the third largest sector in terms of total dollar volume in the first quarter, representing 15.5% of the market. Q1 2019 saw 116 office transactions worth $1.5B, down 40% from Q1 2018 and down 9.6% from the previous quarter. Vancouver saw the greatest year-over-year (YoY) change in this sector increasing from $123M in Q1 2018 to $395M in Q1 2019. Edmonton trailed behind with a 159% YoY increase from $20M to $52M, followed by Calgary which showed growth by 4.2% in volume. The largest sale recorded this quarter was the Dynamic Funds Tower, a 650,000 square foot office complex located in downtown Toronto, which was acquired by a consortium of institutional investors for $473M. Toronto and Montreal presented a softening in market activity volume compared to Q1 2018, dropping by 55.3% and 67.9%, respectively, and Ottawa tempered slightly by 9.7%.

Changing consumer and lifestyle trends are creating new opportunities for retail assets, largely due to their prime locations near major transit hubs and road networks. Many properties are also undergoing intensification, emphasizing a mixed-use approach by combining retail with residential and commercial to directly capture shoppers at the sites. Retail transactions saw a 44% drop in volume in Q1 2019 from the same quarter last year, which may reinforce landlord investment strategies to reposition their assets by bringing added value to their sites and maximizing potential returns. Retail store sizes are also seeing a compression with the growth of e-commerce and the emphasis on more experiential-type retail. Calgary was the only market that showed growth of 20% in transaction volume compared to Q1 last year. According to the Altus Group’s Investment Trends Survey, retail cap rates have remained steady from the previous quarter and are projected to increase.

Hotel investment activity had a slight increase in the number of deals since Q1 2018 with 15 transactions worth $115M, but with a decrease in total volume by 55%. The GGH showed the most growth since last year, representing a little over half the total number of Hotel deals. The top transaction in Q1 was a $43M sale in Mono, Ontario for Hockley Valley Resort.

Industrial vacancy rates for major markets currently sit at 2.2% and with the imminent need of warehouse space due to e-commerce as well as non-traditional uses like cannabis production, the industrial asset has quickly become an attractive investment. Market rents for industrial properties have also been increasing, making it a highly sought-after product for investors. A lack of available industrial product, however, remains a significant contributor to the slight decline in transaction volumes within the sector from the same quarter last year, particularly in Vancouver and Toronto. Overall, 331 transactions representing $1.9B in value traded hands in Q1 2019. The top transaction in Q1 2019 was an 849,338 square foot, three-building portfolio for $79.6M in Calgary acquired by Summit REIT who also purchased assets in Edmonton and Montreal this quarter.

Residential land investment continues to be the most active sector representing 25% of activity across all asset classes. The residential land sector had 338 transactions worth $2.4B recorded in Q1 2019. However, these figures were down from the same quarter last year. The top residential land transaction was the sale of the Celestica Campus located in North York which sold for nearly $348M. This 60.5-acre site will be a future mixed-use development which will benefit from its close proximity to the Don Valley Parkway and the future Eglinton Crosstown Light Rail Transit.

Q1 2019 saw 346 ICI land transactions worth $1.3B with the top transaction being a $35M sale in Gloucester for a 14.8-acre lot which was purchased from RioCan REIT by Costco Wholesale Canada Ltd.

Apartment product remained fairly active in Q1 2019 with several pertinent transactions. It was the only asset class that saw growth since Q1 2018. As housing needs persist, largely due to population growth, strong demand and lack of supply, investors continue to seek stable returns and buying opportunities in the multi-unit residential housing market in both the core and secondary markets. The average cap rates in suburban apartment stock have gone down in all markets since last year ranging from 3.6% to 5.2% this quarter. Apartment had 247 transactions worth nearly $1.4B in Q1 2019. The most significant sale this quarter was an 853-unit senior residence in Rivière-des-Prairies-Pointe-aux-Trembles, a suburb in Montreal and was purchased by Desjardins-Cogir for $135M. With housing affordability issues persisting, multi-residential properties continue to be one of the most desired and stable assets.

With the continued lack of product and land shortages, historically low vacancy rates in most assets classes particularly in markets like Toronto and Vancouver, rising rental rates along with housing affordability challenges, it is expected that investors will continue to remain confident, competitive and opportunistic across all segments and prices will remain at elevated levels for core product. The most pursued asset classes this year will likely consist of quality office, industrial and multi-residential as investors search for higher yields and users to fulfil their demands.

Historical cap rates by asset class for all major markets across Canada 2003-2019

 

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 independent advisory services, software and data solutions 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