Industrial assets and development land accounted for more than 50 per cent of investment sales value in the Greater Toronto Area (GTA) during the first quarter of 2021, with trade activity in both sectors far outpacing deal-making in the comparable period of 2020 back before the full impact of the COVID-19 pandemic hit. Avison Young’s newly released investment market overview tallies $3.9 billion worth of transactions across all commercial real estate sectors, representing the best Q1 sales performance since 2018.
Office was one the sector in which activity did not surpass Q1 2020 levels. Retail enjoyed an upswing coming off a year when investment sales value dropped to an eight-year low. Meanwhile, the continuing compression of multifamily cap rates demonstrates that lower deal volume is due to supply constraints rather than a lack of purchasers.
“Flush with cash and supported by favourable borrowing costs, eager investors continue to seek out opportunities in what is shaping up to be another unpredictable year,” Avison Young’s accompanying analysis surmises. “Mass vaccinations offer a ray of hope and the prospect of an eventual return to pre-pandemic capital flows into what is otherwise a relatively sound property market.”
For now, investors are keenly chasing industrial assets. A sales tally of $1.4 billion represents 36 per cent of total Q1 investment deal value, and a 45 per cent increase over industrial sales value in the first three months of 2020. Triovest Realty Advisors inked the priciest deal at $125 million, equating to $239 per square foot, for a 22-acre logistics facilities in the west end of Toronto — acquired from Mantella Corporation. However Amazon’s $40-million purchase of the Pickering Markets at 1400 Squires Beach Road in Pickering comes in at $290 per square foot.
“The unrelenting adoption of e-commerce reinforces solid fundamentals for the acquisition of highly coveted last-mile warehouse and distribution space, even if it means demolishing an existing facility and building new,” Avison Young analysis observes.
Industrial demand and the surging housing market are identified as underpinning factors in the 33 per cent quarter-over-quarter jump in sales values for development land. Deals tallied $807 million, up from $606 million in Q4 and $451 million in Q1 2020.
Blackwood Partners’ and Nicola Wealth’s joint $108-million purchase — at more than $1 million per acre — for 2955 King Road in York Region’s King Township represented a 13 per cent chunk of that total. The vendor, King Hill Inc., acquired the 105-acre site in 2019 for $55 million.
Meanwhile, Q1’s second largest transaction garnered nearly four times more land at less than one-quarter of the cost per acre, as RICE Group paid Infrastructure Ontario $93.5 million for a 420-acre site on Peel Region’s Torbram Road. On the flip side, the York Catholic District School Board shelled out the highest per-acre price of the quarter with its $33.5-million purchase of a Whitchurch-Stouffville site from Greenpark Homes, which equated to more than $2.2 million per acre.
RioCan REIT also enjoyed upside returns on its 50 per cent interest in a 36-storey midtown Toronto multifamily rental building — purchased in 2019 for $114 million and sold for nearly $151 million in Q1. The purchaser, Woodbourne Capital, paid more than $647,000 per unit, outdistancing Q1’s other multifamily deals in both transaction value and per-unit price.
The quarter saw $642 million in multifamily investment transactions, down from $877 million in trades during Q4, but up from $615 million in Q1 2020. Cap rates continued to trend downward, providing evidence that investors aren’t expecting the current parallel downward rent trend to last and contrasting with the skittishness Avison Young analysts see in the office market.
“An expensive housing market and the eventual return to higher immigration levels post-pandemic have investors squarely focused on the stable but supply-constrained multi-residential sector,” they conclude. “Investors are still seeking greater clarity in the office sector as stakeholders grapple with a multitude of survey results on what the future workplace will look like. availability and vacancy rates are on the rise and the wait-and-see approach by occupiers has kept investment capital largely at bay.”
The quarter’s $349 million in office transactions represented 9 per cent of total investment sales, and is a decline from $531 million in Q4 and $429 million in Q1 2020.
“Continuing a trend from 2020, suburban assets attracted most of the capital,” Avison Young reports. Accordingly, the quarter’s largest deal saw Soneil Investments acquire 55 and 105 Commerce Valley West from Northam Realty Advisors for $115 million, equating to $304 per square foot.
However, two smaller downtown transactions yielded considerably higher per-square-foot earnings for the vendors. Sutter Hill Management purchased a 50 per cent interest in 110 Yonge Street from BentallGreenOak, translating to $723 per square foot. Dream Office REIT paid $806 per square foot to acquire 76 Stafford Street and 850 Adelaide Street West from Hullmark.
In turn, Hullmark paid the highest per-square-foot rate for a retail property at $3,351 for a 9,400-square-foot low-rise property at 147 Spadina Avenue in Toronto’s downtown west area. Meanwhile, Ingka Group’s $100-million acquisition of the 132,000-square-foot retail podium at 388 Yonge Street was the largest retail transaction of Q1 and opens the way for a new Ikea store in the downtown core.
“Retail investment increased for the third consecutive quarter with $693 million in first-quarter sales – up 25 per cent quarter-over- quarter and 30 per cent year-over-year,” Avison Young advises. “The top five sales reveal a mix of urban and suburban asset types ranging from traditional regional and community shopping centres to street-front and freestanding offerings.”