Investors closed nearly $14 billion worth of commercial real estate deals in the second quarter of 2021, making it Canada’s most active quarter ever for non-M&A investment volume. CBRE’s newly released Canada Investment MarketView charts a 29 per cent jump in sales volume from the first quarter of this year and a 149 per cent increase from Q2 2020.
In total, 2,550 transactions occurred during the quarter with deals in excess of $20 million accounting for more than $6 billion of the sales volume. The Q2 deal tally adds to $10.8 billion worth in Q1, contributing to a 62.6 per cent gain in sales value compared to the first half of 2020 and a nearly 52 per cent increase in the number of transactions.
“Investment activity has built over the first half of 2021 due to significant capital backlogs, a growing pipeline of property listings and an improving COVID outlook,” CBRE analysts state. “The second quarter results also marked the fourth consecutive quarter of non-M&A volume growth for the nation — a strong indicator of rising conviction across the investment landscape.”
Private buyers instigated the largest share of the deals, representing 44.6 per cent of sales volume, but other kinds of investors had a more significant presence than in Q1. REITs/real estate operating companies and private equity each accounted for 15.3 per cent of sales volume with pension funds/advisors taking an 11.8 per cent share. Foreign investors also upped their purchasing activity, equating to 7.5 per cent of Q2 sales volume, and are expected to be more prevalent in Q3 and Q4 as COVID-19-related travel restrictions lift.
Looking to the six property sectors and nine markets CBRE surveys, industrial, multifamily and ICI land dominated deal activity, while investors gravitated to Toronto, Vancouver and Montreal. In particular, CBRE analysts deem Toronto and Vancouver have now made a “full recovery” with investment back at pre-pandemic levels. Toronto saw $4.9 billion in deal volume during the quarter, up from $1.5 billion in Q2 2020; Vancouver welcomed $3.2 billion in transactions, also up from about $1.5 billion in Q2 2020.
The Waterloo, Ontario market also registered an impressive year-over-year 255 per cent gain, with $1.226 billion in deals in Q2 2021 versus $345.8 million in Q2 2020. While Q2 deal volume was a more modest $326 million in London, Ontario, it amounted to the most dramatic jump in any market, at 416 per cent above the $63.3 million in investment transactions recorded in Q2 2020.
CBRE analysts suggest both the latter markets benefit from their location in southwest Ontario. “Investor demand from groups priced out of the nearby GTA has continued to build as listings activity has increased in line with rollbacks of COVID lockdown measures,” they note.
The office sector was unique in experiencing a drop in deal volume, posting sales at $1.056 billion in Q2 2021 versus $1.180 billion in Q2 2020. Industrial sales surpassed $4 billion, followed by multifamily at $3.7 billion and ICI land at $2.9 billion. Meanwhile, investors are turning back to retail, with more than $2 billion in deal volume in Q2 2021 compared to just $831 million in Q2 2020.
“Investors continued to target the sectors with strongest underlying fundamentals and long-term outlooks in the second quarter,” CBRE analysts observe. “The retail sector has seen renewed interest from investors as lockdown measures have been rolled back and in-person shopping has been allowed to resume in most geographies. The office and hotel sectors continued to see the lowest activity given the uncertainty regarding secular trends within each asset class. Despite the muted investment totals, however, each of these sectors recorded quarter-over-quarter increases in investment activity in Q2 2021.”