GTA Q1 investment activity

Robust demand drives GTA Q1 investment activity

Thursday, April 26, 2018

Office transactions accounted for a major share of investment in the Greater Toronto Area’s commercial real estate market in the first three months of 2018. Avison Young reports nearly $2 billion in deals in the sector with a single deal — Dadco Investments’ acquisition of a 50 per cent non-managing interest in Brookfield Properties’ Bay Adelaide Centre — contributing $850 million to that total. Retail, industrial, multi-residential and development land sales values surpassed tallies for the first quarter of 2017, although they dropped off from levels attained in October, November and December.

“Buoyed by solid property fundamentals in every commercial real estate sector, but especially in the office and industrial segments, investors remain bullish on the country’s largest and hottest market,” asserts Bill Argeropoulos, Avison Young’s research practice leader.

Sectoral listings of significant transactions reveal a fairly diverse group of purchasers, while Cominar REIT stands out among vendors, as it offloaded two office, two retail and one industrial property for earnings of nearly $717 million. This includes the $180.9 million sale of the Dixie Outlet Mall to Slate Asset Management and the $90.6 million sale of America Business Park in Mississauga to KingSett Capital.

Total GTA Q1 investment activity equalled $4.3 billion in transactions for the best first quarter results since 2014. Still, analysts point to some stratification in the performance of asset types.

“Investors with existing portfolios are seeing increasing rental returns from core asset classes, such as downtown Toronto office product and GTA-wide industrial investments,” says Richard Chilcott, principal in Avison Young’s capital markets group. “The increasing cost of debt will have some impact on pricing in certain sectors, but the underlying correction in some sectors’ transaction volumes is principally due to a lack of willing vendors.”

Notably, multi-residential is described as “a market starved for product” resulting in a 47 per cent drop in sales value from the fourth quarter of 2017. The two largest deals of the quarter represent more than 40 per cent of $288 million in investment activity. Sienna Senior Living acquired a 10-building portfolio from BayBridge Senior Housing for $67.2 million. Realstar Group’s $51.9 million acquisition of 35 Valley Woods Road, Mississauga, translated into $388.84 per square foot, placing it as the priciest deal on a square footage scale.

A total retail sales value of $781 million was down from $891 million in the fourth quarter of 2017. Industrial property slipped more modestly, to $780 million from $844 million in the previous quarter, while the value decline was more pronounced for development land, dropping to $492 million from $628 million at the close of 2017.

“Industrial land remains in high demand,” notes Bill Sykes, a principal with Avison Young. “Sites that are zoned to permit outside storage remain the most sought after and are selling for $1.5 million to $2 million per acre.”

Sun Life paid $452,500 per acre for the largest land transaction of the quarter — acquisition of 6712 Fifth Line in Milton for $45.25 million. However, Buffalo Group’s $15.4 million purchase of 70 Superior Boulevard in Mississauga from Rogers Media equates to nearly $1.54 million per acre.

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