GTA Investment Transaction Stats – Q4 2019
Near Record Year for GTA Investment Activity
Total investments increased by 7% to $22.6 billion compared to $21.1 billion recorded in 2018. Driven by a record fourth quarter, overall investment volumes in 2019 rank second highest all time and was only outpaced by the record setting 2017 totals of $23.5 billion.
The GTA market continues to be the most desirable and stable market as investors maintain a diversified approach in maximizing their returns in this competitive landscape. According to Altus Group’s Investment Trends Survey in Q4 2019, Toronto was the only market that showed a rise in momentum on the location barometer. Although average transaction volumes remained flat in comparison to the previous year, the average deal size increased. For the first time, the fourth quarter witnessed total investments topping the $7 billion dollar mark with four asset classes each exceeding $1 billion. Apartment and industrial registered records with $2.1 billion and $1.4 billion, respectively, to go along with the residential land and office sectors which registered $1 billion and $1.3 billion, respectively.
Despite continual global economic and geopolitical concerns, 2019 saw the GTA market trend upwards in comparison to 2018 when investors cautiously navigated through the uncertainties and continued supply constraints. A combination of low interest rates, stock market uncertainty and the stability of real estate in Canada resulted in an increased appetite for real estate assets. According to Altus Group’s Investment Trends Survey, overall cap rates continued to trend downards from 5.02% in Q4 2018 to 4.98% in Q4 2019.
The land sectors (residential, ICI and residential lots) collectively accounted for $7.9 billion in Q4 2019. Despite a 6% decline compared to 2018, the land sectors once again lead the way as residential and mixed-use development projects continue to rise and transform the GTA landscape. The 2019 land sectors were highlighted by two landmark transactions. East Harbour Lands, a 38 acre site located just east of Downtown Toronto was acquired by The Cadillac Fairview Corporation for a total of $690 million. This transit-oriented mixed-use development will add nearly 10 million square feet of commercial space upon completion. The largest residential transaction in 2019 was the sale of the former Celestica campus at 1150 Eglinton Avenue East in North York, which was acquired by Aspen Ridge Homes for $347.8 million. The 60.5 acre site is planned to be a live, work, play mixed-use development which will have direct access to the soon to be completed Eglinton Crosstown LRT system.
The apartment market sector saw an increase in investments as it registered a total of $3.8 billion, a 40% increase from the previous year. As housing shortages and affordability persists, together with the ever-growing population in the GTA, the multi-family asset has proven to be one of the most stable and desirable commodities. Investors also ranked Suburban Multi-Unit Residential product as one of the top products to buy in Altus Group’s latest Investment Trends Survey Property-Type Barometer. Starlight Investments continued their aggressive acquistion strategy this year, highlighted by their end of year portfolio acquisition of 44 buildings in Ontario, 28 of which were located in the GTA. The overall acquisition totalled approximately $1.7 billion in investments. In addition to this portfolio, Starlight was a consistent investor throughout the year acquiring approximately $2.2 billion in multi-family assets, representing 57% of the $3.8 billion total investments in the apartment sector for 2019.
The industrial sector tied the residential land sector for the highest total investments in 2019, registering $4.4 billion representing a 31% year-over-year growth. As the availibility for industrial assets remains tight in the GTA market, sale prices and rental rates are expected to continue to rise. End-user investors are experiencing an increase in challenges as pricing and demand for industrial assets increase from all investor types. The two largest industrial transactions to take place in 2019 were the sales of newly constructed data centers, an emerging asset class which is beginning to evolve into a conventional asset class as demand for 5G and cloud computing expands. Investors are also seeing data centres as suitable for asset diversification and an attractive return on investment. The largest sale was 45 Parliament Street in the City of Toronto which was acquired by U.S. based Equinix REIT for a total consideration of $223 million. The second largest sale was 80 Via Renzo Drive located in the City of Richmond Hill which was purchased by AIMCo for a total consideration of $215 million.
The retail sector was the most active in 2019; however, that did not translate to the overall lead in investment totals. The majority of trades were below $5 million which were primarily acquired by Canadian based private investors. The largest retail transaction registered in 2019 was the 50% interest sale of Stockyards Village in the City of Toronto for $88.5 million, acquired by RioCan REIT which now owns a 100% interest in the property. As the everchanging landscape within the retail sector persists, we will continue to see investors take advantage of the opportunity to re-position their assets to maximize their returns. 2019 saw multiple high profile shopping centres submit development proposals for large scale transformations. Some of the notable shopping centres include Yorkdale Mall, Sherway Gardens, Scarborough Town Centre and most recently Square One in the City of Mississauge, which proposes nearly 18 million square feet of density once complete. These assets benefit from their locations along major road networks and already-in-place transportation infrastructure as well as expansive surface parking lots primed for increased density.
For the sixth year in a row, we witnessed an increase in total investments in the office sector. 2019 registered a total of $4.1 billion which was a 2% year-over-year increase. With vacancy rates in downtown Toronto at an all time low of 3.2%, office assets continue to be in high demand as seen in three of the four largest transactions in the downtown Toronto area. The largest sale was Atrium on Bay, a 1.1 million square foot property which was acquired by KingSett Capital and TD Greystone Asset Managment for $640 million. Another notable downtown Toronto transaction, which ranks fourth in 2019, was the sale of 111 Peter Street acquired by iA Financial Group for a total consideration of $185 million. With the lack of supply of rental space in the market, owners of this nine-storey, 252,000 square foot property have commenced discussions with the City of Toronto for the development of five additional storeys atop the existing structure which would add an additional 92,000 square feet of rentable space.
As we enter the new decade, investors face increasing global economic uncertainties which will impact their decision making. Purchaser activity in 2019 was predominately Canadian based private investors. Institutional buyers acquired the larger assets and foreign investors were not prevalent. As the stability in the Canadian real estate market attracts Canadian and foreign investors, the GTA market will continue to be the preferred Canadian investment market.
“Investor demand will continue to be strong in 2020, with investors continuing to look for stable yields and opportunities, the challenge remains with the lack of product. Both ICI and residential land, apartment and industrial will continue to be the most sought after assets in 2020, with cap rates expected to remain flat and lower compression for assets with potential higher returns”, noted Raymond Wong, VP, Data Operations, Data Solutions at Altus Group.
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