GTA Investment Transaction Stats – Q1 2019
GTA Sales Activity Slows Significantly in the First Quarter of 2019, down almost one-third compared to Q1 2018
Q1 2019 registered a total of 502 investment property sales transactions over $1 million, representing a total investment value of $4.1 billion
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 in the Greater Toronto Area (GTA). Overall investment is down 29% to $4.1 billion from Q1 2018, and down 13% from the previous quarter. Despite the notable decrease, investor confidence in the GTA market has not been shaken. In core markets like Toronto, Vancouver and Montreal, strong demand for core assets has ensured overall cap rate compression for the four benchmark asset classes, from 5.10% in Q1 2018 to 5.03% in Q1 2019, according to Altus Group’s Investment Trend Survey (ITS).
GTA Property Transactions – All Sectors by Quarter
Total investments were down for the fifth straight quarter and deal count was the lowest recorded since Q1 2015. Quality asset supply issues continue, translating to a decline in overall investment activity. Demand for these assets has driven Toronto to a year-over-year decline in overall cap rates at 4.25% to 4.15% in Q1 2019 (Investment Trends Survey, Altus Group).
Q1 2019 GTA Property Transactions – Total $ Volume by Sector
Collectively, the land markets led the charge once again, accounting for 45% of total investments. The residential land sector accounted for $1.3 billion or 32% of the total volume which marked a 8% increase from the previous quarter. Land acquisitions remain a significant driver of the GTA market as housing needs persist, largely due to population growth, strong demand and supply constraints.
The largest transaction this quarter was the sale of the Celestica Campus located in North York which sold for nearly $348 million. This 60.5-acre site will be a future mixed-use development which benefits from its close proximity to the Don Valley Parkway and the future Eglinton Crosstown Light Rail Transit. Of the 10 largest transactions recorded this quarter, half were future residential re-development sites. Industrial land, however, was again identified, in the most recent Investment Trends Survey, as the key commercial land property type showing the most positive momentum going forward.
Investors remain particularly confident in industrial and office assets amid land and product shortages. As reported by Altus Group’s Investment Trends Survey, overall cap rates in Toronto for the downtown class “AA” office showed moderate fluctuations throughout the year holding at 4.30% in Q1 2019, while single-tenant industrial continued to fall. The office and industrial sectors each accounted for 19% of total capital flow this quarter. The office sector saw an 8% increase from the previous quarter, but down 55% compared to the same period last year which saw multiple trophy office assets trade.
The largest sale recorded this quarter across all asset classes 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 $473 million.
The industrial sector was the most traded asset this quarter, but was down 9% compared to last quarter and down 3% compared to the same period last year. The largest sale this quarter for this sector was located in the City of Vaughan located at 777 Creditstone Rd, a 214,100 square foot warehouse and distribution facility which was purchased by a private investor for a total consideration of $50,800,000. With GTA industrial vacancy rates currently at 0.8%, the lowest reported by Altus Group, and with the imminent need of warehouse space due to e-commerce, cannabis production, and alternative uses, industrial product continues to attract investors as an asset offering long and short term growth.
The retail sector was the second most active asset class, however, it was down 34% from the previous quarter. Overall cap rates for the Tier I Regional Malls sector remained relatively stable throughout the year with a slight year-over-year increase from 4.10% in Q1 2018 to 4.20% in Q1 2019 as reported by Altus Group’s Investment Trends Survey. The theme for this quarter was the sale of smaller to mid-sized assets which were being acquired predominately by local private investors. We did not see any large retail transactions close this quarter as investors decided to hold onto these sought-after assets which possess re-development potential on the excess lands provided by the larger parking lots. Changing retail 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 uses to bring added value to their assets and maximize potential returns.
The largest drop witnessed this quarter was the apartment sector which recorded 39 transactions worth $234 million, down 61% from the previous quarter and 19% from the same period last year. With housing affordability issues persisting, apartment properties have become one of the most desired and stable assets. The competitive market combined with a lack of supply has resulted in investors seeking opportunities in secondary and tertiary markets. The average cap rates in suburban apartment stock in Toronto remained unchanged in the last three quarters and showed a decline compared to the first quarter of last year from 3.90% to 3.70% in Q1 2019 according to the Investment Trends Survey by Altus Group. Another reason for the slow down this quarter was the lack of multi-family portfolios closing, which was prominent in previous quarters. The most significant sale this quarter was 15 Walmer Road a 10-storey and 78-unit building located in midtown Toronto which was acquired for $30 million.
Purchaser activity this quarter predominantly comprised of private investors and developers. Institutional buyers once again set their sights on trophy assets. Public investors were not as prominent, and foreign investors stayed on the sidelines. The overall slow down in investment activity seen this quarter can be attributed more to product shortages rather than the lack of demand as investor sentiment remains confident. Despite the pace of investments, investors continue to sharpen their focus on potential higher-yielding real estate opportunities in peripheral markets as well as repurposing distressed or underutilized assets.
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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.
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ABOUT ALTUS GROUP LIMITED
Altus Group Limited is a leading provider of software, data solutions and independent advisory services 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.
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