By Kruti Desai, National Research Insights Manager | April 30, 2020

GTA Commercial Real Estate Market Remained Steady Throughout the First Quarter Amidst Global Pandemic Fears

With COVID-19 spreading around the globe beginning in January, the impacts felt on the GTA real estate market were not evident in the first quarter of 2020. With the implementation of social distancing and stay-at-home measures, the investment market has temporarily paused in March and April. With transactions typically negotiated months prior to closing, we will likely not see the significant effects of this global pandemic until the second quarter of this year. Total investments recorded in the first quarter decreased by only 3%, at nearly $4.0 billion. Deal volumes in comparison increased 5% to 530 transactions in Q1 2020, with the most active investments being the retail and industrial sectors at 137 and 119 transactions, respectively. The land sectors (residential land, ICI land & residential lots) once again played a prominent role in overall investments accounting for 43% of the overall total and registering nearly $1.7 billion. The residential land sector was the lone asset class this quarter to exceed $1 billion in total investments. The apartment sector saw the biggest gain with a 164% increase in comparison to the same period last year. The sector that saw the biggest decrease in investment was the office sector which fell 43% in comparison with the first quarter in 2019.

GTA property transactions Q1 2020

This quarter witnessed a lack of significant transactions and saw only three deals that registered $100 million and over, with all three being re-development sites in nature. As seen in previous quarters, the residential land, industrial and apartment assets were the most popular amongst investors who continue to seek stable and long term returns in the competitive GTA landscape. Canada still remains one of the most sought-after markets for investors that are seeking safe returns. According to Altus Group’s Investment Trends Survey, although Toronto remained one of the top markets preferred by investors this quarter, buyer momentum declined from the previous quarter and from the same quarter last year. In Toronto, both class “AA” office and tier 1 regional mall cap rates remained flat, single tenant industrial cap rates moved up slightly, and suburban apartment cap rates moderately declined, which may indicate that during these challenging times, wary investors are carefully adapting to market changes by reassessing their strategies and reconsidering their capital flows and overall risk tolerance.

GTA cap rates Q1 2020

Notable transactions:

175 Wynford Drive, North York – Residential Land
This $102 million acquisition by Freed Developments and Fengate Asset Management was the largest single sale recorded this quarter. This 5.42-acre site, which is improved with the Don Valley Hotel & Suites, has been zoning approved for two residential towers to be built on the excess land while maintaining portions of the existing structures on site. This transit-oriented site benefits from being in close proximity to the Don Valley Highway, as well as the soon to be completed Eglinton Crosstown Light Rail Transit line. Once complete, the development would add more than 750 residential units to this North York neighbourhood.

229 Richmond Street West, Old Toronto – ICI Land
This $100 million acquisition by the City of Toronto represented 23% of total ICI Land investments made this quarter. The property, which is one of the few remaining surface parking lots in downtown Toronto, is approximately 0.65 acres in land size. The hefty price tag paid by the City of Toronto was based on the highest and best use appraised value for the site, which would be a high-density-mixed used development. However, the intention of City of Toronto is to construct a park on this site.

200 Queens Quay West, Old Toronto – Residential Land
This 8-storey parkade, which sits on approximately 1.25 acres, was sold by the Canada Lands Company and was acquired by DiamondCorp and Lifetime Developments for $100 million. With no current development applications in place, the future intentions by the purchasers will likely be high-density residential development for this downtown site.

Erindale Corporate Centre, Mississauga – Office
This 3-building office campus was the largest office transaction seen this quarter. Acquired by Adgar Investments and Montez Corporation for $90.6 million, this 342,606 square foot Class-A office complex was approximately 93% occupied at the time of sale with a weighted average lease term of approximately seven years.

2777 Kipling Avenue, Etobicoke – Apartment
This 18-storey, 325-unit apartment building was the largest multi-family asset to trade this quarter by sale price. Q Residential acquired this north Etobicoke asset at the end of January from Minto Properties for $93 million. The vendor had originally acquired this property in June 2017 for $55 million and subsequently made significant upgrades and renovations to this multi-family asset.

Cochrane Business Park, Markham – Industrial
This 6-building industrial campus was sold by the Public Sector Investment Pension Board for $45.2 million, making this sale the largest industrial asset sold this quarter by sale price. The purchaser of this 228,719 square foot property was Summit Industrial Income REIT. With the combination of the weighted average lease term at less than three years and with 50% of tenants paying below market level rents at the time of sale, this asset provides the purchaser with the potential for significant near term rental growth within an asset class that has seen record low vacancy rates.

GTA property transactions by asset class Q1 2020

With the current economic conditions evolving so drastically due to the global pandemic, investors face unprecedented uncertainties that will result in the re-assessing of their current investment strategies. Certain asset classes will be less affected by the global crisis, such as the industrial sector as warehousing for retailers are now more crucial than ever. The multi-family asset class will face challenges due to economic and employment uncertainty. The retail asset class will likely be the most impacted as investors face rent collection loss and the rise of vacancies. As the new normal sets in and we enter the second quarter, we will begin to see the effects of COVID-19 as the GTA commercial landscape changes dramatically. During this bear market, we may also begin to see investors hold back capital and take a wait-and-see approach for investment opportunities to slowly surface.


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