By Erika Siegert, Senior Analyst, National Research Insights | November 16, 2020

The third quarter continued to see the impacts of COVID-19 on the workforce and the real estate market. As most employees continued to work from home, many businesses were able to reopen and rehire throughout the quarter, only to see infection numbers begin to spike towards the end of October and provincial restrictions tighten in some parts of the GTA. Throughout the first three quarters, the GTA recorded a total of $11.9 billion in investment volume, marking a 23% decrease compared to the same period in 2019. Total investments in Q3 2020 totalled $4.0 billion, also representing a 23% decrease compared to Q3 2019. Transaction counts also decreased in the third quarter this year with 524 transactions recorded, down by 13% compared to the same quarter last year. However, this was a 30% increase compared to Q2 2020, providing some indication of market recovery as investors become more comfortable navigating the market within this new normal, and continue to seek out value-add assets.

GTA Q3 2020 property transactions by asset class

Similar to previous quarters, the land sector (including ICI land, residential land and residential lots) once again drove total investments in the third quarter, registering a total of $1.8 billion in volume, which represented 45% of total investments. The lone asset class to break the billion dollar mark this quarter was the residential land sector with $1.1 billion. Among the improved assets, the industrial sector was the most invested in with $665 million in volume, followed by the apartment sector at $575 million. The industrial sector continues to see strong performance in the current climate, with the pandemic driving demand for online shopping and distribution of goods. Similarly, the apartment sector showed signs of resilience despite rent collection challenges with current regulations, and continued to outperform other improved asset classes. Although transactions were up compared to the first two quarters this year, the office sector continued to struggle in the third quarter, recording $439 million in volume, which is once again a result of the lack of significant office transactions closing this quarter, as institutional buyers remained on the sidelines. According to Altus Group’s Investment Trends Survey for Q3 2020, despite decreasing momentum, Toronto maintained its position as the top market preferred by investors, alongside Montreal. Cap rates have remained stable across asset classes except for Tier I Regional Malls which saw a slight increase in the third quarter, reflecting investor caution as pandemic restrictions have contributed to limited in-store traffic. Industrial assets as well as those with opportunities for re-development or expansion are still top of mind for investors.

GTA Q3 2020 overall capitalization rate trends

Notable Q3 transactions:

Signet Realty to Timbercreek / Starlight Portfolio, City of Toronto – Apartment
Multi-residential asset investors Starlight Investments and Timbercreek Asset Management acquired a total of seven apartment buildings from Signet Realty located across the City of Toronto. Starlight’s acquisition consisted of four buildings containing a total of 386 units, for a sale price of $113 million, while Timbercreek’s acquisition totalled 289 units, at $80 million.

277 Wellington Street West, Old Toronto – Office

Acquired through a joint venture between Reserve Properties and Westdale Properties, this nine-storey, 100,000 square foot office building was the largest office trade seen this quarter in the GTA, closing at $78.5 million. Well situated in downtown Toronto’s entertainment district, this asset could be a future re-development site for the new owners.

88 & 94 Cumberland Street, Old Toronto – Retail
This 5,280 square foot ground floor retail unit in the newly constructed Minto Yorkville Park condominium building was one of the largest retail transactions seen this quarter. Acquired by ProWinko for $16.5 million, this retail asset fits nicely with the purchaser’s portfolio of assets in the Bloor-Yorkville area, which also includes 1200 Bay Street of which they own a 50% interest stake and have recently submitted development proposal for an 87-storey mixed-use tower.

75 & 77 Fima Crescent, Etobicoke – Industrial
This 214,518 square foot industrial property was the largest industrial sale this quarter closing at $30 million. Acquired by Compass Datacenters out of Dallas, Texas, this property will be converted into a data centre and will mark the company’s second entry into the Canadian market to go along with their two data centres in Montreal.

Major Mackenzie Drive West, Vaughan – ICI Land
The largest transaction across all sectors registered this quarter was this 18.7-acre site located just west of the Vaughan / Richmond Hill border. Acquired by the York Region District School Board for $90.6 million, this vacant site will be the future home of a public school.

3450 Dufferin Street, North York – Residential Land
This $86.5 million acquisition by the investment consortium comprised of Timbercreek, Fitzrovia and AIMCo was the largest residential land sale seen in the quarter. The property is currently improved with a 12-storey hotel currently operating under the Holiday Inn brand, and was sold by the Easton’s Group of Hotels, who acquired the property in December 2011 for $22.3 million. Development applications were submitted in 2016 by Easton’s Group which proposed the development of 3-buildings containing residential condos and hotel units.

GTA property transactions by asset class Q3 1029 vs Q3 2020

Continued uncertainty surrounding the pandemic is having its greatest effects on the retail and office markets, as investors prioritize assets that will provide stability and future growth opportunities. As seen in previous quarters, investors are still confident in the multi-residential and industrial sectors, as these two asset classes have been affected less by current market conditions. Investors are being more selective and do not want to pay top dollar amid the current uncertainty as a bid-ask gap persists between buyers and sellers. Overall, demand for quality GTA real estate assets remains stable and investors are using the pandemic and record low interest rates to their advantage.

 

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Erika SiegertSiegertresearch

Senior Analyst, National Research Insights, Data Solutions

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