By Kruti Desai, National Research Insights Manager | July 23, 2020

Overall Canadian investment activity in the first five months of 2020 decreased by 13% compared to a year ago, with the most considerable drop seen in residential land and office sales. Industrial and apartment properties continue to lead in activity with a total volume of $3.8 billion and $3.1 billion, respectively. Industrial activity was 15.4% higher compared to the same period a year ago. Still, combined April and May 2020 investment activity decreased by almost 39% compared to 2019. While initial investment activity in June 2020 has increased marginally compared to May, it is still anticipated that activity in the first half of 2020 will still be down significantly compared to the same period last year. Overall cap rates have also shifted upwards amidst continued concerns over the pandemic. Both investors and lenders remain diligent and cautious in approaching market opportunities and will continue to face challenges in the second half of the year.

According to the Altus Group’s Key Assumption Survey results from June, investor intentions in terms of opportunistic buying and flight to quality have remained relatively stable between April and June. Higher-valued assets will continue to be in short supply with increasing pressure on rental growth rates and pricing, while also creating opportunities for development. A slightly higher number of investors intend to stick to their investment plans for office and retail, particularly for food-anchored retail with necessity-based grocery retailers that have performed very well. That proportion of fervent investors has also increased significantly for industrial (+9%) and even more so for multi-residential (+18%), especially with the easing of COVID-19 restrictions and the gradual reopening of businesses across Canada as markets transition into Phase 3. Property owners in the multi-residential sector are, however, facing their own set of challenges which include increased costs for health and safety protocols, threats of rent arrears, weakening demand from immigration due to restrictions on border controls, and more recently, the financial implications of CMHC’s suspensions on re-financing for multi-unit mortgage insurance.  As a result of ongoing challenges and unanticipated strains in the property markets along with heightened uncertainties in the economy amid the pandemic, it is expected that overall transaction activity will be down in 2020 compared to last year.

 

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