By Erika Siegert, Senior Analyst, National Research Insights | April 8, 2021

The latest results from Altus Group’s Investment Trends Survey (ITS) for the four benchmark asset classes show that the Overall Capitalization Rate (OCR) decreased to 5.08% this quarter, down from 5.10% in the previous quarter, but up from 4.94% in the same quarter last year (Figure 1). With day-to-day changes in pandemic-related restrictions across regions, industrial assets have remained a key priority for investors, especially in the Ottawa market this quarter. With re-openings in the retail sector driving increased sales volume, high industrial demand reflects a continued need for logistics space to meet the needs of enhanced omni-channel capabilities that have grown over the past year. While industrial assets have surpassed both Food-Anchored Retail Strip and Suburban Multiple-Unit Residential assets on the location barometer, both sectors are still of interest to investors.

Market activity in both Montreal and Vancouver were led by multi-family transactions in the first two months of this quarter, with positive momentum likely to continue. The office sector now faces the most uncertainty as it is impacted more by the status of the vaccine rollout. While some organizations are still assessing space needs, others are considering employee needs in their return to work plans, some aiming for later this year and some aiming for early 2022. Transaction volumes in early 2021 have been strong so far due in part to carry-over activity from the fourth quarter as well as an uptick in foreign investment activity and recent announcements of multiple major portfolio acquisitions. Overall, the start to the year has seen growth and many are optimistic as we move forward throughout the remainder of the year.

(Figure 1)

National markets OCR trends - 4 benchmark asset classes

As the first quarter saw the easing of some pandemic-related restrictions in many regions, Canadian employment saw signs of recovery. According to Statistics Canada, employment grew 1.4% in February, with the unemployment level falling to 8.2% – the lowest rate seen since the onset of the pandemic in March 2020. Both retail trade as well as accommodation and food services sectors saw strong employment gains with some non-essential businesses and in-person retailers being permitted to re-open throughout the quarter. The Conference Board of Canada projects employment to continue on an upward trajectory as more businesses re-open, however, future economic recovery remains dependent on vaccine distribution progress. Despite Canadian COVID-19 cases increasing as restrictions lift paired with delays in vaccine distribution, many are optimistic that the rollout will be robust later this year with the potential to drive economic momentum. According to the location barometer for all available products, Vancouver maintained its spot as the top preferred market by investors marking a continued increase in momentum, followed by Toronto which experienced dropping momentum this quarter (Figure 2). Halifax and Calgary were the only other major markets to see a rise in momentum. While momentum in Ottawa remained the same as in the previous quarter, Ottawa Single- and Multi-Tenant Industrial, as well as Industrial Land, have are the top three product-market combinations preferred by investors (Figure 4). ​

(Figure 2)

Location Barometer - All Available Products (Q1 2021)


Market highlights for the quarter include:

  • Cap rates have decreased again in the first quarter of 2021 with the market trying to move away from tight pandemic-related restrictions seen since the holiday season. Overall transaction volumes are rising as investors push forward with decision-making and anticipate increased activity later in the year. Overall cap rates compressed slightly with Single-Tenant Industrial and Tier I Regional Mall assets decreasing quarter-over-quarter, and Downtown Class AA Office increasing slightly. Edmonton was the lone market to see an increase in overall cap rates this quarter, with Ottawa remaining the same as the previous quarter, and all other markets experiencing a dip. Aside from Halifax, overall cap rates increased across markets on a year-over-year basis.
  • Despite continued work from home, plans for a return to the office are ongoing as companies and their employees determine how to best prioritize both productivity and safety. Although some are reassessing their space needs and considering a down-size, others are taking a wait-and-see approach to return to their existing space once it is safe to do so. Still, low office transaction volumes and high availability rates contribute to ongoing uncertainties. Downtown Class “AA” office cap rates reached 5.63% this quarter, up slightly from 5.60% in the previous quarter, and from 5.30% in the same quarter last year. Edmonton recorded the largest jump this quarter, while Vancouver, Calgary, and Quebec City cap rates dropped.
  • Industrial assets have performed well over the past year and continue to do so with Single- and Multi-Tenant industrial assets, as well as Industrial Land, sitting as the top three products preferred by investors this quarter (Figure 3). Strong positive momentum in the industrial market has been steady since the onset of pandemic-related restrictions in 2020, and is expected to continue as tight availability rates persist. Single-tenant industrial cap rates continue to fall, down to 5.04% this quarter from 5.16% in Q4 2020, and down from 5.28% in the same quarter last year. All markets experienced a drop in rates, while Edmonton and Halifax remained stable quarter over quarter. Compared to last year, Montreal rates dropped the most, followed by Halifax and Toronto.
  • As in-person shopping resumed in some regions throughout the first quarter, retail landlords are still prioritizing spaces that can accommodate changing consumer needs, including curb-side pickup and other omni-channel focused offerings. Still, despite sitting among the top four assets preferred by investors (Figure 3), Food-Anchored Retail strip assets have experienced negative momentum this quarter, a drop from positive performance seen throughout 2020. Regional mall assets remain low in investor preference. Tier I regional mall cap rates compressed slightly this quarter, down to 5.34% from 5.36% in the previous quarter. Halifax rates dropped the most, followed by Vancouver, Ottawa and Quebec City. Edmonton, Calgary and Montreal were the only three markets to see rising rates, while Toronto rates remained stable quarter-over-quarter. All markets saw a year-over-year increase in rates.
  • Multi-residential assets saw increasing momentum this quarter, with continued demand seen especially in the Vancouver, Ottawa and Halifax markets. Continued low interest rates could push the spring market forward and drive demand moving forward in 2021. Suburban Multiple Unit Residential cap rates rose slightly to 4.34% this quarter, up from 4.29% in the previous quarter, and 4.25% at the same time last year. Toronto was the only market to see a drop in rates, while Montreal, Halifax and Edmonton remained stable quarter over quarter. Compared to the previous year, Halifax was the only market to see a drop.

(Figure 3)

Property Type Barometer – All Available Products (Q1 2021)
Other highlights include:

Of the 128 combinations of products and markets covered in the Investment Trends Survey:

  • 54 had a “positive” momentum ratio (i.e., a higher percentage of respondents said they were more likely to be a buyer than a seller in that particular segment), a slight decrease compared to 55 in Q2 2020; 74 had a “negative” momentum ratio, an increase from 62 in the previous quarter; and none were neutral compared to 1 in the previous quarter.
  • The top 15 products/markets, which showed the most positive momentum were (Figure 4):
    • Ottawa – Single-Tenant Industrial, Multi-Tenant Industrial, Industrial Land, Food-Anchored Retail Strip, Suburban Multiple Unit Residential
    • Montreal – Single-Tenant Industrial, Industrial Land
    • Vancouver – Industrial Land, Suburban Multiple Unit Residential, Single-Tenant Industrial, Multi-Tenant Industrial
    • Halifax – Multi-Tenant Industrial, Suburban Multiple Unit Residential
    • Quebec City – Multi-Tenant Industrial
    • Toronto – Industrial Land

(Figure 4)

Product_Market Barometer - All Available Products (Q1 2021) Top 15 Preferred_15 Least Preferred

The Report

Every quarter, senior Altus Group professionals reach out to over 200 investors, managers, owners, lenders, analysts and other market stakeholders to survey their opinion on value trends and perspectives. Conducted with the same benchmark properties for more than 15 years, the survey provides valuable insights on investor preferences and valuation parameters for 32 asset classes in Canada’s 8 largest markets.

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Erika SiegertSiegertresearch

Senior Analyst, National Research Insights, Data Solutions

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