By Altus Group | July 11, 2018

Investment activity remains healthy and demand continues to be strong as survey participants anticipate overall cap rates will remain flat with a modest decline for specific markets and assets.

The latest results from Altus Group’s Investment Trends Survey (ITS) for the 4 Benchmark asset classes show a slight decline in the average Overall Capitalization Rate (OCR) at 5.07% in Q2 2018, compared to the first quarter of 2018 and second quarter last year, at 5.10% and 5.15%, respectively. According to RealNet Investment Transactions results, national investment activity volume is up at $13.2B from $12.7B, comparing year-over-year results in Q1 2018, indicating continued strong demand for properties. Quarter-over-quarter, ITS participants anticipate that cap rates for the benchmark office and retail properties will likely increase marginally, while multi-unit residential and industrial benchmark properties will see modest cap rate compression.


Overall Capitalization Rate Trends – 4 Benchmark Asset Classes:

Overall Capitalization Rate Trends - 4 year Benchmark Asset Classes (Q2 2018)

Market highlights for the quarter include:

  • Overall cap rates have declined in 6 of the 8 markets, with the exception of Edmonton, which remains relatively flat, and Calgary, which shows a marginal increase in comparison to its past quarter cap rate compression.
  • Vancouver’s average overall cap rates for industrial and multi-unit residential moved down slightly from Q1, while Vancouver’s Tier 1 Regional Malls have gently climbed and downtown Class “AA” office remains stable.
  • With strong investor demand, survey respondents anticipate that cap rates will continue to compress for suburban multi-unit residential product in the Edmonton market and for industrial product in the Calgary market. There has been a rise in office cap rates for Calgary and Edmonton, and Tier I Regional Malls remain flat for both markets.
  • Quarter-to-quarter, Toronto’s cap rates for suburban multi-unit residential and industrial products are anticipated to push downwards. Tier 1 Regional Malls and downtown Class “AA” office cap rates remain steady, following a slight uplift in retail and a cap rate compression among office in the previous quarter.

National Sales Volume ($):

National Sales Volume by Dollar


Overall Capitalization Rates (Q2 2018):

Overall Capitalization Rates Q2 2018

  • Investor intentions in Montreal’s office sector continue to grow as office cap rates decreased moderately from the previous quarter.  Retail and industrial cap rates remain unchanged.
  • Suburban multi-unit residential cap rates have fallen across all markets, except for Calgary and Quebec City, where it shows an incremental lift in residential cap rates from Q1. Moreover, RealNet Investment Transactions results indicate a decline in national portfolio sales volume and total deal count for multi-unit residential products and residential lands (YoY in Q1 2018).
  • Office and Tier I Regional Mall cap rates for Ottawa, Quebec City and Halifax remain relatively consistent with figures from last quarter.  A moderate increase in cap rates can be seen for retail and industrial in Ottawa.

Availability of New Real Estate Equity:

Availability of new real estate equity Q2 2018

Other highlights for Q2 2018 include:

  • Despite new uncertainty with regards to global trade, tariffs and housing, Canada remains a prime target for both domestic and foreign investors, amid stable growth in wages and employment, and a period of political stability. Of the 128 combinations of products and markets covered, 83 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), 42 had a “negative” momentum ratio and 3 were neutral. The overall momentum ratio was up from last year. The 3 Product/Markets which showed the most positive momentum were: Ottawa Single-Tenant, a boisterous increase from last quarter, followed by Ottawa Multi-Tenant Industrial. Toronto Tier I Regional Malls, although high, have remained unchanged from Q1 2018.
  • Investor appetite in real estate remains strong. With a rise in employment and a healthy labour market, demand for office in major urban centres continue to witness moderate growth. Office cap rates have increased across Canada for downtown Class “AA” assets, with a slight decline in Montreal and a flattening of cap rates in Ottawa that is largely attributed to a supply shortage as investors look for higher yields in other attractive markets outside of Toronto and Vancouver.


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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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