Soneil Investments’ acquisition of Markham office towers at 55 and 105 Commerce Valley Way was one of the largest transactions during Q1 2021 in the Greater Toronto Area. (Courtesy Soneil Investments)

Greater Toronto Area (GTA) commercial real estate investment hit a record $6.07 billion in the first quarter, surpassing the previous Q1 record of $5.77 billion set in 2018.

Activity picked up in the latter half of 2020 after being put on hold for a few months after the onset of COVID-19 and its accompanying restrictions, and that momentum has continued through the first part of 2021.

“The reason why we see continued activity this year is that investors are implementing and carrying out their core and non-core asset repositioning, with acquisitions or dispositions,” Ray Wong, vice-president of data operations for Altus Group‘s Data Solutions division, told RENX about the information his group collected.

“People are a little bit more optimistic and sense that the economy is starting to move in the right direction.”

A bid-ask gap still exists between what sellers are looking for and what buyers are looking to pay, but Wong said it has narrowed a bit compared to 2020.

“Any time there’s uncertainty in the marketplace, that’s where you see delays, especially with the disposition of some assets. Vendors want the highest price possible if they’re not under pressure to sell.”

Investment activity by asset class

Here’s how Q1 2021 compared to Q1 2020, before the pandemic made its biggest impact on the Canadian commercial real estate market:

– Residential land was up 72.1 per cent to $1.95 billion.

– Industrial was up 81.3 per cent to $1.43 billion.

– Industrial, commercial and investment land was up 74 per cent to $790 million.

– Retail was up 35.7 per cent to $685 million.

– Apartments were up 8.8 per cent to $642 million.

– Office was down 18.4 per cent to $348 million.

– Residential lots were up 70.5 per cent to $220 million.

– Hotels were up from zero to $14 million.

Land, industrial and apartments

Ray Wong, vice-president of data operations for Altus Group’s Data Solutions division. (Courtesy Altus)

Residential land continues to lead transactions, which shows the demand for future housing and development.

In addition to having the highest increase and second-highest volume, industrial was the only asset class that saw rental rate increases in 2020. Those increases are expected to continue in 2021.

Interest is picking up in industrial land in the eastern part of the GTA, since there’s more of it to choose from and prices are lower than in the western end. The extension of Highway 407 and other infrastructure investments are also making the region more appealing, according to Wong.

“Multires is very sought-after, but the challenge is finding product,” said Wong. “The number should be higher than what’s showing in the market.”

Retail and office

Private investors are looking for opportunities to take advantage of softness in retail real estate due to store bankruptcies and closures.

“While there was still uncertainty about retail in the marketplace, activity was OK considering all of the negative comments about the sector,” said Wong. “It’s not the malls that are selling. It’s anything that has a redevelopment opportunity, or a type of higher and better use.”

Office availability and vacancy rates increased in the first quarter and questions remain around the sector with regards to what tenants will do about bringing employees back into offices and how much space they’ll need.

Despite these negative factors, Wong said there haven’t been major price drops in downtown Toronto office valuations.

Notable GTA transactions

The 1.44-acre 33 Yorkville Residences residential land site at 27-37 Yorkville Ave. and 26, 30 and 50 Cumberland St., just north of Bloor Street West and west of Yonge Street, was sold for $300 million on March 29 in a distress sale from the Ontario Superior Court of Justice to PEM (Yorkville) Holdings Inc., which is affiliated with Pemberton Group.

RBC Capital Markets and CBRE brokered the deal.

The Yorkville property fell into receivership in March 2020 under Cresford Development Corporation, along with two other of its luxury condominium tower projects in the neighbourhood: The Clover on Yonge (now owned by Concord Adex, a subsidiary of Concord Pacific, which rebranded it The Gloucester on Yonge); and Halo Residences (purchased by 494 Yonge Street Inc., a real estate holding company managed by QuadReal Property Group), which is now being developed as a purpose-built rental project.

Soneil Investments purchased a 377,944-square-foot flex office space at 55 and 105 Commerce Valley Dr. W. in Markham for $115 million from Northam Realty Advisors on Feb. 2.

The 8.9-acre property has surface parking and two eight-storey office buildings built in 2000 that have tenants including AT&T, Avison Young and AECOM.

The Commerce Valley Drive property, located south of Highway 7 and west of Leslie Street, was previously acquired by the vendor in March 2012 for $105.99 million.

TD Asset Management (formerly Greystone Managed Investments Inc. and TD Greystone Asset Management) sold a 128.43-acre property occupied by a regional shopping centre at 5, 15 and 65 Resolution Dr. in Brampton to 410@Steeles Inc. for $61.25 million on Feb. 25.

The property, located on the north side of Steeles Avenue East and east of Kennedy Road, has 12 buildings with a gross floor area of 261,581 square feet and a surface parking lot with 10 entrance and exit points.

The mall is primarily occupied by national tenants, including Walmart, Dollarama, Planet Fitness, A&W, Boston Pizza, Sleep Country, Starbucks and Lowe’s.

Outlook for the rest of the year

As long as COVID-19 vaccines continue to roll out and the effects of the third wave of the COVID-19 pandemic don’t cause major disruptions, Wong expects more confidence and activity in the CRE market through the second and third quarters.

Total investment activity in the GTA was $20.64 billion in 2018, $22.27 billion in 2019 and $17.54 billion in 2020.