Commercial real estate transaction activity in the Greater Toronto and Greater Golden Horseshoe areas slowed considerably in the second half of 2022 after an initial strong carry-over from 2021.
This year could see a reversal of that trend, with a slower start and business picking up in the third and fourth quarters, according to Altus Group vice-president of data operations Ray Wong. He believes the amount of deals that happened in 2021 and the first part of last year were unusually high and that a level of normalcy will return to the market in 2023.
“I think investment demand is still there,” Wong told RENX. “The challenge is the product.
"I think that, depending on what happens with interest rates and the availability of product, we're probably going to see about the same amount of activity — or maybe less — compared to a year ago.”
Wong said there’s a challenge in finding price points that will satisfy both sellers and buyers, given rising interest rates, capitalization rates and carrying costs, as well as a more subdued commercial lending environment.
Most popular asset classes
Industrial, commercial and investment land deals accounted for four of the 10 biggest deals in the region in 2022, while industrial and office accounted for three each.
“Industrial and multires demand remains strong, but the challenge with multifamily is finding product,” Wong said. “The market fundamentals — especially on the industrial side, the multifamily side and to a certain extent the retail side — are still strong.”
There are buyers in the office market despite increasing vacancy rates and the questions surrounding hybrid labour models allowing employees to continue to work part-time from home. Wong said good-quality, class-A office product continues to lease well and there’s demand for it.
High downtown Toronto housing costs and residential rents are causing affordability issues for people, which Wong said is likely contributing to higher downtown office vacancy rates.
Retail performed better than some in the industry would have expected as some large properties in prime locations made them good candidates for redevelopment with the addition of residential or mixed-use components.
Private investors were again the most active in the market, according to Wong.
The top 10 transactions
These were the 10 largest (dollar value) commercial real estate transactions of 2022 in the Greater Toronto and Greater Golden Horseshoe areas, according to Altus Group data:
1. Pontegadea, the family office of Spanish billionaire Amancio Ortega, acquired the 3.15-acre, two-tower, 1.5-million-square-foot Royal Bank Plaza at 200 Bay St. in Toronto for $1.16 billion from Oxford Properties and CPP Investments in February. The property, which includes 627 underground parking stalls, was 92 per cent occupied with a weighted average lease term of 8.4 years at the time of sale. Colliers Real Estate Management Services took over the building’s real estate management services from Oxford.
2. Tribal Partners acquired two parcels of land totalling 288 acres at 12861 and 12489 Dixie Rd. in Caledon for $567 million from a numbered company and private individuals in August. The site is on the east side of Dixie Road between Mayfield Road to the south and Old School Road to the north. Tribal Partners previously acquired 247 acres on this stretch of Dixie Road for $214.61 million in two separate transactions in December 2021.
3. Slate Asset Management closed on the $518-million acquisition of 800 acres of industrial development land and buildings from Stelco Inc. in Hamilton in June. Slate entered into a sale-leaseback of 75 acres of land and two million square feet of buildings to Stelco for 35 years. Slate plans to develop up to 12 million square feet of new industrial space on the remaining land, which is already zoned for a wide range of uses.
4. Prologis acquired 194 acres of land at 12519 and 12713 Humber Station Rd. in Caledon for $479.62 million from Solmar Development Corp. in June. The site is at the edge of an area designated for industrial and commercial development where a number of large facilities — including Canadian Tire and Amazon warehouses — have recently been developed. Solmar had assembled the site from acquisitions made in 2003 and 2015 for a total of $51.97 million.
5. KingSett Capital acquired a 21-building, 1.47-million-square-foot industrial portfolio with properties in Mississauga, Oakville and Etobicoke for $461 million from Sagitta Development & Management in May. The portfolio was 99 per cent occupied at the time of the sale.
6. Pure Industrial acquired a 1.5-million-square-foot industrial portfolio with five buildings in Brampton and one in Milton for $428 million from TD Asset Management in December.
7. Crestpoint Real Estate Investment Ltd. and Alberta Investment Management Corporation (AIMCo) acquired a 25-storey, 540,000-square-foot class-A office building at 121 King St. W. in Toronto for $379.25 million from BentallGreenOak in April. BentallGreenOak acquired the building in December 2012 for $306 million.
8. Allied Properties REIT acquired office buildings at 110 Yonge St., 525 University Ave. and 175 Bloor St. E. in Toronto for $365 million from Choice Properties in March. The three buildings total 587,226 square feet and were purchased as part of a larger portfolio that also included two office buildings in Vancouver and one in Montreal. The acquisition price of the total portfolio was $794 million.
9. LaSalle Investment Management acquired 21 industrial and flex office buildings in Mississauga, comprising 809,316 square feet of space on 45.5 acres, for $294.3 million from Everlast Group in April. The buildings were 98 per cent leased and had a weighted average lease term of approximately two years at the time of the sale.
10. Panattoni Development Company Canada acquired 423 acres of Brantford industrial development land for $290 million in March. The vendor was James Dick Ltd., which acquired the land out of bankruptcy several years ago and shepherded it through the zoning process. Panattoni previously acquired a 108-acre site in the vicinity for $52.95 million in July 2021.