The value of Greater Toronto Area (GTA) commercial real estate transactions hit a record $13.2 billion in the first half of 2021, an increase of 68 per cent over last year.
“Investors don’t see anything slowing us down,” said Ray Wong, vice-president of data operations for Altus Group‘s Data Solutions division, which crunched the numbers. “Inflation is there, but so far (it) hasn’t really impacted the economic recovery and hasn’t really had an impact on cap rates.
“Last year we saw cap rates go up for regional malls and office. Now we’re seeing more of a flatness and continued drops in cap rates for industrial and multifamily.”
Low interest rates and high demand from investors looking to place capital were key factors driving sales.
There were 1,417 transactions during the period, including 13 valued at more than $100 million. All asset classes experienced increased volume.
Altus Group is still finalizing its national transaction activity figures for the first half of the year, but Wong said they’re up significantly from last year across the country.
From the numbers it has so far, there were $31 billion in sales through the first six months, compared to $40 billion for all of 2020.
“We don’t see a slowdown in activity for this year,” Wong told RENX. “We know there are concerns with the possibility of a fourth wave and whether or not we’ll go into any type of a lockdown that would slow the economy down.
“The difference this time around compared to last year is that we know what we’re getting ourselves into. There were unknowns last year.”
Land remains king
Sales of residential land and lots, combined with industrial, commercial and investment (ICI) land, topped $6.7 billion and represented 51 per cent of total investments.
“It’s the residential land component that still remains the story and is garnering a lot of activity,” said Wong. “A lot of development is planned for two to four years out.”
With fewer disruptions and less uncertainty in the market than there was a year ago, development has picked up significantly. The number of development applications submitted to the City of Toronto hit 138 from January through June, up from 117 a year earlier.
Two-thirds of those 138 applications were for apartment condominium or purpose-built rental developments.
Industrial and apartments remain strong
As availability remains tight, industrial assets continue to be highly sought by investors. There were $2.9 billion in transactions in the asset class in the first half of 2021. Single- and multi-tenant properties, as well as industrial land, are all in demand.
Wong said new industrial buildings and warehouses with high ceilings are in demand by large users such as Amazon, while smaller buildings with lower clear heights in Etobicoke and Scarborough are also popular to meet e-commerce logistics needs and enable deliveries from areas close to consumers.
Wong said apartment transactions totalled approximately $1.8 billion in the first six months of the year.
“The challenge with apartments is that it’s so tight to buy product, which is pushing the need for purpose-built rental. Apartments have always had that consistent low cap rate and stable long-term returns.”
Retail and office
Retail transactions were also in the $1.8 billion range in the first half of 2021, according to Wong.
“Even though retail has had its challenges, it still has the locations. It can be used for retail in the short term and potential redevelopment down the road for some kind of multifamily use.”
The lone major asset class that didn’t crack the billion-dollar mark in total investments during the first six months of the year was office.
Considering the spread of the Delta variant and an increasing number of COVID-19 cases, the expected return to offices seems likely to be delayed and uncertainty will remain in the sector.
“Some office product is selling in urban areas for a low cap rate and isn’t based on existing needs, but potential redevelopment down the road in three to seven years,” said Wong.
“That’s a confidence boost for GTA commercial real estate because there is a medium- to long-term view of real estate to hold in the interim with any existing income, with thoughts to intensify the use and increase values down the road.”
Notable Q2 transactions
A 417,000-square-foot multi-tenant industrial building at 501 Consumers Rd. in North York was acquired by Amazon for $56 million. The property sits on 10.4 acres of land in close proximity to Highways 401 and 404. The property was originally acquired by the vendor in April 2015 for $20.5 million and will likely be redeveloped by Amazon for a future fulfillment centre.
The property was one of three acquired by Amazon in the first half of 2021 for a total of $161 million. The other two were in Pickering and Etobicoke.
A 980,000-square-foot industrial building at 8000 Dixie Rd. in south Brampton sitting on approximately 58.8 acres of land was sold by current tenant Ford Motor Company of Canada for $195 million to Panattoni Development Company Canada, which will look to redevelop the site for future industrial uses.
Armadale Properties sold its 50 per cent interest in the 169-acre Toronto Buttonville Municipal Airport in Markham to former co-owner Cadillac Fairview for $193 million, making it the sole owner of the property.
Development applications for the site were submitted in 2011 which proposed 10 million square feet of mixed-use space for the site. The applications were appealed to the then-Ontario Municipal Board and subsequently withdrawn.
No new application had been submitted to the City of Markham at the time of the sale and it continues to operate as an airport.
Development applications submitted to the City of Toronto propose two purpose-built rental apartment buildings with 824 units in 33- and 24-storey buildings as part of a mixed-use development.
Oxford Properties Group sold a fully occupied 321,000-square-foot industrial property at 8350 Lawson Rd. in Milton to GWL Realty Advisors for $90.6 million. Oxford had acquired the property in September 2008 for $27.6 million.