New record high for commercial real estate investment sales in Greater Toronto Area

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Avison Young Commercial Real Estate (BC)

Jul 30, 2013, 09:00 ET

Avison Young releases Q2 2013 Commercial Real Estate Investment Review for GTA

TORONTO, July 30, 2013 /CNW/ - Relying on healthy commercial real estate market fundamentals and a seemingly endless war chest of capital, buyers and sellers pushed the total investment dollar volume for the Greater Toronto Area (GTA) to a record level in the second quarter of 2013.

Office, industrial and retail properties, along with a number of portfolio transactions, propelled commercial real estate investment sales to a high-water mark of $4.5 billion. Although capitalization rates remain low, the compression rate appears to have moderated between quarters for some property types.

These are some of the key trends noted in Avison Young's Second Quarter 2013 Commercial Real Estate Investment Review - Greater Toronto Area, released today. The quarterly report tracks GTA office, industrial, retail, ICI land, and multi-residential property sales transactions greater than $1 million.

"Clearly, the recent performance is no indication of a slowdown in the sale of commercial real estate properties, as investors continue to look for ways to strategically deploy capital across asset type and geography, with properties transacting in both the open-bid market and in off-market scenarios," comments Bill Argeropoulos, Vice-President and Director of Research (Canada) for Avison Young.

"Something that's definitely on everyone's mind is the recent rise in interest rates, and though they have had little effect in keeping buyers and sellers apart thus far, a further increase may curtail the demand for real estate product and lift cap rates upwards - something we will have to watch for in the coming quarters. The bigger question is: If we do experience another spike in interest rates, will there be a greater appetite for risk-taking?"

According to the report, overall investment sales volume across the GTA reached $4.5 billion between April 1 and June 30, 2013, eclipsing the previous peak of nearly $4 billion in the fourth quarter of 2006. The second-quarter 2013 tally was $2.4 billion (+116%) higher than the first quarter of 2013 and almost $1 billion (+28%) more than the second quarter of 2012. As a result, the total investment sales volume year-to-date in 2013 stands at $6.5 billion - an increase of 15% compared with the same six-month period in 2012.

The Canada Pension Plan Investment Board and the Ontario Pension Board (OPB) were on either end of the largest single office asset sale. Meanwhile GE Capital Real Estate, Greystone Managed Investments, Slate Properties, KingSett Capital, Primaris Retail REIT, OPB and Dundee REIT were on either ends of portfolio sales.

"With relatively stable leasing fundamentals, the historically low cost and availability of debt (although tempered slightly into the start of the third quarter) and the increasing allocation of capital to real estate as an asset class, the record transaction volume is of no surprise to us and is very much reflected in our transactions both locally and across Canada," adds Robin White, Avison Young Principal and Executive Vice-President, Capital Markets Group. "All property classes are in demand from investors across the buying spectrum. We anticipate more of the same for the coming quarters, but with perhaps a slight increase in overall cap rates achieved due in part to a minor debt-cost adjustment and the risk profile of properties coming to the market."

The report goes on to say that office sales posted the biggest quarterly gain (+547%), as sales skyrocketed to $1.5 billion - capturing 35% of the total investment dollar volume. For the first six months of the year, office sales stood at $1.8 billion, down 34% from the impressive $2.7 billion that changed hands in the first six months of last year. Industrial came in with $1.3 billion (30% share) in sales, an impressive 142% improvement over the prior quarter and a 207% rise from the same quarter in 2012. Unlike the office sector, the industrial sector recorded the greatest year-over-year increase, up 109%. Falling short of the $1-billion mark, the retail sector recorded $986 million in sales (22% share), more than triple (+240%) its first-quarter output to bring the six-month total dollar volume to $1.3 billion - twice that of one year ago. The multi-residential sector managed only $336 million (-48%) in trades in the second quarter to close the first half of 2013 at $986 million, while ICI land sales slowed to just $280 million (6% share), from $337 million in the first quarter of 2013, leaving the six-month tally at $617 million - a modest 4% decline compared with the same period in 2012.

Debt capital markets stayed the course for much of the second quarter of 2013, with lenders ready to participate in financings.

"As is typical for this time in the yearly cycle, longer-term funds (i.e. 10 years and longer) became scarcer and as a result, slightly more pricey. The U.S. Federal Reserve announcement of what was interpreted by most as a tapering-off of the quantitative easing program caused bond prices to deteriorate and the associated mortgage interest rates to rise. Nearly all lenders have held the 'spread line' during this market move," explains Avison Young's Norman Arychuk, Mortgage Broker, Capital Markets Group. "Looking forward, it appears that some of the anticipated Fed tightening will remain baked into the markets, and we expect lenders to hold steady with spreads or to move them out modestly."

Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,300 real estate professionals in 49 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

Editors/Reporters:

For further information/comment/photos:

  • Bill Argeropoulos, Vice-President and Director of Research (Canada), Avison Young: 416.673.4029 or cell 416.906.3072
  • Robin White, Principal, Broker & Executive Vice-President, Capital Markets Group, Avison Young: 416.673.4009
  • Norman Arychuk, Mortgage Broker, Capital Markets Group, Avison Young: 416.673.4006
  • Sherry Quan, National Director of Communications & Media Relations, Avison Young: 604.647.5098; cell: 604.726.095

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SOURCE: Avison Young Commercial Real Estate (BC)

Contact:
Bill Argeropoulos 
416.673.4029   
[email protected]

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Avison Young Commercial Real Estate (BC)