National Post (National Edition)
Commercial real estate sales hit record in quarter.
TORONTO •Canadian-commercial real estate investment reached new heights in the second quarter, boosted by a pair of big acquisitions and by the lure of attractive, income-producing property.
Transactions reached $16.5 billion. That’s 38 per cent more than the previous record, set in the first quarter of last year, and more than twice the five-year quarterly average, CBRE Group Inc. said in a report Monday. Deal volume for the first six months was $26.8 billion, a half-year record.
Two large purchases that closed in the second quarter dominated the action — Choice Properties ’ acquisition of Canadian Real Estate Investment Trust, and Blackstone Property Partners’ purchase of Pure Industrial Real Estate Investment Trust. Together the deals accounted for 45 per cent of the total.
Single-property purchases included Hines and Oaktree Capital Management’s $107 million purchase of the First Tower office building in Calgary and Tigra Vista Inc.’s $256 million acquisition of Toronto’s Parkway Place. The average deal size was $9.4 million, up 67 per cent from a year earlier.
“What investors really want today, as we get longer into the cycle, is great real estate that will stand the test of time,” Peter Senst, president of Canadian capital markets at CBRE, said in an interview.
“On top of that, you’ve got term and covenant, so if the market does change, you’ve got something that can pay out dividends for an extended period of time.”
Toronto accounted for more than a third of all transactions in the quarter, at $5.7 billion.
That’s the city’s highest quarterly investment volume ever and 20 per cent more than the previous record, set in 2013. Vancouver had more than $3.2 billion in transactions, nearly double its five-year average.
Toronto and Vancouver have had the two tightest downtown office-vacancy rates for four quarters in a row and the two lowest industrial-availability rates for six consecutive quarters in North America, Senst said in a statement.
Industrial sales outperformed all other assets, largely due to Blackstone’s acquisition of more than 25 million square feet of industrial properties across Canada and the U.S. Deals in this segment represented 37 per cent of investment volume, at $6 billion, another record.
Apartment-building deals also performed well, with $1.9 billion in transactions, 40 per cent more than in last year’s second quarter.
“Investors want multifamily exposure because it is a good long-term investment strategy,” Senst said in the statement.
“No matter the economic or political state, people are always going to need places to live, which translates to a consistent flow of income for investors.”
Nevertheless, rising interest rates and more stringent mortgage rules are set to cool home sales and price increases, according to a Reuters poll of property market analysts released Monday.
Among once-hot markets, the outlook for Toronto home prices improved somewhat from the previous poll in June, while the prospects for Vancouver, which has some of the most expensive homes in the world, grew more precarious.
The median forecast in a Reuters poll of 16 analysts taken Sept. 4-7 predicted national house prices will rise by a median 1.7 per cent this year, slower than the 1.9 per cent in a poll taken in June. That is below the expected rate of consumer price inflation this year and in 2019.
House prices are set to rise another 2.1 per cent next year, in line with the June forecast, and another two per cent in 2020, down from the prior forecast of 2.5 per cent.
“We are going to see very modest price growth across all markets,” said Robert Kavcic, senior economist at BMO Capital Markets in Toronto. “We are seeing Toronto and Vancouver still adjusting to past policy measures and Bank of Canada rate hikes.”