Commercial real estate sales continue to fluctuate

Sales of commercial real estate assets in the Greater Toronto Area (GTA) continue to fluctuate quarter-over-quarter, finds an Avison Young report.

Despite a strong showing by the office sector, sales declined in the industrial, retail, ICI land and multi-residential sectors. Consistent, however, are historically low interest rates, plentiful capital, constrained product supply and competitive bids (especially from foreign buyers), resulting in historically low cap rates.

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“Buoyed by stable leasing fundamentals, the market’s true acquisition potential continues to be unrealized, constricted by the lack of available product for sale,” says Bill Argeropoulos, principal and practice leader, Research (Canada) for Avison Young. “The demand is definitely there, as investors are looking for ways to strategically deploy more capital into all the asset types and geographical areas across the GTA.”

He adds, “Investors have been increasing allocations to commercial real estate, as this sector has now earned its place as a core portfolio holding, and is no longer considered an alternative investment option – producing favourable total returns vis-à-vis equities and bonds.”

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Here are some highlights from the report.

• GTA investment volume in the third quarter of 2015 came in at slightly more than $2 billion, down 27% quarter-over-quarter and 2% year-over-year. The three-quarter tally stands at $6.7 billion, down 13% year-over-year.

• Office building sales led all asset categories, improving 38% quarter-over-quarter to $578 million (29% share). Despite sales rising for the second consecutive quarter, the year-to-date sum of $1.4 billion lags the $2.2 billion that sold in the first three quarters of 2014.

• The industrial sector saw sales fall 39% to just under $409 million (20% share), bringing the three-quarter dollar volume to$1.5 billion (-7% year-over-year); however, sales could still match or surpass 2014’s annual total of $2.2 billion by the end of 2015.

• Multi-residential, the second-quarter leader ($705 million), managed only $401 million (20% share) in the third quarter – a 43% decline. Nonetheless, the sector is having a banner year, with $1.4 billion in assets traded year-to-date (nearly double the volume during first three quarters of 2014) – exceeding 2014’s $1.1-billion annual total.

• Investment in the retail sector totalled $1.5 billion through the first three quarters of 2015. Like industrial, retail property sales fell 44% quarter-over-quarter to $381 million (19% share). A larger proportion (68%) of dollar volume was in the urban 416 area code rather than the suburban 905 area code.

• ICI land is the least-traded asset type, and the only sector below the $1-billion mark ($827 million), year-to-date. While the total acreage sold increased between quarters, dollar volume fell 19% to $242 million (12% share) – the lowest result in 15 quarters.

• Capitalization rates were either flat or marginally lower than one quarter earlier.

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