It’s been a record year for the Canadian commercial real estate industry so far in 2018.
According to a new report released Monday by CBRE Canada, there were $16.5 billion worth of transactions in the second quarter of the year, up 38 per cent from the previous record total of $11.97 billion in the first quarter of 2017.
CBRE said that was also 105 per cent above the five-year quarterly average and it brought investment in the first half of this year to $26.8 billion, which is also an all-time high for a half-year period.
Two major mergers and acquisition (M and A) transactions in the second quarter fuelled the spike, including Choice Properties’ acquisition of CREIT and Blackstone’s acquisition of PIRET, which combined represented 45 per cent of the quarter’s investment volume, said CBRE. Large single asset deals also contributed to the record-breaking quarter, including Hines and Oaktree Capital Management’s $107-million purchase of Calgary’s First Tower office building and Tigra Vista Inc.’s $256-million acquisition of Toronto’s Parkway Place, it added.
“With two large M and A transactions closing within the second quarter, it’s not surprising that investment volume was the strongest ever in Canadian history. In fact, the average deal size in Q2 was up 67 per cent year-over-year to $9.4 million, which is reflective of the size and significance of the investors in real estate today,” said Peter Senst, president of Canadian capital markets at CBRE Canada.
“When you drill down into the strategy behind these deals, Choice bought CREIT for diversification, while Blackstone bought an industrial strategy and a platform in Canada with PIRET. Beyond these two deals, we’re seeing that assets of quality and income duration are drawing robust demand. Investors are keen on properties with top-notch physical and income characteristics. If there is a downturn, investors want assets they can believe in, where the income profile is predictable in the longer term.”
“Interest in Canadian commercial real estate today has a lot to do with Canada’s global market leading fundamentals. Toronto and Vancouver together have maintained the two tightest downtown office vacancies for four consecutive quarters and the two lowest industrial availability rates for six consecutive quarters in North America. Bay Adelaide North, the latest office tower to be announced by Brookfield and backed by the Bank of Nova Scotia, is a clear testament of strength in Toronto office market fundamentals. On the West Coast, Vancouver recorded the largest price increase in North America for downtown prime office space and the world’s largest rental increase for prime industrial and logistics space in the past year. All of this is leading to aggressively priced tier one assets in Canada’s major markets.”
The report said Toronto and Vancouver remain the primary destinations for commercial real estate (CRE) investment as Toronto accounted for over a third of all transactions in the second quarter with $5.7 billion. This is the highest quarterly investment volume on record for Toronto, and 20 per cent more than the previous record of $4.7 billion in the second quarter of 2013.
“Compared to the five-year average, Toronto CRE investment went up 82 per cent. Vancouver came in second at over $3.2 billion in transactions, an increase of 91 per cent compared to the five-year average. Calgary, Montreal and Edmonton rounded out the top five with $2.5 billion, $1.7 billion and $1.5 billion, respectively,” added CBRE.
Mario Toneguzzi is a veteran Calgary-based journalist who worked for 35 years for the Calgary Herald, including 12 years as a senior business writer.