Altus Group’s latest Q1 2020 results for commercial real estate (CRE) investment in the Greater Toronto Area (GTA) reveals that the commercial real estate market remained steady throughout the first quarter amidst fears of a global pandemic.
With transactions typically negotiated months prior to closing, we will likely not see the significant effects of this global pandemic until the second quarter of this year.
Total investments recorded in the first quarter decreased by 3 per cent, at nearly $4.0 billion. Certain asset classes will be less affected by the global crisis, such as the industrial sector, as warehousing for retailers is now more crucial than ever.
The multi-family asset class will face challenges due to economic and employment uncertainty, and the retail asset class will likely be the most impacted as investors face rent collection loss and the rise of vacancies.
The land sectors (residential land, ICI land & residential lots) played a prominent role in overall investments accounting for 43 per cent of the overall total and registering nearly $1.7 billion. According to the report, the residential land sector was the lone asset class this quarter to exceed $1 billion in total investments. The apartment sector saw the biggest gain with a 164 per cent increase in comparison to the same period last year.
According to Altus Group’s Investment Trends Survey, although Toronto remained one of the top markets preferred by investors this quarter, buyer momentum declined from the previous quarter and from the same quarter last year.
In Toronto, both class “AA” office and tier 1 regional mall cap rates remained flat, single tenant industrial cap rates moved up slightly, and suburban apartment cap rates moderately declined, which may indicate that during these challenging times, wary investors are carefully adapting to market changes by reassessing their strategies and reconsidering their capital flows and overall risk tolerance.
Notable transactions include: 175 Wynford Drive in North York by Freed Developments and Fengate Asset Management; 229 Richmond Street West by the City of Toronto; 200 Queens Quay West, sold by the Canada Lands Company and acquired by DiamondCorp and Lifetime Developments; Erindale Corporate Centre, acquired by Adgar Investments and Montez Corporation; 2777 Kipling Avenue by Q Residential; Cochrane Business Park, sold by the Public Sector Investment Pension Board to Summit Industrial Income REIT.
As the new normal sets in and we enter the second quarter, Altus Group states that we will begin to see the effects of COVID-19 as the GTA commercial landscape changes dramatically.
“During this bear market, we may also begin to see investors hold back capital and take a wait-and-see approach for investment opportunities to slowly surface,” says Altus Group.