The Greater Toronto Area’s commercial real estate market had a robust Q3 performance thanks to strong investments in the industrial, ICI land and multi-residential sectors -- which include record-breaking investment dollars for the quarter -- according to a report from Avison Young.
The rise in transaction activity -- there was a record $7 billion worth of office, industrial, retail, multi-residential and ICI land sales, increasing 184% year-over-year and 44% over Q2 -- coincided with falling cap rates during the third quarter. (However, ICI land didn’t record a gain, but it did set a record in the second quarter.) Strong investor demand helped cap rates contract, averaging a 10 basis point reduction across the region to 4%, although office cap rates remained sideways at 4.4%.
Year-to-date, $15.8 billion was invested in the GTA, a 93% year-over-year surge, and already a larger volume than investments in all of 2020, although the year was an aberration induced by the pandemic. The Avison Young report noted that 2019 set an all-time annual record at $17.7 billion -- 2021, however, is on pace to eclipse that total.
The GTA’s industrial sector witnessed investment volume grow by 79% over Q2 to $2.5 billion, comprising 36% of the region’s total share, bringing the year-to-date total to $5.4 billion, which surpassed the record of $4.6 billion invested in all of last year. Avison Young attributes the vigorous activity to the slow pace with which new supply hit the market, as well as surging rental prices reflective of intense demand. One transaction in particular boosted the dollar figures for the quarter: Artis REIT sold a 25-property portfolio comprising 2.3 million sq. ft. to Pure Industrial Real Estate Trust for $697 million, and given that the properties were spread across Mississauga and Brampton, Peel Region led the GTA in dollar volume, accounting for 41% of the total.
There is a development boom occurring in the GTA’s ICI Land sector that’s driving demand from developers and investors alike, although the dollar volume invested declined by 5% on a quarterly basis despite Q2 representing a record. Transactions in Q3 reached a shade under $1.5 billion, accounting for 21% of total investment in the GTA, and $3.9 billion year-to-date, surpassing the 2019 record of $2.9 billion. The investment dollars were bolstered by Anatolia Group acquiring 5244 Tremaine Rd. in Milton from Triple Net Realty, a 199-acre site sitting vacant that’s zoned for agricultural use. On a per-acre basis, the transactions breaks down to $831,000, considerably more than the vendor’s purchase of a property six years ago for $79,000 per acre. Once again, Peel Region led the GTA in dollars invested, accounting for a 44% share. There were 4,842 acres transacted in Q3.
Demand for multi-residential housing was through the roof last quarter, perhaps because assets were limited, thereby driving up their values. With $1.3 billion invested during the third quarter of the year, about 19% of the GTA’s total, activity rose by 65% on a quarterly basis and by a whopping 133% compared to Q3-2020. Year-to-date, $2.8 billion has been invested in the GTA’s multifamily sector and that has already beaten last year’s totals, although it’s the second-best total on record following 2019’s $3.8 billion, which Avison Young surmises could be beaten at the conclusion of 2021. In particular, the Weston Common complex was the most significant transaction of Q3-2021 in the GTA, as the 841-unit, mixed-use property was sold by Rockport Group to Dream Unlimited for almost $402,000 per unit.
Retail has fallen on hard times of late -- even before the pandemic, e-commerce was eating up larger shares from the retail sector, a trend that COVID-19 lockdown measures exacerbated -- but investment rose by 33% over Q2 and by 181% year-over-year to $961 million. Through the first three quarters of 2021, investment in the GTA’s retail sector reached $2.4 billion. The number of transactions increased in Q3, led by non-enclosed shopping centres, however, auto dealership were the most noteworthy sales of the quarter. Pfaff Automotive Partners sold its $102 million portfolio to Lithia Motors for what amounted to $650 psf. Additionally, a 3.7 acre dealership in North York changed hands for $40 million.
The office sector continued reeling from the pandemic as the commercial sector that saw the fewest number of transactions -- although the Q3 investment dollar volume rose by 95% over Q2 and by $192 year-over-year to $680 million. Avison Young’s report said investors haven’t finished assessing the long-term value of office assets in the GTA, as demand remains a big question mark, which is evident in the fact that a little less than $1.4 billion has been transacted through the first three quarters of 2021.