Q2 2019 registered a total of 563 investment property sales transactions over $1 million, representing a total investment value of $5.8 billion

TORONTO – Altus Group, a leading provider of software, data solutions and independent advisory services to the commercial real estate industry, today announced the second quarter of 2019 results for commercial real estate investment in the Greater Toronto Area (GTA). Total investments for the first half of 2019 reached $10 billion, down 13% compared to the $11.4 billion registered in the first half of 2018. After five straight quarterly declines, total investments were up 43% compared to first quarter 2019, with strong momentum heading into the second half of 2019.

GTA Property Transactions – All Sectors by Quarter

Second quarter transactions managed to record the fourth highest quarterly investment totals ever after five consecutive quarterly declines. Confidence in the GTA market remains high as investors continue to view the GTA as a stable and attractive market, which provides a strong potential for higher returns. Re-development sites remain a driving force as it accounted for nearly 38% of all investments.

The office and residential land sector lead all asset classes this quarter, each representing about 20% of the $5.8 billion total. The largest transaction seen this quarter was the $640 million sale of Atrium on Bay, a one million square foot office property located in the heart of downtown Toronto. Pent up demand and low office vacancy rates, 3.1% in Downtown Toronto and 6.8% in the GTA for the second quarter, have resulted in growing demand for office space in submarkets just outside of the core.

Q2 2019 GTA Property Transactions – Total $ Volume by Sector

The land sectors collectively accounted for $2.2 billion, which represents a 20% increase compared to the previous quarter, but a 25% decrease compared to the same period last year. The ICI land sector was up 69% compared to the previous quarter and registering $701 million in transactions, but down 47% compared to the same quarter last year. A notable ICI land acquisition this quarter was a 129 acre site located in Ajax which was purchased by Crestpoint Real Estate Investments Ltd. for a total consideration of $72,975,500. As reported by Altus Group’s Q2 2019 Investment Trends Survey, respondents had a positive outlook with regards to industrial land in the GTA market.

Future high density re-development sites comprised nearly 60% of the $1.1 billion recorded in the residential land sector this quarter, with the largest sale being 39 Newcastle Street located in Etobicoke. This 2 acre parcel, which was acquired by Vandyk Group of Companies for $90 million, is ideally situated within a short walk to the Mimico GO station. As housing demand persists due to the rapid population growth in the GTA, residential re-development projects will continue to be in the forefront. Investors continue to look at options to re-position and maximize their returns through the intensification of excess lands existing on current assets. This example is evident in recent development applications submitted on two prominent shopping malls in the City of Toronto, Sherway Gardens and Dufferin Mall. The application for Sherway Gardens in Etobicoke would see an infill development of the existing parking lot with eight new mixed-use buildings containing residential, retail, office and hotel uses, adding approximately 3.2 million square feet of space. The application for Dufferin Mall seeks to re-develop the northern portion of the site for purpose built rental towers containing 1,135 residential units and retail space which would provide an additional 1.1 million square feet of space to the asset.

The apartment sector saw a 266% jump from the first quarter and also a 52% increase compared to the same period last year. The largest transaction recorded this quarter was the $220 million sale of Rossland Park in Oshawa. The 911 unit complex which sits on 40 acres was acquired by Q Residential who may look to add density to the site in the near future.

The retail sector was the most traded asset this quarter and saw a 25% increase in investments compared to the same quarter last year. Investors continue to re-position and evolve their retail assets amid competition with e-retailers by offering more customer on site amenities and experiences. The largest transaction this quarter was the 50% interest sale of Stock Yards Village, a 500,000 square foot multi-building shopping complex which sits on nearly 20 acres. This retail complex, which was formerly anchored by Target, was acquired by RioCan REIT who now owns a 100% interest stake in the property.

According to the Altus Group Investment Trends Survey, investors remain particularly confident in the industrial sector as vacancy in the GTA remains tight, with second quarter vacancies sitting at 0.8%. The industrial sector recorded $944 million of investments this quarter, which is up 22% compared to the previous quarter and up 20% in comparison with the same period last year. With the emergence of e-commerce resulting in the expectation of same-day deliveries, warehouse space within proximity of the GTA has lead to a growing demand for larger format warehouse facilities containing higher than average ceiling heights.

Two notable transactions this quarter include:

· 2562 Stanfield Road, a two building 361,800 square foot property with ceiling heights up to 36 feet. The property, which is located in the City of Mississauga, was acquired by Pure Industrial Real Estate Trust for a total consideration of $38 million.

· 1602 Tricont Avenue, a 258,000 square foot property with ceiling heights up to 35 feet. The property, which is located in the Town of Whitby, was acquired by Dream Industrial REIT for a total consideration of $35.8 million.

Purchaser activity this quarter was predominantly comprised of private investors, while institutional buyers and public investors acquired the larger trophy assets. Once again, foreign investors were not as prominent this quarter. It is anticipated that the record activity that occurred in Q2 2019 will continue into the second half of 2019. Challenges remain in the market as willing buyers are being met with a lack of product.

Year-to-date new home sales totals for January – June 2019 in the Greater Toronto Area are as follows.

YTD (Jan to June) 2019 Results

Low Rise: 4,796 sales; up +130% from 2018; down -40% from 10 year average

High Rise: 12,331 sales; up +24% from 2018; up +5% from 10 year average

Total New Homes: 17,127 sales; up +43% from 2018; down -14% from 10 year average

This week, RBC Economics published a study on Canada’s rental market where they argued that the pace of new supply needs to at least double in markets like Toronto in order to meet future housing demand and balance the market. Similar things, I’m sure, could be said about many other housing markets around the world.

The report pegs the current rental housing deficit in Toronto at about 9,100 units:

And because they believe that the cost of ownership is pushing more people into rentals, the number of renter households is expected to grow at an average rate of 22,200 units per year in Toronto.If you take 22,200 units per year over the next two years, and add in the current deficit of 9,100 rental units, you get to a total count of 53,500 rental units. This is what RBC Economics believes must be delivered to the market in order to restore equilibrium, and decrease the upward pressure on rents.

Rental units are, of course, delivered to the market in two main ways. There’s purpose-built rentals and there are for-sale units that end up as rental housing. But even if you amalgamate both of these tenures, we are not building enough housing.

Against this backdrop, I find it curious that developers are so often vilified. Earlier this week, I saw Jennifer Keesmaat tweet out that — as we ready for this fall’s federal election — any sensible housing plan must move away from our current for profit housing delivery model.

Who, then, will build these 53,500 rental units? That part wasn’t clear to me.

Condo markets in Toronto, Vancouver, and Montreal have accelerated significantly this fall, especially when compared to other major cities south of the border.

Last month alone, benchmark prices in Toronto went up by 5.2% annually to $805,500. This was only about $10,000 below the record highs achieved around two years ago, Bloomberg reported.

And even though Vancouver prices have exhibited a downward trend over the last few months, sales activity intensified by a massive 46% year-over-year, making September the third straight month of sales growth.

Even Calgary, which is still recovering from the catastrophic effects of the oil industry turmoil seen from 2015 onwards, enjoyed an 8.2% annual increase in sales in September.

To compare, the traditionally hot Manhattan market has experienced a steady decline in sales activity over the past two years. During the third quarter, resale prices for Manhattan condos and co-ops shrunk by 8% annually.

A significant driver of the Canadian trend is the country’s population growth. Statistics Canada data indicated that the national population expanded by 531,497 to roughly 37.6 million in July, ending up as the greatest year-over-year increase registered since the 1970s.

A RE/MAX survey conducted by Leger earlier this year found that Toronto, Vancouver, and Calgary have all been deemed among the top 10 best cities to live in worldwide, due to their population growth along with other positives.

Calgary has proven to be especially attractive destination, with RE/MAX stating that the city ranked high in nearly two-thirds of the liveability benchmarks polled. Such criteria include population growth, housing supply, and access to retail outlets.

Vancouver boasted of particularly strong public transit options, including the Skytrain and bus system. The city also ranked high in RE/MAX measures of walkability, especially in Yaletown.

Meanwhile, Toronto ranked medium in terms of access to green spaces/parks, and high in population growth, retail store availability, and healthcare access.

Such factors tend to outweigh the impact of higher prices, according to RE/MAX of Ontario-Atlantic Canada executive VP Christopher Alexander.

“While price and value are always top of mind for buyers, there are some aspects about a home that you can’t change,” Alexander stated at the time. “These liveability factors are what make your home more than just the place you live.”

Colliers International is celebrating after selling out the commercial element of North Vancouver’s new premium Park West development.

The real estate firm had set itself a target of selling the strata units in the shortest time but with the highest possible price and achieved this in just 2 weeks.

The sales were led by Casey Pollard and Dan Jordan, who sold the 13 units in the mixed-use development which is due to be completed in Q3 2022.

Park West is part of the Lions Gate Village master planned community in North Vancouver and includes residential, retail and office development.

More than 27,000 square feet of Park West is commercial strata space including a boutique grocery store, freestanding restaurant pavilion, and retail and office space.

With investors and consumers giving greater scrutiny to the companies they do business with regarding their environmental, social, and economic performance, being a ‘sustainable business’ is a badge of honour.

TD Bank Group has been named among the world’s most sustainable businesses by Dow Jones Sustainability Indices (DJSI) among just 25 banks on the shortlist and the only Canadian bank.

“This accomplishment is a testament to TD’s commitment to help build a more inclusive and sustainable tomorrow and reflects our purpose: to enrich the lives of our customers, colleagues and communities,” said Andrea Barrack, Global Head, Sustainability and Corporate Citizenship, TD. “Our inclusion on the DJSI World Index is a reaffirmation of TD’s goal to be an environmental leader as well as our long-standing commitment to diversity, human rights, and positive social impact.”

TD was recognized for its strong performance in the areas of Corporate Governance, Risk Management, Customer Relationship Management, and Talent Attraction and Development.

The bank has acknowledged the support and efforts of its 85,000 employees worldwide.

Ready Commitment
Among its sustainability initiatives, TD recently published its first Environmental, Social, and Governance (ESG) report and its first report measuring its Corporate Citizenship strategy, The Ready Commitment.

“We launched The Ready Commitment to activate the power of our business, philanthropy and human capital to drive greater impact,” said Barrack. “Our size and scale enable us to be a positive change agent across our footprint, and we are incredibly proud to be recognized for another consecutive year as an environmental leader among the world’s most sustainable companies.”

The building approvals process in British Columbia is in need a makeover to make it more efficient.

The Minister of Municipal Affairs and Housing initiated a review of the process at the Union of British Columbia Municipalities (UBCM) convention in 2018 and now the findings of that review are published in a new report.

A common theme of the feedback received was the need to make the approval process more effective and efficient while still ensuring that buildings are safe and healthy.

Meetings have been held across the province to identify what is needed to improve the system for all stakeholders, with the findings sitting within 6 categories:

  • local government application processes;
  • local government approval processes;
  • development finance tools;
  • subdivision;
  • provincial referrals and regulatory requirements; and
  • overarching ideas, such as training and the provision of resources for all participants in the development approvals process.

The report, which is available on the website and includes suggestions of how to boost affordable housing and address the challenges of climate change.

It also acknowledges that the expectations of development have changes over the years and the development industry has grown and changed too with competition for lots meaning shorter option periods, creating greater risk.

As a next step, the province will work with local governments and UBCM to improve current development approval processes, including through supporting interested local governments to turn a number of these ideas into pilot projects.

Toronto’s rental housing landscape is getting hit from all sides, as high prices keep homeownership out of reach for many while a chronically undersupplied rental pool fails to keep up with rising demand.

Even as purpose-built rental construction in Canada’s largest city rises significantly, RBC senior economist Robert Hogue says the market is not on track to meet rental demand in the coming years. In fact, it’s not even going to come close.

“[A]s anyone searching for a rental unit knows, there are too few available, and they’re getting more expensive,” Hogue writes in a report published this week titled “Big city rental blues: a look at Canada’s rental housing deficit.”

In the report, the economist notes that Toronto has the largest rental unit deficit in the country as well as the second lowest vacancy rate, beaten out only by Vancouver by just 0.1 percentage points. By Hogue’s estimation, Toronto had a deficit of 9,100 rental units according to data available as of the fourth quarter of 2018. With 9,100 units added to the market at that time, Toronto would have achieved a vacancy rate of 3 percent which is considered to be at equilibrium.

The problem is that demand for rental units is set to continue to grow and accelerate in Toronto thanks to strong migration into the city and its suburbs, coupled with stubbornly high home ownership costs that show no signs of declining. The RBC economist says that the total number of rental households will increase at an average of 22,200 annually in Toronto between 2018 and 2023, by far the highest in the country. A 1.8-percent-point drop in the city’s homeownership rate is also projected to occur by 2023.

For the city to meet this demand, Hogue writes that net new contributions to the supply in the form of purpose-built rentals and new condos added to the rental pool by investor-owners would need to double. While chances of reaching rental equilibrium look much better in Vancouver and Montreal, Toronto is set to fall far short of the mark.

“In the Toronto area, purpose-built rental apartment completions surged over the past 12 months to a quarter-century high of 4,300 units,” writes Hogue. “That’s good news, but constitutes less than 20% of the required increase in the rental stock.”

The picture isn’t much better on the new condo rental front. All told, more than half of the new units for the needed rental pool expansion still must be made up, according to Hogue.

So there’s a significant and widening gap between the rental units needed to keep up with growing demand and the planned new units currently in the pipeline. Where does Toronto go from here?

Hogue acknowledges that shortages will persist in the near term but “[r]ental apartment construction must rise (and soon) to bring lasting relief.”

He writes that government housing policy must go further in addressing the rental shortage, noting that the Ford government’s June 2019 plan is a step in the right direction, but could do more to tip the scale “in favour of building new rental supply.”

“This could mean sweetening existing rental-housing construction funding programs or offering new incentives (e.g. development charge rebates) to project developers,” Hogue writes.

He also points to the City of Vancouver’s wide-ranging 10-year housing strategy as a source for inspiration. Regulating short-term rentals would also be helpful in taking units off of Airbnb and returning them to the city’s rental pool.

Home sales rose Canada-wide for the sixth straight month in August, leading one of the country’s largest real estate industry groups to increase its 2019 sales forecast on the back of the sustained strong results.

According to Canadian Real Estate Association (CREA) data and commentary released last week, the impacts of the new mortgage rules introduced in 2018 are running their course and the market adjustment is entering a new stage that will see more sidelined buyers return to the market.

The five percent annual sales growth recorded in August and positive overall economic outlook prompted TD economist Rishi Sondhi to note that the Canadian housing recovery still “has further room to run” into 2020.

“The beneficial combination of solid job markets, rising household incomes, healthy population growth, further distance from restrictive government policies and low mortgage rates have given a boost to demand,” Sondhi writes in a housing note published by TD Economics last week.

“And, with sales still somewhat low compared to population and employment levels, the recovery likely has further room to run. Our forecast anticipates positive sales growth through next year, contingent on the economy and job markets holding up,” he continues.

The outlook has certainly improved for the Canadian housing market since the tumult experienced in 2018 following the extraordinary ramp up in sales activity and prices through 2017 that eventually spurred intervention from the federal government as well as the two provincial governments home to the country’s hottest markets — Toronto and Vancouver.

That said, Sondhi cautioned that even as the strength exhibited over the last six months has caused housing markets to tighten across the country, growth expectations in Canada’s most expensive markets should be tempered by existing affordability challenges that will cap price gains.

After around a year of mostly weaker activity, housing starts accelerated in August, according to Canada Mortgage and Housing Corporation.

The trend measure stood at 218,998 units last month, markedly larger than the 208,931 units in July 2019.

“Higher trending single-detached starts in urban centres in July and August following roughly a year of declines combined with higher-trending multi-family units in August to push the total starts trend to its highest level since June 2018,” CMHC chief economist Bob Dugan said.

The standalone monthly seasonally adjusted annual rate (SAAR) of housing starts for all areas in Canada was 226,639 units in August, increasing by 1.9% from the July level.

Toronto was among the standout markets in terms of performance, with total housing starts trending higher across all asset classes except semi-detached housing.

“Multi-unit home starts are being led by condominium apartments breaking ground because of strong pre-construction sales over the past two-years,” CMHC stated. “Despite single-detached homes trending higher in August, demand for this housing type continues to wane due to rising home ownership costs.”

Meanwhile, Vancouver’s housing starts trend moved lower.

“Compared to the same month last year, both multi-unit and single-detached home starts declined by over 17% in the CMA. However, the year-to-date starts in the CMA remained fairly stable due to a decline in singles starts which was offset by an increase in the multi-units segment.”

Calgary also exhibited similar figures to that of Vancouver, as “an increase in multi-family construction was offset by a decline in single-detached units.”

“Construction activity continues to slow, as year-to-date housing starts remain lower than last year’s levels in both the single-detached and multi-family segments of the market. The relatively slow pace of economic recovery and elevated inventories have caused builders to slow down production.”