Canada Commercial Real Estate Market Sets New Investment Record in 2016

$34.7 Billion of investment in 2016 surpasses previous 2007 high

Toronto – February 16, 2017 – Investment into Canadian commercial real estate (‘CRE’) has reached new heights with $34.7 billion of transactions recorded in 2016. Reflecting the growing interest among domestic and foreign investors for Canadian CRE assets, the amount represents an 33% increase from the $26.1 billion recorded in 2015 and surpasses 2007’s record of $32.1 billion. In addition, 2016 saw foreign investment total $5.6 billion and account for 27% of all deals over $10 million, exceeding the previous high of 9% achieved in 2008.

“2016 was truly a landmark year for Canadian commercial real estate. We’ve seen a record amount of deals both in number and in prices achieved as well as iconic assets change hands. The insatiable demand for high quality Canadian assets is being caused by a confluence of factors. A stock-market that looks fully priced and trading on record high price-earning ratios, the ever-increasing need to find yield in a low-growth world and geopolitical uncertainty which seems to increase on an almost daily basis. Against that backdrop, Canada is about a safe a bet as there is on a global scale, and our commercial real estate assets provide investors near-record high spreads over government bonds. Adding those factors together, its little surprise 2016 was a record year,” commented Peter Senst, President of CBRE Canada Capital Markets.

Vancouver, Toronto and Montreal were the prime destinations for foreign capital in 2016. Vancouver attracted the most for foreign capital with $2.3 billion of acquisitions of assets over $10 million compared to $1.3 billion in Toronto and $276 million in Montreal. China and Hong Kong emerged as the largest overseas investor with 71% of foreign investment nationally, followed by Europe at 17% and the US with 8%.

“2016 was truly a banner year for foreign investment in Canada. Capital from China made a number of blockbuster deals during the year, which were primarily directed at the Canadian hotel industry and Vancouver office assets. In Toronto, the diversification of foreign demand was more pronounced than in Vancouver where capital from China was the predominant foreign player. In turn, Toronto saw high levels of activity among US and European investors during the year. However, what’s clear is Toronto and Vancouver have developed as gateway cities for global investors and we expect this demand to continue into 2017,” added Senst.

Toronto was the primary destination for overall investment and accounted for more than a third of all transactions with $12.2 billion, setting a new record for this market. Vancouver ranked second with $8.1bn of transactions, also a new record. The largest change was recorded in Waterloo Region where investment more than doubled, reflecting the growing investor interest in the city resulting from its burgeoning international status as a tech start-up hub. The top Canadian markets by investment were:

2016 Volume 2015 Volume Change 2016 Volume 2015 Volume Change
1. Toronto 12.2$bn $10.8bn +14% 5. Edmonton $2.5bn $1.3bn +86%
2. Vancouver 8.1$bn $5.7bn +41% 6. Ottawa $1.5bn $1.3bn +18%
3. Montreal 4.4$bn $4.2bn +5% 7. Waterloo $1.1bn $0.5bn +116%
4. Calgary 2.6$bn $1.7bn +50% 8. Halifax $0.5bn $0.4bn +29%

“What these numbers demonstrate is the strength of demand we have for Canadian assets is not just limited to a single asset class, or even a single market. All of our major commercial real estate markets posted significant gains over 2015, showing the depth of demand across Canada.

“Calgary and Edmonton posted very significant increases in investment activity and benefitted from strong activity in the second half of 2016. Oil is continuing to slowly climb higher, which is causing improved sentiment in these markets, particularly for prime well-leased assets. Although a few large deals helped to make it a solid year for these markets, what is more encouraging is the large increases in the number of deals being made, particularly in Edmonton, which more than doubled from 2015.”

All asset classes saw transactions substantially in excess of both 2015 and 10-year average volumes, with retail, industrial, hotels and commercial land all posting all-time highs. 2016 transaction amounts per asset class in volume and percentage of overall investment were:

1. Office $7.8bn - (23%) 4. Apartment $5.7bn - (16%)
2. Retail $6.7bn - (19%) 5. Land $5.1bn - (15%)
3. Industrial $5.8bn - (17%) 6. Hotels $3.5bn - (10%)

Hotels posted the strongest growth in volumes, recording a 72% lift from 2015 and 144% above the 10-year average. This was followed by retail, which saw a 47% growth in volume from 2015 and 40% above the 10-year average.

“Of particular note is retail investment hitting an all-time high. This contradicts the ‘e-commerce is killing retail’ narrative that we have argued for a long time is oversimplified. There is undoubtedly an ongoing widening of the gap between the performance of top-tier and B and C class retail assets, however demand for these best assets, and for urban in retail in particular, continues to grow,” added Senst.

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

In Canada, CBRE Limited employs over 2,000 people in 21 locations from coast to coast. Please visit our website at www.cbre.ca.