Private Investors Displace Pension Funds as Dominant Property Purchasers

Commercial real estate investment volume declined in Q2 2014, while the number of transactions increased

TORONTO, August 26, 2014 – Pension funds drove commercial real estate investment volume to record levels in the first quarter, but private buyers wrestled back control of the market in the second quarter of 2014. CBRE’s Q2 2014 Canadian Investment Statistics reveal that a shift in available product has tilted the commercial real estate market in favour of private buyers. 

Overall, $5.1 billion of Canadian commercial real estate traded hands in the second quarter of 2014. That was down from $6.7 billion in the first quarter of the year; however, the number of transactions actually rose 9.7% quarter-over-quarter. More deals, though smaller in size, were completed. There was a notable decrease in the amount of institutional quality property that was listed for sale this quarter. This segment of the market is essential for higher investment volumes to be reached.

“Volume came off a bit in the second quarter, but more deals were processed and the lack of a summer lull bodes well for the remainder of the year,” said John O’Bryan, Chairman of CBRE Limited. “While this investment cycle may seem long in the tooth, an abundance of capital is still waiting to be placed. Any hesitation caused by current pricing is quickly trumped by the promise of healthy, stable returns, which commercial property in Canada continues to offer.”  

Pension funds accounted for 11.4% of commercial property purchases in the second quarter of 2014, down from 31.6% of transactions in the first quarter. Private investors logged one of the more dominant performances in recent memory, as their share of the total investment volume surged from 39.6% last quarter to 61.6% in the second quarter. REITs continued to recalibrate and were responsible for a mere 8.7% of commercial property purchases in the second quarter, down slightly from 11.5% last quarter.

“The change in the purchaser profile reflects what is being listed for sale. Fewer institutional quality properties mean that pension funds have less opportunity to exercise their purchasing power. Meanwhile, private buyers benefit most from low interest rates as they are looking to leverage newly acquired assets,” said Ross Moore, Director of Research for CBRE in Canada. “You have to think that the REITs are near the bottom in terms of purchasing activity. I would expect that REITs will be more active going forward.”  

Much of the recent demand for commercial property has focused on industrial properties and apartment buildings in Western Canada. Compared to the first quarter of 2014, investment volume climbed 10.0% in Vancouver to $766.7 million, 18.6% in Edmonton to $346.5 million and jumped an impressive 43.0% in Calgary to $772.3 million. Transaction activity in Calgary outpaced all markets except for Toronto, where commercial property sales topped $1.9 billion.

Over $1.0 billion of industrial properties and $1.0 billion of apartment assets traded hands in Canada this quarter, up 21.2% and 73.6%, respectively, quarter-over-quarter. Office and retail asset purchases declined significantly, as these sectors were most impacted by the decrease in the number of high quality, institutional properties that were listed for sale.  

 “After a raucous start to the year, a lack of quality product has temporarily muted investment activity; however, history tells us that when property values are elevated, transaction activity follows,” Moore said. “Lenders are active and purchasers continue to make the numbers work, so our year-end target for commercial real estate investment in Canada remains unchanged at $24.0 billion.”


About CBRE

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 (in terms of 2013 revenue).  The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.

In Canada, CBRE Limited employs approximately 2,025 people in 23 locations from coast to coast. Please visit our website at www.cbre.ca.