Record Quarter for Canadian Commercial Real Estate Investment Driven by Two M&A Transactions and Large Single Asset Sales

10 Sep 2018

$16.5 billion of transactions in Q2 2018 surpasses previous Q1 2017 high

Canadian commercial real estate ('CRE') investment reached new heights due to two M&A transactions and large single asset sales in Q2 2018. According to CBRE Canada and its interactive Investment Analyzer, $16.5 billion of transactions were recorded, up 38% from the previous record total of $11.97 billion in Q1 2017, and 105% above the 5-year quarterly average. This brings the H1 2018 investment volume to $26.8 billion, an all-time high for a half-year period.

Increased activity was the result of two major M&A transactions closing in the quarter, including Choice Properties' acquisition of CREIT and Blackstone's acquisition of PIRET, which combined represented 45% of the quarter's investment volume. Large single asset deals also contributed to the record-breaking quarter, including Hines and Oaktree Capital Management's $107 million purchase of Calgary’s First Tower office building and Tigra Vista Inc.'s $256 million acquisition of Toronto's Parkway Place.

"With two large M&A transactions closing within the second quarter, it's not surprising that investment volume was the strongest ever in Canadian history. In fact, the average deal size in Q2 was up 67% year-over-year to $9.4 million, which is reflective of the size and significance of the investors in real estate today," Peter Senst, President, Canadian Capital Markets at CBRE Canada. "When you drill down into the strategy behind these deals, Choice bought CREIT for diversification, while Blackstone bought an industrial strategy and a platform in Canada with PIRET. Beyond these two deals, we're seeing that assets of quality and income duration are drawing robust demand. Investors are keen on properties with top-notch physical and income characteristics. If there is a downturn, investors want assets they can believe in, where the income profile is predictable in the longer term."

Toronto and Vancouver remain the primary destinations for CRE investment. Toronto accounted for over a third of all transactions in Q2 with $5.7 billion. This is the highest quarterly investment volume on record for Toronto, and 20% more than the previous record of $4.7 billion in Q2 2013. Compared to the 5-year average, Toronto CRE investment went up 82%. Vancouver came in second at over $3.2 billion in transactions, an increase of 91% compared to the 5-year average. Calgary, Montreal and Edmonton rounded out the top five with $2.5 billion, $1.7 billion and $1.5 billion, respectively.

"Interest in Canadian commercial real estate today has a lot to do with Canada’s global market leading fundamentals. Toronto and Vancouver together have maintained the two tightest downtown office vacancies for four consecutive quarters and the two lowest industrial availability rates for six consecutive quarters in North America. Bay Adelaide North, the latest office tower to be announced by Brookfield and backed by the Bank of Nova Scotia, is a clear testament of strength in Toronto office market fundamentals. On the West Coast, Vancouver recorded the largest price increase in North America for downtown prime office space and the world’s largest rental increase for prime industrial and logistics space in the past year. All of this is leading to aggressively priced tier one assets in Canada’s major markets," said Senst.

Industrial sales volumes outperformed all asset classes in Q2, due in large part to Blackstone's acquisition of PIRET, an over 25 million sq. ft. industrial portfolio throughout Canada and the U.S. Industrial transactions represented 37% of the quarter’s total investment volume at $6 billion, more than a two-times increase quarter-over-quarter (222%) and year-over-year (229%). Q2 2018 also represents the best quarter on record for industrial investment. However, when you look at investments without M&A activity, multi-family was on par with industrial in Q2 with $1.9 billion transacted of each asset class. This represented increases of 32% quarter-over-quarter and 39.5% year-over-year for multi-family.

"Simply put, investors want multi-family exposure because it is a good long-term investment strategy. No matter the economic or political state, people are always going to need places to live, which translates to a consistent flow of income for investors," said Senst.

To view individual market and asset class statistics, access CBRE Canada's Investment Analyzer here.

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