The commercial property market in the Greater Toronto Area reached a record $4.9 billion in the second quarter – but analysts are wondering if the true heights are yet to be hit.
“Rates are up 45 basis points but are still historically some of the lowest rates in history even at these levels,” says Drew Donaldson, the executive vice president at Safebridge Financial Group. “If anything I could see this drive investors’ demand even more to capitalize on these unprecedented times. All in all, we are still bullish on the Toronto market and commercial real estate market in general.
A large part of that are vacancy rates still near record lows, which, for investors, eliminates a lot of risk.”
According to data from the real estate research firm RealNet Canada, total investment in office towers, industrial complexes and shopping centres from April to June was $1-billion higher than the previous high-water mark of $3.9-billion, set back in 2006.
“When rates stay the same you don’t see as much movement in the market, but when they rise or get lowered usually activity picks up, which creates a sense of urgency,” Donaldson told MortgageBrokerNews.ca.
This year’s second quarter numbers for the GTA are an astonishing 74 percent higher than a year ago and 75 percent higher than the prior quarter.
“The question is, with Government of Canada bond rates going up in the last 45 days, what does that do to yield-driven markets like real estate?” RealNet president George Carras told the Globe and Mail in a recent interview, also noting that big money has been flowing into real estate “For some time now,” as institutional investors and industry specialists hunt for reliable investments that provide yield.
Some of the larger deals driving the record numbers include the GE Capital Real Estate sale of a large portfolio of office and industrial buildings to Slate Properties, and H&R Real Estate Investment Trust and KingSett Capital move to divide up the Primaris Retail Real Estate Investment Trust portfolio of Canadian shopping centres, most notably, the Dufferin Mall.
The general trend of people returning to urban centres is also pushing these numbers, says Donaldson.
“Many economists are also talking about the return to urbanization and the affect that will have on the City of Toronto and major urban centers,” he says. “Blackberry is apparently moving their headquarters from Kitchener-Waterloo to Toronto and many other firms would rather pay a higher price tag for office and leasing space to retain and attract top talent and people than save a few bucks on office space and get less of a pool of qualified talent to choose from.”