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Record-Setting Investment In Toronto CRE Sets The Bar For This Year

A record-setting $14.5B of investment capital poured into the GTA commercial real estate market in 2017, smashing 2016’s records even as demand continued to outpace supply and yields remained at historic lows.


“This was a high-water market year in the GTA,” Avison Young Research Practice Leader Bill Argeropoulos said. “It’s very good news. It’s going to be difficult to surpass it in 2018.”

According to AY’s Q4 2017 GTA Commercial Real Estate Investment Review, overall Q4 sales of office, industrial, retail, multi-residential and Industrial Commercial and Investment land properties fell 27% from Q3 to $3.4B. Yet, while sales were down in three of the five asset classes from the previous quarter, all but one set a record or a near-record for the year, recording a 23% rise in year-over-year investment dollar volume.

Retail posted its best quarterly result in four years and was the top-performing asset class in Q4, accounting for 26% of total GTA dollar volume with more than $891M in sales. That was up 17% quarter over quarter. Overall, retail recorded $2.9B in trades in 2017, up 5% from the previous year.


Avison Young's Bill Argeropoulos and Richard Chilcott

The report notes the sector was largely devoid of $100M-plus transactions, with three of the four biggest deals of 2017 in the final quarter. The biggest was the sale of the retail podium at the planned 75-storey One Bloor St. East condo tower for $192M.

Industrial sales — representing 25% of all investment activity — declined 9% quarter over quarter to $844M. But, again, the annual volume was up 38% from a year ago for a record-setting 2017 with $3.5B in trades. The year’s biggest industrial sale was 8875 Torbram Road, sold by Carttera Private Equities to Concert Properties for $158M.

“For the first time in many years, buyers are making a move — with a lot of money going into industrial sectors,” Argeropoulos said.

Typically the leader in asset sales, office building investment slipped to fifth among the sectors, representing 14% of investment activity as $456M changed hands in Q4.

Those Q4 numbers did not reflect the entire year, which included nine of the GTA’s 19 $100M-plus sales, back-to-back quarters above $1B in trades and a near-record annual total of almost $4.2B.

“There is a pool of buyers going for suburban assets," Avison Young Capital Markets Group principal and sales representative Richard Chilcott said. “With the downtown, the cost has gotten so expensive, the REITs have started looking other places.”

A rendering of One Bloor East

The multi-residential sector finished 2017 with $547M for the quarter and $1.6B in sales for the year. It was the only sector not to approach or set a new high for sales volume in 2017, falling just short of its $1.9B record in 2015. The report identified the multi-residential sector as the "sector most hindered by the lack of available product for sale and commanding the lowest yields."

"Scarcity is something affecting all the asset classes and could continue to do so,” Chilcott said.

As for the prospects for 2018, the report painted a somewhat cautious but positive picture.

“Though constrained by a lack of product for sale and the lateness of the investment cycle, eager investors will still seek new strategies to direct capital into hard assets despite higher interest rates and, potentially, declining returns,” the report said.

Chilcott said a lot of things suggest a market downturn in 2018, but do not bet on it.

“The takeaway is we don’t know if 2018 will be the same as 2017, but we said that about 2017,” he said.