Canadian CRE Investment Is Breaking Records

Investment in Canadian CRE for 2016 is projected to surpass $32B — a new record — with the lion’s share flowing into Toronto. “It was an aggressive and robust year,” Morguard research chief Keith Reading said. “It surprised some of us.”

Q4 data is still being tabulated, but Reading (above) said he expects investment deal volume — $27.4B over the first three quarters versus $16.9B in the same period in 2015 — to beat the most recent peak, $32.1B, hit in 2007. “It says a lot about the confidence investors have in the Canadian economy and its commercial real estate market.” A growing proportion of the capital is coming from abroad, lured by Canada’s stability and low dollar, and 2016 was among the top years yet for foreign investment. “These groups want the best of the best real estate, and they’re willing to pay for it.”

China-based Anbang Insurance’s purchase of Vancouver’s four-tower, 1.5M SF Bentall Centre, above, was 2016’s landmark foreign investment deal, valued at $1B-plus. Toronto had its share of transactions, including Amsterdam’s ProWinko / Kroonenberg Groep’s acquisition of 1200 Bay St. (below) for $86.75M. Northam Realty, a German-backed firm, bought 250 University Ave. (the old Bank of Canada building) for $84.8M. In December, Mappro Realty, another foreign firm, spent $74M for 17-19 Bloor St. W, a 17k SF, Scotiabank-anchored retail property just steps from Yonge and Bloor, and adjacent to The One.

Reading sees more of the same for Canadian CRE in 2017, with increased capital chasing a limited number of core assets. The Trump administration could have a significant impact on the market, he said. “He’s talked about tax reform in the U.S. and that could be a good thing for Canada,” spurring business growth and propelling further investment and leasing activity here, particularly in the tech sector. U.S. firms continue to migrate to lower-cost Toronto, including Slack, a Silicon Valley startup bringing 100 employees to 171 John St. (below) later this year. Softchoice and Ecobee have also set up shop in TO.

Toronto is an attractive destination for low-risk investors, but Reading said depressed markets such as Saskatchewan or Alberta could offer some of the best upside for those with a longer-term view. Slate Asset Management certainly believes so; the Toronto-based firm — which is partial to undervalued markets — just launched a new Canadian “real estate opportunities” fund whose first acquisition is a portfolio of 12 Calgary office buildings, purchased from Dream Office REIT for $200M. “The question is, when do those markets, especially Alberta office, turn to the positive,” Reading said. “That’s the big one.”