Private Investors Are Dominating Toronto Retail Property Deals

GTA retail property sales hit $2.7B in 2016, and private investors propelled deals like never before, Avison Young Capital Markets Groups vice president Aaron Moore said. “They’re stepping up and playing a more meaningful role."

Private investors eclipsed all competition in dollars spent in 2016, Moore said, shelling out $1.5B for retail properties, or 55% of retail deal flow. The top single transaction of 2016 — the best year for retail deals since 2011 — was the acquisition of Woodbine Centre by Consolidated Group, a local buyer, for $104M. (Fishman North America was the seller.) As with a growing number of other retail properties, this site’s allure, aside from strong cash flow, lies in its intensification opportunities. “As we understand, the deal was driven by the residential redevelopment potential and a view to the density they could achieve,” Moore said.

Private buyers have traditionally participated in modest-sized transactions, but in 2016 private investors purchased 46% of all retail deals over $10M, according to Moore. Previously private buyers did not have a significant effect on the market, because their deals tended to be under $10M. But as Toronto’s retail real estate market matures, Moore said private investors who own property are benefiting from rapid valuation increases, and are in turn able to refinance and raise more capital, then make larger acquisitions. “All of a sudden you’ve got a large number of guys who can go out and do $10M, $20M, $30M deals on their own."

There has been a lot of talk about foreign capital flooding GTA property markets. The $74M sale of 19 Bloor St. W at the end of 2016 to Mappro Realty was last year’s biggest foreign-buyer transaction. But Moore said the bulk of the retail property deals — like Oxford Square Plaza in Richmond Hill, which sold for $25.5M — have involved local private investors. A dearth of available quality retail properties is pushing buyers beyond the GTA in pursuit of yield. Bracebridge Square sold to a private buyer for $10.4M. Ridley Square in St. Catharines was acquired by a private purchaser for $14.1M. 

Over $1B of retail product traded outside the GTA in 2016. It was not just private buyers; institutional investors placed $345M through 10 deals in Ontario’s secondary and tertiary markets last year, according to Avison Young, surpassing the $132M spent in the GTA. And a lack of local opportunities is pushing more investors — private players as well as institutional heavies like RioCan REIT and First Capital Realty — toward intensification to derive greater value from existing properties. Coverage for retail sites usually hovers around 30%, Moore said. “So the inherent value can’t be unlocked until you intensify beyond retail.”