Market Snapshot GROUP - PRIVATE CAPITAL INVESTMENT COLLIERS INTERNATIONAL - Q1 2018
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COLLIERS
INTERNATIONAL
P R I VAT E
C A P I TA L
I N V EST M E N T
G R O UP
Market
Snapshot
Q1 2018
Investment in the Canadian commercial real estate market is surging due to
strong market fundamentals, immigration, and a low interest rate environment.
These broader trends paired with focused events of the quarter illustrate the
current state of the market and help determine where it is heading. Ongoing
changes in the market will continue to affect the commercial real estate
industry, influencing both trends and valuations.
What has happened since January 1st?
Regulatory, policy and political events that occurred in Q1 2018 will continue
to shape the market throughout the year, presenting opportunities or risks to
investors.
Toronto City The Ontario
Council voted to minimum wage
reduce property was increased to
taxes by 50% $14/hour (set to
for creative and be increased to
cultural hubs $15 by 2019)
This incentive will encourage There were mixed feelings
landlords to lease to tenants regarding this policy change,
in creative industries that have as some argue it will lead to
been previously priced out of increased spending and spur
the market. growth, while others argue
employers will pull back on
benefits and part-time jobs
in order to improve
profit margins.
Finishing up Doug Ford won
the 8th Inning the race for
of NAFTA PC leader
Negotiations Doug Ford and his late
brother Rob Ford supported
The U.S. dropped its harshest the Scarborough subway
demand for 50% U.S. extension. Doug Ford currently
content on Canadian and supports the Relief Line but
Mexican automobile exports criticizes Sheppard, Finch
– a measure that would have West and Eglinton LRT
disrupted supply chains measures. On June 7th, Ford
and sent ripples throughout will go head to head with
the manufacturing sector. Kathleen Wynne (Liberal),
Negotiations and the possibility Andrea Horvath (NDP) and Mike
of the dissolution of NAFTA Schreiner (Green) for the 2018
will continue into Q2 2018, Ontario provincial election.
pending further discussions
with U.S. President Donald
Trump.
The City of Toronto CAD dollar worth
increased its $0.78 as of March
development charges 31, 2018
DC charges increased in response to Uncertainty surrounding NAFTA
unprecedented price growth supported negotiations has further weakened
by strong immigration, land scarcity and the Canadian dollar, decreasing
a low interest rate environment. The DC 2% since January 1, 2018.
2018 study is currently under review
and will lead to higher DC charges by
the end of 2018.
Real Estate Investment Trends in 2018
Emerging Technologies Investment in Land
Technology will play a role in transforming Overtaking Built Assets
production systems, consequently
changing the way our buildings are As record high prices cannot achieve enough
designed and transactions are executed. yield based on cash flow projections for built
Emerging technologies in real estate assets, land sales will be the highest traded
include artificial intelligence, drones, asset class as investors must now take on
blockchain, robotics and automation. a development perspective.
Steady Retail Demand for Flexible,
E-Commerce Performance High-Efficiency Space
E-commerce continues to gain traction and The collaborative economy is redefining how
pose an increasing threat to physical stores. space is designed and utilized, allowing for
According to eMarketer, E-commerce will co-working spaces and other short-term uses.
account for 9% of total Canadian retail sales The benefits of high-efficiency space
in 2018 – an increase from 7.5% the allow for costs savings in an increasingly
previous year. pricier market.
The Market
The Canadian economy has Uncertainty surrounding housing
adjusted since 2015 when lower market imbalances and U.S. trade
oil and commodity prices played a relations will remain throughout
Outlook hand in dropping the GDP growth
rate to just under 1%. Largely due
to fiscal and monetary stimulus,
2018. Previous and impending
interest rate hikes are likely to
slow spending. Rising interest rates
stronger consumer demand and spiked bond yields over the course
housing activity, the GDP growth of the quarter but overall remained
rate rebounded to 3.0% in 2017 unchanged from the beginning of
and is projected to slow to a more the year.
sustainable pace of 2.3% in 2018.
Overview of the Canadian Economy
Overview of of
Overview thetheCanadian
Canadian Economy
Economy
$2,050 Overview of the Canadian Economy 9.0%
$2,050 $2,050 9.0%
9.0%
$2,000 8.0%
$2,000 $2,000 8.0% 8.0%
$1,950 $1,950 7.0%
7.0%
$1,950 6.27% 6.27% 7.0%
$1,900 $1,900 6.27% 6.0% 6.0%
PERCENTAGE
$1,900 6.0%
(Billions)
$1,850 5.0%
(Billions)
BILLIONS
$1,850 5.0%
(Billions)
$1,800 4.0%
$1,850 5.0%
$1,800 $1,750 3.0% 4.0%
$1,800 $1,700
2.30%
2.0%
4.0%
$1,750 1.79%
3.0%
$1,750 $1,650 2.30% 1.0% 3.0%
$1,700 $1,600 2.30% 0.0%
2.0%
$1,700 2014 2015 2016 2017* 2018*
1.79%
2019* 2020* 2021* 2022*
2.0%
$1,650 1.79% 1.0%
$1,650 GDP GDP Growth Rate (from previous year) Unemployment Rate Inflation 1.0%
$1,600 0.0%
$1,600 0.0%
2014 2015 2016 2017* 2018* 2019* 2020* 2021* 2022*
2014 2015 2016 2017* YEAR
2018* 2019* 2020* 2021* 2022*
GDP GDP Growth Rate (from previous year) Unemployment Rate Inflation
*projected
GDP GDP Growth Rate (from previous year) Unemployment Rate Inflation
The BankTheofBank
Canada’s Benchmark
of Canada's Bond
Benchmark Bond Yields Yields
- Q1 2018– Q1 2018
2.40%
2.35%
2.30%
2.25%
PERCENTAGE
2.20%
The Bank of Canada's Benchmark Bond Yields - Q1 2018
2.15% The Bank of Canada's Benchmark Bond Yields - Q1 2018
0.024 2.10% 2.08% 2.09%
0.0209
0.0208
0.024 2.05%
0.0235 2.00%
0.0235
0.023 1.95% 1.96%
0.0196
0.023 1.90%
0.0225 1.89%
0.0189
0.0225 1.85%
0.022 2-Jan 9-Jan 16-Jan 23-Jan 30-Jan 6-Feb 13-Feb 20-Feb 27-Feb 6-Mar 13-Mar 20-Mar 27-Mar
0.022 DATE
0.0215
5 Year Bond Yield 10 Year Bond Yield
0.0215
0.021
Sources: International Monetary Fund, IMF Country Focus; Bank of Canada
0.021 0.0208 0.0209
0.0205 0.0209
Canadian
Immigration
Immigration promotes GDP growth, offsets
an aging population and contributes to a This buzz will likely continue as
skilled labour force – all of which support
a stable macroeconomic environment,
Canada will be welcoming nearly
encourate investment, and increases the one million immigrants over the
demand for space.
next three years.
The large influx
of immigrants is a
contributing factor
to the real estate
market’s sustained
surge of activity
and record-breaking
price growth.
Between the 2011 to 2016 period, Ontario
attracted 39% of Canada’s 1.2 million
immigrants – a total of 472,170 people.
An estimated 75.6% of Ontario’s immigrants
settled in Toronto Census Metropolitan Area –
representing 29% of all Canadian immigrants.
= 10,000 Immigrants
= 2018 - 310,000
= 2019 - 330,000
= 2020 - 340,000
Immigration Nearly 30% of all
Canadian immigrants
Statistics (2011 – 2016) settled in Toronto CMA
Of the 1.2 million
immigrants who
entered Canada, 39%
settled in Ontario
75% of Ontario’s
immigrants settled in
Toronto Ontario British Columbia
Alberta Quebec Rest of Canada
Education Of recent immigrants
52.1% have a bachelor’s degree
Immigrants contribute to Canada’s economy by or higher*
bringing their skills and high levels of educational
attainment. Over half of recent immigrants have
a bachelor’s degree or higher, as compared
to just under one-quarter of the Canadian-
born population. Recent immigrants are even
more likely to hold graduate degrees, with 16.7% Of recent immigrants
having completed a master’s degree or doctorate,
compared to 5.0% of Canadians. 16.7% have a master’s degree
or doctorate*
Sources: Ontario Ministry of Finance, Statistics Canada *2016 Census: Ages 25-64
Focusing
on the GTA
Finishing up the first quarter of 2018,
the total number of transactions fell
from 598 in Q1 2017 to 556, all while
Investment Property investment increased significantly. The
total dollar volume for each asset class
Sales for Q1 2018 increased year-over-year for Q1 2018,
with the exception of the hotel sector.
Office was the leading sector
in investment, overtaking residential
land this quarter. This was due to the
GTA Total Investment property 50% interest sale of the Bay Adelaide
sales volumes in Q1 2018 reached Centre for $850M*.
$5.6 billion, a 22.4% *See Notable Transactions for more details
increase in capital flows from the
same quarter the previous year
Quarterly Investment Comparison by Class*
Q1 2018 Q1 2017
*Inclusive of transactions above $1M Source: Altus Group
Private Capital Investment Group
Investment Transactions
of Q1 2018
Sold Sold
ADDRESS: 2881 Dundas Street West, Toronto ADDRESS: 1781-1783 Avenue Road, Toronto
ADVISORS: Greg Peacock, Dayma Itamunoala ADVISORS: David Williams, Rob Walkowiak, George Siotas, David Hoffman
SOLD FOR: $8.6M SOLD FOR: $4.75M
15,181 SF | 0.147 ACRES 5,308 SF | 0.08 ACRES
Listings
ADDRESS: ADDRESS:
20 Leslie Street, Toronto 391 Victoria Avenue North, Hamilton
Executive Summary 49,996 SF | 0.97 ACRES
Colliers International (the “Advisors”) have been retained on an exclusive basis by Invar Building Corporation (“Invar” or the
“Vendor”) to offer for sale a 100% freehold interest in 1840 and 1842 Clements Road, Pickering, Ontario, Canada (“The Property”).
240,626 SF | 7.85 ACRES
Investment opportunity with
The Property is a multi-tenant building that is 92% occupied by two tenants with a weighted average remaining lease term of 4.1
years. This Property is strategically located in an established industrial sector home to many companies of various industries.
The Property is comprised of two separate units totaling 170,302 square feet including a two storey office component of 13,867
Repositioning opportunity
square feet. The building was built in 1990 and expanded in 2001. Given the prime location, industrial based tenants benefit from
being in both an established industrial neighbourhood and being in close proximity to Highway 401, the Pickering GO Train
Station and the CN Train Station as well as a solid residential base. long-term development potential
The Property is offered on a free and clear basis, providing an exceptional opportunity for investors to secure new mortgage
financing at interest rates which continue to be near all-time lows and will benefit from positive leveraged and enhanced returns.
ADDRESS: ADDRESS:
1840-1842 Clements Road, Pickering 636-646 Danforth Road, Toronto
170,302 SF | 7.02 ACRES 5,170 SF (GROUND FLOOR),
Multi-tenant industrial investment 8 RENTAL APARTMENTS
(2ND FLOOR)
0.48 ACRES
Value-add retail opportunity
ADDRESS: ADDRESS:
28 & 36 Halton Street, Toronto 595 Arthur Street West,
Thunder Bay
21,368 SF | 0.6 ACRES
Repositioning with development 27,315 SF | 2.2 ACRES
opportunity
Value-add opportunity through
vacancy lease up
Notable Transactions Residential Land 800 Hydro Road, Mississauga – $275M The Ontario Power Generation sold their former coal-fired hydro plant measuring nearly 177 acres for $274,770,000, representing a price per acre of $1,555,167. The province of Ontario, OPG and the City of Mississauga developed a vision for the site called the “Inspiration Lakeview Master Plan” – a mixed-use community with residential, employment and parkland space. Residential Land Seaton Lands, Pickering - $157M Ontario Infrastructure and Lands Corporation is selling off bundles of the Seaton Lands – a 3,100 acre urban development project. At the end of Q1, approximately 397 acres of land was sold to Mattamy Homes for $156,670,176.60. This represented a price per acre of $394,238. Office The Bay Adelaide Centre, Toronto - $850M Brookfield Properties sold a 50.0% interest share of the Bay Adelaide Centre to foreign investor, Dadco Investments. The sale price of $850 million represents an adjusted price per square foot of $767, approximately 10% higher than the Downtown Core’s Q1 2018 average of $699 for office properties. Industrial American Business Park, Mississauga- $90.6M Cominar REIT’s sale of 3355 – 6300 American Drive to KingSett Capital was the largest industrial transaction of the quarter in terms of sale price and total square feet. The business park totaling approximately 552,675 square feet closed for $90.6 million, representing a PSF of $164. Retail Dixie Outlet Mall, Mississauga – $181M Sold as part of Cominar REIT’s $1.14 billion portfolio to Slate Asset Management, the Dixie Outlet Mall closed for $180,908,000. The regional shopping centre measures approximately 420,000 square feet, representing a price per square foot of $432. This was the largest retail transaction of the quarter in terms of purchase price and square footage. Multifamily 35 Valley Woods Road, North York – $51.9M This was the largest multifamily transaction of the quarter in terms of sale price and total number of units. The townhouse complex was sold to Realstar Group for $51.9 million, representing $384,444 per unit. *Choice Properties REIT acquired CREIT for $6B Choice Properties REIT will acquire all of CREIT’s assets and assume all its liabilities, including long-term debt and residual liabilities. This merger will form Canada’s largest REIT with an enterprise value of $16 billion. The resulting enterprise will have a diversified portfolio of 752 properties with 69 million square feet of gross leasable area. *Blackstone Announces Acquisition of PIRET for $3.8B Blackstone Property Partners will acquire Canada’s Pure Industrial Real Estate Trust in an all-cash transaction valued at $3.8 billion - $8.10 per unit. Completion of the transaction is expected to occur sometime in Q2 2018. PIRET exclusively invests in industrial properties. *Mergers & Acquisitions Sources: Choice Properties REIT, Bisnow Toronto
MARKET CONTACT
413 offices in GREG PEACOCK
Managing Director, Private Capital
69 countries on Investment Group, Broker
Direct: +1 416 643 3786
6 continents Greg.Peacock@colliers.com
REGIONAL AUTHORS
United States: 145
RACHEL LEVY
Canada: 28 Senior Market Intelligence Analyst
Latin America: 23 Direct +1 416 791 7207
Asia Pacific: 86 Rachel.Levy@colliers.com
EMEA: 131
Colliers International | Toronto
$2.7B 181 Bay Street, Suite 1400
Toronto, ON | Canada
US* in annual +1 416 777 2200
revenue
2B
Square feet
under management
15,400
Professionals
and staff
*Based on 2017 year end performance
About Colliers International Group Inc.
Colliers International Group Inc. is an industry leading global real estate services company with more than
15,000 skilled professionals operating in 69 countries. With an enterprising culture and significant employee
ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors
worldwide. Services include strategic advice and execution for property sales, leasing and finance; global
corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation and tax
consulting; customized research; and thought leadership consulting.
Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that
help clients accelerate their success. Colliers has been ranked among the top 100 outsourcing firms by the
International Association of Outsourcing Professionals’ Global Outsourcing for 11 consecutive years, more than
any other real estate services firm.
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