According to a report by Altus Group, commercial real estate investment in the GTA plunged 50% QoQ to reach $4.6B in the first quarter of this year. Investment activity began to slow down in the last quarter of last year because of a slowing economy and high-interest rates. The volatile market condition is discouraging investors, forcing them to exercise caution. Along with investors, sellers are also holding back as they struggle with price discovery.
The report stated that closing of transactions ran into some challenges as investors had to renegotiate with lenders. The renegotiation took place when the deal was initiated and at the closing date. In many cases, purchasers had to bridge the gap with higher interest rates. Residential land proved to be the most prominent sector, securing $1.21B in total investment. It was followed by ICI land, securing a little less than $1B. Residential and ICI land sectors saw a QoQ decline of 50% and 38%, respectively. Industrial properties received $864M in total investment, dropping around 50% from Q1 of 2022. The office sector saw the most significant decrease from $1.9B in Q1 2022 to $0.5B in Q1 2023. However, Altus Group is optimistic that the asset class would improve as many companies bring employees back to work.
In its recent Canada Real Estate Market Outlook report, CBRE predicted financing conditions and an economic slowdown would negatively impact investment. The report said Canada would see one to two quarters of slowed investment and expected activity to bounce back in the spring. CBRE forecast commercial real estate investment in Canada to reach a record-high of $59.3B, with mergers and acquisitions activity providing the necessary boost. CBRE's Canada president and CEO Jon Ramscar called 2023 the correction year, following periods of high inflation and interest rate hikes. He said, "There is some optimism because we have a huge amount of learnings when we look back on when we were going through the early stages of the pandemic." He called the change to hybrid work and companies relocating to properties with better amenities, commute times, and sustainability profiles an evolution of the office. The report also predicted a higher demand for multi-family rental real estate powered by higher immigration targets which would drive vacancies lower than the 20-year low seen in 2022. One other reason experts point at for the fall in CRE investment is the foreign buyer ban that came into effect on Jan. 1, 2023. According to a law firm Dentons, the ban may prohibit a broad range of commercial transactions by corporations and other entities with a minute degree of foreign ownership or control. Dentos noted Europe-or-America-based retailers could be stopped from opening their outlets in Canada as the ban prohibits the acquisition of a lease in a mixed-use property. |
