Toronto’s commercial real estate
industry had its worst year in a decade in 2009, despite an end of the year investment surge.
There were 990 transactions completed in the year in the Greater Toronto Area, with $5.4-billion worth of investments made in properties such as office towers, shopping malls and warehouses. At the market’s peak in 2007, about $12.5-billion of investments were made.
The vast majority of this year’s transactions took place in the fourth quarter, according to industry-tracker RealNet Canada, when the number of transactions of more than $10-million increased 76 per cent over the third quarter. The value of those deals totalled $1.35-billion, compared to $581-million in the third quarter.
“Investment confidence began to return in Q3 and grew in Q4, driving market activity and creating an almost perfectly symmetrical recovery in the last half of the year,” said RealNet president George Carras.
The Toronto market, the largest in Canada, saw almost two years of declining activity going into the middle of 2009 as the credit crunch made it difficult to finance acquisitions and buyers with cash waited for properties to decline in value.
That changed in the third quarter, as investments finally started posting gains as credit and equity financing became more readily available and well-financed buyers began wading back into the market.
A healthy real-estate sector is considered important because commercial and residential property underpins a significant proportion of the assets of banks, pension funds and other institutions. Troubles in the sector contributed to the demise of some large trust companies in the early 1990s.
The office sector led the fourth quarter’s surge, with investments increasing 384 per cent over the third quarter. Half of the boost came from Allied Real Estate Investment Trust (AP.UN-T19.730.040.20%), which paid $180-million for 151 Front Street. Morguard REIT(MRT.UN-T12.940.010.08%) also contributed, buying two Bloor Street towers for $164-million.
Residential lots propelled gains in the land sector, with activity increasing 275 per cent in the quarter as new home builders ramped up their building plans for the coming year. The largest deal was the $100-million acquisition of Beckett Farms in Markham by TACC Construction, RealNet said.
The industrial sector, meanwhile, saw its best quarter since the beginning of 2008, with 100 transactions passing the half-billion dollar mark.
Distress sales accounted for 3 per cent of the dollar volume in the year, in line with other more typical years. There was speculation that number would be higher, as companies were forced to shed assets to pay down debt and restructure their balance sheets. But as the economy showed signs of strengths, most companies have been able to find affordable financing and prevent fire sales.
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