The strong pace of Canadian commercial investment property sales and record-high levels in the multi-suite residential sector defined the second quarter of 2019, says a new report by Morguard Corporation.
The pace of commercial investment property sales picked up at the end of the second quarter, indicating strong closing volumes for the three-month period on a quarter-over-quarter comparison, the company says. The multi-suite residential rental sector was the strongest contributor to the record transaction activity during this period.
“Investor confidence in property sectors with strong historical performance, apartments in particular, has been demonstrated recently with sales activity remaining at the record high despite growing economic uncertainty,” says Keith Reading, director of research at Morguard. “Investors are looking for safer investments as they become more cautious and question where Canada and the United States are situated in their respective economic cycles.”
In the multi-suite residential rental market, investors looked to increase their exposure to sectors that had performed relatively well during times of economic weakness. Investment in the sector surpassed the $2-billion mark.
The report says properties selling for the highest price during the quarter were in Montreal and Toronto. In Montreal, Le Rockhill sold for $268 million to Investors Group and Minto and Le Sommet sold for $82 million to a joint venture between LaSalle Investments and Timbercreek. In the GTA, Rossland Park in Oshawa sold for $220 million to Q Residential.
“The surge in sales activity reflected strong investor confidence in a sector that would continue to generate solid performance characteristics. As well, some groups looked to increase their exposure to a sector that had performed relatively well during periods of economic weakness. As a result, activity levels were expected to remain high in the multi-suite residential rental sector over the near term,” says the report.
Looking ahead, the report says investors will look to strike a balance between capitalizing on late-cycle growth and increasing their positions in assets that offer greater downside protection. “For some, this will mean continuing to source asset classes with histories of low volatility. These will likely include multi-suite residential rental properties and various debt strategies. These late-cycle strategies will continue to support a relatively healthy transaction closing volume and aggressive bidding on available properties,” says Morguard.
“The late stages of the cycle will see yields continue to stabilize, as the cap rate compression trend continues to slowly fade. The continued low interest rate environment will drive investment activity. Prime markets will generate strong interest, as will properties at or near transportation hubs. In general, there will be plenty of low-cost debt and equity capital available over the near term, during the late stages of the Canadian commercial property investment cycle.”
The Second Quarter Update of the 2019 Economic Outlook and Market Fundamentals Research Report is available here.