Ontario

The Greater Toronto Area (GTA), which includes Mississauga, has strong market fundamentals, including low vacancy rates, rising rents, low inflation, and low unemployment, all contributing to the GTA’s attractiveness to investors, both domestic and international.

The long-awaited plans to redevelop the city’s Lake Ontario waterfront became a reality. The ground was broken for a series of projects that will see 40,000 new residences, housing more than 100,000 people, as well as one million sq ft of commercial space built in close proximity to downtown Toronto (Avison Young).

OFFICE & COMMERCIAL PROPERTY

Last year we saw the fastest hike in interest rates in decades which has hurt the real estate sector across the board. Sophisticated private real estate investors, including pension plans claim their hundreds of millions of dollars of properties have held their values. Investors are dumping shares of publicly traded real estate investment trusts ( REITS ) particularly those who own office skyscrapers.

There is a massive difference in their valuations, which affects trillions of dollars of office towers, malls, warehouses and apartment buildings, affecting the banking sector, Canadian Pension Funds,and especially regional lenders in the US whose share prices are under siege. More bank failures such as the Silicon Valley Bank cannot be ruled out. Credit Suisse’s implosion indicates that this is a global situation.

The returns of publicly traded REITs shares have declined. Allied properties REIT are down by 62 % other REITS at the lower end by 30 % The gap in Canada between public and private values is 37%, and 30% in the US Last year Royal Bank Plaza in Toronto sold for $ 1.1 Billion,which is the HQ of the Royal Bank of Canada, its largest. Today it would probably fetch 30% less.

By Canmenwalker – Own work, CC BY 4.0, https://commons.wikimedia.org/w/index.php?curid=115845697

Industrial properties are hot, with a vacancy rate of 1.5 % across Canada, with some rents having risen by 100% According to CBRE the office sector is hurting with a national vacancy rate of 17.7 % vacancy in the first quarter of 2023. In the first quarter of 2023 sales of commercial properties dropped by 52 %. All the above summations on value are based on a sale in the present environment. However there will be opportunities too in this sector for long term players.

WESTIN HOTELS IN OTTAWA, CALGARY AND EDMONTON SOLD in 2019

The sales price was a under $ 400 Million

The Manji Group from Toronto, also own the Hilton in Downtown Toronto and the Westin Hotels & Resorts Harbour Castle on the City’s waterfront and another Hilton in Mississauga.

According to cBRE since the oil crash in 2014, 20 new hotels have opened in Calgary, and a similar number in Edmonton.

This has added an increase of 25% to the room inventory for Calgary, and about 20% to the Edmonton hotel market. It is a buyer’s market in both Cities.

Ottawa

Toronto

The share of  employees in Toronto’s financial  core rebounded to about 50% of the pre-pandemic occupancy levels by the spring of 2203, but has been stuck since according to measurements by Strategic Regional Research Alliance, a reputable consulting firm.

Michael Cooper CEO of Dream Office REIT one of the largest landlords. said these past few years have been challenging, as a number of large building which have the latest amenities opened during the pandemic, flooding the core, when employees were told to work from home. Now buildings that are decades old are struggling to compete with the brand new buildings. Older buildings in top locations are not as cost effective as the latest crop of skyscrapers. Investors have soured on office buildings. Some one third of Toronto office buildings are obsolete says Dream CEO.

Dream REIT owns 17  office  buildings which according to its latest regulatory filings had an occupancy rate of 84% compared to 94 % in 2019.

Currently trading at $10 per share,  at  76 %  lower than 2020.

Michael Cooper states the financial returns are not that exciting, as times are very difficult., but believes in the long term value of office buildings.

Toronto Condo market
New condo sales in the GTA dropped to their lowest level in July , 2020 since 2009, as sales of single family homes experienced an up tick in the suburbs, attributed to working remotely from home.Sales were down by 85 % compared to the previous year, The average price per sq ft weakened across the GTA to $ 889 per sq ft from over $ 900 per sq ft.The average selling price at this time has been at $631,704., whilst the average  selling price of a home soared over $ 1 million in the City and suburbs.
Investors make up 40 % of condo owners in the Toronto region, and with the slow down in migration, tourism and Airbnb units turning into long term rentals, rents have come down and vacancies have increased.As such investors banking on capital appreciation are shying away from buying pre-sale condos.  (Globe & Mail July 28th, 2020 )

Toronto Rental Market
Remains strong as the condo market weakens.,
Starlights Investments in 44 older rental buildings in 2019 pre-pandemic in  the GTA for $ 1.7 Billion, underscores the demand for older rental buildings  as rents are more competitive than new rentals. and  new condos.The sharp reduction of newcomers and students has impacted the rental market. It is expected to recover post pandemic with the Federal Government committed to increasing immigration by 1.2 million new comers over the next 3 years. Some 50 % are expected to make Toronto their home.
There is a discrepancy however between buildings sold in private markets which are going up in value considerably,  compared to REITS. For example, CAP REIT’s market value remains 18 % below its March, 2020 trading value.( Globe & Mail 7th December, 2020 ) Current vacancy rate is in the 2 % range, and 10 year financing is available for as low as 0.8 % for 10 year CMHC insured mortgages.

Toronto Hotel Market

Trump Towers

The Big, the tight and the costly

Toronto has the most downtown office space and the tallest towers in the country. Calgary has the most expensive office space in Canada, while Vancouver has the lowest vacancy rate among all Canadian cities. Yet, as developers and tenants jostle for opportunities and space, they will find each market represents a unique set of challenges.