Toronto commercial real estate market update - Q1 2024
Our quarterly update of Toronto's commercial real estate market, including overall cap rates and notable property transactions across asset classes.
Key highlights
The Greater Toronto Area (GTA) market reported $3.8 billion in dollar volume transacted for the first quarter of 2024
As interest rates have remained higher for longer, investment activity will likely be slow for the first half of 2024, until we see some relief in lower rates
The industrial sector saw $1.07 billion in dollar volume transacted, a 26% increase YoY, but a 53% decrease from the previous quarter
Leasing activity in the office sector has continued at a languid pace, with $217 million in dollar volume transacted, a 60% decrease YoY
The multi-family sector reported $278 million in dollar volume transacted, a 20% decrease YoY
The retail sector reported $582 million in dollar volume transacted, a 13% decrease YoY
The hotel sector reported $490 million in dollar volume in the first quarter of 2024, a dramatic increase compared to the $19.6 million recorded in the same period last year
The land (residential and ICI land) sector recorded $793 million in dollar volume transacted, a 51% drop compared to a year ago and the lowest since Q2 2020
To read the latest Toronto commercial real estate market update, click here.
The Greater Toronto Area market is off to a sluggish start in 2024, with investment volume down by 21% year-over-year
The Greater Toronto Area (GTA) market reported $3.8 billion in dollar volume transacted for the first quarter of 2024, down 21% year-over-year (YoY). The lingering effects of elevated interest rates and inflationary pressures of 2023 have contributed to a sluggish start to the new year. As interest rates have remained higher for longer, investment activity will likely be slow for the first half of 2024, until we see some relief in lower rates.
Figure 1 - Property transactions – All sectors by year
In the short term, the industrial sector has returned to moderation after the record-breaking delivery of industrial completions in the fourth quarter of 2023, with $1.07 billion in dollar volume transacted, a 26% increase YoY, but a 53% decrease from the previous quarter. Rental rates are expected to be flat in 2024, based on increasing availability rates. According to Altus Group’s most recent Canadian industrial market update, Toronto’s industrial availability rate increased by 0.8 percentage points to 5.1%. Moreover, the market has added 6.4 million square feet of new supply, with nearly half pre-leased. In addition, 28 million square feet of new supply is under construction with over a third of the space already committed.
Leasing activity in the office sector has continued at a languid pace, with $217 million in dollar volume transacted, a 60% decrease YoY. According to Altus Group’s latest Canadian office market update, with hybrid work here to stay, the flight-to-quality trend, and the delivery of new supply, Toronto’s availability rate has flattened at 17.5%. The market saw approximately 1.5 million square feet of new office supply in the first quarter of 2024, with 96% pre-leased, with Cadillac Fairview’s 160 Front Street West building representing 1.2 million of the supply. In addition, 8.1 million square feet of office space is under construction, with over half pre-leased.
The multi-family sector reported $278 million in dollar volume transacted, a 20% decrease YoY. While interest rates have stabilized, most investors have been holding off in the hopes that the cost of borrowing will improve. The anticipated interest rate cuts in the second half of 2024 and pent-up demand are expected to lift housing market activity. In the meantime, the pace of new construction starts slowed down in the first quarter based on continued high-interest rates.
Retail leasing activity in the GTA continued to be concentrated on neighbourhood centres and regional shopping centres, primarily centres with grocery anchors or redevelopment opportunities. The retail sector reported $582 million in dollar volume transacted, a 13% decrease YoY. While the GTA’s retail sector weakened in response to reduced spending on retail goods and services, the long-term demographic and economic fundamentals remain strong with the influx of immigrants and employment growth.
The hotel sector reported $490 million in dollar volume in the first quarter of 2024, a dramatic increase compared to the $19.6 million recorded in the same period last year. This spike was primarily due to three large transactions. InnVest Hotels acquired a hotel portfolio from Morguard in January 2024 and sold two of the properties to Manga Hotels shortly after.
The land (residential and ICI land) sector recorded $793 million in dollar volume transacted, a 51% drop compared to a year ago and the lowest since Q2 2020 as challenges with securing financing for transactions persisted.
Figure 2 - Property transactions by asset class
Notable transactions for Q1 2024
3385 Dundas Street West, Toronto – Apartment
3385 Dundas Street West was the largest apartment transaction of the first quarter, representing 32% of the overall apartment sales in the GTA. Privately owned Realstar Group purchased it for $88,000,000 and a price per unit of $671,756. The property is a seven-storey apartment building containing 131 units with retail at grade. This acquisition adds to the five rental properties Realstar has acquired in the GTA and GGH markets since 2022, amounting to nearly $366 million in investments. With a portfolio of 162 properties nationwide, Realstar ranks among Canada's largest owners of rental properties.
Lawrence Plaza, North York – Retail
RioCan REIT acquired a 50% stake in Lawrence Plaza from Lawrence Plaza Equities for $100 million. RioCan REIT will continue to manage the property. This represents the GTA's largest retail transaction of Q1, 2024, accounting for 16% of overall retail transaction volume. Containing a gross floor area of approximately 270,724 square feet, this grocery-anchored shopping centre was purchased for an adjusted price per square foot of $739.
297 Rutherford Road South, Brampton – Industrial
JM Motors acquired this 34,500-square-foot trucking terminal from BentallGreenOak for their operations for $72.5 million. There are approximately 17 acres of excess land included in this transaction. To our understanding, the investment rationale for JM Motors included the future use of the excess land and the existing building. The purchaser is a leader in the transportation industry and services in Canada, the United States and Mexico.
7700 Bathurst Street, Vaughan – Residential Land
This 8.26-acre residential land transaction, purchased for $136 million, represented the most significant land transaction in the GTA during Q1. The land was acquired by Liberty Developments and is currently improved with the Promenade Village Shoppes. Currently, there is no development application on the subject site, however, it is adjacent to Liberty Developments' current development site for Promenade Park Towers, which consists of two towers with a total of 761 residential units with retail at grade.
Figure 3 - OCR trends across four benchmark asset classes
Investment activity is expected to remain slow in 2024. However, with inflation on a downward trend as interest rates hold steady, a rebound is slowly taking shape. The GTA market remained a prime location for multi-family, industrial and food-anchored retail strip assets as the property types are supported by strong underlying fundamentals.
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Authors
Jennifer Nhieu
Senior Research Analyst
Lianne Lucier
Team Lead
Authors
Jennifer Nhieu
Senior Research Analyst
Lianne Lucier
Team Lead