The Q Investment Report
Posted August 13, 2010, 1:48pm EDT
We had to rewrite our opening commentary. The original version would have indicated that little had changed in the past three months, small deals ruled and it didn't look like the major pension funds or REITs had much interest in the Toronto market. In fact, this past quarter does demonstrate a strong return to large scale deal making. There were a number of notable transaction announcements that occurred as we went to press. The scope of these deals displays a healthy market for larger transactions once again. Brookfield, Canada Pension Plan and Teacher's Pension Plan are a few of the A list investors who are betting on the US market, buying at fire sale prices, with the anticipation of many happy “returns" in the future.
Deals under $10 million still dominate across the sectors. There is life out there. Transaction volume over the quarter has increased significantly with all sectors seeing positive increases, especially in comparison to a year ago and over the last quarter. We are cautiously optimistic about the future. A couple of the sectors could see a downturn such as residential land and retail, two markets that are most affected by consumer confidence. New taxes introduced in Ontario in July, one of which is now on a 90 day vacation until it can be rebranded, could be the tipping point.
Markets appear to be more robust this quarter than last with more significant trades taking place, creating some excitement on the street. The retail sector appears stuck in the doldrums for the moment and, with luck, will do what it can to catch up to the others. Capitalization rates, where reported, appear higher than what should be expected given both a low interest rate environment and limited supply of product.
We hear of more product coming to the market in the fall. The spate of sales reported the first week of August might give a good indication of things to come. We should also have an announcement of the winner of ING's $2 billion portfolio which was pared down to four bidders in July.
We predict the next quarter will see a significant increase in transactions over $10 million. This prediction is based, partly, on what is out in the market today and, more importantly, on the fact that most sectors have stabilized from the events that occurred in the fall of 2008. Few investments provide the returns being realized from commercial real estate. Heading into year end the tap of opportunities may not be open fully, but there should be enough flow to prevent the pipes from freezing.
For more information please contact:
Dean Macaksill
Vice President, Investment Division
Lennard Commercial Realty, Brokerage
416.366.3183 x266
Contributing Agents: Dean Macaskill
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