Seems like Commercial Real Estate Investments dropped 27%

High interest rates, high construction costs and remote work environment have made commercial real estate investors hold back. Reportedly, commercial real estate investment in the Greater Toronto Area has dropped 27% in the second quarter of this year, which is a significant drop from the previous year.

Expectedly, commercial real estate in Toronto/office investment was the hardest hit as everyone suspected. As it happens, office space across North America has followed the trend along with the Greater Toronto Area. And this trend isn’t ending any time soon, with office attendance down by 30% from pre-pandemic times.

There is a glut of unoccupied commercial/office space in Toronto and sub-let space has increased dramatically. On the bright side, industrial investment has increased dramatically. It seems that rising interest rates and construction costs have not slowed down industrial investment and the Greater Toronto Area remains undersupplied relative to the demand.

Commercial real estate Investors in Toronto and the Greater Toronto Area are focusing in on lower risks and stable returns available in industrial real estate. It seems that industrial and residential rental real estate will continue to be favoured by investors at this time.

Record Drop in New Condo Sales Putting Future Construction at Risk

New condo sales in the GTA have dropped to its lowest point since 2009, signaling a potential impact to the construction of new condo projects and eventually serious supply shortage, according to a report from a market research firm.

Reportedly, while new condo sales increased 118 per cent quarter-over-quarter, 4,610 units were sold in the second quarter of 2023 — marking a 35 per cent decrease compared to the same time last year.

For the first six months of 2023, 6,727 condo units were sold — marking a 59 per cent decrease from the first six months of 2022 (16,272) and 42 per cent decrease from the 10-year average of 11,516 units sold — marking the slowest first half of the year since 2013.

With uncertainty surrounding the market and a difficult financing environment due to a sharp increase in interest rates, investors have become less interested in joining the market.

Though sales were 28 per cent below the second-quarter 10-year average, the number of new units brought to market were in line with the 10-year average, simply said, there was more supply, it just didn’t sell that well for the most part.
In general, condos are sitting on the market longer than they used to, which might be a result of sales being slower in the summertime and interest rates being higher.

Most investors aren’t really scooping up condos anymore because with the interest rates so high — there’s just a huge gap on what they can get in rent versus what they’re paying in mortgage, and for first-time home buyers, it’s just so expensive. Buyers are not as confident real estate will appreciate as quickly as it has in the past.

In the last few years, it was a safe bet that if someone bought a presale condo, it would appreciate in value once it was brought to market, but, that’s not always the case now and sometimes presale condos aren’t appraised for the same amount they were purchased for. Hence, the slow down in people wanting to buy presale condos. Things are expensive right now. People are worried interest rates will stay high for the next little while and affordability becomes an issue.

Normally, more than 10,000 units that would normally come to the market as pre-sales or new supply and many have been delayed coming to market. Thus, with a stalled presale units coming to market, there will be a lag in starting construction and the backlog will only worsen as time passes. If you have the population growing at a record pace and supply is gearing up to scale back significantly, it’s going to create some very serious supply shortages in the market down the road.

Recent sales data indicates that buyers are looking outside the downtown core to purchase less-expensive units. Of new condo sales in the second quarter of 2023, a record high 60 per cent were purchased in the 905 region, while Toronto has a record low 14 per cent share of sales.

Look At Purchasing Commercial Real Estate

Many people focus only on residential when considering an investment in real estate. However, commercial opportunities shouldn’t be overlooked when adding to your portfolio. Although, at first glance, commercial real estate may seem more intimidating, there are many reasons to consider it:

Higher returns
Commercial properties tend to be more lucrative and produce higher returns than residential.

More qualified tenants
When you rent a residential property, the tenant has no motivation to take care of the unit. However, a commercial tenant has often invested their life savings into the business and is usually dedicated to keeping the building in pristine condition.

Long-term rentals
Unlike residential properties where turnover is relatively high, commercial tenants are usually there for the long term. Once a business is well-established, the owner doesn’t want to disrupt its customer base by moving to a new location. As a result, it’s not uncommon to see five and ten-year lease agreements. Long-term rentals produce a much more reliable source of income without constantly searching for new tenants.

Landlords have more rights
It is almost impossible to evict a bad tenant from a residential property. However, a commercial agreement is far more detailed and specific, and it’s much easier to lock out a tenant who breaches the contract.

If you are considering buying or selling commercial, investment or industrial real estate then call Barry Sklar, President of High Point Realty Limited at 416-786-0002 or write bsklar@highpoint.ca
We specialize in both sales and leasing!

How to Buy Commercial Real Estate?

This is one the most frequently asked questions I receive

When the average person thinks about investing in Toronto’s real estate market, they picture the excitement of flipping homes and daily interactions with tenants.  That’s just one side of the real estate market.  There is also a whole world of possibilities to explore in the commercial, investment and industrial real estate market.

So, naturally investors are looking to learn how to buy commercial real estate in order to take advantage of the potential it holds.

While the process of how to buy commercial real estate will vary by property type, location, and intended use, there are few things that you should know going into any commercial purchase.

For starters, commercial real estate requires strong financing.  That is why I work with a network of reliable commercial lenders so that mortgage financing can be crossed off of the “buying commercial real estate checklist.”

Types of Commercial Real Estate

Before you worry about how to buy commercial real estate, you will need to focus on what type of commercial real estate interests you.  In general, there are eight different kinds of commercial real estate:

  • Office Space which is home to a variety of businesses
  • Retail Space is for shops and restaurants that cater directly to consumers.
  • Multifamily Property encompasses apartment buildings or complexes with five units or more.
  • Industrial Property houses manufacturing and warehousing businesses.
  • Hotels and Hospitality offer short-term accommodations
  • Mixed-Use Real Estate offers a combination of the above categories.
  • Land covers undeveloped or vacant land.
  • Special Purpose Real Estate is any property that does not fit into the other classifications.

You need to decide which type of property you feel most comfortable with in terms of acquisition.

Owner-Occupied or Income Property?

Once you have decided on the type of commercial real estate you are buying, you need to know whether you are buying the property for personal use, or if you are simply looking to buy a commercial income property.  As a general rule of thumb, “users” are willing to pay a higher price for commercial real estate.

Buying Owner-Occupied Commercial Real Estate

Buying owner-occupied commercial real estate is typically the easiest way to buy commercial real estate.  After all, in these cases you are not working out how to buy commercial real estate that someone else would want, you are simply looking for a property that suits your needs.

For example, let’s say you are looking to open a dentist’s office, you are going to have a list of things you need the property to have in order for it to be a good fit for you.  This may include a waiting room off the entrance, a certain number of examination rooms, space for an office, and a secure area for equipment and file storage.

If the property meets your needs, you will then be free to pursue financing and complete your purchase.

Financing an Owner-Occupied Commercial Property

Financing an owner-occupied commercial property is relatively similar to buying residential real estate.

This is because one of the main things the lender is going to look at while you are shopping for a mortgage is your income.  However, instead of your personal income, they will instead be looking at your business income to ensure your business is profitable enough to support the mortgage payments, taxes, insurance and other expenses on the property.

Buying Commercial Income Properties

The true complications in learning how to buy commercial real estate come into play when you start buying commercial income properties.

This is largely because instead of buying a property that suits your own needs, you need to buy a property that is going to attract tenants.

Keep Your Tenants in Mind

The type of property you buy is going to change the type of tenant you attract.  While you could always use commercial real estate to house your own business, most of the time you are going to rent these properties out.

What is an Anchor Tenant

Another important part of learning how to buy commercial real estate with multiple tenants is understanding the role of an anchor tenant.

An anchor tenant is a larger, prominent tenant with two jobs, covering a large part of the mortgage and attracting other tenants to the property.

A great example of an anchor tenant is Walmart, many shopping centers will introduce a major retailer like Walmart to their property in order to attract large crowds as Walmart is always advertising on all the mediums available at their expense to attract customers.  As a result, additional tenants are attracted to the property in hopes that some of Walmart’s existing consumer base will visit them as well.  If a smaller, two-story building, you want to make sure the main floor tenant doesn’t have a use which might be a negative or offensive use so as to attract a quality second floor tenant.

Ideally, you want to secure this tenant first so that you can use them to advertise your property to other potential tenants.

When you are securing financing for a commercial income property, there are a few things the lender is going to look for.

First, the lender will want to know if you already have a tenant lined up for the property.  If so, your financing process should go much more smoothly because you will be able to use the agreed-upon rent to calculate the profitability of the property and determine the risk level.

Next, the lender may want to see the previous financial performance of the property to make sure they are not lending against a property with a history of consistent turnover. This is especially important because if you ever default on the property, they want to make sure it can hold a tenant and resell easily.

Finally, most lenders will want to get a clear look at your portfolio and your income to make sure that in the event of a vacancy, you are not likely to default on the mortgage.

Bottom of Form

Determine Your Budget

For those people who want to dive right into learning how to buy commercial real estate, the first thing to do is establish your budget.  First-time commercial real estate investors are best served by working on this with the help of an accountant who has experience in the field.

The popularity of the Toronto centered real estate market makes it extremely competitive, as well.  Properties enter and leave the market in virtually no time.  It’s easy for a novice investor with a poorly-defined budget to get swept up in that drama and pay far too much for their first property.

That doesn’t mean you can’t enter the market and discover how to buy commercial real estate, it just means that you have to set a reasonable budget and remain patient while you wait for the right opportunity for you.  It may not happen overnight, but if you stay true to your financial capabilities, you can hardly go wrong.

Go Local, or Go Urban

When you’re working out your budget, you will want to take into account a handful of geographical considerations.  Experts suggest that if you’re going to learn how to buy commercial real estate, make sure it’s somewhere that you can readily visit to start.

It doesn’t need to be in the same city you live in, but it should be somewhere that you can get to conveniently.  This makes you more inclined to visit, which will, in turn, keep you focused on the property itself.

When you’re looking for a place that’s easy to visit, you can hardly go wrong by searching through the urban markets.  Over half of new immigrants to Canada are settling in and around three major metropolitan areas: Toronto, Vancouver and Montreal.  That makes commercial investment opportunities in these areas a strong long-term bet as offices and shops will continue to crop up to meet the growing demand.

 

Commercial Property Assessments

Once you have determined where you would like to invest, there are three main assessments that must be performed in order to secure a mortgage on a commercial property.

Commercial Mortgage Agent Assessment

First, in order to determine whether it will be possible to secure a mortgage against a commercial property, you will need a commercial mortgage agent assessment.

Gather all of the property details you can and submit them to the mortgage agent/broker. From there, they will look over the property to ensure there are no immediate red flags that will turn lenders away.

This process typically takes about half an hour provided all of the property details are provided up-front.

After this assessment, your mortgage agent/broker should have an idea on whether you can finance the property and if so, which lender you should go with.

Appraisal

Next, you will need to have the property appraised.  This will tell you the current value of the property which can impact a few factors regarding the purchase.  As a note of caution, each lender has their own approved list of appraisers, and before commissioning an appraiser, make sure the appraiser is on the acceptable list of appraisers.

First, it will impact whether the lender will provide you with the funds for the purchase.  If a property appraises dramatically below the listing price, most lenders will require you to talk to the price down before they would ever finance it.

This is where the second factor comes in, if the property’s value does come in low, you can and should use that to negotiate a lower price.  Even if the lender is willing to go forward at the current price, it is always worth it to see if you can cut the price down.

Environmental Assessment

Finally, depending on a property’s location it may require an environmental assessment. These are to ensure the property is not home to any environmental hazards that make it ineligible for financing.  As a note of caution, each lender has their own approved list of environmental engineers, and before commissioning an environmental assessment, verify the environmental engineering company is on the acceptable list of environmental engineering firms.

For example, a property located beside a gas station may require a soil sample to be taken in order to make sure the soil is not contaminated by runoff from the gas pumps and vehicles.

Due Diligence

One of the final steps you need to take if you are learning how to buy commercial real estate, is to cover the due diligence investigations and appraisals.  Once you’ve agreed to the purchase of a property, it’s on you to research any title and zoning documentation and review any surveys or leases that apply to the property – or find a professional who can help you.

In most cases, I find the due diligence comes as part of the back-end of any commercial real estate purchase, but it’s not a given.  Before you enlist legal counsel to help with a commercial real estate deal, make sure that they’re willing to oversee the due diligence when the time comes.

I will repeat, doing your due diligence is one of the most important parts of how to buy commercial real estate.  If you are not making sure everything is done properly, you will have problems later.

After you’ve followed these steps, you can rest assured that you have a basic understanding of how to buy commercial real estate.

How to Get Financing to Invest in Commercial Real Estate

Now that you know how to buy commercial real estate, the next step is to shop for a reliable commercial real estate loan.  Adding an experienced commercial broker can go a long way toward reducing the stress of securing a loan for your needs.

As you’re searching, banks and financial institutions will want to see strong financial statements and projections, but don’t go overboard.  Remember, financial institutions make their money by betting pessimistically – while they may trust you know how to buy commercial real estate, they may not trust you to succeed in the market.  It’s better to remain humble about your expectations and be pleasantly surprised than to overextend yourself before you begin.

If you are considering buying or selling commercial, investment or industrial real estate or just have questions, call Barry Sklar, President of High Point Realty Limited at 416-786-0002 or write bsklar@highpoint.ca 

We specialize in both sales and leasing!  Happy to talk anytime!!

This might be the coolest space for lease in Toronto

This might be the coolest space for lease in Toronto

Posted by Derek Flack / MAY 19, 2016
Source: http://www.blogto.com

ashbridges bay fire hall

There’s plenty of historical buildings to lease in Toronto at any given time, but every once in a while a true gem hits the market. Such is the case with this old fire hall in the Port Lands at 39 Commissioners St. Built by architect J. J. Woolnough in 1920s, its designation was Fire Station 30, but was also referred to as the Ashbridges Bay Fire Hall.

fire station 30 toronto

The building was used by Toronto Fire Services until 1980, though only in an administrative capacity in its later years. That means its oversized bay door has been bricked in, but you can still clearly see its outline. In fact, the structure has been maintained quite well given its age.

fire station 30 toronto

The real estate listing suggests that the building would be well-suited as a funky office space, brewery, or restaurant. It’d probably be a risky proposition as the latter, but there’s certainly an allure to the other ideas, most notably the brewery. Fire Hall 30 would be a good name for a beer, and a tap room with a fire pole would have plenty of cachet.

The Port Lands is an area that’s set to see a ton of change over the next decade, and this historic building might be an intriguing way for an enterprising business owner to make a mark before the area explodes.

Historical photos via the Toronto Archives.

GTA REALTORS® Release Monthly Commercial Market Figures

TORONTO, March 3, 2016 — Toronto Real Estate Board President Mark McLean announced that Toronto Real Estate Board Commercial Network Members reported 392,132 square feet of combined industrial, commercial/retail and office space in February 2016.  This result was down from 796,437 square feet of space leased during the same period in 2015.

Industrial properties accounted for more than three-quarters of the total space leased in February.  The commercial/retail segment accounted for the next largest share followed by the office segment.

Average lease rates for properties transacted on a per square foot net basis, where pricing was disclosed, were up for all three major market segments on a year-over-year basis.  Much of the increases in average lease rates were due to a change in the mix of properties leased, including differences in the size and location of transactions this year compared to last.

“While the regional economy for the GTA and surrounding Greater Golden Horseshoe has held up quite well relative to other regions in Canada, it is clear that there remains a degree of uncertainty in many sectors regarding the outlook for the next year.  This uncertainty seems to have translated into caution when it comes to firms committing to more industrial, commercial/retail or office space,” said Mr. McLean.

There were 55 combined industrial, commercial/retail and office sales reported in February 2016, where pricing was disclosed.  This result was up compared to 44 sales reported for February 2015.

Changes in average sale prices on a per square foot net basis varied by market segment and, similar to the leasing market, reflected changes in the type and geography of properties sold along with changes in market conditions.

A Rexall pharmacy is replacing the Brunswick House

A Rexall pharmacy is replacing the Brunswick House

Brunny is shutting down on March 31 and a drug store will be replacing this beloved (yet much-maligned) Toronto watering hole. Times they are a changin’ indeed.

Yes, a Rexall will be moving into the Ye Olde Brunswick House space, and since the location at 481 Bloor St., is under heritage designation, the pharmacy will be restoring and paying homage to the 139-year-old building. When it opens, likely some time in 2017, it’ll be Rexall’s flagship store.

This won’t be the first heritage building to become a drug store. In 2015, the old Runnymede Theatre – at Bloor and Runnymede – became a massive, and rather beautiful, Shoppers Drug Mart.

When the Brunswick House first announced it was closing, it looked like a Boston Pizza would be moving into the neighbourhood.

 

Almost 6.1 Million Square Feet of Leased Space in Q4 2015

January 6, 2016 — Toronto Real Estate Board President Mark McLean announced that TREB Commercial Network Members leased almost 6.1 million square feet of combined industrial, commercial/retail and office space in the fourth quarter of 2015. This result represented a 19.6 per cent year-over-year increase compared to the fourth quarter of 2014. More than three-quarters of all leased space was accounted for by the industrial market segment, followed by 12 per cent for the office segment and 10 per cent for the commercial/retail segment.

Year-over-year changes in average lease rates, for properties leased on a per square foot net basis with pricing disclosed, were mixed in Q4 2015. The average industrial lease rate was $6.09 per square foot net – up substantially compared to $5.22 in Q4 2014. While increased demand likely played a role, the key reason for the strong year-over-year growth in the average industrial lease rate was a number of deals completed for large spaces signed at above-average lease rates. The average commercial/retail lease rate was down compared to Q4 2014. The average office lease rate was up compared to the same period last year.

“It was a tumultuous time in Canada, from an economic perspective, in 2015. Nationally, we entered into and then climbed back out of a modest recession. The volatility in economic growth obviously had its foundation in declining oil prices, which hit the economies of western provinces particularly hard. However, in other parts of the country, like Ontario and particularly the GTA, economic conditions were not so severe. The unemployment rate trended lower for much of 2015, suggesting that many firms in the GTA were taking on employees. This suggests that some companies may be anticipating stronger growth ahead, perhaps as a result of the lower valued Canadian dollar vis-à-vis the US,” said Mr. McLean.

“Looking forward, it is quite possible that we could see an uptick in commercial leasing and sale activity in 2016, as the economy in the GTA and Ontario more broadly outperforms many other Canadian provinces. With this said, it is important to point out that after a good GDP growth result for the third quarter of 2015, a poor October result suggests that the rate of economic growth may have moderated in the fourth quarter. The continuation of economic volatility could slow some firms’ real estate investment decisions,” continued Mr. McLean.

Total industrial, commercial/retail and office property sales amounted to 235 in Q4 2015 – down by approximately 27 per cent compared to 322 sales in Q4 2014. The number of sales were down for all three market segments.

Year-over-year changes in average sale prices, on a per square foot basis for transactions with pricing disclosed, were mixed. The average industrial selling price, at $87.37 per square foot, was down by approximately 15 per cent compared to Q4 2014. The average commercial/retail selling price was down substantially, but this was largely due to a greater share of larger properties sold in the last three months of 2015 compared to the same period in 2014. Larger properties tend to sell for less on a per square foot basis. The average office price was down by 7.1 per cent year over year.

 

February 2016: Per Square Foot Net Commercial Leasing Summary
Lease Transactions Completed on a Per Square Foot Net Basis with Pricing Disclosed on TorontoMLS
Leased Square Feet Average Lease Rate
Feb. 2016 Feb. 2015 % Change Feb. 2016 Feb. 2015 % Change
Industrial 304,100 635,210 -52.1% Industrial $6.11 $5.47 11.7%
Commercial 56,716 107,045 -47.0% Commercial $19.82 $17.44 13.7%
Office 31,316 54,182 -42.2% Office $14.66 $10.82 35.6%
Total 392,132 796,437 -50.8%
February 2016: Commercial Sales Completed with Pricing Disclosed on TorontoMLS
Sales (Price Disclosed) Avg. Sale Price Per Sq. Ft. (Pricing Disclosed)
Feb. 2016 Feb. 2015 % Change Feb. 2016 Feb. 2015 % Change
Industrial 17 16 6.3% Industrial $104.85 $150.18 -30.2%
Commercial 22 21 4.8% Commercial $355.20 $352.12 0.9%
Office 16 7 128.6% Office $351.26 $243.81 44.1%
Total 55 44 25.0%
Source: TREB

 

The Commercial Realty Watch is now published on a quarterly basis. The next quarterly edition will be released at the beginning of April 2016, covering the first quarter of 2016. The TREB Commercial Division will continue to issue a monthly press release containing summary statistics for commercial lease and sales transactions through the TorontoMLS® system.

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