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Changes to Foreign Buyer Ban a Good Step for GTA Commercial Property Market

GTA Commercial Property Market Hero

Buyers face other opportunities but need a right-sized strategy, Colliers experts say


Like most Canadian cities, the GTA’s commercial property market has faced its share of challenges during its retreat from peak demand and values over the last couple of years.

Inflation, slow permitting and sharp interest rate increases represent a few of those challenges. Then came the federal foreign buyers ban on residential properties. That policy was meant to cool off the housing market but had the side effect of sweeping up many important mixed-use development sites involving foreign stakeholders. Also, most of the publicly traded REITs and large private equity firms with more than 3% foreign ownership were unable to trade in domestic real estate as a result.

The ban was amended in March, increasing the foreign control threshold to 10% and allowing non-Canadians to buy residential or mixed-use property if the property is vacant or for redevelopment, among other changes.

That adjusted policy represents a step in the right direction. The broader GTA market is moving forward amid current challenges with plenty of opportunities for property investors and developers, Colliers experts say. They point to examples of zoned and un-zoned sites for mixed-use redevelopment, as well as a healthy market for necessity-based retail in the region as promising options for investors and developers.

But opportunity is in the eye of the beholder, and buyers — foreign or not —need to closely assess their development timelines, desired project scale and locations to succeed within market conditions and find a path to profitability. Ultimately, the GTA’s long-term economic prospects are too bright to ignore.

Many buyers in the region are eager to purchase land that is not yet up-zoned and has plenty of scalability, said Steve Keyzer, executive vice president with Colliers’ Brokerage operations in Toronto, who specializes in high-rise mixed-use development land in the GTA. They are comfortable taking on zoning risk given the Ontario provincial government’s announcement of multiple bills to accelerate housing approvals and density around transit. 

Developers can start the zoning process, which will likely push them past the current risk window of slow absorption of pre-construction condos. Currently, some developers who own zoned sites are being pressured into the slow absorption pre-construction sales market and are having to provide hefty incentives to meet their pro forma expectations.

“Unzoned sites push out your risk window by a couple years at least, so you can structure a development land acquisition deal now to get to a good future valuation, once zoned," Keyzer said. 

Today, we’re generally seeing cap rates escalate across the various asset classes due to increasing bond yields and overall market volatility, rising interest rates and global issues. 

However, buyers today are finding opportunities in proven GTA locations. That typically means sites well-connected to rapid transit, near major highways and other successful mixed-use projects. It also applies to large-scale redevelopment opportunities that are expected to eventually provide profitability, even if that means waiting out this high interest cycle. 

Keyzer is supportive of the adjustments to the foreign buyer ban but notes most of his redevelopment sites require localized expertise anyway to navigate the complicated and sluggish rezoning process. "Many larger foreign investors are attracted to zoned sites because they don't know the local political system or don't want to deal with it," he said.

Zoned projects can make sense at the right scale for certain foreign buyers

There are a lot of unknowns in the market right now but there are opportunities for foreign or local buyers who have a clear vision and strategy, said Tim Bristow, senior vice president and sales representative with Colliers Toronto’s Brokerage practice.

Bristow applauds the updates to the foreign buyers ban. He says the changes unlock certain redevelopment sites that are already rezoned and provide an attractive scale for medium-sized offshore — or local — buyers. These are projects that are not too big or too small and located near amenities and transit. 

Bristow points to a site in Corktown. The Upper Berkeley at 301-311 Queen Street East is located next to the heritage-designated Berkeley Church event and media venue, which is also for sale. The 19-storey mixed-use development is in the final stages of approval with interim LPAT support. It's designed for 144 1-3 bedroom luxury condos with roughly 17,000 square feet of retail and commercial space on the first two floors.

"It's what I call a manageable development. It doesn't need institutional investors to do it and it's a decent size without being overwhelming. It's nearly shovel-ready,” Bristow said. "In a market like this, pre-selling 144 units can be a more attractive undertaking than something more massive."

Bristow said Canada's economy is too reliant on international investors and economic immigrants to let something like the foreign buyer ban strangle much-needed development. "There are people coming here with significant wealth and now they can, once again, invest in development projects that include housing,” he said. "It's expanding the buyer pool."

Opportunities also present for the right kind of retail

David Williams, also a senior vice president and sales representative with Colliers’ Brokerage group in Toronto, specializes in selling retail investment properties across Ontario. The appetite remains high for retail properties that feature grocery anchors, liquor stores, drug stores and other providers of everyday consumer products, Williams said. Those properties with “daily needs” tenants are in strong demand from most categories of buyers seeking commercial real estate investment opportunities.

“There's still a lot of private capital demand and money out there," Williams said. "That's coming from domestic private capital, but there's also plenty of foreign capital involved."

Williams said sellers need to realize, however, that the capital chasing assets is much more price-sensitive these days, and assets need to be realistically priced and reflect appropriate returns within current market conditions. 

Despite the challenges, there isn't much "distress" in the retail market, Williams added. “This is a period in which we should be patient and apply sensible strategies as buyers and sellers rationalize where cap rates have landed since the dramatic increases in interest rates.”

Keyzer, Williams and Bristow all agree that interest rates will eventually come back down. 

While borrowing costs likely won’t touch the “emergency levels” we saw during the pandemic, they will settle somewhere more manageable, reigniting a market already benefitting from some record-high population growth spurred by economic immigration. 

Indeed, Canada welcomed more than a million newcomers last year, making Canada the fastest-growing country in the G7. The GTA attracts the largest portion of those new residents.

"There's a lot of uncertainty going on in the world, including south of the border,” Bristow said. “Canada and the GTA will continue to be a safe haven for capital.” 
 

Pour plus d’informations, veuillez contacter:

Steve Keyzer

Senior Vice President, Sales Representative

Toronto Downtown

A results-driven real estate professional, Steve has established himself as a trusted source for commercial real estate information across the GTA with a focus on the Toronto Downtown and Midtown Investment and Leasing Markets. Steve has completed commercial real estate transactions totaling over $800,000,000.
 
Property Advisory 
 
Steve has advised a number of significant property owners in the Toronto downtown market. He applies his creative background to determine a specific go-to-market strategies which are tailored to uncover competitive advantages and opportunities for value creation.

Backed by Colliers Toronto’s marketing team, Steve is able to offer best in-class marketing tools to segmented targets to generate strong targeted marketing campaigns, which allows property owners to maximize the value of their asset. Steve is able to assist his clients in establishing highest and best use of the property to determine the highest potential market value.


Corporate Advisory
 
Steve offers a particular strength and understanding in corporate rebranding opportunities though real estate realignment, assisting clients to establish a distinct identity which further strengthens and reaffirms their brand and reflects their corporate culture.

Steve’s tenant representation specializes within the Creative Industries. Having worked in the advertising industry before entering real estate, Steve is able to identify real estate opportunities that allow for a creative and inspiring work environment.

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Tim Bristow

Senior Vice President, Sales Representative

Toronto Downtown

Tim is a 30 plus  year veteran of the the Commercial Real Estate business with a broad depth of experience in all aspects of the business .Tim has  leveraged his creativity and experience to build successful specilaized teams  that deliver powerful   solutions to his clients

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David Williams

Senior Vice President, Sales Representative

Toronto North

David has been involved in the sale of more than $2.5 billion in commercial real estate transactions since joining Colliers in 1993.  David has experience in every major Canadian market and has sold a significant project or portfolio in all asset types including office, retail, industrial, apartment and hotel. 

 

David currenlty leads a team that is specialized in the sale of retail investment properties throughout Ontario.

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