After a record breaking year in 2013, in terms of sales volume and market pace, the first half of 2014 saw a reversal of that trend with fewer apartment transactions in the GTA. Given the market data and rise in pricing, it would appear that many owners took advantage of the aggressive pricing and decided to sell.
The first half of 2014 saw a total of 45 deals go through compared to 63 deals during the same period in 2013. This is a 30 per cent drop in deal volume. The last time deal flow was this low was in the first half of 2009 when only 33 deals were completed. The data also indicates that only 2,401 suites were sold for an average building size trade of about 53 suites. This is down 60 per cent from 2013, which had over 5,900 suites sold with the average building being just under 100 suites in scale.
In the first half of 2014, $345 million in apartment buildings changed hands. This is also down 60 per cent from the $841 million sold in 2013. The $345 million figure is also a bit misleading in that there were two deals alone in 2014 which totalled just over $100 million. If they did not occur, then the volume would have been around $200 million.
The last time deal volume was this low was in 2009 at $138 million. While there is always a general imbalance between supply and demand in the apartment market, it appears that the market is more “in balance” thus far in 2014. There has been no real change in supply, given there have been deals available.
Reasons for the decline
The decline on the demand side could be a result of the low cap rates and pricing; buyers are being more cautious. From a pricing perspective (see data below) cap rates have been relatively flat in the past six quarters, hovering around five per cent. The cap rate for the first half of 2014 is currently around 4.85 per cent. Price per suite also held relatively steady in the $145,000 per-suite range for the past year and a half.
Interest rates are low and are expected to stay low for a while. As such, the market should remain stable for the short term.
Notable transactions this year
Akelius was the largest purchaser thus far in 2014, purchasing three buildings for approximately $50 million. Starlight was a close second purchasing one building for $44 million.
Total deals and dollar volume compared to same period in previous years:
2014 – 45 deals, dollar volume: $345,347,500
2013 – 63 deals, dollar volume: $841,755,160
2012 – 74 deals, dollar volume: $547,300,500
2011 – 76 deals, dollar volume: $472,816,877
2010 – 67 deals, dollar volume: $376,100,484
2009 – 33 deals, dollar volume: $138,547,000
Lorenzo Digianfelice, BA, AACI, is the Broker of Record at Commercial Focus Realty Inc. and team principle of The Apartment Group. So far in 2014 the Apartment Group has completed almost $100MM in transactions. Lorenzo can be reached at ldigianfelice@cfrealty.ca .
