In this report, insights and perspectives are provided for the following areas:

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2 ABOUT THE FLASH REPORT Produced by Altus Group, through our Data Solutions team. To show our appreciation for your business, we have put together the following Flash Report which illustrates the expanded perspective our solutions provide in the GTA. In this report, insights and perspectives are provided for the following areas: Commercial Investment & Land Market Commercial Leasing Market Residential Development Market Homebuyers Altus Group is your single source for nationally researched real estate market data, backed by local expertise. We hope you enjoy the report. Please let us know what you think by ing

3 GREATER TORONTO AREA 2017 Commercial Investment & Land Market Highlights Total investment property sales volumes reached $23.5 billion in 2017 a seventh consecutive annual record, and a 38% increase in capital flows compared to Commercial Investment & Land Market Total property investment was up by $6.4 billion in Key highlights for 2017 include: 1. Cap rates went to new lows during the year, but were starting to turn up by year end. 2. Land sales reached new highs, and accounted for about half of the year-over-year increase in total investment volumes. 3. Institutional investment dropped to its lowest level since While all 5 GTA regions shared in the stronger investment activity in 2017, the increase was more pronounced in the 905 regions (combined, up 42%) versus the City of Toronto (up 33%). After stepping back in 2016, foreign buyers increased their investment activity in 2017, primarily in the apartment sector. Institutional investors cut back total investment for the third year in a row, with some pickup in industrial and ICI land investment more than offset by reduced office sector investment. Residential Land (including lots) posted the strongest dollar increase ($2.8 billion) as well as the strongest percentage increase (49%); the $8.5 billion invested shattered the previous record set in ICI Land sales reached another record, with dollar volumes up in every region except Peel. Hotel sales topped $1 billion for the first time, boosted by the Sheraton Centre, Delta Hotels by Marriott and Trump International Hotel and Tower sales. Office sector investment picked up again in 2017, pushing this sector to a new record of $3.9 billion. Industrial sector sales were up by almost $1 billion, boosted by strong gains in Peel Region and the City of Toronto. Retail sector property sales were up by 23%, but at $2.8 billion fell slightly short of the record set in Apartment sector sales picked up by one-third in 2017 following a 30% decline in 2016, but total investment remained below the record set in Apartment sales volumes increased in all regions except Durham. GTA FLASH REPORT EDITION 1

4 Notable Residential Land Themes Commercial Investment & Land Market Residential Land sales (including lots) set another record in 2017 at $8.5 billion, up from $5.7 billion in There were 189 Residential Land (including lots) deals of $10 million or more these accounted for three-quarters of overall residential land sales volumes. High Density land sales reached a new high at $3.1 billion accounting for about 40% of all residential land sales. About 86% of high density land sales dollars were in the City of Toronto. Medium Density land sales (primarily land for future townhouse oriented developments) almost doubled in 2017, to a new annual record of $1.6 billion. This segment is being driven by a growing demand for more affordable ground oriented housing product. Low Density land sales posted the strongest dollar increase among the residential land segments, up by almost $1 billion in 2017 to a new record of $2.5 billion. Sales of low density land were up in each of the 905 Regions, with almost half of sales occurring in York Region. Featured Investment Transactions Delta Hotels by Marriott: Leadon Investment s purchase of this 567 room hotel was part of the larger portfolio acquisition of 25 properties across Canada (6,757 rooms) from BCIMC for a total purchase price of about $1.1 billion. Scotia Plaza: AIMCo and KingSett picked up the remaining 50% interest in the property for $681.5 million, having acquired the initial 50% in June 2016 for $654.5 million. 212 Davis Drive (Newmarket): The $75 million purchase price for this new, 225 unit purposebuilt rental property sold by The Rose Corporation to Homestead Land Holdings Ltd. equates to about $333,233 per unit. The land was purchased in 2014 at the equivalent of $10,667 per unit. Date Sector Transaction Name Purchaser(s) Price Aug Office Scotia Plaza Apr Office 700 University Avenue Apr Retail Promenade Mall Nov Retail Retail Podium, 1 Bloor Street East AIMCo & KingSett Capital $681,542,961 50% int. KingSett Capital $433,000,000 Liberty Development Corporation & Serruya Private Equity $249,000,000 First Capital Realty $192,359,707 Apr Industrial 8875 Torbram Road Concert Properties Ltd. $158,250,000 Aug Industrial 100 Sandalwood Parkway West Dec Apartment 212 Davis Drive Feb May Dec Dec Hotel ICI Land Residential Land Residential Land Delta Hotels by Marriott Toronto 30 Bay Street & 60 Harbour Street 266, 276 & 284 King Street West 27, 37 Yorkville Avenue & 26, 30, 50 Cumberland Street PIRET $101,000,000 Homestead Land Holdings Limited $74,977,500 Leadon Investment $215,761,114 Oxford Properties Group & Canada Pension Plan Investment Board $96,000,000 Great Gulf $300,000,000 Cresford $268,500,000 Looking Ahead Source: Altus Group With population growth, and therefore the need for new housing, projected to stay relatively buoyant in the GTA over the medium to longerterm, residential land sales should continue to be robust in 2018, although higher prices and various policy changes have introduced more uncertainty to the land market. On the improved asset side, with debt-financed buyers facing higher interest rates, expect institutional investors who are less debt dependent to increase their share of buying activity. 2 GTA FLASH REPORT EDITION

5 2017 Commercial Leasing Market Highlights 3.2 million square feet of office space was absorbed in the GTA in 2017 twice the level of the previous 10 year average. Industrial Leasing Market Highlights The industrial leasing market in the GTA continued to tighten in While about 4.7 million square feet of new industrial space was added to the GTA market in 2017, this was less than the 6.5 million square feet completed in More importantly, the new space completed fell well short of the demand for additional space, with absorption (based on change in leased space) exceeding 10 million square feet. As a result, the overall availability rate continued to fall, pushing below 3%. About 3.6 million square feet of additional industrial space is currently under construction. This compares to absorptions in the past 5 years of about 7.9 million square feet on average per year. The vast majority of the new space completed, and space under construction, is in the Toronto West submarket. Commercial Leasing Market Office Leasing Market Highlights The overall office vacancy rate as at the end of the year fell for the first time in 6 years in The decline occurred based on the combination of stronger absorptions and less new supply added to the market. A total of 13 office buildings were completed in the GTA during 2017, adding about 2 million square feet of new space to the inventory. At 3.2 million square feet, absorption of office space (based on change in occupied space) reached its highest level since About 6.6 million square feet of office space was under construction in the GTA at the end of 2017 (up from 4 million square feet at the end of 2016), and about half of this space is still available to lease. Over 80% of the space under construction is in the Downtown submarket where the vacancy rate at the end of 2017 was below 6% (including vacant but leased space). Looking Ahead Demand in both the office and industrial markets is expected to remain robust through 2018 and to outpace supply, resulting in lower vacancy rates. There is room for upward movement in leasing rates, in particular for newer industrial product and well located office product in the downtown area. GTA FLASH REPORT EDITION 3

6 Residential Development Market 2017 Residential Development Market Highlights Total new home sales in the GTA reached just over 44,000 units in 2017 (the fourth highest level on record) with an estimated value of over $30 billion Another Record Year for New Condominium Apartment Sales At just over 36,400 units, newly-built condominium apartment sales (which includes apartments in low, medium and high-rise buildings, lofts, and stacked townhouses) smashed the previous annual record set just a year earlier in Demand for new condominium apartments in 2017 was fueled by three key buyer groups small investors who have become the de facto providers of new rental housing supply in the GTA; end user buyers who might prefer a single-family home but are seeking out more affordable options; and the more traditional end users who value the lifestyle and amenities of well located projects. The story in 2017 was quite different for the new singlefamily home sector (single-family includes detached, link, semi-detached, and traditional townhouse units), where sales plummeted by 58%, and at just over 7,700 units were the lowest number yet recorded by Altus Group. Single-family home sales were constrained by lack of available product to purchase - in particular, homes that are affordable to a broader range of buyers. The plunge in new single-family sales in 2017 was felt in all 5 regions of the GTA. The City of Toronto accounted for just over 60% of new condominium apartment sales in The strongest percentage increases were in York Region and Peel Region (each up more than 60%). Looking Ahead Single-family new home sales are expected to continue to be constrained in 2018 by the amount of product that makes it to the market in particular, product affordable to a broader range of buyers. Excess inventory in the resale market will offer more competition to the new home market, which will keep prices more in check. While many end user buyers have been looking to the condominium apartment sector for more affordable new product, some are now starting to be priced out of this segment as well. As such, even with continued investor interest, the market in 2018 may be challenged in surpassing 2017 sales. Decimated Inventories a Key Factor in Escalating Prices for New Condominium Apartments New condominium apartment inventory at the end of 2017 represented less than 3 months of supply, based on the monthly pace of sales over the previous 12 months. To avoid significant price pressures, 9-12 months of condominium apartment supply is needed. It is not surprising, therefore, that average asking prices for available new condominium apartments escalated through 2017, with the December average up 41% compared to a year earlier. Although the inventory of new single-family homes has risen from the low point in April 2017, there were still relatively few new single-family homes available to purchase on average in 2017 compared to historical levels. Asking prices for new single-family homes averaged just over $1.2 million at the end of 2017, 23% ahead of a year earlier, although most of the increase occurred prior to Spring GTA FLASH REPORT EDITION

7 2017 Homebuyer Highlights Renters a bit more hesitant about buying a home this year. While overall homebuying intentions in the GTA in late 2017 were similar to last year, renters (the key pool for potential first-time buyers) showed a bit more hesitation this year, according to Altus Group s FIRM Survey. First-time buyers have been the most impacted by tighter mortgage lending criteria, escalating house prices (until recently) and higher mortgage rates. Homebuyers However, the desire for homeownership remains strong among younger renters, with only about 1 in 5 indicating that they simply prefer the renter lifestyle. Many renters however now need to save a bit longer in order to qualify for a mortgage: more than 1 in 3 younger GTA renters say they are still saving for their downpayment, up from about 1 in 4 two years ago. Being deep in the downtown action has appeal for many millennials in the GTA. According to Altus Group data, the population under 35 years is more inclined than those 35 years and older to prefer a rental or condo apartment in a downtown location to a single-family home in the suburbs given similar housing costs. But not all millennials want to live downtown. In fact, more respondents under 35 years disagree than agree with preferring downtown living. This reinforces the often forgotten fact that millennials, like generations before them, are not one size fits all they have a range of behaviours, attitudes and desires that need to be taken into account. About 1 in 20 GTA households report owning at least one condominium apartment unit that they rent out (not all of these are necessarily located in the GTA). Altus Group s FIRM Survey provides some insight into the occupants of rented condominium units in the GTA, as highlighted on the table below. Households Living in Rented Condos Greater Toronto Area Under 35 years 1 in 3 Single-person households 1 in 4 Do not have a vehicle 1 in 4 Immigrants to Canada 4 in 10 Planning to buy a home in next year 1 in 5 Unit owner an individual/ company located outside Canada 1 in 10 Source: Altus Group GTA FLASH REPORT EDITION 5

8 About Data Solutions Data Solutions connects the Canadian real estate industry through the delivery of data with unparalleled breadth, integrity and relevance. We cover new homes, investment transactions and commercial market inventory in key markets; and also provide intelligence on the national housing market and consumer home buying and borrowing patterns. Our solutions are used by real estate industry stakeholders to gain market intelligence, identify and validate opportunities, benchmark, strategically plan, manage risk and more. Data Solutions is part of Altus Analytics, the software and data solutions business of Altus Group, where our focus is to empower real estate clients and partners to work collaboratively to enhance decision making, drive performance and optimize transactional efficiency. Our solutions enable firms to better organize and manage data and connect with the right information and analytics to help them gain a complete picture of real estate assets, portfolios and transactions. About Altus Group Limited Altus Group Limited is a leading provider of independent advisory services, software and data solutions to the global commercial real estate industry. Our businesses, Altus Analytics and Altus Expert Services, reflect decades of experience, a range of expertise, and technologyenabled capabilities. Our solutions empower clients to analyze, gain market insight and recognize value on their real estate investments. Headquartered in Canada, we have approximately 2,500 employees around the world, with operations in North America, Europe and Asia Pacific. Our clients include some of the world s largest real estate industry participants across a variety of sectors. Altus Group pays a quarterly dividend of $0.15 per share and our shares are traded on the TSX under the symbol AIF. For more information on Altus Group, please visit: DATASOLUTIONS This publication, or any part thereof, may not be reproduced or transmitted in any form by any means without the express written permission of Altus Group in each specific instance. The material in this document has been prepared by Altus Group based on its data and experience. The information is believed to be accurate at the time of its preparation; however, no responsibility can be taken for errors or omissions. Any advice contained herein is of a general nature and should not be relied upon unless confirmed with Altus Group. Altus Group makes no representation about the accuracy, completeness or suitability of the material represented herein for the particular purpose of any reader. Please contact datasolutionsinfo@altusgroup.com with any questions.