Investment volumes remained resilient in the face of growing economic challenges in Q2 2022
Canadian commercial real estate investment activity reached $16.3 billion over 2,516 transactions in Q2 2022. This total represented a decline of 18.0% quarter-over-quarter but an increase of 16.8% compared to the same period in 2021. While activity did slow in Q2 2022, the results were still encouraging given the challenging economic backdrop.
The second quarter marked the fourth largest investment volume period on record and the third largest net of M&A transactions. As has been the case for much of the pandemic recovery, investment velocity remained elevated once again in Q2 2022 as 2,516 transactions were completed in the quarter. This marked the fifth consecutive quarter in which transactions topped the 2,400 mark, a total which had never been reached before Q2 2021.
Industrial leads the way but investment activity remained strong across asset classes
The most active asset class in Q2 2022 was the industrial sector which saw volumes total $5.3 billion. While this total represented a decrease of -18.3% quarter-over-quarter, organic non-M&A investment volumes were up 6.8% compared to those seen in Q1 2022. While the industrial sector led activity in the first quarter, each of the top five asset classes outperformed their trailing three-year averages once again in Q2 2022.
Private buyers led investment activity in Q2 2022
The two most active purchaser types in the second quarter were the Private Canadian Investor and Private Equity groups which accounted for 38.7% and 22.0% of acquisitions, respectively. This mirrored the trend seen over the pandemic where these groups were able to remain more active than their competitors due to their more flexible fiduciary investment restrictions and greater risk tolerances. . It remains to be seen whether this trend will persist over the remainder of the year given the challenging economic landscape mired by rising interest rates and inflation.
The next most active groups in Q2 2022 were Pension Fund/Advisors and REIT/REOCs, accounting for 14.2% and 11.5% of investment activity, respectively. REIT/REOCs have been consistently active over recent quarters, while Pension Fund/Advisors have been more selective with a focus on larger assets and deal sizes.
Foreign Investors posted another strong quarter in Q2 2022 accounting for 10.7% of acquisitions. While this was the lowest share of activity seen for this group since Q2 2021, investment interest from cross-border capital sources has continued to grow and first half activity levels by this group were very strong.
Finally, the Institutional group had a quiet quarter accounting for only 2.9% of acquisitions.
Foreign investment volumes declined in Q2 2022, but first half activity levels remain strong
Cross-border investment into Canadian commercial real estate totalled $1.0 billion in Q2 2022. While this total represented a decline compared to Q1 2022, it brought cross-border investment volumes to $4.0 billion in H1 2022. This first half figure was already larger than the full-year figures recorded in each of the last three years.
Top five markets all post strong results in Q2 2022
Toronto, Vancouver, and Montreal were once again the most active markets in Canada in Q2 2022, recording volumes of $7.0 billion, $3.0 billion, and $2.1 billon, respectively. Calgary and Edmonton were the next most active markets in Q2 2022, recording elevated volumes of $1.2 billion and $1.1 billion. The second quarter marked the first period in which either of these markets exceeded the $1.0 billion mark since Q4 2019.
Calgary and Edmonton were the next most active markets in Q2 2022, recording volumes of $1.2 billion and $1.1 billion. The second quarter marked the first period in which either of these markets exceeded the $1.0 billion mark since Q4 2019.
Following these markets, Waterloo and Ottawa each had strong quarters, recording volumes of $914.7 million and $726.5 million. Each of these markets outperformed their trailing three-year averages in the second quarter.
Finally, Halifax and London had quieter quarters posting acquisition volumes of $161.3 million and $128.5 million.
The Canadian economy grew at a 3.3% pace over the second quarter of 2022, making it a standout performer on the global stage. Since public health restrictions were lifted earlier this year, mobility has increased, propelling spending, corporate profits, and many incomes. A strong first half will boost annual average GDP growth to over 3% in 2022, before decelerating to approximately 1% in 2023 (source).