Private investors purchasing commercial real estate outpaced purchases by Canada's big pension funds last quarter, markedly reversing a trend earlier this year.
Pension funds are major players in the commercial real estate market, helping to buoy property prices, particularly in major Canadian cities.
However, in the latest quarter, there has been a resurgence of private buyers acquiring property, according to a second-quarter 2014 Canadian Investment Statistics study by real estate investment firm CBRE Ltd.
In the first quarter of 2014, the pension funds spurred the market. But activity slipped in the second, falling to 11.4 per cent in the second quarter from 31.6 per cent in the first.
Private buyers, however, increased their buying, jumping to 61.6 in the second quarter from 39.6 per cent of purchases in the first, CBRE noted.
In other words, activity was brisk. The overall number of transactions rose 9.7 per cent, but the overall dollar value fell to $5.1-billion in the second quarter from $6.7-billion in the first.
This doesn't mean that pension funds are less interested in real estate. As Ross Moore, CBRE's director of research in Canada, noted, the major pension funds such as Oxford Properties owned by Ontario Municipal Employees Retirement System and Cadillac Fairview owned by Ontario Teachers' Pension Plan, have been especially interested in developing property, rather than purchasing.
Instead, much of the purchasing is being done by smaller Canadian pension funds.
"When we talk about pension funds investing in real estate, we're actually referring to that sub group. That's not to say that Oxford and Cadillac are not buying, because if you look over the last five years, they have bought some significant pieces of real estate," Mr. Moore said.
"But as we sit here today, those are more focused on development than they are buying. But the smaller pension funds and their advisers are active."
Much of the quarter's activity was in the West. Commercial real estate investment volume soared by 43 per cent to $772.3-million in Calgary compared with the first quarter. Edmonton rose 18.6 per cent to $346.5-million quarter to quarter. Vancouver gained 10 per cent to $766.7-million.
Toronto slumped to $1.9-billion in the second quarter from $3.6-billion in the first. Still, the number of Toronto commercial real estate transactions actually increased to 408 in the second quarter, from 397 transaction in the first.
"And that happens quite easily," Mr. Moore said. "All it takes are a couple of big deals. Bayview Village comes to mind [the sale of Bayview Village Shopping Centre finalized in early 2014 to British Columbia Investment Management Corp. for $500-million]. Half a billion dollars … so right there, you've skewed your [first-quarter] numbers."