Soneil Investments has acquired Millcreek Business Centre, comprised of seven industrial buildings in Mississauga and totalling 324,362 square feet on 20 acres of land, for more than $100 million from GWL Realty Advisors (GWLRA).

The 2020 annual report for GWLRA’s Canadian Real Estate Investment Fund No. 1 showed it purchased a 50 per cent stake in the buildings at 6665-6725 Millcreek Rd. in June 2003. That ownership had increased to 100 per cent in subsequent annual reports.

“This was our single largest industrial acquisition to date, so we were happy to be able to complete a deal like this in the current market,” Soneil president and chief executive officer Neil Jain said in an exclusive interview with RENX.

Colliers brokered the transaction.

“From what I heard, it was quite a competitive process,” Jain said, “and based on my experience, these bids tend to involve institutional buyers.”

Millcreek Business Centre’s components

Millcreek Business Centre’s buildings, which range in size from 34,950 to 63,401 square feet, were constructed from 1987 to 1989. Each of the buildings offers truck-level doors.

All of the buildings except one are full, giving the portfolio a 92 per cent occupancy rate, according to Colliers’ marketing brochure. They’re occupied by 31 tenants with a weighted average lease term of 3.54 years at weighted average rents approximately 18 per cent below market.

“Average rents in place are roughly $15-and-a-half, which is great because it really optimizes the amount of stability and in-place rent that’s there, but it’s not fully at market, which also allows us to have a lot of upside in the future,” Jain observed.

There are a variety of different types of businesses and national, regional and local tenants in the buildings.

Jain said the portfolio “represents our bread and butter, which is small bay industrial tenants with minimal concentration risk and opportunity to grow the rent over time. They’re well-maintained, institutionally managed assets with clear heights throughout the buildings well over 20 feet, and for shipping it can accommodate 53-foot trailers throughout the complex.

“The main part of the asset that we really liked was that there wasn’t too much concentration risk with a single tenant. The average tenant size is under 10,000 square feet, so that allows us to not be so heavily dependent on any one given tenant.”

Prime industrial location

Millcreek Business Centre is easily accessible via commuter roads, 400-series highways and public transit. The location is also in reasonably close proximity to Toronto Pearson International Airport and rail intermodal terminals.

“I think this specific node of Mississauga is probably one of the strongest performing nodes for industrial in the GTA (Greater Toronto Area) and probably throughout Canada,” Jain said.

While industrial rents have stopped climbing at the rapid rates of earlier this decade, Jain said small bay spaces have been resilient, continue to perform well and remain in demand.

“By having a combination of larger and national tenants, there are always tenants who are looking to expand their premises,” Jain said. “So as vacancies come up in the units beside them, they’re always our first call to be able to see if they’re interested. And many times they are.”

More acquisitions expected in 2025

Soneil is a private real estate corporation with a portfolio of more than five million square feet of industrial, office and retail space across the GTA.

The company will be seeking assets similar to Millcreek Business Centre in 2025, when Jain feels more acquisition opportunities will crop up due to lower interest rates and narrowing bid-ask spreads.

While the focus will remain on industrial properties, Soneil is willing to look at other asset classes if it likes their long-term prospects and lending partners are supportive.

“Over the last three or four years we’ve been buying somewhere between $200 and $300 million,” Jain explained. “This year, after this transaction we’ll be at around $150 million, but we’re optimistic that next year we’ll be somewhere in the $300- to $400-million range.”

Soneil is rezoning elements of its portfolio for potential future development, but it’s a long process and properties are already providing strong cash flow so he said there’s no urgency to aggressively move into that area.

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Three high-ranking Canadian real estate executives and one European colleague closed a recent forum in Toronto by looking beyond the “Survive ’til 2025″ mentality to “Hello to a Fix in 2026.”

Fengate Real Estate president Jaime McKenna and CBRE Canada president and CEO Jon Ramscar moderated the discussion at the Real Estate Forum, which explored risks and opportunities that lay ahead and what courses of action could follow.

“What we’ve seen unfold, at least across our platform over the last two years, is a capital recession and not an operating recession,” KingSett Capital CEO Rob Kumer said. “I think it’s an important distinction because one is structural and one is cyclical.

“The properties in our world are generally full, rents are generally growing, tenants are healthy and paying rent, and there’s lots of cash flow.”

Investment returns

McKenna said bonds and guaranteed investment certificates have produced better returns than real estate over the past 12 to 24 months and she asked Frankfurt, Germany-based Alexander Heijnk, Deka Immobilien’s head of acquisitions and sales for the Americas, how to justify real estate investment.

Heijnk said the same issues faced by the real estate industry in Canada are shared globally, so countries can learn from each other. He has a positive outlook and believes real estate returns will be more attractive than bonds in 2025.

Slate Asset Management has approximately $12 billion in assets under management in nine North American and European countries and founding partner Blair Welch said money will flow to the easiest places for the highest returns.

While interest rates are important, “rents are everything for real estate,” said Welch, who believes investment must be spurred to drive the economy and, subsequently, rents.

While Kumer doesn’t think we’re in front of a big development cycle, he believes investment, transaction volume and property values will pick up again and “we’re on the verge of a very strong, very competitive bull run.”

Annie Houle is head of Canada for Ivanhoé Cambridge, which oversees the real estate portfolio of CDPQ, a global investment group with $452 billion in assets. CDPQ holds interests in more than 1,500 buildings — primarily in the logistics, residential, office and retail sectors — and held $77 billion in gross real estate assets at the end of 2023.

Houle said real estate requires leverage and is riskier than other investment types. She noted that institutional allocations to real estate had grown by 20 per cent over the previous 10 years but have been flat over the past two. Seventy per cent of institutions are looking to reduce their real estate allocations while 13 per cent want to increase them, she added.

Office

Heijnk’s company owns around 580 properties in 27 countries on five continents. It purchased Vancouver office buildings at 401 W. Georgia St. and 402 Dunsmuir St. from CPP Investments and Oxford Properties for about $300 million early this year.

Heijnk said Vancouver is the strongest office market in North America due to its overall fundamentals, quality of life, city planning and infrastructure.

“There’s a huge disparity between the investment value and the operating value, and that’s where the opportunity is,” Kumer said.

“Spread investing is back and it’s the lowest-risk kind of real estate investing,” Kumer added later. “All you have to do today is buy an office building at a seven cap and finance it at five per cent and then just sit back and collect rents.”

There’s demand for new and highly amenitized office buildings. And as A- and above classified office buildings fill up, Kumer thinks demand should increase again for class-B buildings. But he expects that a lot of class-B and -C buildings in Toronto will struggle for a long time.

“We’re not oversupplied, we’re under-demolished,” Kumer observed.

Residential

Canada has a housing shortage and recent changes to immigration policies weren’t well thought out, according to Kumer. He thinks immigration should increase as long as it brings in people with needed skill sets who can bolster the economy.

There should also be policies in place so there’s housing and infrastructure to accommodate these new immigrants, he added.

Ivanhoé Cambridge is underexposed to residential real estate in Canada, so Houle said it’s looking to intensify its retail platform with multiresidential development.

Heijnk said rent controls in Germany are annoying for landlords but create stability and the country is attractive to international investors seeking multifamily properties.

Industrial

Kumer said industrial real estate fundamentals are solid and, while rents have moderated after steep increases and the vacancy rate has risen from less than one per cent to five per cent, he’s not concerned about a supply-and-demand imbalance.

Ivanhoé Cambridge owns or partially owns industrial/logistics properties in Canada, Singapore, Australia, Brazil, China, the U.S., Indonesia, Germany, France, the United Kingdom and the Netherlands. Houle said it’s looking at adding to the portfolio.

“With the supply chain, we went from just in time to just in case,” Houle said, noting the Canadian industrial sector has solid fundamentals and significant mark-to-market pricing differences.

Retail

Slate owns more than 600 grocery stores globally, with occupancy in the mid-90 per cent range and growing rents. Welch said there haven’t been many new grocery stores built in the U.S. since the financial crisis of 2007 and 2008, so he’s bullish on essential retail as an asset class and has noticed lenders and capital providers embracing it.

Ivanhoé Cambridge owns several malls that Houle said have gone through some rough times over the past eight years, but sales and traffic are now trending upward and retail had the highest return of any asset class in 2023 according to the MSCI/REALPAC Canadian Property Index.

“The supply has gone down and the demand is going up,” Houle said, noting that quality malls are mostly full and same-property net operating income growth is in the high single digits.

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Lakeridge Logistics Centre in Ajax, Ont., Canada’s largest speculative-build industrial property, is seeking tenants.

Pure Industrial developed the 1.2-million-square-foot facility at 537 Kingston Rd. E. in the city east of Toronto. Avison Young’s Ben Sykes, Eva Destunis and Ryan Hood are working on Pure’s behalf to lease it.

Construction started a year ago and the building is a month away from substantial completion. Pre-marketing didn’t commence until construction started and interest has been picking up as completion nears.

“We would have been open to pre-leasing it,” Pure president and chief operating officer David Owen told RENX in an interview that also included Sykes, a principal at Avison Young. “But the majority of the activity when we started was on the smaller side of things.

“The larger-scale interest has picked up more when the building started showing shape and completion was on the horizon.”

What Lakeridge Logistics Centre offers

Lakeridge Logistics Centre provides:

• a 40-foot clear height;
• 5,000 amps of power;
• LED lighting;
• 207 truck-level doors and four drive-in doors; and
• parking stalls for 619 cars, 308 trailers and 38 electric vehicles.

Office areas can be built to suit.

“We built this to suit everyone for the long term and didn’t build it so we could maximize site coverage, which we’ve seen because of how much land prices have risen over the past two years,” Owen said. “We see this as a forever destination for somebody looking to set up shop in this neck of the woods.”

The facility is easily visible from Highway 401 and close to a large variety of stores, food and beverage outlets, and bank branches.

Sustainability is a separator

Lakeridge Logistics Centre’s design is dedicated to long-term zero-carbon performance, yielding potential savings of as much as 19 per cent in cumulative costs over 10 years.

“We’ve got 30 locally manufactured, custom-made, roof-mounted electrified heat pumps on the roof that condition in the summer if needed and can heat the building,” Sykes explained.

“We’ve effectively de-carbonized any type of heat source in and out of this building. For a building of this scale, nothing like that in Canada has ever been built before.”

The class-A building’s other sustainability measures include:

• a high-performance envelope and ultra-efficient mechanical systems;
• solar power generated on-site to meet a portion of the building’s energy load;
• future-proofed infrastructure allowing for the building to have 100 per cent of its anticipated electricity needs met with solar power; and
• superior indoor air quality and filtration.

“I think this is going to be the new gold standard for what big spec development is going to be, not just in Toronto, but Canada and potentially North America,” Sykes said.

Hoping for single tenant, but can demise

Lakeridge Logistics Centre can be leased to one tenant or demised for multiple users to take as little as 250,000 square feet. Owen said the preference is for one tenant to lease it all, but the design can accommodate three or four if that doesn’t happen.

“We’re not going to chase the groups who need 100,000 square feet,” Sykes noted. “We chase the groups who need 1.2 million.”

There are 30 industrial buildings in the Greater Toronto Area with more than 900,000 square feet of space, according to Avison Young.

Toronto-headquartered Pure is owned by Blackstone and Ivanhoe Cambridge. It has a portfolio of 41 million square feet of industrial real estate at more than 400 properties across Canada.

Its development pipeline includes another significant project just north of Toronto.

Pure and Hopewell Development, along with leasing partner CBRE, started marketing Bram10 at 10 and 20 Whybank Dr. in Brampton, Ont. early last month. Its two buildings are both demisable.

One is 458,496 square feet with a 40-foot clear height, 58 dock-level doors, four drive-in doors and 48 trailer parking spaces. The other is 167,909 square feet with a 36-foot clear height, 27 dock-level doors and two drive-in doors.

The state of the industrial real estate market

While the industrial construction and leasing markets were hyper-active earlier this decade as online shopping spiked and concerns with supply chains rose, huge rent increases have moderated and vacancy rates have crept up more recently.

“What we’re seeing is a normalization on the demand side,” Sykes explained. “What groups are doing is, they’re looking really strategically at their real estate.

“This is about functionality. This is about bottom-line results. This is about employee welfare. This is about, in a lot of cases, the ESG (environmental, social and governance) commitments that they’ve made.”

Sykes said there was positive absorption for industrial space in Q3, tenant demand seems to be picking up, and he expects continued stabilization of rents, so he’s optimistic about the market picking up in 2025.

Owen said consumer confidence may have bottomed out, and interest rates have started to decline, which should also boost business confidence and drive capital investment within the supply chain.

Pure is coming off of two successful months

“We did our two highest months ever in terms of volume of square footage and number of deals in October and November,” Owen said. “That leads me to believe that it’s not just a consolidation play.

“You’re not just seeing people look for space to make things more cost-effective, but you’re seeing expansion back. You’re seeing people taking a longer-term view of where they need to be.”

Sublet activity has dropped “drastically” over the past two months, according to Owen, who expects that to continue.

Owen added that new industrial building starts are down 90 per cent from the high period in Q3 2023 and a lot of industrial land is being held.

“Risk is a little bit off on the development side and I think it’s project-specific,” Owen observed. “There are a lot more micro details going into whether you go up today or not, and it depends on the sub-market you’re in.”

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The outlooks for Canada’s commercial and residential real estate markets heading into 2025 remain mixed depending on the asset class, geography and other factors.

Those were among the sentiments expressed in interviews with more than 200 Canadian C-suite executives and almost 1,600 survey responses compiled from June through August that contributed to PwC and Urban Land Institute’s annual Emerging Trends in Real Estate report.

PwC Canada national leader for private clients Frank Magliocco outlined the report findings, and a panel discussion moderated by PwC Canada partner and national real estate tax leader Fred Cassano provided additional insights during a recent ULI Toronto event at the Fairmont Royal York Hotel.

“What we heard about is a real estate market that’s continuing to grapple with really significant capital constraints, making deal-making really challenging,” Magliocco told the audience of CRE professionals.

Capital constraints hamper investment

While this has led to a delay in some investments and some investment strategies being reconsidered, access to capital is expected to improve in 2025.

Oxford Properties vice-president of development Veronica Maggisano said her company is viewing things more positively now than a year ago. It is preparing to put shovels in the ground for some major projects over the next few years with the backing of its pension fund owner, OMERS.

Another major issue facing the industry is providing needed infrastructure and transportation to create an environment more conducive to investment and development.

“We’re starting to notice, especially in cities like Toronto, that many of the communities that we’re developing in are at this inflection point, where the public infrastructure needs to be expanded in order to keep up with the growth that we’re anticipating,” Maggisano observed. “And in some cases, the developer is actually being asked to foot the bill for those expansion costs.”

Industrial, multifamily assets remain the best bets

Magliocco said industrial and multifamily assets remain the best bets for investment, although alternative asset classes such as data centres and student and seniors housing are also seeing increased investment.

“In 2025, private investors, especially family offices and private equity funds, we believe are going to emerge as the most active buyers — filling the gap that has been left by pension funds, insurers and REITs,” Magliocco said.

“And with the shrinking domestic pool, foreign investment opportunities are actually expanding — especially coming out of the U.S. and western Europe.”

Peter Senst, president of Canadian capital markets for CBRE’s national investment team, said he was recently speaking with investors in Asia who told him it’s difficult to underwrite in Canada because the conditions change too much and too quickly.

Frozen condo market

The condominium market, particularly in Toronto and Vancouver, remains frozen. Purchase prices are stagnating and declining, rents are softening and fewer new projects are being launched.

Devron Developments president Pouyan Safapour called the situation “absolutely horrible,” saying the 567 condo units sold in Toronto during the third quarter of this year was the lowest since the early 1990s.

“Lenders are scared to lend to condo projects, full stop,” Safapour said. “The word condo right now is a dirty word.”

However, there was a tone of optimism for the future. There have been fewer distress sales than anticipated in the sector and the long-term condo market is expected to fully recover due to demographics, according to Magliocco.

Unaffordable housing

Housing affordability remains a major issue as the cost of buying and renting are reaching unsustainable levels for many Canadians.

“While governments have announced measures aimed at increasing supply, industry players believe that more comprehensive efforts are needed to tackle this complex challenge,” Magliocco said, pointing out concerns with long and complicated approval processes, labour shortages and rising costs.

“We need more innovation in the entire industry by all stakeholders to drive more efficient supply,” Magliocco continued. “Whether it’s new ownership models, financing models, better building methods or even just consistent building codes among the different municipalities, we need much more co-ordinated innovation.”

More focus needed on climate strategies

A big divide remains among Canadian real estate companies when it comes to decarbonization and other environmental initiatives, as some executives still only see these as merely compliance exercises that have to be dealt with.

“Strengthening your climate strategy isn’t just about compliance, it’s now about a competitive advantage for buyers, investors and lenders alike,” Magliocco warned. “For those that are looking to tap into institutional capital, environmental performance and disclosure are critical.”

CPP Investments director of real estate investments Janet Chung said a lot of her company’s attention over the past decade has been on decarbonization. It has now also sharpened the focus on physical climate risk and how changing weather patterns can potentially impact its portfolio.

Top markets to watch in 2025

The report named Calgary the top market to watch in Canada in 2025, followed by Vancouver, Toronto, Edmonton and Montreal.

Senst shared the positivity regarding Calgary during the panel discussion. He said investors are looking for “deep value” in office properties while multifamily and industrial are performing consistently well.

Senst said offshore capital had pulled back in Vancouver but has been coming back over the last few months. That should give a boost to the local real estate market.

Fifty to 60 per cent of Canadian real estate investment is done in Toronto, according to Senst, who added that investors in the market are looking for scale and interesting deals.

Senst said the Montreal market has been consistent and noted it remains more of a yield play than Toronto.

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