Oxford Properties Group has sold a 75-per-cent stake in two Toronto-area industrial business parks to TPG Inc. TPG-Q for $1-billion, marking one of the largest commercial real estate deals in Canada this year.
U.S.-based asset manager TPG is buying into the Brampton Business Park and Vaughan Business Park, each of which includes five buildings covering a combined 5.1 million square feet of space, according to the deal announced Monday. Tenants of the parks include food and beverage company Mondelez International Inc. MDLZ-Q as well as electronics retailer Best Buy.
Canadian real estate company Oxford and TPG are forming a joint venture, with Oxford keeping a 25-per-cent stake in the properties. This is the biggest deal in Canada this year for Oxford, which will also continue to manage the business parks.
Demand for industrial properties has been steadily increasing as retailers require warehouse spaces for their distribution centres. This growth is not just from e-commerce giants such as Amazon.com Inc. AMZN-Q, but all types of retailers.
Canada’s population has been rapidly increasing with new immigrants, temporary workers and foreign students. The surge in new residents has amped up the need for housing along with all types of goods, from groceries to household items.
Whether such products are bought online or at the store, “just that underlying state of demand just pushes up demand for warehouse space because it’s an integral part of the supply chain,” said Carl Gomez, chief economist with commercial real estate firm CoStar Group.
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Over the past two years, Oxford has been tilting its portfolio toward industrial and life sciences where it has confidence in the outlook for demand, especially as property values for some office and retail buildings have come under pressure.
As of the third quarter of this year, vacancy rates for industrial real estate in the Greater Toronto Area were below 2 per cent, according to Oxford. Industrial is now the largest part of the company’s global real estate portfolio, with investments in properties spanning 90 million square feet in 25 countries, from big-box warehouses to cold storage.
“We remain super bullish on industrial, which is why we’ve retained a significant equity component in the transaction,” said Randy Hoffman, Oxford’s executive vice-president of North American investments.
He said the company is developing 6.5 million square feet of industrial space in the Toronto region and is aiming to complete the space by 2028. The transaction with TPG frees up significant cash that Oxford plans to reinvest, including in constructing the new industrial real estate.
In Canada, Oxford owns nearly 14 million square feet of industrial real estate, according to Mr. Hoffman.
TPG has earmarked about US$1.6-billion for investments in industrial real estate over a decade, mostly in the United States and Europe. The asset manager was attracted to the Toronto region in part because its population and employment growth are outpacing many major U.S. markets, partner Jacob Muller said in a statement.
At a time when Canadian deal activity in commercial real estate has been sparse, industrial has been on fire. It has been the most active sector for the past two years, according to research from commercial real estate firm CBRE Group. Industrial transactions accounted for just over 40 per cent of the $37.2-billion of commercial real estate deals in the first three quarters of this year, according to CBRE.
“The risk associated with industrial is relatively low right now. So that’s why you’re seeing a lot of focus by the buying set,” said Mark Fieder, president of commercial real estate firm Avison Young’s Canadian division.
Rachelle Younglai
James Bradshaw