Toronto's 28% CRE Price Hike Most for Global Metros in 2022

MSCI Real Asset’s global index of commercial real estate prices ticked down in the fourth quarter, the first quarterly decline in the index of office, industrial and retail properties since late 2009.

According to a report released last week by MSCI, global CRE prices dipped 0.5% in Q4 2022 compared to Q3—the first quarterly decline in 13 years. MSCI’s report analyzes 18 global metros in North America, Asia, Australia and Europe.

For all of 2022, MSCI reported that the metro where prices took the biggest hit last year was San Jose, which saw a decline of 7.5%, as the heart of Silicon Valley registered one of the nation’s lowest office-utilization rates throughout the year.

Manhattan was a close second, with a 7.2% drop in commercial real estate prices, as many older office buildings continue to be afflicted with a high level of vacancy.

At the other end of the scale, the Greater Toronto Area (GTA) far outpaced all of the global metros in property price appreciation last year, with property prices surging by nearly 28%, according to the MSCI report.

The population in the GTA is surging due to an influx of immigrants that have responded to the Canadian government’s policy of welcoming new residents as its primary strategy for ending labor shortages.

The 27.6% property price growth in Toronto outpaced the combined rate of four global metros in a region MSCI calls “Nordic Capitals,” Copenhagen, Helsinki, Oslo and Stockholm.

Transactions across all 18 global markets tumbled late in the year in what MSCI characterized as “a standoff” between sellers reluctant to mark down prices and buyers who offered less for properties as interest rates rose.

Investment volume globally fell 22% across the top markets last year, led by a 62% decrease in central Boston, MSCI said.

In a report last month identifying trends to watch this year in CRE investing, MSCI said deal volume is falling globally as investors reassess investment opportunities.

“The office market has been particularly hard hit as the changes in the financing of assets is compounded with uncertainty around future demand in key global centers like London and New York,” the trends report said.

“Sales activity has fallen in these key global centers as potential buyers are unwilling to pay yesterday’s cap rate for an acquisition and will want to underwrite every worst-case scenario for future office demand in any deal,” MSCI said.

“Owners, by contrast, will be fixed on the last comparable sales, sometimes at price levels seen before the pandemic. To drive deal volume back to normal levels, prices would need to decline in both New York and London,” the report said.

MSCI’s trends report said that, based on a study encompassing office buildings in London, Paris and Sydney, sales prices for office with certified sustainability ratings are up to 35% higher than buildings without that certification.