Greater Toronto Area Industrial Market Report

Transcription

1 1 ST QUARTER 16 Greater Toronto Area Industrial Report Partnership. Performance. Overview The record-setting momentum felt through 15 in the Greater Toronto Area (GTA) industrial market showed signs of calming during the first quarter of 16. Though net absorption was steady compared to the fourth quarter of 15, construction activity has begun to catch up with tenant demand for new space across the region. Overall, space is quite tight, with availability and vacancy at sub-% and sub-3%, respectively, at the end of the first quarter of 16. This is despite the completion of nearly.5 million square feet (msf) of industrial product, all in the Toronto North and West markets. The upward pressure on net asking rental rates for the region continues, with an overall average of $6. per square foot (psf) up $.1 psf quarter-over-quarter and $.9 psf year-over-year, respectively. Gross rental costs are now averaging just above $ psf. Among end-user purchasers, limited product supply is driving tremendous demand. As the cost of borrowing continues at historically low levels and leasing costs have continually increased, it is often more economically viable for users to purchase, rather than lease, their property. User sales accounted for 7% of the transactions and % of the dollar volume in the opening quarter of the year. Demand is particularly strong for product under, square feet (sf), leading to bids on properties well over asking, with prices ranging from $15 to $ psf. Investor demand is also steady throughout the GTA, with both investment volume and purchase prices increasing quarter-over-quarter. Noteworthy investment sales during the first quarter included Hopewell Developments 568,-sf distribution centre at 1333 Airport Road in Caledon ($65 million / $11 psf) to Bentall Kennedy, following the lease of a portion of the building by Continental Tire (315, sf). Highlights New Heights for Speculative Construction Recent activity in the market shows trends toward new building clear heights and better use of vertical space on the limited industrial land supply remaining in the region. Following Amazon s deal last quarter at Orlando s 85 Heritage Road, a building featuring -foot clear height, Panattoni Development Company has proposed a facility of the same height at Logistics Drive, in Mississauga. Other notable developments featuring high clear heights include: 7951 Fifth Line (38 clear), 1 Steeles Avenue East and 86 Mount Pleasant Way, each measuring 36 clear. Influenced by increasing sales and the growing importance of consumers e-commerce purchases, the retail and logistics sectors continue to drive absorption of these large spaces. Developers strike a balance between the costs of development and satisfying potential tenants need for efficient shipping and warehousing. Land, transportation, and labour availability will continue to influence location choices, both for developers assembling new industrial sites and tenants seeking the newest, tallest spaces. What is happening? Toronto Central & East s Availability in the Toronto Central market retreated basis points (bps) between quarters to an even 3%, with the overall rate down 7 bps since the first quarter of 15. In contrast, availability in the Toronto East market rose marginally ( bps) to settle at.3%, and remains below the range that was typical for the market until early 15. Supply for tenants seeking quality spaces for more than, sf in the east continues to be limited. Providing some relief to the Scarborough market, Prologis has recognized the supply shortage, and following the completion of 151 Tapscott Road, has started construction on 171 Tapscott Road, a 35,-sf bulk distribution centre. The most significant deal inked in the Toronto East market this quarter was by Kruger Products, for 31, sf at 999 Boundary Road in Oshawa. Toronto North.1% Availability rate in Vaughan MARKET FACTS $6.9 psf Average asking net rent in Oakville Availability in the North has continued to trend steadily downward, at a rate slightly faster than the rest of the GTA, and now stands at.8% 1 bps less than a year ago. More than half the industrial inventory in the North market (measured by square footage) is located in Vaughan, where asking rents have held relatively steady in recent months, and availability rates remain below average compared to both the North market and overall GTA. Considerable speculative development is now underway and will provide new opportunities for tenants: 55 Cochrane Drive has now broken ground in Markham and will bring, sf of new space, while 138 Creditstone Road and 11 Number of properties in GTA West with more than 5, sf available 1.3 msf Industrial space under construction in Milton

2 Greater Toronto Area - Overview 9 Locke Street will bring 185, sf and, sf, respectively, to Vaughan. Recent transactions include Metrus Properties $-million agreement to purchase and leaseback Sears Canada s 96,-sf National Distribution Centre located at 951 Highway 5 in Vaughan. Toronto West In the GTA s largest industrial market, available space again decreased during the first quarter, with the availability rate ticking down bps to.9% down 16 bps over the last year. Despite slightly higher availability compared to the region in general, tenants in the West face competition for clean, quality space, and increasingly look toward speculative new supply that can be divided to suit their needs. Demand for smaller, free-standing industrial buildings also continues to be high. Tenants in the West face premium rental rates in order to locate in the western industrial nodes closest to labour, customers, and transportation networks. The overall average asking net rental rate in the West climbed to $6.36 psf the highest in the GTA led locally by Oakville and Burlington, asking $6.9 and $6.59 psf on average, respectively. Rates further away from established east-west corridors between Etobicoke and Burlington were below average, and decreased in Halton Hills and Caledon quarter-over-quarter, now averaging $.75 and $5.93 psf, respectively. The largest transactions this quarter included activity among logistics services, with Metro Canada Logistics lease of, sf at 9 West Drive, Brampton, and Sylvite Transportation inking a deal for 3, sf at 91 Guelph Line. What will happen? Forecast Developer and tenant confidence in the GTA remains strong, with recent completions and speculative announcements capturing the attention of tenants seeking new and efficient spaces in convenient locations throughout the region. As big-box tenants settle into new product, activity in the market this year may focus on smaller tenants competing for older product offering continually low vacancy. Spaces still under construction at the end of the quarter offer a number of availabilities in a variety of configurations, at asking rates consistently above the overall average. If the rate of absorption for newly delivered product does not maintain its recent pace, the GTA could see availability rates increase slightly as new projects are delivered..% Capitalization Rates 9.% Average Cap Rate 8.% 7.% 6.% 5.% ' '1 ' '3 ' '5 '6 '7 '8 '9 ' '11 Q1 '1 '13 '1 '15 '16 Industrial Multi Tenant Industrial Investment Volume - Transactions Over $3 M Average Sales Price per Square Foot - Transactions Over $3 M $9 $13 Investment Volume ($ Millions) $8 $7 $6 $5 $ $3 $ Average Price ($ psf) $1 $1 $ $9 $8 $ $7 $ Q1 '8 '9 ' '11 '1 '13 '1 '15 '16 $6 Q1 '8 '9 ' '11 '1 '13 '1 '15 '16

3 Greater Toronto Area - Overall 5 GTA - Industrial Trends GTA - Industrial Trends 6% $1. GTA - Occupancy Cost Trends GTA - Occupancy Cost Trends Total Area (, sf) % % 3% % 1% Total Rate Average Price ($psf) $. $8. $6. $. $. % Q3 '1 Direct Space Sublet Space Availability Rate $. Asking Net Rent Additional Costs GTA - Space by Clear Height GTA - Large Block Availability > 3 ft 8-3 ft -7 ft 18-3 ft < 18 ft > 5, sf, - 9,999 sf 5, - 99,999 sf GTA MARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) GTA Central 65 3.% $5.95 GTA East 8.3% $5.5 GTA North 181.8% $6.7 GTA West 375.9% $6.36 GTA Total % $6.

4 Greater Toronto Area - Central GTA Central - Industrial Trends GTA Central - Occupancy Cost Trends 5% $1. Total Area (, sf) 8 6 % 3% % 1% Total Rate Average Price ($psf) $. $8. $6. $. $. % $. Direct Area Sublet Area Total Rate Asking Net Rent Additional Costs GTA Central - Space by Clear Height GTA Central - Space by Clear Height > 3 ft 8-3 ft -7 ft 18-3 ft < 18 ft GTA Central - Large Block Availability GTA Central - Large Block Availability > 5, sf, - 9,999 sf 5, - 99,999 sf GTA CENTRAL - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) East York.5% $6.5 Etobicoke 76 3.% $6.91 North York % $5.78 Scarborough 65 3.% $.8 Toronto 3 1.% $. GTA Central* 65 3.% $5.95 * Total figures for the GTA Central include additional submarkets not listed above (i.e. York).

5 Greater Toronto Area - East GTA East - Industrial Trends GTA East - Occupancy Cost Trends 3 6% $. Total Area (, sf) 1 5% % 3% % 1% Total Rate Average Price ($psf) $8. $6. $. $. % $. Direct Space Sublet Space Availability Rate Asking Net Rent Additional Costs GTA East - Space by Clear Height 5 GTA East - Large Block Availability GTA East - Large Block Availability > 3 ft 8-3 ft -7 ft 18-3 ft < 18 ft > 5, sf, - 9,999 sf 5, - 99,999 sf GTA EAST - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) Ajax 7 1.5% $7. Oshawa 1 5.8% $.85 Pickering 11.7% $.93 Whitby 5.9% $5.58 GTA East* 8.3% $5.5 * Total figures for the GTA East include additional submarkets not listed above (i.e. Brock, Clarington, Scugog and Uxbridge).

6 Greater Toronto Area - North 8 GTA North - Industrial Trends GTA North - Industrial Trends 5% $1. GTA North - Occupancy Cost Trends GTA North - Occupancy Cost Trends Total Area (, sf) 6 % 3% % 1% Total Rate Average Price ($psf) $. $8. $6. $. $. % $. Direct Space Sublet Space Availability Rate Asking Net Rent Additional Costs GTA North - Space by Clear Height > 3 ft 8-3 ft -7 ft 18-3 ft < 18 ft GTA North - Large Block Availability GTA North - Large Block Availability > 5, sf, - 9,999 sf 5, - 99,999 sf GTA NORTH - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) Aurora 6 3.8% $.95 Markham 3.% $6.83 Newmarket 9 6.3% $6.3 Richmond Hill 1.6% $6.35 Vaughan 5.1% $6. GTA North* 181.8% $6.7 * Total figures for the GTA North include additional submarkets not listed above (i.e. East Gwillimbury, Georgina, King and Whitchurch-Stouffville).

7 Greater Toronto Area - West 5 GTA West - Industrial Trends GTA West - Industrial Trends 7% $1. GTA West - Occupancy Cost Trends GTA West - Occupancy Cost Trends Total Area (, sf) % 5% % 3% % 1% Total Rate Average Price ($psf) $. $8. $6. $. $. Direct Space Sublet Space Availability Rate % $. Asking Net Rent Additional Costs GTA West - Space by Clear Height GTA West - Space by Clear Height GTA West - Large Block Availability GTA West - Large Block Availability > 3 ft 8-3 ft -7 ft 18-3 ft < 18 ft > 5, sf, - 9,999 sf 5, - 99,999 sf GTA WEST - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) Brampton 9 3.3% $5.8 Burlington 7 3.6% $6.59 Caledon 13.8% $5.93 Halton Hills 6 7.3% $.75 Milton % $6. Mississauga % $6.37 Oakville 9 3.1% $6.9 GTA West 375.9% $6.36

8 Greater Toronto Area - Overall SUMMARY OF TENANT OPTIONS Number of Buildings with Space Properties with More Than 5, sf Properties with, to 9,999 sf Properties with 5, to, sf Properties with, to 5, sf Properties with Less Than, sf East York Etobicoke North York Scarborough Toronto GTA Central Ajax Oshawa Pickering Whitby GTA East 5 7 Aurora Markham Newmarket Richmond Hill Vaughan GTA North Brampton Burlington Caledon Halton Hills Milton Mississauga Oakville GTA West

9 Greater Toronto Area SIGNIFICANT INDUSTRIAL LEASE TRANSACTIONS Address Tenant Size Lease Type 951 Highway 5, Vaughan Sears Canada 96, sf Sale/Leaseback 3333 James Snow Parkway, Milton Uline Canada 635, sf New 999 Boundary Road, Oshawa Kruger 31, sf New 9 West Drive, Brampton Metro Canada Logistics, sf New 91 Guelph Line, Burlington Sylvite Transportation 3, sf New GTA INDUSTRIAL MAP Lake Simcoe Georgina Brock Newmarket East Gwillimbury Caledon King Aurora GTA NORTH Whitchurch- Stouffville Uxbridge Scugog GTA EAST Halton Hills Milton 7 GTA WEST Brampton Mississauga 3 QEW Vaughan Richmond Hill GTA CENTRAL Markham 7 Pickering Ajax Whitby Oshawa 1 Clarington Burlington 7 3 Oakville Lake Ontario

10 For more information on this report, please contact Avison Young: Bill Argeropoulos Principal & Practice Leader, Research (Canada) avisonyoung.com Greg Smith Research Coordinator 16 Avison Young Commercial Real Estate (Ontario) Inc., Brokerage E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young. Acknowledgement: Data for graphs, charts and tables used in this report are sourced from Avison Young and Altus InSite. Some of the data in this report has been gathered from third party sources and has not been independently verified by Avison Young. Avison Young makes no warranties or representations as to the completeness or accuracy thereof. Avison Young 77 City Centre Drive East Tower, Suite 31 Mississauga, ON L5B 1M5 T F