Fourth Quarter 2017 / Industrial Market Report. Market Overview

Transcription

1 Greater Toronto Area Market Facts 2.6% Availability rate in the Greater Toronto Area $6.69 psf Average asking net rent in the Greater Toronto Area 14 Number of properties in the Greater Toronto Area with more than 250,000 sf available 3.6 msf Industrial space under construction in the Greater Toronto Area Market Overview Positive momentum experienced in the second and third quarters of 2017 continued in the fourth, albeit at a slower pace, with overall availability across the Greater Toronto Area (GTA) dipping to its lowest level in the past five years. Despite ongoing delivery of new product, the market among North America s largest remains under-supplied, and more development is required to meet demand. Tenant demand for smaller spaces in newer facilities has increased some landlords willingness to subdivide larger buildings. Lower interest rates have also kept the user-purchaser market very busy, while the repurposing of outdated buildings near urban areas accelerates, thanks to e-commerce and logistics needs. E-commerce, along with third-party logistics and food companies have been and continue to be key demand drivers in the market. With limited supply and increasing costs of developable land, significant redevelopment projects are a growing trend most visibly in the GTA Central market, where developers are opting to renovate existing buildings or demolish them and build new product on the site. This is likely attributable to lower development charges in the Central market compared with its counterparts in GTA North, East and West. Despite sub-3% availability, a plethora of tenant options remain, with GTA West providing the greatest selection across multiple size categories. Given the demand in the marketplace, there is also a growing consensus that rental rates, which have traded in a narrow range for many years, are poised to move higher. This is supported by significant investment capital flowing into the sector.

2 GTA Market Monitor The overall GTA availability rate now measures 2.6% down 10 bps quarter-over-quarter, and 70 bps year-over-year. Availability in GTA Central and GTA East increased during the fourth quarter, while the GTA North and GTA West markets experienced a decrease. The biggest swings in availability were noted in GTA West (down 40 bps to 2.9%) and GTA East (up 110 bps to 3.2%), while GTA North posted the lowest rate at 2.1%. Large lease transactions dominated the market, including online retailer Wayfair LLC inking a 770,000-sf deal one of the year s largest during the fourth quarter at 2020 Logistics Dr. in Mississauga. On the investment front, although the sale of industrial buildings declined 9% quarter-over-quarter to $844 million, annual sales volume was up 38% year-over-year to cap a recordsetting 2017 with a total of $3.5 billion in trades. The GTA s average net asking rental rate edged slightly higher quarter-over-quarter to finish 2017 at $6.69 psf. The highest average net asking rent continued to be found in GTA North at $7.29 psf, while GTA East continued to be the most economical market with an average net asking rent of $5.80 psf. While fourth-quarter completions totalled only 285,000 sf, more than 4.8 million square feet (msf ) of new industrial supply was added to the market during 2017 down from the 6.5 msf completed in A further 17 buildings were under construction totaling 3.6 msf, with an additional 41 buildings in the preleasing pipeline, with the potential of adding another 14.5 msf across the region. Market Inventory Total Available Area Average Net Asking Rent Construction Pipeline 872 msf 22.4 msf $6.69 psf 3.6 msf / 19 buildings Availability Trends Occupancy Cost Trends 40 5% $12 Total Available Area (msf) % 3% 2% 1% Availability Rate Avg. Gross Rent $10 $8 $6 $4 $2 0 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 0% Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 Direct Available Area (sf ) Sublet Available Area (sf ) Availability Rate (%) Avg. Net Asking Rate ($psf ) Avg. Additional Rent ($psf ) Market Inventory Direct Avail. Area Sublet Avail. Area Total Avail. Area Avail. Rate (%) Avg. Net Asking Rent Avg. Addt'l Rent Avg. Asking Sale Price Current Completions Under Construction Preleasing GTA Central 260,545,509 5,364, ,324 5,943, % $6.46 $4.13 $ ,000 3,073,829 GTA East 48,226,044 1,527,509 29,244 1,556, % $5.80 $3.14 $ , ,000 GTA North 181,928,191 2,762,600 1,054,949 3,817, % $7.29 $3.68 $ ,733 1,311,961 GTA West 381,065,576 9,760,331 1,338,994 11,099, % $6.71 $3.41 $ ,000 2,907,617 7,598,762 Greater Toronto 871,776,320 19,415,253 3,001,511 22,416, % $6.69 $3.84 $ ,000 3,553,718 14,461,552

3 GTA Central Market Monitor Available space in the Central market increased by 624,000 sf, pushing the overall availability rate up 30 bps quarter-over-quarter to 2.3%. The average asking rent of $6.46 psf remained steady both quarter-over-quarter and year-over-year. The Scarborough market was particularly busy this quarter, boasting an availability rate (2.3%) below the GTA average and surpassing North York with respect to affordability, offering an average asking gross rent of $10.41 psf. Notable lease transactions included The Hillman Group inking a new deal for approximately 382,000 sf on Tapscott Rd., kicking off First Gulf s 1.5-msf Metro East Business Park. This deal will allow The Hillman Group to consolidate operations from two Pickering locations in Among investment sales, Canada Post s purchase of 915 Lake Shore Blvd. E. in Toronto was the quarter s largest transaction. An additional 1.5 msf of space became available for prelease in the fourth quarter with the introduction of the Metro East Business Park. In a prime example of the redevelopment trend, PIRET, in partnership with Hopewell, introduced a 295,078-sf redevelopment project (divisible to 50,000 sf ) on the former DuPont site at 75 Venture Dr. in Scarborough, with an expected first-quarter 2019 completion date. Market Inventory Total Available Area Average Net Asking Rent Construction Pipeline 261 msf 5.9 msf $6.46 psf 0 sf / 0 Buildings Availability Trends Occupancy Cost Trends 7 5% $12 Total Available Area (msf) % 3% 2% 1% Availability Rate Avg. Gross Rent $10 $8 $6 $4 $2 0 Q4'16 Q1'17 Q2'17 Q3'17 Q4'17 0% Q4'16 Q1'17 Q2' 17 Q3' 17 Q4'17 Direct Available Area (sf ) Sublet Available Area (sf ) Availability Rate (%) Avg. Net Asking Rate ($psf ) Avg. Additional Rent ($psf ) Market Inventory Direct Avail. Area Sublet Avail. Area Total Avail. Area Avail. Rate (%) Avg. Net Asking Rent Avg. Addt'l Rent Avg. Asking Sale Price Current Completions Under Construction Preleasing East York 9,323, , , % $7.35 $ Etobicoke 75,683,080 2,277, ,669 2,526, % $6.93 $3.90 $ North York 69,518,921 1,364,244 29,985 1,394, % $6.75 $3.91 $ ,118,730 Scarborough 65,897,140 1,275, ,891 1,545, % $6.32 $4.09 $ ,955,099 Toronto 39,766, ,993 29, , % $6.10 $4.81 $ GTA Central 260,545,509 5,364, ,324 5,943, % $6.46 $4.13 $ ,073,829 * Total figures for the GTA Central include additional submarkets not listed above (i.e. York).

4 GTA East Market Monitor Overall, availability in the East market jumped 110 bps to 3.2% during the fourth quarter a welcome relief for tenants following the steady decline seen throughout the first three quarters of Ajax was the only market to experience a decline in availability (down 90 bps to 1%). After hitting a seven-quarter low of $5.36 psf in the third quarter of 2017, the average asking net rent in the GTA East rebounded to $5.80 psf in the fourth quarter. The Hillman Group signed two short-term, but notable, renewals (1055 Squires Beach Rd. (191,079 sf ) and 915 Sandy Beach Rd. (110,000 sf ) during the quarter, while awaiting construction completion of its new premises in Scarborough s Metro East Business Park (382,000 sf ). On the sale front, Summit REIT purchased 1800 Ironstone Manor in Pickering from HOOPP Realty for $14.2 million, representing $89 psf. More than 50% of the new speculative expansion (105,368 sf ) at KingSett s existing 113,408-sf facility at 185 William Smith Dr. in Whitby has been leased to Keystone Automotive, with construction on the expansion expected to be completed in secondquarter Four buildings remain in the preleasing stage in the East market, which would add upwards of 677,000 sf to the inventory if built, mostly in Ajax. Market Inventory Total Available Area Average Net Asking Rent Construction Pipeline 48 msf 1.6 msf $5.80 psf 105,398 sf / 1 Building Availability Trends Occupancy Cost Trends 3 5% $10 $9 Total Available Area (msf) 2 1 4% 3% 2% 1% Availability Rate Avg. Gross Rent $8 $7 $6 $5 $4 $3 $2 $1 0 0% Direct Available Area (sf ) Sublet Available Area (sf ) Availability Rate (%) Avg. Net Asking Rate ($psf ) Avg. Additional Rent ($psf ) Market Inventory Direct Avail. Area Sublet Avail. Area Total Avail. Area Avail. Rate (%) Avg. Net Asking Rent Avg. Addt'l Rent Avg. Asking Sale Price Current Completions Under Construction Preleasing Ajax 7,280,210 74, , % $5.00 $ ,000 Oshawa 13,587, , , % $5.69 $2.04 $ ,000 Pickering 11,177, , , % $5.75 $ Whitby 10,268, ,125 29, , % $6.19 $3.36 $ ,368 67,000 GTA East 48,226,044 1,527,509 29,244 1,556, % $5.80 $3.14 $ , ,000 * Total figures for the GTA East include additional submarkets not listed above (i.e. Brock, Clarington, Scugog and Uxbridge).

5 GTA North Market Monitor The availability rate in the North market declined 30 bps quarter-over-quarter to 2.1% marking a new historic low. Sublease listings made up 28% of the total available area in the North market, representing 1.1 msf, largely confined to the Vaughan market. The market s average asking net rent increased.30 quarter-over-quarter to $7.29 psf, breaking the seven-dollar mark for the first time and remaining the highest among the GTA s four districts. Noteworthy lease deals during the fourth quarter included Corpap Inc. signing a new deal at 400 Cochrane Dr. in Markham for 110,244 sf, and Gin-Cor Industries inking a 10-year lease at 210 Harry Walker Pkwy. N. in Newmarket for 105,402 sf. Notable sales included Public Storage Canada purchasing 189 Bullock Dr. in Markham from TGV Partners for $16.5 million, representing $115 psf. No buildings were completed during the quarter; however, construction commenced on three new projects, bringing the total area under development to 520,733 sf. Five buildings remain in preleasing mode, representing more than 1.3 msf. In response to the rapid increase in land costs and declining availability rates, Strathallen Capital Corp. broke ground on a 95-acre industrial/commercial development during the fourth quarter. Located on Highway 400 in Bradford-West Gwillimbury, the site will be subdivided into 15 saleable parcels, each fully serviced and ready for development in summer Market Inventory Total Available Area Average Net Asking Rent Construction Pipeline 182 msf 3.8 msf $7.29 psf 520,733 sf / 5 Buildings Availability Trends Occupancy Cost Trends 6 3% $12 Total Available Area (msf) % 1% Availability Rate Avg. Gross Rent $10 $8 $6 $4 1 $2 0 0% Direct Available Area (sf ) Sublet Available Area (sf ) Availability Rate (%) Avg. Net Asking Rate ($psf ) Avg. Additional Rent ($psf ) Market Inventory Direct Avail. Area Sublet Avail. Area Total Avail. Area Avail. Rate (%) Avg. Net Asking Rent Avg. Addt'l Rent Avg. Asking Sale Price Current Completions Under Construction Preleasing Aurora 6,217, ,077 30, , % $7.97 $3.75 $ Markham 40,121, , , , % $6.78 $3.66 $ Newmarket 9,032,708 47,787 80, , % $8.13 $ ,000 0 Richmond Hill 14,040, ,131 19, , % $7.37 $ ,000 Vaughan 106,894,898 1,599, ,752 2,372, % $7.35 $3.81 $ ,108 1,231,961 GTA North 181,928,191 2,762,600 1,054,949 3,817, % $7.29 $3.68 $ ,733 1,311,961 * Total figures for the GTA North include additional submarkets not listed above (i.e. East Gwillimbury, Georgina, King and Whitchurch-Stouffville).

6 GTA West Market Monitor The West market had the strongest fourth-quarter performance of all GTA markets. The availability rate continued its downward trend, falling 40 bps quarter-over-quarter to 2.9%, and is down 150 bps year-over-year the largest decline among GTA markets. Large deals by e-commerce, third-party logistics, retail and food-manufacturing firms dominated the headlines in 2017, with these users accounting for the majority of big-block leases. Significant demand continues to come from small-to-mid-sized users looking for space in the 20,000-to-50,000-sf range in new buildings; however, the majority of space on the market in this size range is in older, lower-clear-height facilities. Wayfair LLC, a fast-growing e-commerce company, leased the entire 770,000-sf speculative facility being built by Panattoni at 2020 Logistics Dr. in Mississauga during the fourth quarter. Meanwhile, a significant investment transaction was Crestpoint Real Estate Investment Ltd. s purchase of 1995 Williams Pkwy. in Brampton (202,600 sf / $25 million) as part of the Martinrea International portfolio. Average net asking rents increased quarter-over-quarter, to $6.71 psf in the fourth quarter. The highest average net asking rent continued to be found in Milton at $7.26 psf. Given its14.9% availability, Halton Hills is the most economical market with an average net asking rent of $5.98 psf. One building was completed during the quarter BMW Canada s 285,000-sf facility at 3455 Argentia Rd. in Mississauga. A further 12 buildings are under construction totaling 2.9 msf, with an additional 22 buildings in the preleasing pipeline, amounting to 7.6 msf. Market Inventory Total Available Area Average Net Asking Rent Construction Pipeline 381 msf 11.1 msf $6.71 psf 2.9 msf / 12 Buildings Availability Trends Occupancy Cost Trends 30 6% $12 Total Available Area (msf) % 4% 3% 2% Availability Rate Avg. Gross Rent $10 $8 $6 $4 1% $2 0 0% Direct Available Area (sf ) Sublet Available Area (sf ) Availability Rate (%) Avg. Net Asking Rate ($psf ) Avg. Additional Rent ($psf ) Market Inventory Direct Avail. Area Sublet Avail. Area Total Avail. Area Avail. Rate (%) Avg. Net Asking Rent Avg. Addt'l Rent Avg. Asking Sale Price Current Completions Under Construction Preleasing Brampton 95,620,590 1,567, ,041 1,721, % $6.61 $3.17 $ ,840 1,716,975 Burlington 26,731, ,076 3, , % $6.69 $3.53 $ Caledon 14,075, , , % $6.79 $2.63 $ ,103 3,484,816 Halton Hills 8,326,924 1,237, ,237, % $5.98 $ Milton 21,524,012 1,869,783 69,000 1,938, % $7.26 $ ,368 Mississauga 186,272,713 3,721, ,742 4,709, % $6.69 $3.55 $ ,000 2,006,674 1,047,389 Oakville 28,513, , , , % $6.81 $3.46 $ ,214 GTA West 381,065,576 9,760,331 1,338,994 11,099, % $6.71 $3.41 $ ,000 2,907,617 7,598,762

7 Summary of Tenant Options Available Space No. of Bldgs. with Avail. Space More than 250,000 sf 249, ,000 sf 99,999-50,000 sf 49,999-20,000 sf Less than 20,000 sf East York GTA GTA West GTA North GTA East GTA Central Etobicoke North York Scarborough Toronto Market Total* Ajax Oshawa Pickering Whitby Market Total* Aurora Markham Newmarket Richmond Hill Vaughan Market Total* Brampton Burlington Caledon Halton Hills Milton Mississauga Oakville Market Total Overall Total * Total figures for the GTA Central, GTA East and GTA North include additional submarkets not listed above.

8 Lake Simcoe Georgina Brock East Gwillimbury Caledon King Newmarket Aurora Whitchurch- Stouffville Uxbridge Scugog Halton Hills Milton GTA WEST 407 Brampton 410 Mississauga QEW Vaughan Etobicoke York North York Toronto GTA NORTH Richmond Hill GTA CENTRAL East York Markham Scarborough Pickering 4 Ajax 412 GTA EAST Whitby Oshawa 401 Clarington Burlington Oakville Lake Ontario Significant Lease Transactions by Market # Address Market Tenant Size Lease Type Logistics Drive Mississauga Wayfair LLC 770,000 sf New Highway 50 Vaughan Graybar Canada Limited 88,859 sf New Tapscott Road Scarborough The Hillman Group 382,450 sf New Squires Beach Road Pickering The Hillman Group 191,079 sf Renewal

9 $844M Total industrial investment volume for transactions greater than $1M during the fourth quarter 915 Lake Shore Boulevard East in Toronto GTA Industrial Investment Market Highlights Although sales of industrial properties declined 9% quarter-over-quarter to $844 million (25% of overall investment volume in the GTA) during the fourth quarter, annual volume was up 38% year-over-year to cap a record-setting 2017 with a total of $3.5 billion in trades. Peel, the GTA s most active region (by dollar volume) for industrial sales through the first three quarters of the year, was edged out for top spot in the fourth quarter by the City of Toronto, with nearly $254 million in sales (31% of the GTA total). Three of the quarter s top five transactions involved portfolios, including the GTA portion (eight properties / $54 million) of 10 properties in Ontario and Quebec traded between Morguard Investments and Summit Industrial Income REIT, while Sun Life and Bentall Kennedy swapped three multi-tenant industrial buildings in Burlington for just over $47 million. The fourth quarter s largest single-property industrial transaction was Harbourside s sale of 915 Lake Shore Blvd. E. to Canada Post Corporation for $22.5 million, and the year s biggest sale was 8875 Torbram Rd., sold by Carttera Private Equities to Concert Properties for $158 million in April. Capitalization rates for single- and multi-tenant properties held steady from the third quarter at 4.8% and 5.1%, and compressed by 40 and 30 bps year-over-year, respectively. Capitalization Rates Average Cap Rate 10% 9% 8% 7% 6% 5% 4% '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Q1'17 Q2'17 Q3'17 Q4'17 Single Tenant Industrial Multi Tenant Industrial Investment Volume and Sale Price (Transactions over $1M) Investment Volume ($ millions) $1,400 $1,200 $1,000 $800 $600 $400 $200 Q1'08 Q1'09 Q1'10 Q1'11 Q1'12 Q1'13 Q1'14 Q1'15 Q1'16 Q1'17 Q4'17 Significant Sale Transactions Investment Volume ($ Millions) Average Sale Price ($psf ) SIGNIFICANT INDUSTRIAL TRANSACTION BY SALE PRICE FOURTH QUARTER 2017 Property Total Price Price psf Purchaser Vendor Morguard Summit Portfolio $54,050,000 $98 Summit Industrial Income REIT Morguard Investments Ltd. Sun Life Bentall Kennedy Portfolio $47,200,000 $146 Bentall Kennedy Sun Life Assurance Company of Canada Carlingview Dr. $33,140,000 $152 Summit Industrial Income REIT Investors Group Martinrea Int l Crestpoint Portfolio $31,511,444 $110 Crestpoint Real Estate Investment Ltd. Martinrea International Inc. 915 Lake Shore Blvd. E. $22,500,000 $292 Canada Post Corporation Harbourside Inc. 4.8% 5.1% $180 $150 $120 $90 $60 $30 Average Sale Price

10 For more information, contact: Bill Argeropoulos Principal & Practice Leader, Research (Canada) Warren D'Souza Research Manager, Toronto Suburban Markets Avison Young Commercial Real Estate (Ontario) Inc., Brokerage. All rights reserved. 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. Acknowledgment: Data for graphs, charts and tables used in this report are sourced from Avison Young, Altus InSite and Realnet. 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. Anthony Hong Research Analyst City Centre Drive East Tower, Suite 301 Mississauga, ON L5B 1M Charles Torzsok Research Analyst Commerce Valley Drive West Suite 501, Mailbox #7 Markham, ON L3T 7V