Industrial Insight Report. Greater Toronto Area Q4 2017

Transcription

1 Industrial Insight Report Greater Toronto Area Q4 2017

2 Table of Contents Greater Toronto Area Overview 1 Submarkets GTA West 2 GTA North 3 GTA Central 4 GTA East 5 Contacts 6 2

3 Greater Toronto Area Despite surge in new speculative construction mid-size space is almost non-existent The total vacancy rate ended the year at 2.8 percent, a 70 basis point increase year-over year, primarily due to the increase in speculative construction of 1.9 million square feet in the fourth quarter and 5.4 million square feet for the year illustrate continued demand Landlord favourable conditions keep average asking net rents trending upward In response to the amount of tenant demand being experienced in the Greater Toronto Area (GTA) and a lack of available warehouse space, developers continue to actively build. This response has meant 8.8 million square feet of new supply being delivered in 2017 of which 5.6 million was speculative. Comparing this to 2016 new supply - when 5.6 million square feet was delivered of which 4.3 million square feet was speculative - this is quite high. The increase in new supply has impacted the industrial market by increasing the vacancy rate, although only marginally. Tenants in the industrial market have had a healthy appetite for big box space over the past year. This has caused average asking net rents for big box space to trend upward, and has prompted developers to focus on building additional big box space to meet the demand. Orlando is nearing competition on a 303,000 square foot build-to-suit for Expeditor at 6360 Belgrave Road, Mississauga. While Wayfair, an e-commerce company, signed the largest lease of the quarter when they took Panattoni s new 770,000 square foot building at 2020 Logistics Drive, Mississauga. But because of this focused big box development, availability for mid-range product (50,000 to 90,000 square feet) is in short supply, with Class A availability in that size range being practically non-existent. Because of a lack of space in this size range, market savvy tenants are now negotiating leases even earlier and opting to do lease renewals instead of acting upon RFPs - such as PepsiCo, Nestlé and Best Buy. Average asking rent 13,000,000 10,000,000 7,000,000 4,000,000 1,000, % 3.5% 2.5% 1.5% 4.0% 3.0% 5,436,443 s.f 1,935,180s.f. 3,074,165s.f 2.8 % $6.22 p.s.f. Decreasing 2.1% 2.8% New Supply Outlook Over the next 24 months, developers are aiming to get started on new business parks in Brampton, Caledon, Milton and Vaughan that will add much needed supply to the market. Over the next 12 to 24 months, rental growth will be above historical norms as the new supply should temper rental growth to 3 to 5 percent. $6.20 $5.80 $5.60 $ Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

4 GTA West Significant amount of new supply in 2017 pushed up vacancy, but rental rates continue to increase Developers are looking at low coverage sites for potential redevelopment 7 million square feet of new supply is expected for 2018 Lease activity The GTA West recorded 1,629,838 square feet of positive net absorption in Q4, causing the vacancy rate to decrease 40 basis points quarter-over-quarter to 3.4 percent. However, year-over-year the total vacancy rates increased 60 basis points, due to the 7.1 million square of new supply delivered to the market. The largest lease signed this quarter was by Wayfair, an e-commerce company. They leased Panattoni s new 770,000 square feet distribution facility at 2020 Logistics Dr. Mississauga. Average asking net rent 8,000,000 6,000,000 4,000,000 2,000,000 4,661,853 s.f. 1,629,838s.f. 1,756,418s.f. 3.4% $6.47 p.s.f. Falling Deliveries Rents The average asking net rent increased to $6.47 per square foot, an increase of 2.2 percent year-over year. Developers are asking a premium for class A midsize product and tenants are giving in. Anatolia leased out 55,292 square feet of their new development at 6500 Kitimat Rd, Mississauga on a 10 year deal with rents starting at $7.25 per square foot % 3.2% 2.8% 3.4% Sales A notable sale this quarter was Summit REIT s purchase of a portfolio of properties from Morguard totaling 738,436 square feet. They paid an aggregate $59 per square foot. Summit REIT purchased a total of 1.68 million square feet in 2017 with an average price of $109 per square foot or an average cap rate of 5.4 percent. New construction The fourth quarter had 1.9 million square feet of new supply delivered to the market. For 2017, new supply totaled 7.1 million square feet, of which 4.5 million square feet was speculative development. Record low cap rates coupled with rising net rents are two main reasons why developers are still purchasing land for development. As well, developers have begun to closely look at sites with low site coverage to redevelop, similar to what First Gulf has done with their 341,130 square foot redevelopment at 307 Orenda Rd, Brampton. RECENT SALES COMPARABLES Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.) Crestpoint Martinrea International 1995 Williams Parkway Brampton 202,600 Nov 2017 $123 Summit REIT Morguard 1111 Corporate Dr Burlington 151,410 Dec 2017 $111 RECENT LEASE COMPARABLES Tenant Landlord Location Municipality Size (s.f.) Wayfair Panatonni 2020 Logistics Dr. Mississauga 770,000 Ceva Logistics *Renewal Oxford Properties 2600 North Park Dr. Brampton 320,000 $7.00 $5.00 $4.00 $3.00 $2.00 Net Rent Additional 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

5 GTA North Positive net absorption and a lack of new supply decreased vacancy, prompting asking net rates to trend upward Small-bay multi tenanted buildings continue to demand higher rental rates in the GTA North compared to the rest of the GTA New construction is not enough to alleviate lack of availability Lease activity The GTA North this quarter had 442,807 square feet of positive net absorption, resulting in the vacancy rate decreasing 20 basis points quarter-over-quarter. This did not prevent the vacancy rate from increasing 70 basis points year-overyear though. Even with the increase in the vacancy rate, the market still experienced a rental growth and witnessed healthy demand from tenants looking for mid-size space. Rents Landlords are continuing to push up average asking net rents given the lack of available space. This translated into asking net rates increasing 1.2 percent quarter-over-quarter and 2.0 percent year-over-year. With limited new developments underway in the GTA Central, we believe rental growth will follow the GTA s average growth rate of 3 to 5 percent over the next 12 months. Sales In Q4 the largest sale was Public Storage s purchase of 189 Bullock Dr. Markham, a 143,512 square feet facility for $115 per square feet. A rezoning and site plan application have been submitted for the property, proposing a development that would include 18 commercial units and a self storage facility. The total proposed development will be approximately 145,203 square feet, with 23,371 square feet of retail space. New construction Anatolia s new speculative development in Vaughan on Highway 50 is the much needed class A supply for tenants seeking mid-to-large size facilities. But there remains a gap for tenants looking for smaller developments (20,000-40,000 square feet). Developers took notice of this and broke ground on a number of developments in Richmond Hill, Newmarket and Stouffville. Average asking net rent 2,000,000 1,500,000 1,000, , % 3.0% $7.00 $5.00 $4.00 $3.00 $2.00 1,187,017 s.f. 442,807s.f. 1,3,17,747 s.f. 2.2% $6.52 p.s.f. Falling Deliveries 1.7% 2.2% Net Rent Additional RECENT SALES COMPARABLES Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.) Public Storage TVG Partners 189 Bullock Drive Markham 143,512 Nov 2017 $115 PG Properties Ltd Ontario Inc Nicholson Rd Newmarket 125,721 Dec 2017 $80 RECENT LEASE COMPARABLES Tenant Landlord Location Municipality Size (s.f.) Undisclosed Birock Investments Inc. 213 Harry Walker Pkwy S Newmarket 186,912 Undisclosed Tilzen Holdings Limited 210 Harry Walker Pkwy N Newmarket 105, Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

6 GTA Central Dwindling availability and a low vacancy rate are forcing tenants to compete for limited space Scarborough is becoming a hotbed for class A development as both institutional investors and developers look for redevelopment opportunities and greenfield projects Lease activity was relatively flat again this quarter, with only 40,771 square feet of positive net absorption. But this was enough to drop the vacancy rate 10 basis points quarter-over-quarter. On the leasing front, activity was sluggish compared to the previous quarter and to the previous year. Despite the slowing activity, developers continue to build class A product in Scarborough which have been well received by tenants. And Etobicoke is still desirable among tenants because of it s central location and lower rental rates compared to Mississauga. GTA Central will become more desirable once last mile delivery for e-commerce emerges in the GTA. Rents Across the GTA Central, average asking net rents can vary from $6.11 per square foot in Etobicoke, $6.34 per square foot in Scarborough and $6.27 per square foot in central Toronto. This is because the majority of supply is older small-bay with quasi retail component. Because developers are more focused on big box construction, tenants will have to continue to complete for limited supply, as a result we will continue to see this variation in rates. Sales A notable sale this quarter was Carterra s purchase of a 163,300 square foot facility on 14 acres at 1330 Martin Grove Rd, in Etobicoke. The property was sold for $119 per square foot or 1,374,406 per acre. We suspect the site could be redeveloped given the buildings coverage ratio is 27.0 percent. Average asking net rent 700, , , , , % $ ,254 s.f. 40,771s.f. 0 s.f. 1.8% $6.20 p.s.f. Falling Deliveries 2.0% 1.5% 1.8% Net Rent Additional New construction In 2017, there was 540,578 square feet of new supply delivered (a small amount compared to the other submarkets). Currently there are no significant developments under construction, but PIRET and Hopewell do have a 300,000 square foot building at 75 venture set to begin within the next 12 months. RECENT SALES COMPARABLES $5.00 $4.00 $3.00 Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.) New-Can Realty Nelson Education 1120 Birchmount Rd. Scarborough 220,465 Nov 2017 $91 Carttera Redstone Enterprises 1330 Martin Grove Rd. Etobicoke 163,300 Oct 2017 $119 RECENT LEASE COMPARABLES Tenant Landlord Location Municipality Size (s.f.) Undisclosed Ontario Inc. 55 Browns Line Etobicoke 302,170 Undisclosed Laurier Homes 375 Kennedy Rd Scarborough 80, Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

7 GTA East The GTA East is attracting a diverse group of tenant types because of the market s lower rents and stable labour pool Sales continue to be driven by institutional investors looking for redevelopment opportunities Lease activity In the fourth quarter, the GTA East experienced 178,239 square feet of negative net absorption. Because of this the vacancy rate increased by 30 basis point quarter-over-quarter. Typically it has been tenants related to the auto industry that have occupied space in the GTA East, but over the past few months we have noticed a more diverse set of tenants moving into the area. This is likely because of lower asking rates compared to other GTA submarkets. Rents The average asking net rent this quarter was $5.53 per square foot, making it the lowest across the GTA. Because of the low rates, tenants in other submarkets are considering either an expansion or relocation into the GTA East. Sales The largest sale of the quarter was Summit s Industrial REIT s purchase of 1800 Ironstone Manor, in Pickering from HOOPP. The property sold for $14.2 million ($89 per square foot). Other large sales include Toyota Canada s purchase of 29 acres of land in Bowmanville, which they intend to build a 450,000 square foot parts and distribution facility on. And Canopy Growth Corporation purchase of 32.7 acres of land in Clarington for $153,265 per acre; no application has been submitted by Canopy to the town regarding its development as of yet. New construction New development projects are underway in Whitby and Oshawa, filling the need for class A product which has been overlooked in GTA East. The wildcard for future development and leasing activity in the GTA East is dependent on what happens with NAFTA. Since the largest group of tenants in the area is related to the auto industry, will there be a demand for space if this industry s demand changes along with NAFTA? Average asking net rent 200, , , % $5.00 $4.00 $3.00 $2.00 $ ,037 s.f. -178,239 s.f. 105,368 s.f. 3.8% $5.53 p.s.f. Falling Deliveries 4.0% 2.4% 3.8% Net Rent Additional RECENT SALES COMPARABLES Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.) HOOPP Summit Industrial REIT 1800 Ironstone Manor Pickering 159,800 Nov 2017 $89 Private Investor Skyline Commercial REIT 1655 Tricont Ave Whitby 83,511 Nov 2017 $112 RECENT LEASE COMPARABLES Tenant Landlord Location Municipality Size (s.f.) Inteva Products Crawmet Corporation 155 Wentworth St Whitby 200,000 Undisclosed Invar Building Corp 1840 Clements Rd Pickering 84, Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.

8 About JLL JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the second quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of nearly 80,000. As of June 30, 2017, LaSalle Investment Management had $57.6 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated For further information, visit About JLL Research JLL s research team delivers intelligence, analysis and insight through market-leading reports and services that illuminate today s commercial real estate dynamics and identify tomorrow s challenges and opportunities. Our more than 400 global research professionals track and analyze economic and property trends and forecast future conditions in over 60 countries, producing unrivalled local and global perspectives. Our research and expertise, fueled by real-time information and innovative thinking around the world, creates a competitive advantage for our clients and drives successful strategies and optimal real estate decisions. For further information, visit Office locations: TORONTO 22 Adelaide Street West, Suite 2600 Toronto, ON M5H 4E3 Tel: Fax: TORONTO NORTH 235 Yorkland Blvd, Suite 500 Toronto, ON M2J 1T1 Tel: Fax: MISSISSAUGA 110 Matheson Blvd W, Suite 107 Mississauga, ON L5R 4G7 Tel Fax MONTRÉAL 1, Place Ville Marie, Suite 3838 Montréal, QC H3B 4M6 Tel Fax OTTAWA 275 Slater Street, Suite 1004 Ottawa, ON K1P 5H9 Tel Fax For more information, please contact: Thomas Forr Manager, Research thomas.forr@am.jll.com EDMONTON TD Tower, Avenue, Suite No Edmonton, AB T5J 3G1 Tel Fax John Scioli Research Analyst john.scioli@am.jll.com CALGARY 301-8th Avenue SW, Suite 500 Calgary, AB T2P 1C5 Tel Fax VANCOUVER 355 Burrard Street, 14 th Floor Vancouver, BC V6C 2G6 Tel Fax Ben Wedge Senior Research Analyst ben.wedge@am.jll.com 2018 Jones Lang LaSalle IP, Inc. All rights reserved. No part of this publication may be reproduced by any means, whether graphically, electronically, mechanically or otherwise howsoever, including without limitation photocopying and recording on magnetic tape, or included in any information store and/or retrieval system without prior written permission of Jones Lang LaSalle. The information contained in this document has been compiled from sources believed to be reliable. Jones Lang LaSalle or any of their affiliates accept no liability or responsibility for the accuracy or completeness of the information contained herein and no reliance should be placed on the information contained in this document.