MARKETVIEW Toronto Industrial, Q3 2015 Demand for smaller, more secondary assets on the rise amid the recent scarcity of large warehouse space New Supply 3.0 million sq. ft. Under Construction 8.7 million sq. ft. Ave. Ask Lease $5.30 per sq. ft. Ave. Ask Sale Price $111.60 per sq. ft. Figure 1: GTA Availability and Average Ask. Lease s - Select Clear Height Ranges *Arrows indicate change from previous quarter. $7.00 Average Ask. Lease ($/sq. ft.) Availability (%) 3.5% $6.00 3.0% $5.00 2.5% $4.00 2.0% $3.00 1.5% $2.00 1.0% $1.00 0.5% $0.00 0.0% Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Average Asking Rent < 18' (psf) Average Asking Rent < 18' - 26' (psf) Average Asking Rent > 26' (psf) Availability < 18' Availability 18' - 26' Availability > 26' Assets smaller than 50,000 sq. ft. are seeing strong user demand, most noticeably in Toronto and the bordering municipalities. There are currently 8.9 million sq. ft. available in that size range in the GTA, compared to 12.2 million sq. ft. recorded 24 months ago (a 27% decline). Industrial investment properties are a hot commodity in the GTA market, with multiple offers being made on single properties. Low interest rates, coupled with lower returns in the equity and bond markets are the main demand drivers. Nevertheless, investment options remain scarce. Summary Inventory 755,316,981 sq. ft. Availability 4.1% Average Days on Market 417 Average Land Cost ($/acre) $618,200 Q3 2015 Absorption 2,571,552 sq. ft. Q3 2015 CBRE Research 2015, CBRE Limited 1
MARKETVIEW TORONTO INDUSTRIAL The GTA industrial market hasn t suffered much of a setback despite the slower economic performance that has hit Canada in the first half of the year. According to TD Economics, annual growth is expected to be just 1.2% in 2015, which is the poorest performance since 2009. Although low oil prices have dragged down many segments of the economy, it appears that the GTA industrial market has received extra stimulus to occupier demand. The decline in the price of oil has an immediate effect on the production costs of goods and product pricing, as well as on transportation costs. As a result, transport companies are benefiting from wider margins. All of this has led to augmented demand for warehousing space. A more competitive dollar and rising U.S. demand are aiding the manufacturing sector in Canada, which had been dreary in recent months. The GTA industrial market has also been incentivized by the ongoing evolution of the e-commerce sector and its changing supply chain landscape that has been primarily led by new consumer behaviours. A substantial number of fulfilment centres are being occupied, built, or scheduled for construction in the GTA (i.e. Fedex in Vaughan, Ikea in Mississauga, or Canadian Tire in Caledon). It should be noted that many of these bigbox facilities (200,000 sq. ft. and up) are being operated by third-party logistics companies. Additionally, the rise of e-commerce has forced supply chain users to incorporate smaller regional distribution centres and local service centres that can get them closer to the end user, thus adding the last mile component of the network. Assets smaller than 50,000 sq. ft. have accommodated much of this demand, most noticeably in Toronto and the bordering municipalities. Availability in that size range has dropped by 3.3 million sq. ft. in the last 24 months. The market saw four lease transactions that exceeded 200,000 sq. ft. in Q3 2015, totaling 1.3 million sq. ft. Three of the four users involved in those trades are from the logistics industry ; the Toronto West market was home to all three of these transactions and remains the most popular hub for warehouse & distribution facilities. Manufacturing properties (smaller than 200,000 sq. ft.) are also benefiting from the strengthened demand for bulky industrial space as there is a supply shortage that has yet to be addressed, therefore forcing users to opt for alternative space. The prospect of being an owner occupier in the GTA market has received much hype in recent times, with users making the leap to acquire ownership more often than ever before. Consequently, the market posted a sizeable drop in industrial space available for sale in Q3 2015, displaying 8,842,122 sq. ft. as compared to 10,494,431 sq. ft. in Q2 2015 (a 16% decline). Figure 2: Q3 2015 Select Lease Transactions User Size Address City Market IKEA Distribution Services Inc. 401,037 3275 Argentia Road Mississauga Toronto West Metro Logistics Inc. 398,922 541 Kipling Avenue Etobicoke Toronto Central National Logistics Services Inc. 290,291 200 Chrysler Drive Brampton Toronto West Dominion Warehousing & Distribution Services Ltd. 206,715 10 Sun Pac Boulevard Brampton Toronto West GAP (Canada) Inc. 154,182 5875 Falbourne Street Mississauga Toronto West Maurice Sporting Goods 149,629 7045 Beckett Drive Mississauga Toronto West Legendary Logistics Inc. 143,077 2189 Speers Road Oakville Toronto West Delmar Logistics Inc. 130,868 180 Courtneypark Drive E Mississauga Toronto West ESP Promotions 115,691 400 Cochrane Drive Markham Toronto North Harding Display Inc. 110,339 150 Dynamic Drive Scarborough Toronto Central Q3 2015 CBRE Research 2015, CBRE Limited 2
MARKETVIEW TORONTO INDUSTRIAL Figure 3: Q3 2015 Industrial Market Statistics Submarket Inventory Vacancy (%) Avail. (%) Q3 2015 Absorption 2015 Absorption Under Construction Avg. Asking Lease ($ per sq. ft.) Avg. Asking Sale Price ($ per sq. ft.) Pickering 9,457,322 1.3 3.9 (138,917) 451,828 5.08 80.93 Ajax 7,499,341 0.4 3.0 67,477 51,456 3.85 66.25 Whitby 6,092,186 4.3 9.7 42,161 (70,340) 5.19 55.05 Oshawa 27,093,966 2.2 3.5 200,800 (91,437) 70,000 4.16 57.40 Toronto East Totals 50,142,815 2.0 4.2 171,521 341,507 70,000 4.57 61.71 Toronto 23,064,534 0.0 0.6 75,119 199,179 7.27 144.89 North York 87,026,467 1.2 2.3 25,180 281,855 4.96 93.01 Scarborough 68,184,630 1.6 3.1 156,865 97,093 80,000 4.71 108.71 Etobicoke 81,254,171 1.8 3.4 455,489 159,444 4.57 111.36 East York 7,991,140 0.1 0.7 (35,240) 53,362 5.60 165.28 York 7,179,602 0.0 2.5 (127,172) (138,478) 4.77 115.58 Toronto Central Totals 274,700,544 1.3 2.6 550,241 652,455 80,000 4.78 106.63 Markham 35,656,424 1.7 3.0 (10,396) 56,442 550,000 5.63 132.12 Richmond Hill 12,756,685 3.9 5.6 143,508 679,132 115,000 7.01 127.10 Vaughan 66,708,931 2.3 3.6 325,692 981,368 1,826,946 5.55 91.26 Aurora 5,458,420 3.9 3.9 13,369 (82,891) 4.95 102.40 Newmarket 4,603,658 4.8 18.7 (69,609) (311,970) 5.26 105.30 Whitchurch-Stouffville 988,775 0.0 1.2 102,882 (2,067) 21,800 7.50 155.35 Toronto North Totals 126,172,893 2.5 4.2 505,446 1,320,014 2,513,746 5.70 107.17 Mississauga 155,883,277 1.3 4.9 321,587 324,138 1,025,813 5.70 117.53 Brampton 81,875,724 2.0 5.1 49,563 1,985,383 1,322,162 5.44 84.39 Oakville 18,111,186 1.5 3.0 281,922 192,314 0 6.27 149.42 Milton 16,091,821 3.2 5.3 1,502,450 243,689 2,241,204 6.16 113.83 Burlington 20,771,222 4.5 6.2 (188,775) (122,464) 0 4.04 101.90 Caledon 11,567,499 8.5 14.7 (622,403) 274,459 1,494,137 5.79 112.30 Toronto West Totals 304,300,729 2.1 5.3 1,344,344 2,897,519 6,083,316 5.55 108.10 GTA Totals 755,316,981 1.9 4.1 2,571,552 5,211,495 8,747,062 5.33 104.40 Q3 2015 CBRE Research 2015, CBRE Limited 3
MARKETVIEW TORONTO INDUSTRIAL SUMMARY BY SUB-REGION TORONTO NORTH Average asking lease rates increased by $0.13 quarterover-quarter to $5.70 per sq. ft. in Q3 2015, rendering the Toronto North market the most expensive leasing market in the GTA. Toronto North tops the GTA region in rent levels across all building classes. Falling availability rates, coupled with increased user demand have caused the average days on market to decrease by 54 days to 341 in Q3 2015. High quality buildings in prime locations, especially properties in Vaughan with Highway 400 exposure are traded in a relatively shorter timeframe with face rents reaching as much as $9.00 per sq. ft. There is a substantial pipeline of product on the horizon in the Toronto North market with 2.5 million sq. ft. under construction. One noteworthy project is the 132,000 sq. ft. multi-tenant building on 122 Stoneridge in Vaughan, which has been fully preleased and will be delivered in Q4 2015. In Q3 2015, there were 150,000 sq. ft. of modern industrial space completed in the market, with the most notable being the 63,500 sq. ft. facility at 2190 Teston Road, which has been filled by Atlas Tire Wholesale Inc. TORONTO CENTRAL The Toronto Central market recorded thirteen transactions in excess of 50,000 sq. ft. in Q3 2015, out of which nine involved the acquisition of property. Seven of the thirteen transactions involved properties in Etobicoke, which continues to attract a lot of interest from larger users. Etobicoke and North York have the largest amount of Class A industrial space available for lease and sale in the Toronto Central market, contributing 376,536 sq. ft. and 204,763 sq. ft. respectively. The majority of Etobicoke s available class A space is located in South Etobicoke, in the vicinity of Highways 427 and QEW. Assets in central locations, in close proximity to heavily populated areas, and those in recognized industrial parks continue to drive selling activity in Etobicoke. While the average asking sale price posted a noticeable drop quarter-over-quarter, this was largely due to several large blocks of space becoming available at lower rates. Prices for medium and small bay space continue to uphold record levels and garner significant user interest when released to market. TORONTO EAST Average asking rents for Class A industrial properties have gone up the Toronto East market. This is reflected most notably in Whitby and Ajax, which are submarkets that are seeing increased interest from tenants. Relocating to these municipalities from submarkets like Markham or Scarborough seems like an intriguing prospect to many potential users, especially when factoring in the possible savings and Durham's improving infrastructure. The Toronto East market saw the addition of 165,000 sq. ft. to its industrial inventory at the end of Q3 2015. The new supply consisted of a design-build project at 953 Farewell Street in Oshawa, which will be occupied by Metal Traders International. The market saw 171,521 sq. ft. of positive net absorption in Q3 2015. On a quarterly basis, this is a respectable amount and it's mainly the outcome of a high volume of lease and user sale deals, as well as the fully occupied new supply that was added to the inventory (165,000 sq. ft.). TORONTO WEST There was a net increase in space available for lease in Q3 2015 with an additional 968,178 sq. ft. of space on the market. There was a substantial decrease in space available for sale which decreased by 1.3 million sq. ft. While overall net asking rates decreased quarter-over-quarter from $5.61 per sq. ft. in Q2 2015 to $5.55 per sq. ft. in Q3 2015, it is important to note that rates continued rallying for product in excess of 26' clear increasing by $0.40 per sq. ft. to finish the quarter at $6.13 per sq. ft. s for product between 18 and 26 clear made even more substantial gains increasing by $1.23 per sq. ft. in Q3 2015. This is only the second quarter since 2008 to have recorded an overall market rate in excess of $6.00 per sq. ft. Many small bay facilities that are located in traditional industrial centers garner substantial interest when offered for sale as users and investors are considering them for redevelopment opportunities. Q3 2015 CBRE Research 2015, CBRE Limited 4
MARKETVIEW TORONTO INDUSTRIAL CONTACT CBRE OFFICES Radek Pindiur Research Associate, Toronto North +1 416 495 6286 radoslaw.pindiur@cbre.com Nikola Obradovic Research Associate, Toronto West +1 416 798 6265 nikola.obradovic@cbre.com Toronto Downtown 145 King St W, Suite 600 Toronto, ON M5H 1J8 Toronto West 87 Skyway Ave, Suite 100 Toronto, ON M9W 6R3 Toronto North 2001 Sheppard Ave E, Suite 300 Toronto, ON M2J 4Z8 To learn more about CBRE Research, or to access additional research reports, please visit the Global Research Gateway at www.cbre.com/researchgateway. Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness. This information is presented exclusively for use by CBRE Limited clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE Limited.