3 RD QUARTER 15 Greater Toronto Area Industrial Report Partnership. Performance. Overview With the end of the third quarter, 15 is shaping up to be an incredible year for the Greater Toronto Area (GTA) s industrial market in both the leasing and sale sectors. On the leasing side, vacancy rates stood at a new 15 low of 3.1%, a 4-basis-point (bps) drop quarter-over-quarter. Nearly 5 million square feet (msf) of space was absorbed in the third quarter alone the highest amount witnessed during the past three years. Despite the.1 msf of new construction that came onto market, availability rates remained at an annual low of 4.4%. On the end-user purchase side, supply is at an all-time low and demand has never been higher as a result of the low cost of debt and more affordable financing options. Since price is inherently a function of where supply and demand meet, user pricing is growing as the slim market continues to be flooded by buyers. Due to the type of portfolios traded this quarter, investment numbers spiked in different directions: investment volumes fell significantly and average price per square foot rose sharply. The GTA is gradually encroaching onto its Greenbelt and land s scarcity has made it an attractive long-term asset, especially around the planned GTA West Corridor. Ultimately, this contributes to the appeal and value of redevelopment opportunities within traditional industrial sites. Average asking rental rates across the Central, East and North markets dropped slightly quarter-over-quarter; ranging from $5.1 per square foot (psf) to $6. psf. Due to continuous delivery of newer product and its prime location, the West market continues to see steady increases in rental rates, finishing the third quarter at $6.5 psf. Overall, rental rates have remained firm, deviating only slightly quarterover-quarter, which is indicative of the market s stability and the consistent balance between supply meeting demand. Highlights Significant Leasing Activity Much of the absorption this quarter was attributed to the significant number of larger-block lease transactions, which, as witnessed in the second quarter, continue to be led by big-box retailers, and transportation and logistics industries. Retailer Forever1, for example, leased 38, square feet (sf) at Orlando s building at 45 Hogan Drive in Mississauga. Third-party logistics companies in particular dominated the industrial market this quarter: Icecorp took 13,4 sf at 375 Argentia Road, Mississauga; Genco leased 13,9 sf of Orlando s building at 8 Van Der Graaf Court in Brampton; and Legendary Logistics leased 148,1 sf at 189 Speers Road in Oakville. Right at the end of the quarter, Orlando Corporation, one of Canada s largest privately-owned industrial real estate developers and landlords, closed a deal with Unisource Canada to build a 45,-sf facility at 15 Madill Boulevard, Mississauga, along the 41 corridor. Earthworks for this design-build facility have already begun and construction is set to begin in spring of 16. Medium-Format Construction vs. Large-Format Construction To the market s delight, there has been a noticeable trend toward increased leasing velocity among medium-sized requirements between 8, and 15, sf. New developments that are able to meet these requirements and take advantage of this trend may have better preleasing activity and avoid postponed construction dates or additional time left in shell condition. An example of this is Prologis s threebuilding speculative distribution facility in Milton 83, 8399 and 844 Lawson Road. The project broke ground in July this year and will contribute an additional 485,9 sf to Milton s 19-msf industrial market early in 16. Already, these buildings have garnered a lot of tenant interest, preleasing approximately 8, sf with more space expected to be taken up prior to completion. What is happening? Toronto Central & East s MARKET FACTS As in both the West and North markets, the GTA s Central and East markets lack available product for sale. Though these markets have a smaller proportion of institutional ownership as compared to their western and northern counterparts, the low cost of borrowing has nevertheless fuelled the acquisition market, especially among owner/users. Demand is heaviest for big-box distribution space, which is bolstered by a range of food-related warehouse requirements. During the third quarter, the Central and East s saw a collective increase in occupancy of 1.6 msf, bringing combined year-to-date positive absorption to.5 msf. Although the Central market s availability rate increased 1 bps quarter-over-quarter, it still remains 3 bps below the 3.7% rate seen at the beginning of the year. The East market, similarly, continues to experience a steady decline in its availability rate. Quarter-over-quarter, the rate dropped 1 bps to 3.4% a drastic 11-bps decline since the start of 15. 14 Number of properties with more than 5, sf available in GTA West 5.5% Availability rate in Milton 5.5% Average cap rate for a singletenant industrial building $6.75 Average asking net rent in Markham
Greater Toronto Area - Overview Toronto North Absorption in the North market has reached new heights this year as 885, sf was taken up in the third quarter. This offset the significant negative absorption of approximately 1 msf that occurred during the first quarter and pushed the Toronto North market to a positive absorption of, sf year-to-date. Like Milton in many ways, Vaughan is striving to become a more prominent industrial submarket in the GTA. This quarter, 63,5 sf was delivered at 19 Teston Road, all of which has been occupied. The 1.1 msf of space under construction in the North market is primarily split between Vaughan and Markham, with Vaughan taking a slightly larger share. Toronto West The numerous significant transactions that were expected to close in the third quarter did not disappoint, as the GTA West market absorbed 1.6 msf and reached a year-to-date low vacancy rate of 4.%. Rebounding net absorption levels this quarter significantly made up for the 1.8 msf of lost occupied area in the first quarter, swinging total year-to-date absorption back up to 68,1 sf. Availability rates remain at a low 5.7%, despite approximately 18, sf of space being delivered and nearly 3.7 msf under construction. Almost 9% of all new construction in the GTA is concentrated within the West market. Smaller market nodes like Brampton and Burlington have seen a dip in availability rates, but Oakville, in particular, has been able to slash its availability rate to.3% half of what it was a year earlier. Oakville, unlike others, has a market that is not undergoing significant inventory growth every year but instead benefits from having established, long-standing users who are not drawn to the bigger, shinier products other markets are offering. With more traditional users, Oakville is less susceptible to large, frequent, vacancies and continues to prove a very stable market. Forecast Strong momentum has been established moving into the fourth quarter as several projects including Giffels Corporation s design-build facility in Burlington, HOOPP s speculative facility in Milton and two of Orlando s facilities, one in Brampton and one in Mississauga, are all slated for completion by year-end, adding 1.5 msf to market inventory. Since the majority of these new buildings are preleased, they have paved the way for continued low vacancy, sustained availability rates and positive absorption. Capitalization Rates Investment Volume - Transactions Over $3 M Average Sales Price per Square Foot - Transactions Over $3 M
Greater Toronto Area - Overall 5 GTA - Industrial Trends GTA - Industrial Trends 6% $1. GTA - Occupancy Cost Trends GTA - Occupancy Cost Trends Total Area (, sf) 45 4 35 3 5 15 1 5 5% 4% 3% % 1% Total Rate Average Price ($psf) $1. $8. $6. $4. $. % $. Direct Space Sublet Space Availability Rate Asking Net Rent Additional Costs GTA - Space by Clear Height GTA - Space by Clear Height GTA - Large Block Availability 3 6 5 15 1 5 5 4 3 1 > 3 ft 8-3 ft 4-7 ft 18-3 ft < 18 ft > 5, sf 1, - 49,999 sf 5, - 99,999 sf GTA MARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) GTA Central 65 3.4 % $5.34 GTA East 48 3.4 % $5.1 GTA North 179 3.4 % $6. GTA West 37 5.7 % $6.5 GTA Total 864 4.4 % $5.99
Greater Toronto Area - Central GTA Central - Industrial Trends GTA Central - Occupancy Cost Trends 1 5% $1. Total Area (, sf) 8 6 4 4% 3% % 1% Total Rate Average Price ($psf) $8. $6. $4. $. % $. Direct Area Sublet Area Total Rate Asking Net Rent Additional Costs GTA Central - Space by Clear Height 1 GTA Central - Space by Clear Height 14 GTA Central - Large Block Availability GTA Central - Large Block Availability 1 8 6 4 1 1 8 6 4 > 3 ft 8-3 ft 4-7 ft 18-3 ft < 18 ft > 5, sf 1, - 49,999 sf 5, - 99,999 sf GTA CENTRAL - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) East York 1.4 % $ 5.6 Etobicoke 76 3.8 % $ 5.75 North York 71 3.8 % $ 5.47 Scarborough 65 4.1 % $ 4.84 Toronto 43 1. % $ 7.61 GTA Central* 65 3.4 % $ 5.43 * Total figures for the GTA Central include additional submarkets not listed above (i.e. York).
Greater Toronto Area - East GTA East - Industrial Trends GTA East - Occupancy Cost Trends 6% $1. GTA East - Occupancy Cost Trends Total Area (, sf) 1 5% 4% 3% % 1% Total Rate Average Price ($psf) $8. $6. $4. $. % $. Direct Space Sublet Space Availability Rate Asking Net Rent Additional Costs 1 GTA East - Space by Clear Height 3 GTA East - Large Block Availability GTA East - Large Block Availability 1 8 6 4 1 > 3 ft 8-3 ft 4-7 ft 18-3 ft < 18 ft > 5, sf 1, - 49,999 sf 5, - 99,999 sf GTA EAST - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) Ajax 7. % $ 5.57 Oshawa 14 3.6 % $ 5.5 Pickering 11 4. % $ 4.7 Whitby 1 4.5 % $ 5.15 GTA East* 48 3.4 % $ 5.1 * Total figures for the GTA East include additional submarkets not listed above (i.e. Brock, Clarington, Scugog and Uxbridge).
Greater Toronto Area - North 8 GTA North - Industrial Trends GTA North - Industrial Trends 5% $1. GTA North - Occupancy Cost Trends GTA North - Occupancy Cost Trends Total Area (, sf) 6 4 4% 3% % 1% Total Rate Average Price ($psf) $1. $8. $6. $4. $. % $. Direct Space Sublet Space Availability Rate Asking Net Rent Additional Costs GTA North - Space by Clear Height 5 45 4 35 3 5 15 1 5 > 3 ft 8-3 ft 4-7 ft 18-3 ft < 18 ft 1 9 8 7 6 5 4 3 1 GTA North - Large Block Availability GTA North - Large Block Availability > 5, sf 1, - 49,999 sf 5, - 99,999 sf GTA NORTH - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) Aurora 6 4.3 % $ 4.95 Markham 4 3.6 % $ 6.75 Newmarket 9 5.4 % $ 6.41 Richmond Hill 14 6.7 % $ 6.63 Vaughan 15.8 % $ 5.78 GTA North* 179 3.4 % $ 6. * Total figures for the GTA North include additional submarkets not listed above (i.e. East Gwillimbury, Georgina, King and Whitchurch-Stouffville).
Greater Toronto Area - West 5 GTA West - Industrial Trends GTA West - Industrial Trends 7% $1. GTA West - Occupancy Cost Trends GTA West - Occupancy Cost Trends Total Area (, sf) 15 1 5 6% 5% 4% 3% % 1% Total Rate Average Price ($psf) $1. $8. $6. $4. $. % $. Direct Space Sublet Space Availability Rate Asking Net Rent Additional Costs 14 GTA West - Space by Clear Height GTA West - Space by Clear Height 35 GTA West - Large Block Availability GTA West - Large Block Availability 1 1 8 6 4 3 5 15 1 5 > 3 ft 8-3 ft 4-7 ft 18-3 ft < 18 ft > 5, sf 1, - 49,999 sf 5, - 99,999 sf GTA WEST - SUBMARKET SUMMARY Inventory (msf) Availability Rate (%) Asking Net Rent ($psf) Brampton 94 5.6 % $ 5.7 Burlington 7 6.1 % $ 6.35 Caledon 1 14.8 % $ 5.83 Halton Hills 6 1.3 % $ 5.95 Milton 19 5.5 % $ 6.4 Mississauga 185 5.6 % $ 6.37 Oakville 9 4.8 % $ 6.1 GTA West 371 5.7 % $ 6.5
Greater Toronto Area - Overall SUMMARY OF TENANT OPTIONS Number of Buildings with Space Properties with More Than 5, sf Properties with 1, to 49,999 sf Properties with 5, to 1, sf Properties with, to 5, sf Properties with Less Than, sf East York 7 - - - - 7 Etobicoke 94 1 6 8 16 63 North York 88-3 61 Scarborough 116 1 4 7 4 8 Toronto 9-1 - 4 4 GTA Central 33 4 11 17 67 35 Ajax 1 - - - 3 7 Oshawa 11 1-1 1 8 Pickering 4 - - 6 16 Whitby 9-5 GTA East 58 1 5 11 39 Aurora 5-1 - 1 3 Markham 64-3 14 45 Newmarket 1-1 1 8 Richmond Hill 38-1 Vaughan 14 1 8 9 1 85 GTA North 47 1 16 14 49 167 Brampton 9 3 11 15 39 Burlington 9 1 4 1 7 16 Caledon 16 1 3 8 Halton Hills 8 1-1 4 Milton 1 4 4 9 Mississauga 36 3 9 35 66 7 Oakville 6 - - 4 7 15 GTA West 55 14 5 58 18 318
Greater Toronto Area SIGNIFICANT INDUSTRIAL LEASE TRANSACTIONS Address Tenant Size Lease Type 15 Madill Boulevard, Mississauga Unisource 45, sf New 45 Hogan Drive, Mississauga Forever1 38, sf New 1333 Airport Road, Mississauga Continental Tire 38, sf New 615 McLaughlin Road, Mississauga National Tire 165, sf New 189 Speers Road, Oakville Legendary Logistics 148,1 sf New GTA INDUSTRIAL MAP
For more information on this report, please contact Avison Young: Bill Argeropoulos 416.673.49 Principal & Practice Leader, Research (Canada) avisonyoung.com Carmina Tupe 95.83.339 Research Coordinator 15 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 95.71.1 F 95.71.937