3rd quarter 2015 greater toronto area industrial market ......the gta is concentrated within the...

Market OverviewWith the end of the third quarter, 2015 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 2015 low of 3.1%, a 40-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 2.1 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 $5.10 per square foot (psf ) to $6.22 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 $6.25 psf. Overall, rental rates have remained firm, deviating only slightly quarter-over-quarter, which is indicative of the market’s stability and the consistent balance between supply meeting demand.

Market 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 Forever21, for example, leased 380,000 square feet (sf ) at Orlando’s building at 2450 Hogan Drive in Mississauga. Third-party logistics companies in particular dominated the industrial market this quarter: Icecorp took 130,400 sf at 3275 Argentia Road, Mississauga; Genco leased 130,900 sf of Orlando’s building at 8 Van Der Graaf Court in Brampton; and Legendary Logistics leased 148,100 sf at 2189 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 450,000-sf facility at 125 Madill Boulevard, Mississauga, along the 401 corridor. Earthworks for this design-build facility have already begun and construction is set to begin in spring of 2016. 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 80,000 and 150,000 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 three-building speculative distribution facility in Milton – 8300, 8399 and 8440 Lawson Road. The project broke ground in July this year and will contribute an additional 485,900 sf to Milton’s 19-msf industrial market early in 2016. Already, these buildings have garnered a lot of tenant interest, preleasing approximately 80,000 sf with more space expected to be taken up prior to completion.

What is happening?

Toronto Central & East Markets

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 Markets saw a collective increase in occupancy of 1.6 msf, bringing combined year-to-date positive absorption to 2.5 msf. Although the Central market’s availability rate increased 10 bps quarter-over-quarter, it still remains 30 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 10 bps to 3.4% – a drastic 110-bps decline since the start of 2015.

M A R K E T F A C T S

14 Number of properties with more than 250,000 sf available in GTA

West

5.5% Average cap rate for a single-

tenant industrial building

5.5% Availability rate in Milton

$6.75 Average asking net rent in

Markham

3RD QUARTER 2015

Greater Toronto Area Industrial Market Report

Partnership. Performance.

Greater Toronto Area - Market Overview

Investment Volume - Transactions Over $3 M

Capitalization Rates

Average Sales Price per Square Foot - Transactions Over $3 M

Toronto North Market

Absorption in the North market has reached new heights this year as 885,000 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 200,000 sf year-to-date.

Like Milton in many ways, Vaughan is striving to become a more prominent industrial submarket in the GTA. This quarter, 63,500 sf was delivered at 2190 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 Market

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 4.2%. 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 608,100 sf. Availability rates remain at a low 5.7%, despite approximately 180,000 sf of space being delivered and nearly 3.7 msf under construction. Almost 90% 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 2.3% – 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.

Greater Toronto Area - Market Overview

GTA MARKE T SUMMARY

MarketInventory (msf) Availability Rate (%) Asking Net Rent ($psf)

Current Quarter Current Quarter Change from Previous Quarter Current Quarter Change from

Previous Quarter

GTA Central 265 3.4 % $5.34

GTA East 48 3.4 % $5.10

GTA North 179 3.4 % $6.22

GTA West 372 5.7 % $6.25

GTA Total 864 4.4 % $5.99

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GTA - Available Space by Clear Height

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GTA - Occupancy Cost Trends

Asking Net Rent Additional Costs

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GTA - Industrial Market Trends

Direct Available Space Sublet Available Space Availability Rate

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GTA - Large Block Availability


Greater Toronto Area - Overall

GTA - Available Space by Clear Height GTA - Large Block Availability

GTA - Industrial Market Trends GTA - Occupancy Cost Trends

GTA CENTRAL - SUBMARKE T SUMMARY


Current Quarter Current QuarterChange from

Previous QuarterCurrent Quarter

Change from Previous Quarter

East York 10 0.4 % $ 5.60

Etobicoke 76 3.8 % $ 5.75

North York 71 3.8 % $ 5.47

Scarborough 65 4.1 % $ 4.84

Toronto 43 1.2 % $ 7.61

GTA Central* 265 3.4 % $ 5.43 * Total figures for the GTA Central include additional submarkets not listed above (i.e. York).

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GTA Central - Occupancy Cost Trends


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GTA Central - Industrial Market Trends

Direct Available Area Sublet Available Area Total Available Rate

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GTA Central - Large Block Availability


Greater Toronto Area - Central

GTA Central - Available Space by Clear Height GTA Central - Large Block Availability

GTA Central - Industrial Market Trends GTA Central - Occupancy Cost Trends

Greater Toronto Area - Central

GTA EAST - SUBMARKE T SUMMARY





Ajax 7 2.0 % $ 5.57

Oshawa 14 3.6 % $ 5.50

Pickering 11 4.2 % $ 4.72

Whitby 10 4.5 % $ 5.15

GTA East* 48 3.4 % $ 5.10

* Total figures for the GTA East include additional submarkets not listed above (i.e. Brock, Clarington, Scugog and Uxbridge).

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GTA East - Occupancy Cost Trends


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GTA East - Industrial Market Trends


Greater Toronto Area - East

GTA East - Available Space by Clear Height GTA East - Large Block Availability

GTA East - Industrial Market Trends GTA East - Occupancy Cost Trends

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GTA East - Large Block Availability


GTA NOR TH - SUBMARKE T SUMMARY





Aurora 6 4.3 % $ 4.95Markham 40 3.6 % $ 6.75

Newmarket 9 5.4 % $ 6.41

Richmond Hill 14 6.7 % $ 6.63

Vaughan 105 2.8 % $ 5.78

GTA North* 179 3.4 % $ 6.22

* Total figures for the GTA North include additional submarkets not listed above (i.e. East Gwillimbury, Georgina, King and Whitchurch-Stouffville).

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GTA North - Occupancy Cost Trends


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GTA North - Industrial Market Trends


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GTA North - Large Block Availability


Greater Toronto Area - North

GTA North - Available Space by Clear Height GTA North - Large Block Availability

GTA North - Industrial Market Trends GTA North - Occupancy Cost Trends

Greater Toronto Area - North

GTA WEST - SUBMARKE T SUMMARY





Brampton 94 5.6 % $ 5.70

Burlington 27 6.1 % $ 6.35

Caledon 12 14.8 % $ 5.83

Halton Hills 6 10.3 % $ 5.95Milton 19 5.5 % $ 6.40

Mississauga 185 5.6 % $ 6.37

Oakville 29 4.8 % $ 6.01

GTA West 371 5.7 % $ 6.25

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GTA West - Occupancy Cost Trends


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GTA West - Industrial Market Trends


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GTA West - Large Block Availability


Greater Toronto Area - West

GTA West - Available Space by Clear Height GTA West - Large Block Availability

GTA West - Industrial Market Trends GTA West - Occupancy Cost Trends

SUMMARY OF TENANT OPTIONS

Market

Number of Buildings with

Available Space

Properties with More

Than 250,000 sf Available

Properties with 100,000 to 249,999 sf

Available

Properties with 50,000

to 100,000 sf Available

Properties with 20,000 to

50,000 sf Available

Properties with Less Than

20,000 sf Available

East York 7 - - - - 7

Etobicoke 94 1 6 8 16 63

North York 88 2 - 2 23 61

Scarborough 116 1 4 7 24 80

Toronto 29 - 1 - 4 24

GTA Central 332 4 11 17 67 235

Ajax 10 - - - 3 7

Oshawa 11 1 - 1 1 8

Pickering 24 - - 2 6 16

Whitby 9 - 2 2 0 5

GTA East 58 1 2 5 11 39

Aurora 5 - 1 - 1 3

Markham 64 - 3 2 14 45

Newmarket 12 - 2 1 1 8

Richmond Hill 38 - 2 2 12 22

Vaughan 124 1 8 9 21 85

GTA North 247 1 16 14 49 167

Brampton 90 3 11 15 22 39

Burlington 29 1 4 1 7 16

Caledon 16 2 2 1 3 8

Halton Hills 8 1 2 - 1 4

Milton 21 4 4 2 2 9

Mississauga 360 3 29 35 66 227

Oakville 26 - - 4 7 15

GTA West 550 14 52 58 108 318

Greater Toronto Area - Overall

SIGNIFICANT INDUSTRIAL LEASE TRANSAC TIONS

Address Tenant Size Lease Type

125 Madill Boulevard, Mississauga Unisource 450,000 sf New

2450 Hogan Drive, Mississauga Forever21 380,000 sf New

12333 Airport Road, Mississauga Continental Tire 380,000 sf New

6150 McLaughlin Road, Mississauga National Tire 165,000 sf New

2189 Speers Road, Oakville Legendary Logistics 148,100 sf New

GTA INDUSTRIAL MAP

Greater Toronto Area

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.

For more information on this report, please contact Avison Young:

Bill Argeropoulos 416.673.4029 Principal & Practice Leader, Research (Canada)

Carmina Tupe 905.283.2339 Research Coordinator

Avison Young77 City Centre DriveEast Tower, Suite 301 Mississauga, ON L5B 1M5T 905.712.2100 F 905.712.2937

avisonyoung.com

© 2015 Avison Young Commercial Real Estate (Ontario) Inc., Brokerage

3rd quarter 2015 greater toronto area industrial market ......the gta is concentrated within the...

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