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Today we present a guest column from Goran Brelih, a Senior Vice President for Cushman & Wakefield ULC. He has been servicing investors and occupiers of industrial buildings in the Greater Toronto Area for the last 27 years, and has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars.
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What Developers, Investors, & Landlords Need to Know...
As of August 2019, the GTA Industrial Market has remained extremely tight, with the overall availability rate at 1.4%. Depending on the property size and location within the GTA markets, vacancy rates are as low as 0.2%.
In Q2 2019 we experienced a net rental rate increase in excess of 24% year over year…
So, let’s look at the GTA market ….
GTA Industrial Market Facts:
In Q2 2019 we experienced a net rental rate increase in excess of 24% year over year…
So, let’s look at the GTA market ….
GTA Industrial Market Facts:
- Third Largest Market in North America (behind LA and Chicago)
- Supply Constrained Market by a large margin
- Historically Record low vacancy rate at 1.4% overall
4th highest rental rate growth among North American markets, 42.5% in the last four years, 24% in the last year alone
These extreme market conditions left numerous occupiers with little to no options; they certainly faced sticker shock when given the new rates. Many have renewed their leases at almost double the net rental rates from the previous term.
Encouraged by these conditions and market signals, developers are trying to complete new building construction as quickly as possible. It feels like the entire GTA industrial market is on fire, from Toronto-West to the -North, -Central, and -East markets. Even though a record-number 13 million SF of industrial space is under construction, most of it is already pre-leased or will be spoken for before completion.
Speculative construction makes up about 45% of the new supply under construction, 58% of which is already pre-leased, while build-to-suits account for about 55%.
Most of the construction is centred in the GTA West Markets (about 7.5 million SF), followed by the GTA North Markets (at about 2.2 million SF).
So, let’s review some buildings that have been completed so far this year, some buildings that are under construction, some buildings that are committed and in the immediate pipeline, and what is coming next in regards to where future development will come from…
GTA Industrial Market 2019 YTD Building Completions
- Eleven Buildings were completed, making up almost two million SF
- A few notable examples are:
Glen Corporation completed construction of 150 Gibraltar Road property in Vaughan, which is now leased to Give & Go Foods. This is a modern Warehouse & Distribution facility with 36’ clear height, 8” floor slab, LED lighting, Cambridge unit heaters, 54’x42’10” bay size, and is full precast construction.
GTA Industrial Market 2019 YTD Buildings Under Construction
- Numerous buildings are under construction at this moment, making up almost 13 million SF
- A few notable examples from each market are:
GTA WEST MARKETS:
Menkes is in the process of constructing a warehouse distribution facility on Coleraine Drive in Caledon with 36’ clear height, 8” floor slab, 1:5,300 SF shipping door ratio, 40’x56’ bay size, and with occupancy in Q4 2019. A portion of the 102,000 SF building is already leased to TOC Logistics.
GTA NORTH MARKETS:
GTA NORTH MARKETS:
Combined Metal Industries is constructing a state-of-the-art metal sorting facility with a corporate head office in Vaughan at 8470 Keele Street. It is scheduled for completion in Q4 2019.
GTA CENTRAL MARKETS:
GTA EAST MARKETS:
Carttera is developing in Whitby, at 1652 Tricont Avenue; two warehouse distribution buildings of 185,000 SF each, with 32’ clear height, 8” floor slab, 54’x50’ bay size, 1:5,400 SF shipping door ratio, LED lighting, ESFR sprinkler system, all with estimated delivery in Q4 2019.
What’s to Come: GTA Industrial Market 2019 YTD - Buildings in the Pipeline
- Thirty-seven buildings are proposed with construction commencing soon, making up over 14 million SF, with a little more than 8 million SF expected to be constructed within the next two years.
- A few notable examples are:
Triovest will soon commence with construction of a flex warehouse & distribution facility in North York that has Hwy 400 exposure, 150,000 SF divisible to 50,000 SF units, with 32’ clear height, 8” floor slab, 40’x54’ bay size, LED lighting, Cambridge heating units and is estimated for completion in Q2 2020.
Canada Post is developing at 1395 Tapscott Road their GTA East Facility of 553,249 SF on 44.53 Acres of land, 667 parking spots with 40’ clear height and 47’ 7” to the deck.
What’s to Come - GTA Industrial Land Development - Future Pipeline
- Developers and property owners are preparing a number of land sites for future development …
- A few notable examples are:
The Cost of Building: GTA Industrial Development Charges August 2019
Depending on the municipality within the Greater Toronto Area, developers could be paying development charges anywhere from $1.07 per SF in the City of Toronto (comprised only of an educational levy), to over $36.91 per SF in the City of Vaughan (comprised of many other contributing factors).
For greater clarity, to construct a 100,000 SF building in Vaughan developers would have to pay over $3.6 million dollars in development charges (plus all the other fees).
GTA Industrial Development Charges Q2 2019
Furthermore, it looks like that “everyone under the sun” is looking to move to the City of Toronto, Greater Toronto Area and Greater Golden Horseshoe Area due to the: quality of life based on peace and prosperity that we have been enjoying for a long time, a good transportation network, a great education system, amazing hospitals, etc…. and these things are not going to change.
CONCLUSION:
By the end of 2019, we will have about four million SF of completed buildings;which is somewhat below the average completion volume of just over five million SF per year. This is due to a few factors, being:
- timing: the fact that municipal approvals take a bit longer these days,
- labour crunch: there is just not enough skilled labour available to construct, and there is currently
- a significant delay in ordering material for construction like pre-cast panels…
Furthermore, it looks like that “everyone under the sun” is looking to move to the City of Toronto, Greater Toronto Area and Greater Golden Horseshoe Area due to the: quality of life based on peace and prosperity that we have been enjoying for a long time, a good transportation network, a great education system, amazing hospitals, etc…. and these things are not going to change.
Therefore, it doesn’t seem that we will be able to meet this insatiable demand for industrial buildings in the GTA anytime soon. This will continue to put pressure on everyone involved with Industrial Real Estate in the GTA, resulting in a continued increase in industrial land values, construction costs, net rental rates, and municipal development charges…
Overall, if you are looking to develop, the current environment is ripe with both the demand to sell or lease to maximize values and profits, as well as with a potentially costly journey of attrition; rising charges, labour shortages, and material shortages.
On the flip-side, if you are looking to sell your property or a piece of land at the current peak, there may be a horde of buyers waiting at your doorstep.
In order to navigate the process, however, please ensure you speak to a specialist that can put together the right strategy and help you avoid any possible mishaps. If that is you, give us a call and we will assess your situation to see what your best course of action may be.
Until next week….
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