Market Overview

3 RD QUARTER 2014
Greater Toronto Area Industrial Market Report
Partnership. Performance.
Market Overview
The Greater Toronto Area (GTA) industrial market, stronger than it was a year ago, has
gained momentum in both tenant activity and speculative development. The market
saw its overall availability rate drop below 5% in the first quarter of 2013 for the first
time since the recent recession, and has now dug deeper to 4.3%. The reduction in
tenant options in the GTA has pushed average asking rental rates to $5.84 per square
foot (psf ) net. While enjoying the robust market, developers have pressed for higher
rental rates, targeting the $6.50 psf mark. The question remains, though, as to how the
market will respond to the 4.5 million square feet (msf ) in speculative developments
currently under construction – spread across 13 projects.
MARKET FACTS
3
$102
Million square feet of total area of
industrial design-builds under
construction in GTA
Average sales price per square foot
in GTA West for transactions over
$3 million
24
910,000
Number of buildings with clear
Total new supply in GTA,
height greater than 32 feet
consisting of the Prologis
Perhaps some indication can be found from the Prologis Meadowvale Distribution
Meadowvale Distribution Centre
Centre, a recently constructed two-facility centre comprising 910,000 square feet (sf )
at 3255 and 3275 Argentia Road in Mississauga. At 3255 Argentia Road (378,000 sf ),
Prologis has announced a fully tenanted building with the arrival of American Tire and
Russell A. Farrow. Another Prologis facility at 2995 Peddie Road in Milton, a $28-million, 303,000-sf acquisition from Cooper Construction
in May, has welcomed Princess Auto as its first tenant since its completion in late 2013. However, on the other side of the spectrum, there
are large-block facilities remaining in shell condition such as Blackwood Partners’ 728,000-sf cross-dock at 100 Ironside Drive in Brampton
and Hopewell Development’s brand-new 575,000-sf Mayport Distribution Facility at 12333 Airport Road in Caledon. With more speculative
development and four design-builds coming to market, it is projected that availability rates will continue to trend higher going into 2015.
With developer attention focused on constructing buildings for tenant requirements of 200,000 sf or greater, a lack of supply for functional
warehousing space of 50,000 to 100,000 sf (with a clear height of at least 28 feet) is increasingly evident. For this reason, Prologis’ recently
announced 174,000-sf and 204,000-sf facilities at 8277 Lawson Road and another 105,000-sf facility at 8300 Lawson Road in Milton offer
spaces that are easily divisible to 30,000 sf.
Developers are also resorting to renovating existing buildings and utilizing infill sites as the major industrial submarkets – Mississauga and
Brampton – offer increasingly limited suitable available industrial land. Evidence of this trend is demonstrated with Orlando Corporation’s
newly renovated 269,000-sf warehouse at 2480 Meadowvale Boulevard, a former GE design-build. Built in 1998, the building consisted
of 60,000 sf of office space on two floors. The renovated space now offers a 10,000-sf office space. Orlando recognized the challenge of
marketing a product with more than 20% office in today’s market. Prominent examples where existing buildings were demolished include
Anatolia Capital’s speculative project at 9 West Drive and Carttera Private Equities’ speculative distribution centre at 8875 Torbram Road
(Zellers’ former distribution facility), both in Brampton.
Overall, the market is strengthening but is not yet at par with pre-recession levels. There have been limited large deals of more than 300,000
sf completed in 2014. Four such deals have been completed this year; however, this is significantly lower than years prior to 2008, when
the number of large lease deals was in the low double-digits annually. There is positive activity in the 200,000-sf range, yet as speculative
development enters the market, it will keep rental rate growth at a minimum. Fortunately, rental rate growth will continue for the sub120,000- sf market, as demand for new product outpaces supply.
GTA West continues to be the preferred market for developers, investors, and tenants. It accounts for 93% of all speculative development
and design-build activity across the GTA. Encompassing 2.8 msf, notable design-builds include Unilever, Canadian Tire, and AcklandsGrainger. The market is also home to 10 speculative developments, of 4.1 msf, dispersed among five developers. KingSett Capital’s 105,000sf speculative expansion at 35 Brownridge Road in Halton Hills, completed earlier this year, has finalized two long-term leases. Southwest
Mississauga, one of the city’s quietest submarkets, has seen one of the quarter’s largest acquisition and lease transactions by Carttera Private
Equities. The Canadian real estate fund manager acquired the vacant 220,000-sf former Daimler bus assembly facility at 2549 Lakeshore
Road West for $13.3 million and has brought Ford Motor Company of Canada as a tenant. At 360 Hazelhurst Road, a plot of land adjacent to
the Lakeshore property, Carttera is also proposing a 102,000-sf design-build.
Greater Toronto Area - Market Overview
GTA Central, which balances proximity between downtown Toronto and GTA’s major transportation nodes, appeals to businesses searching
for immediate, same-day shipping within Toronto’s core. Consisting of mostly dysfunctional older product, GTA Central has breathed a
sigh of relief with the commencement of Prologis’ 1251 Tapscott Road in Scarborough. Providing a clear height of 32 feet, the 154,000sf bulk distribution facility has received a healthy amount of interest from the surrounding business community. Demisable to 36,000
sf, the facility appeals to local users, especially those more inclined to occupy newer product in order to comply with strict government
regulations. Looking eastward, the primarily owner-occupied market in GTA East remains subdued. The GTA East market, which obtains
most of its tenant activity from local users shuffling within its various submarkets, is the sole GTA market to experience negative year-to-date
absorption.
Numerous new multinational corporations have entered the active GTA North market, primarily in Vaughan. The flurry of activity, and a
scarcity of large tracts of land in Vaughan of upwards of 30 contiguous acres, has led to the city fast-tracking the West Vaughan Employment
Area, which encompasses Block 59. Block 59 is scheduled to accommodate Costco’s new 1.1-msf facility and a major small-package freight
delivery company. The freight delivery company is anticipated to break ground by year’s end, with Costco three to six weeks later. The
submarket will continue to see a rise in rental rates, as new product achieves base rental rates around the $7 psf mark. Vaughan also
welcomed the commencement of Isadan Holdings’ 68,000-sf new construction at 2190 Teston Road. Outside of Vaughan, the GTA North
market is facing flat rental rate growth, the consequence of weak demand for leasable space.
In terms of industrial investment, the GTA market is sustaining a healthy sales activity level considering the lean amount of available options.
Notable transactions include Manulife Financial’s acquisition at 1 Spar Drive in Brampton (for $100 psf and leased to Lennox International),
and CREIT’s 100 Disco Road in Etobicoke ($112 psf ). On the supply side, high-profile available options include KingSett Capital’s fully
tenanted distribution centre on Brownridge Road, Carttera’s newly purchased property on Lakeshore Road West, and Sun Life’s 440 Railside
Drive in Brampton leased to Itwal Ltd.
GTA Investment Market
Capitalization Rates
9.5%
Average Capitalization Rates
8.5%
Product Type
Q2 2014
Q3 2014
8.0%
Single Tenant Industrial
6.0 %
5.8 %
Multi-Tenant Industrial
6.2 %
6.1 %
7.5%
7.0%
6.5%
6.0%
5.5%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
'12
'13
'14
Single Tenant Industrial
Multi Tenant Industrial
Investment Volume Transactions Over $3 M
Average Sales Price per Square Foot Transactions Over $3 M
$1,400
120
$1,200
100
Average Price ($ psf )
Investment Volume ($ Millions)
Average Cap Rate
9.0%
$1,000
$800
$600
$400
60
40
20
$200
$0
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
'08
'09
'10
'11
'12
'13
'14
0
Q3 '13
Q4 '13
Q1 '14
Q2 '14
Q3 '14
Greater Toronto Area - Overall
GTA - Industrial Market Trends
45
40
$9.00
5%
30
4%
25
3%
20
15
2%
10
1%
5
$8.00
Average Price ($psf )
35
GTA - Occupancy Cost Trends
$10.00
6%
Total Available Rate
Total Available Area (000,000 sf)
GTA - Occupancy Cost Trends
GTA - Industrial Market Trends
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
0
0%
Q3 '13
Q4 '13
Direct Available Space
Q1 '14
Q2 '14
Q3 '14
Sublet Available Space
$0.00
Q3 '13
Availability Rate
60
Number of Properties Available
Number of Properties Available
250
50
Q3 '14
Additional Costs
GTA - Large Block Availability
70
100
Q2 '14
GTA - Large Block Availability
300
150
Q1 '14
Asking Net Rent
GTAGTA
- Available
Space by Clear Height
- Available Space by Clear Height
200
Q4 '13
50
40
30
20
10
0
0
> 32 ft
28-32 ft
24-27 ft
Single Tenant
18-23 ft
> 250,000 sf
< 18 ft
100,000 - 249,999 sf
Single Tenant
Multiple Tenant
50,000 - 99,999 sf
Multiple Tenant
GTA MARKE T SUMMARY
Market
Inventory (msf)
Availability Rate (%)
Asking Net Rent ($psf)
Current Quarter
Current Quarter
Change from
Previous Quarter
Current Quarter
Change from
Previous Quarter
GTA West
368
5.6 %

$ 5.97

GTA Central
264
3.2 %

$ 5.54

GTA East
47
4.6 %

$ 5.24

GTA North
179
3.2 %

$ 6.20

GTA Total
858
4.3 %

$ 5.84

Greater Toronto Area - West
GTA West - Industrial Market Trends
GTA West - Occupancy Cost Trends
GTA West - Industrial Market Trends
$9.00
6%
5%
15
4%
3%
10
2%
5
$8.00
$7.00
Average Price ($psf )
20
$6.00
$5.00
$4.00
$3.00
$2.00
1%
0
$1.00
0%
Q3 '13
Q4 '13
Direct Available Space
Q1 '14
Q2 '14
GTA West - Occupancy Cost Trends
$10.00
7%
Total Available Rate
Total Available Area (000,000 sf )
25
$0.00
Q3 '14
Sublet Available Space
Q3 '13
140
40
120
35
60
40
20
Q2 '14
Q3 '14
Additional Costs
GTA
West - Large Block Availability
GTA West - Large Block Availability
Number of Properties Available
Number of Properties Available
GTA West
- Available Space by Clear Height
GTA West - Available Space by Clear Height
80
Q1 '14
Asking Net Rent
Availability Rate
100
Q4 '13
30
25
20
15
10
5
0
0
> 32 ft
28-32 ft
24-27 ft
Single Tenant
18-23 ft
< 18 ft
> 250,000 sf
Multiple Tenant
100,000 - 249,999 sf
Single Tenant
50,000 - 99,999 sf
Multiple Tenant
GTA W E ST - SUBMARKE T SUMMARY
Market
Inventory (msf)
Availability Rate (%)
Asking Net Rent ($psf)
Current Quarter
Current Quarter
Change from
Previous Quarter
Current Quarter
Change from
Previous Quarter
Brampton
92
5.8 %

$ 5.47

Burlington
26
4.2 %

$ 6.08

Caledon
11
14.7 %

$ 6.00

Halton Hills
6
9.6 %

$ 5.85
Milton
Mississauga
Oakville
19
184
29
4.2 %
5.2 %
5.2 %



$ 5.84
$ 6.06
$ 6.18



GTA West
368
5.6 %

$ 5.97

Greater Toronto Area - Central
GTA Central - Industrial Market Trends
GTA Central - Occupancy Cost Trends
GTA Central - Industrial Market Trends
GTA Central - Occupancy Cost Trends
5%
$10.00
$9.00
12
4%
3%
8
6
2%
4
$8.00
Average Price ($psf )
10
Total Available Rate
Total Available Area (000,000 sf )
14
1%
2
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
0%
0
Q3 '13
Q4 '13
Direct Available Area
Q1 '14
Q2 '14
Sublet Available Area
$0.00
Q3 '14
Q3 '13
Total Available Rate
Q1 '14
Asking Net Rent
GTA Central
- Available Space by Clear Height
GTA Central - Available Space by Clear Height
Q2 '14
Q3 '14
Additional Costs
GTAGTA
Central
- Large Block Availability
Central - Large Block Availability
20
140
120
Number of Properties Available
Number of Properties Available
Q4 '13
100
80
60
40
20
18
16
14
12
10
8
6
4
2
0
0
> 32 ft
28-32 ft
24-27 ft
Single Tenant
18-23 ft
< 18 ft
> 250,000 sf
Multiple Tenant
100,000 - 249,999 sf
Single Tenant
50,000 - 99,999 sf
Multiple Tenant
GTA CE N TR AL - SUBMARKE T SUMMARY
Market
Inventory (msf)
Availability Rate (%)
Asking Net Rent ($psf)
Current Quarter
Current Quarter
Change from
Previous Quarter
Current Quarter
Change from
Previous Quarter
East York
10
1.8 %

$ 5.88

Etobicoke
76
3.7 %

$ 5.93

North York
70
2.5 %

$ 5.50

Scarborough
65
4.3 %
$ 4.92

Toronto
43
2.4 %

$ 7.77

264
3.2 %

$ 5.54

GTA Central*
* Total figures for the GTA Central include additional submarkets not listed above (i.e. York).
Greater Toronto Area - East
GTA East - Industrial Market Trends
GTA East - Occupancy Cost Trends
GTA East - Industrial Market Trends
GTA East - Occupancy Cost Trends
$10.00
6%
$9.00
5%
4%
3%
1
2%
1%
Average Price ($psf )
2
$8.00
Total Available Rate
Total Available Area (000,000 sf )
3
$7.00
$6.00
$5.00
$4.00
$3.00
$2.00
$1.00
0
0%
Q3 '13
Q4 '13
Direct Available Space
Q1 '14
Q2 '14
Q3 '14
Sublet Available Space
$0.00
Q3 '13
Availability Rate
Q1 '14
Asking Net Rent
GTA East - Available Space by Clear Height
Q2 '14
Q3 '14
Additional Costs
GTA East - Large Block Availability
GTA East - Large Block Availability
GTA East - Available Space by Clear Height
4
Number of Properties Available
10
Number of Properties Available
Q4 '13
8
6
4
2
3
2
1
0
0
> 32 ft
28-32 ft
24-27 ft
Single Tenant
18-23 ft
< 18 ft
> 250,000 sf
Multiple Tenant
100,000 - 249,999 sf
Single Tenant
50,000 - 99,999 sf
Multiple Tenant
GTA EA S T - SUBMARKE T SUMMARY
Inventory (msf)
Availability Rate (%)
Asking Net Rent ($psf)
Market
Current Quarter
Current Quarter
Change from
Previous Quarter
Current Quarter
Change from
Previous Quarter
Ajax
7
4.6 %

$ 5.50

Oshawa
14
2.8 %

$ 5.08

Pickering
10
8.0 %
$ 5.21

Whitby
10
6.5 %

$ 4.63

GTA East*
47
4.6 %

$ 5.24

* Total figures for the GTA East include additional submarkets not listed above (i.e. Brock, Clarington, Scugog and Uxbridge).
Greater Toronto Area - North
GTA North - Industrial Market Trends
GTA North - Occupancy Cost Trends
GTA North - Industrial Market Trends
$12.00
4%
$10.00
3%
4
2%
2
Average Price ($psf )
6
5%
Total Available Rate
Total Available Area (000.000 sf )
8
1%
0
Q4 '13
Direct Available Space
Q1 '14
Q2 '14
$6.00
$4.00
$0.00
Q3 '14
Sublet Available Space
$8.00
$2.00
0%
Q3 '13
GTA North - Occupancy Cost Trends
Q3 '13
Q1 '14
Q2 '14
Asking Net Rent
Availability Rate
GTA North - Available Space by Clear Height
Q3 '14
Additional Costs
GTA North - Large Block Availability
GTA North - Large Block Availability
GTA North - Available Space by Clear Height
10
70
60
Number of Properties Available
Number of Properties Available
Q4 '13
50
40
30
20
10
9
8
7
6
5
4
3
2
1
0
0
> 32 ft
28-32 ft
24-27 ft
18-23 ft
Single Tenant
> 250,000 sf
< 18 ft
Multiple Tenant
100,000 - 249,999 sf
Single Tenant
50,000 - 99,999 sf
Multiple Tenant
GTA N OR TH - SUBMARKE T SUMMARY
Market
Inventory (msf)
Availability Rate (%)
Current Quarter
Change from
Previous Quarter
$ 4.00


$ 6.82

2.5 %

$ 6.18
14
5.9 %

$ 6.43

Vaughan
105
3.1 %

$ 5.81

GTA North*
179
3.2 %

$ 6.20

Current Quarter
Current Quarter
Aurora
6
0.6 %
Markham
40
3.5 %
Newmarket
9
Richmond Hill
Change from
Previous Quarter
Asking Net Rent ($psf)
* Total figures for the GTA North include additional submarkets not listed above (i.e. East Gwillimbury, Georgina, King and Whitchurch-Stouffville).
Greater Toronto Area - Overall
S UM MARY 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
-
-
1
2
4
Etobicoke
100
-
6
11
23
60
North York
99
-
4
3
16
76
Scarborough
123
1
2
9
29
82
Toronto
43
-
3
3
9
28
372
1
15
28
81
249
Ajax
14
-
-
1
7
6
Oshawa
5
1
-
-
1
3
Pickering
26
-
2
4
2
18
Whitby
9
-
4
1
-
4
GTA East
55
1
6
6
10
32
Aurora
5
-
-
-
1
4
Markham
72
1
-
3
13
55
Newmarket
10
-
-
1
2
7
Richmond Hill
29
-
2
2
8
17
Vaughan
113
2
7
8
18
78
GTA North
233
3
9
14
42
165
Brampton
81
7
10
17
16
31
Burlington
26
1
4
2
7
12
Caledon
12
2
1
4
1
4
Halton Hills
5
1
1
-
-
3
Milton
9
3
-
1
3
2
Mississauga
355
7
16
22
76
234
Oakville
31
1
4
6
7
13
519
22
36
52
110
299
GTA Central
GTA West
Greater Toronto Area
SI GN I F I C A N T I N DUSTRIAL LEASE TR ANSAC TIO NS
Address
Tenant
Size
Lease Type
10 Sun Pac Boulevard, Brampton
Goudas Food Products &
Investments
374,000 sf
New
2995 Peddie Road, Milton
Princess Auto
303,000 sf
New
2549 Lakeshore Road West, Mississauga
Ford Motor Company of Canada
220,000 sf
New
3255 Argentia Road, Mississauga
Russell A. Farrow
207,000 sf
New
122 Stone Ridge Road, Vaughan
ATS Transportation
132,000 sf
New
GTA INDUSTRIAL MAP
Lake Simcoe
Georgina
Brock
East
Gwillimbury
Newmarket
King
Caledon
400
404
Aurora
GTA NORTH
(York)
GTA WEST
(Halton & Peel)
Richmond
Hill
Vaughan
Brampton
410
WhitchurchStouffville
Uxbridge
Scugog
GTA EAST
(Durham)
Markham
Pickering
407
Ajax
409
Whitby
Oshawa
401
401
Halton Hills
427
407
Milton
Mississauga
403
GTA CENTRAL
(Toronto)
QEW
407
Oakville
Burlington
403
Lake Ontario
Clarington
For more information on this report, please contact Avison Young:
Bill Argeropoulos
416.673.4029
Michael Nangle
905.283.2321
Vice President & Director of Research, Canada
avisonyoung.com
© 2014 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.
Research Associate
Avison Young
77 City Centre Drive
East Tower, Suite 301
Mississauga, ON L5B 1M5
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