Canada Industrial Outlook Q4 2014

Industrial Outlook
Canada | Q4 2014
Vacancy nearing historical low
• Overall, the industrial sector performed well in 2014 with heightened activity
recorded across the vast majority of Canadian industrial leasing markets.
• Market fundamentals continued to improve in Montréal and Greater Toronto
Area (GTA) with strong absorption gains in the fourth quarter; confidence
in the industrial market has grown as developers have increased new
construction levels.
Low energy prices and a weakening
Canadian dollar have benefitted
manufacturing and exporting
businesses in the Greater Toronto and
Montréal area; however there are
uncertainties surrounding the oil & gas
dependent markets of Calgary
and Edmonton.
Overview of Jones Lang LaSalle’s logistics and industrial services
From manufacturing plants to around-the-clock
distribution centers, industrial real estate is the
backbone of the global economy. Today’s financial
and competitive pressures demand that your
industrial property—whether leased or owned—
delivers maximum flexibility and efficiency. Our
logistics and industrial professionals understand the
current business environment and offer innovative,
profitable strategies for supply chain optimization,
site selection, sales, leasing, acquisition, financing,
construction, project management, and property and
facility management of industrial properties
and portfolios.
Our experts know all of the issues that impact your
industrial real estate decisions and apply proven
best practices to address such challenges as
skyrocketing energy, transportation, and labor costs;
heightened security needs; tough new environmental
requirements; and profound changes in global supply
chains. Because of our depth of in-house talent, we
can quickly assemble just the right team for your
particular need. Regardless of the size and scope of
the assignment, you’ll have a single point of contact
who manages all service delivery and is responsible
for producing the measurable results that are agreed
to up front.
3 JLL | Canada | Industrial Outlook | Q4 2014
More than 271 JLL professionals cover the
top 50 industrial markets in the United States,
Canada and Mexico and 410 more are at work in
major industrial markets around the globe.
In 2013, JLL logistics and industrial services
completed more than 2,724 transactions
comprising over 177 million square feet of space
at a value of more than $5.0 billion.
In this report
This report provides an overview of supply and demand conditions, as well as detailed statistics and brief analyses of major industrial
markets in Canada. Our professional research department is dedicated to producing information and insights that help our clients
understand dynamic real estate market trends and guide critical decision making for investors and occupiers.
Canada economic overview
5
Canada industrial property clock
6
Canada local markets
7
Greater Vancouver Area
8
Greater Toronto
9
Greater Montréal Area
10
About JLL
12
Canada overview
4 JLL | Canada | Industrial Outlook | Q4 2014
Canada economic overview
•
Looking back at the third quarter of 2014, the Canadian economy showed signs of
continued economic momentum, posting a 2.8 percent real GDP annualized growth rate.
This increase was attributed to sectors most connected to the U.S. economic growth, and a
falling Canadian dollar. A significant decline in the price of crude oil has resulted in a revised
economic forecast for the foreseeable future. According to TD Economics, the Canadian
economy is expected to have increased by 2.4 percent in 2014 and is forecasted to grow by
2.3 percent in 2015.
•
The Canadian dollar has steadily lost momentum since its peak of 94 U.S. cents in July,
dropping to 83 U.S. cents in January 2015, a decline of over 12.0 percent. A weaker
Canadian dollar increases the competiveness of Canadian goods in the United States, where
roughly 75.0 percent of Canadian exports are sent. Exports increased by 6.9 percent during
the third quarter of 2014, led by a 5.2 percent increase in investment in machinery and
equipment.
•
The benchmark prices of both Brent and WTI have dropped by approximately 40.0 percent
since September 2014, with the price of crude oil falling under $50 a barrel. The drop in
oil prices will result in an income transfer from the oil producing regions, including Alberta,
Saskatchewan, Newfoundland and Labrador, to the oil consuming regions of the country.
Consequently, non-resource-based economies have a more positive outlook, as lower energy
prices and a falling Loonie will help spur manufacturing-based economies and tourist-based
economies. While the nominal GDP will be negatively affected by a fall in corporate profits
and overall incomes, lower gas prices will add household spending money.
•
Employment gains in 2014 totaled 186,000, representing a 1.0 percent gain year-over-year,
with increases in the second half of the year accounting for the majority of growth. Despite a
drop in the participation rate, the unemployment rate remains unchanged at 6.6 percent as
gains in full-time work were offset by losses in part time work and a lower participation rate.
•
The Canadian housing market saw a slight decrease in housing starts down from 53,961
units in the third quarter to 48,236 units in the fourth quarter. However, despite the slight
decrease, as a whole 2014 saw an increase of 0.8 percent when compared with 2013, ending
the full year with 189,401 housing starts nationally. These gains were realized in the multiunit
sector, which includes both townhouses and condominiums, as single detached starts were
down on the year.
5 JLL | Canada | Industrial Outlook | Q4 2014
•
The Bank of Canada Governor, Stephen Poloz, announced the overnight interest rate will
remain at one per cent. Sliding oil prices and high household debt are two key contributors to
keeping the rate at one percent rate for the 51st consecutive month, keeping borrowing rates
at historic lows.
Canada industrial property clock
Edmonton
Peaking
market
Falling
market
Rising
market
Bottoming
market
Calgary, Saskatoon
Vancouver
Toronto, Canada
Montréal
Ottawa
6 JLL | Canada | Industrial Outlook | Q4 2014
Canada local markets
7 JLL | Canada | Industrial Outlook | Q4 2014
Greater
Vancouver
Area
Greater
Vancouver
Area
Market
Marketdrivers
drivers
• Completion of new construction
• Efficient distribution facilities
• Strata properties
• Manufacturing
• BC exports
• Port Metro Vancouver growth
Quarter in review
Leasing activity in the Metro Vancouver industrial market picked up in the fourth quarter as 700,627 square
feet was absorbed. This increase in leasing velocity will likely continue in 2015 as new speculative industrial
projects reach completion and spark interest from tenants seeking quality and efficient industrial buildings.
The high volume of leasing activity that occurred over the quarter was due to large-scale warehousing and
distribution companies occupying space in Delta. These large tenants include Dominion Warehousing
leasing 251,222 square feet at 1020 Derwent Way on Annacis Island, Forever 21 leasing 119,583 square
feet at 7167 Progress Way in Tilbury as well as Pet Valu leasing 110,000 sqaure feet in a brand new
multitenant facility in Boundary Bay Industrial Park.
There is a significant amount of speculative development slated to complete in 2015, including new and
efficient strata developments as well as large-scale distribution facilities. While landlords will likely keep their
asking lease rates stable, we anticipate the flight to quality industrial product to continue, and in turn
increasing activity in the leasing market over the balance of 2015.
8 JLL | Canada | Industrial Outlook | Q4 2014
Unemployment
rate
Historical
average
vacancy
Historical
average yearly
absorption
Value of
industrial
building permits
2.5 m
6.1%
3.2%
1.8 m.s.f.
$220.9 M
1020 Derwent Way, Delta
New lease: 251,222 s.f.
Tenant: Dominion Warehousing
Several large purchases of sizeable land development sites occurred over the last quarter, including
Tsawwassen First Nation (TFN) working with Healthcare of Ontario Pension Plan Realty and GWL Realty
Avisors to develop a 1.2-million-square-foot warehouse in Delta. This initial development at Tsawwassen
Gateway Logistics Centre is the first of three projects, which commences TFN’s speculative development of
330 acres of former farmland. Completion is set for mid-2016.
Burnaby
Coquitlam
Delta
Langley
New Westminster
North Vancouver
Port Coquitlam
Richmond
Surrey
Vancouver
Greater Vancouver Area
Population
Lease highlights
The lack of interest for inefficient, older generation buildings continues to put pressure on landlords to
decrease lease rates in order to secure a tenant. In some cases, landlords must use incentives such as
lease takeovers to manage vacancies in the market. Strata development continues to be a popular option
for small- to mid-bay users looking to take advantage of the low cost of financing and enter the sale market
as owner/users.
Submarket
Market vital
statistics
7167 Progress Way
New lease: 119,583 s.f.
Tenant: Forever 21
8181 Churchill Street, Delta
New lease: 110,000 s.f.
Tenant: Pet Valu
9291 River Drive, Richmond
Buyer: Private Investor
$20.4 M | 200,505 s.f.
888 S.E. Marine Drive, Vancouver
Buyer: Private Investor
$17.5 M | 179,342 s.f.
Sales highlights
6851 Elmbridge Way, Richmond
Buryer: Bene Development
$31.3 M | 78,195 s.f.
Total inventory
(s.f.)
Stock under
construction (s.f.)
Vacancy
rate
Availability rate
Quarterly
absorption (s.f.)
Average net asking rent
($ p.s.f.)
Q-Q % change in
net rent
Y-Y % change in
net rent
25,381,274
7,188,971
26,626,637
17,156,593
2,759,356
4,734,618
6,988,770
31,311,466
31,661,277
19,494,416
173,303,378
128,573
75,333
555,562
245,000
85,885
205,823
357,666
125,722
1,779,564
5.3%
3.9%
5.6%
2.9%
5.8%
2.8%
4.2%
3.6%
2.8%
2.9%
4.0%
8.3%
5.6%
7.7%
4.8%
12.7%
3.7%
6.6%
6.0%
5.7%
4.8%
6.6%
-145,978
27,038
796,250
-219,359
78,138
22,402
13,415
-153,485
216,942
65,264
700,627
$8.75
$8.15
$7.70
$8.20
$6.60
$13.31
$7.23
$8.25
$7.71
$10.30
$8.62
2.84%
0.25%
-2.22%
0.00%
0.00%
-3.72%
6.82%
0.58%
2.00%
0.94%
-4.46%
3.45%
-2.93%
-6.99%
11.70%
7.63%
7.41%
8.45%
1.18%
2.77%
0.84%
3.58%
Greater Toronto
Greater Toronto
Market drivers
• Consumer products companies
• 3PLs
• Warehousing
• Retail distribution centers
• e-commerce
Quarter in review
In the fourth quarter, Greater Toronto Area (GTA) recorded 3.2 million square feet of net absorption while
the overall availability rate for the industrial market ended the quarter at 6.6 percent. Currently at $5.86 per
square foot, the average asking net rent has been increasing steadily through 2014 as a result of strong
leasing demand and moderate supply constraints. Stable rent growth, a low availability rate and dwindling
tenant leverage are on the horizon for 2015.
Market vital
statistics
Population
Year-over-year
change in jobs
Historic average
availability
Historic average
yearly
absorption
Value of
industrial building
permits (YTD)
6.1 m
-0.2%
6.0%
2.9 m.s.f.
$746 M
Lease highlights
Speculative development in the GTA experienced healthy activity in 2014 with over eight completions
totaling 3.5 millions square feet. Demonstrating the strength of the GTA industrial market, three of the eight
spec developments completed in 2014 were either preleased or leased upon delivery.
Target recently announced the closing of all its 133 stores across Canada. Their disastrous two-year
venture will serve as a cautionary tale for American retailers looking to enter or expand in the Canadian
market. While we don’t expect their closing to have a significant impact on the industrial market as a whole,
it could dampen the appetite for new speculative development in the GTA in the near and intermediate
future. Also, Target’s 1.3 million square feet design-built distribution centre in Milton is now under control of
the receiver and will likely be put up for sale soon.
Outlook
2995 Peddie Road, Milton
New lease: 303,200 s.f.
Tenant: Princess Auto
6115 Edwards Boulevard
New lease: 149,681 s.f.
Tenant: Walmart
300 Courtneypark Drive West
Mississauga
Sublet: 77,223 s.f.
Tenant: Neovia Logistics Services
350 Hazelhurst Road, Mississauga
Buyer: Summit Industrial REIT
Seller: Carterra
$22.25 M | 220,000 s.f. | $101 p.s.f.
7634 – 7720 Kimbel Street,
Mississauga
Buyer: Desjardins
Seller: Northam Realty
$26.50 M | 397,736 s.f. | $67 p.s.f.
Sales highlights
The outlook remains positive and we expect a weaker Canadian dollar, which increases the competiveness
of Canadian goods in the United States where roughly 75.0 percent of Canadian exports are sent, and
strengthening market fundamentals to drive continued growth in 2015.
There are currently 16 construction projects totaling 4.3 million square feet under way in the GTA and
another 16.2 million square feet of proposed development. Subject to preleasing activity we could see some
upward pressure on availability rates, particularly in the GTA West industrial market, as this new product is
added to inventory in the first half of 2015.
25/35 Brownridge Rd, Halton Hills
Buyer: Bentall Capital
Seller: KingSett
$36.17 M | 332,193 s.f. | $109 p.s.f.
Market statistics
Submarket
Total stock
(s.f.)
Total availability (%)
Year-to-date total
net absorption (s.f.)
Average net asking
rent ($ p.s.f.)
Q-Q %
change
Y-Y %
change
Largest contiguous
option for lease (s.f.)
Largest contiguous
option for sale (s.f.)
Toronto Central
201,261,241
6.2%
1,530,067
$5.76
-0.8%
3.8%
440,714
359.000
Toronto East
46,842,124
6.7%
668,648
$4.71
-6.7%
-6.7%
400,000
313,500
Toronto North
133,310,904
4.9%
2,366,396
$6.11
0.3%
2.9%
289,258
320,099
Toronto West
314,716,561
7.7%
5,105,500
$5.79
1.2%
2.2%
728,411
260,830
Market totals
696,130,830
6.6%
9,670,611
$5.86
0.1%
2.6%
728,411
359,000
9 JLL | Canada | Industrial Outlook | Q4 2014
Greater
Montréal
Area
Greater
Montréal
Area
Market drivers
•Market
Economic
improvements
drivers
• Low oil prices
• Government tax credit programs
Market conditions
The GMA leasing market fundamentals improved in the last quarter of the year. Users and investors’ level of
confidence picked up and the market’s wheels are finally spinning in the right direction. Positive absorption
of 871,229 square feet closed the quarter on a good note, letting us believe in continued market
improvements heading into 2015. Due to heightened demand for industrial space across the metropolitan
area, the availability rate declined from 7.3 percent to 7.0 percent, a 3.6 percent drop from the previous
quarter. When comparing different submarkets’ performances, the Saint-Laurent, South-Shore and WestIsland submarkets recorded the strongest leasing demand during the quarter.
Market vital
statistics
Population
Year-over-year
change in jobs
Historical
average
availability
Historical
average yearly
absorption
Value of industrial
building permits
(August 2014)
4.0 m
-1.6%
7.18%
213,795 s.f.
$20.6 M
Lease highlights
In contrast to the leasing momentum gained in the quarter, industrial sales declined substantially across the
GMA. Roughly 1.7 million square feet of industrial space (across 34 transactions) were traded during the
quarter, totaling nearly $118.4 million in sales, a decrease of 37.7 percent from the previous quarter. The
amount of industrial space available for sale increased in the GMA, which drove average asking sale prices
to decrease slightly. Due to their newer inventory, Vaudreuil and Laval had once again the highest average
asking sale prices. Redevelopment of industrial buildings continued to spread throughout the quarter but at
a slower pace than at the beginning of the year.
Sales highlights
Outlook
Flexible leases will be key in 2015. Current market conditions push certain landlords to revamp and improve
their properties with the hope of getting increased interest. Municipal taxes are expected to increase in 2015
across the GMA, which will add to owners’ fixed costs. On the other hand, favorable economic factors such
as a low Canadian dollar and low oil prices should boost the local industrial market and increase domestic
investments. Innovation in warehousing and distribution processes should also fuel demand for new
premises going forward. We will slowly move from a tenant-favorable market to a more balanced market.
7373 Cordner, LaSalle
Buyer: Placements Sergakis Inc.
Seller: Emego Trading Co.
$3.3 M | 80,813 s.f. | $40.22 p.s.f.
Submarket
• e-commerce growth
• Growing U.S. demand
• Demand for premium distribution centers
11000 Parkway, Anjou
New lease: 114,596 s.f.
Tenant: Intramodal Warehouses Inc.
101-105 Marcel-Laurin. Saint-Laurent
New lease: 94,567 s.f.
Tenant: Le Château Inc.
2100 52nd Avenue, Lachine
New lease: 51,243 s.f.
Tenant: 8843848 Canada Inc.
9000 Pierre-Bonne, East End
Buyer: Altra Foods Distributors Inc.
Seller: Les Papiers Atlas Inc.
$4.5 M | 127,251 s.f. | $35.36 p.s.f.
5430 Ch. Côte-de-Liesse, Mont-Royal
Buyer: 8313687 Canada Inc. (holdings)
Seller: Uniliver Canada Inc.
$6.35 M | 113,434 s.f. | $55.98 p.s.f.
Total inventory
(s.f.)
Number of
buildings
Under construction
(s.f.)
Total availability
Quarterly
absorption (s.f.)
Average net asking rent
($ p.s.f.)
Q-Q % change in
net rent
Y-Y % change in
net rent
51,186,191
24,037,384
69,905,100
44,555,849
22,016,095
63,459,703
17,152,682
810,890
16,170,917
6,227,708
315,522,519
1,148
609
2,181
656
293
1,030
343
13
297
154
6,724
0
0
0
15,143
0
62,637
362,700
543,000
956,000
17,850
1,957,330
4.9%
5.3%
6.2%
9.0%
9.0%
5.6%
8.8%
29.8%
9.4%
15.7%
7.0%
-482,922
-19,367
97,224
190,214
114,806
489,764
-20,267
143,560
333,751
0
871,229
$7.18
$6.37
$5.07
$5.33
$5.01
$5.31
$6.58
$6.50
$5.59
$6.08
$5.71
+7.8%
+16.7%
-1.0%
+9.0%
-0.6%
-0.2%
+0.8%
-7.1%
-6.1%
+0.2%
+1.6%
+17.9%
+18.0%
+2.4%
+1.0%
-3.1%
-3.1%
+4.3%
0.0%
-12.2%
+1.1%
+1.8%
Midtown North
Midtown South
East End
West Island
Lachine
Saint-Laurent
Laval
Vaudreuil
South-Shore
North Shore
Greater Montréal Area
10 JLL | Canada | Industrial Outlook | Q4 2014
Target’s decision to leave Canada
is not expected to have a significant
impact on the industrial market as
a whole; however, it could dampen
the appetite for new speculative
development and serve as a cautionary
tale for other American retailers
looking to enter the Canadian market.
Canada
Thomas Forr
National Research
Coordinator
+1 416 304 6047
[email protected]
Victoriya Gouchtchina
Research Analyst
+1 514 667 5670
[email protected]
Jonathan Jassebi
Associate
+1 604 998 6141
[email protected]
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