Industrial Insight Report - Greater Toronto Area | Q2 2018 - JLL
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Industrial Insight Report Greater Toronto Area | Q2 2018
Table of Contents
Greater Toronto Area Overview 1
Submarkets
GTA West 2
GTA North 3
GTA Central 4
GTA East 5
Contacts 6
2
Greater Toronto
Area
Rates skyrocket as lack of new supply and limited
availability finally catch up to the market
• The vacancy rate ended the quarter at 2.1 percent, a 30-basis point Fundamentals Forecast
decrease year-over-year (YoY); meaning tenants in the market continue to YTD net absorption 6,472,618 s.f ▲
have few options when looking for space
QTR net absorption 3,154,194 s.f. ▲
• There was 1.4 million square feet of new supply delivered this quarter – the
largest development completed being Condor’s 250,800 square foot Under construction 5,378,411 s.f ▲
building at 220 Hunter’s Valley Road, Vaughan Total vacancy 2.1% ▶
Average asking rent $6.82 p.s.f. ▲
Average asking net rents in the Greater Toronto Area (GTA) industrial market Tenant improvements Decreasing ▼
increased to $6.82 per square foot this quarter, a 10.5 percent increase YoY. This
was due to a low vacancy rate over the past several quarters, coupled with strong Supply and demand (s.f.) New Supply
net absorption and an insufficient amount of new supply, finally catching up with Net absorption
13,000,000
the market. Will average asking net rents continue to increase? Well, many analysts
thought that the purchase of PIRET REIT by Blackstone was on the belief that the 10,000,000
GTA Industrial market is poised for significant rental rate growth. This assumption
7,000,000
of where the market is headed, has prompted other Landlords in the market to
adjust their rates accordingly upward. We’re already witnessing new construction 4,000,000
average asking net rents over $7.00 per square foot in all the submarkets in the GTA,
1,000,000
and Class A space trading at over $7.00 per square foot in the GTA West and North
2014 2015 2016 2017 2018
submarkets. YTD
Logistics and 3PL companies are the tenant type who have the strongest demand Total vacancy
for space in the market, with this quarter being no exception. Take the 950,000-
square foot building at 9501 Highway 50, Vaughan that came to market in Q1 of this 4.5% 4.0%
year as an illustration. It is already fully leased to two logistics companies: DHL,
3.5% 3.0%
2.8%
who took 570,000 square feet, and XPO logistics, who took 380,000 square feet.
2.5% 2.1% 2.1%
The market continued to experience strong preleasing activity again this quarter,
signaling that companies are eager to secure blocks of space and lock in their lease 1.5%
rates. Notably, Sobeys pre-leased 383,194 square feet at 100 Gibraltar Road, 2014 2015 2016 2017 2018 YTD
Vaughan, with the building expected to be complete next quarter.
Average asking rents ($/s.f.)
Outlook
Tenants looking for smaller blocks of space (in the range of 20,000 to 60,000 square $7.00
feet) will experience the largest jump in their average asking net rents moving $6.50
forward. Why? For this size range, the availability rate is 1.5 percent and there is
$6.00
limited small bay space under construction and set for completion. Because of the
high cost to construct small bay multi-tenanted buildings, developers expect that $5.50
they would need to achieve $8.00 per square foot to make their proformas’ $5.00
palatable. 2014 2015 2016 2017 2018 YTD
For more information, contact: John Scioli | John.Scioili@am.jll.com
© 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
GTA West
• Average asking net rents are reaching all-time highs in the GTA West as Fundamentals Forecast
strong demand and a lack of space are driving growth. YTD net absorption 4,170,968s.f. ▲
• Tenants shouldn’t look to new construction for more availabilities as 64 QTR net absorption 1,889,165s.f. ▲
percent is already pre-leased. Under construction 1,657,761s.f. ▲
• Class A small-mid bay asking rates are over $7.00 per square foot and Total vacancy 2.8% ▼
prices still may rise due to lack of supply, existing or new.
Average asking net rent $6.94 p.s.f. ▲
Lease activity
Tenant improvements Falling ▼
Through the second quarter of the year, the GTA West continued to have
positive net absorption, causing the vacancy rate to decrease 10 basis points
Supply and demand (s.f.) Net absorption
quarter-over-quarter (QoQ). A dropping vacancy rate is no surprise, with the 8,000,000 Deliveries
strong leasing activity that occurred this quarter. For example, a huge lease was
signed this quarter when Canadian Tire committed to 1.3 million square feet 6,000,000
with Panattoni at 10254 Hurontario Street, Brampton. For this space, site plans 4,000,000
are underway and construction is expected to start in 2019. Other significant
2,000,000
leases include JYSK Linen 'n Furniture leasing a 392,919-square foot distribution
facility at 6757 Northwest Drive, Mississauga and Sumitomo Electric Wiring 0
System leasing 341,130 square feet at 307 Orenda Road, Brampton. 2014 2015 2016 2017 2018
YTD
Rents Total vacancy
4.0%
The average asking net in the submarket continues to get pushed up; year-over- 3.4%
3.2%
year there was an increase of 7.75 percent. What is prompting the push? There 2.8% 2.8%
is limited availability and a lack of new supply! This is particularly being felt with
blocks of space in the 30,000 - 80,000 square foot size range, where the
availability rate is below 2.0 percent – for this size range, asking rents are
approaching 7.00 per square foot.
2014 2015 2016 2017 2018 YTD
Sales
A notable sale this quarter was Summit REIT purchasing four properties, two in
Average asking rents ($/s.f.) Net Rent
the GTA West and two in the GTA East. This made them one of the most active Additional
REITs this quarter for the purchase of industrial product. $8.00
New construction $6.00
The second quarter had only 568,000 square feet of new supply delivered to the
market, all of which was pre-leased. There is currently 1.8 million square feet of $4.00
space under construction, 1.1 million square feet of which is focused in
Mississauga. The largest building under construction is Orlando’s 428,000 $2.00
square feet at 50 Edgeware, Brampton, build-to-suit for Kuehne + Nagel. 2014 2015 2016 2017 2018 YTD
RECENT SALES COMPARABLES
Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.)
Summit REIT Voortman Bakery 4455 N. Service Rd Burlington 246,950 June 2018 $114
Summit REIT Epic Realty Partners Inc. 2485 Surveyor Rd Mississauga 187,245 June 2018 $197
RECENT LEASE COMPARABLES
Tenant Landlord Location Municipality Size (s.f.)
Canadian Tire Panattoni Development 10254 Hurontario Rd Brampton 1,300,000
JSKY LaSalle Asset Management 6757 Northwest Dr Mississauga 392,919
© 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
GTA North
Fundamentals Forecast
• Average asking net rents increased 9.5 percent YoY and 4.6 percent QoQ; YTD net absorption 1,448,101 s.f. ▲
with demand showing no signs of slowing down, we expect strong rental QTR net absorption 1,295,780 s.f. ▲
growth in the coming quarters as well.
Under construction 1,546,493 s.f. ▲
• Strong demand and lack of availabilities drove down vacancy rate 30 basis
Total vacancy 1.90% ▼
point QoQ.
• Class A new construction is asking above $7.25 per square foot now. Average asking net rent $7.05 p.s.f. ▲
Tenant improvements Falling ▼
Lease activity Supply and demand (s.f.) Net absorption
After a slow quarter of positive net absorption to start the year in the GTA North, 2,000,000 Deliveries
Q2 2018 was on another level; with the second quarter having 1.1 million square
feet more of positive net absorption than the first. Why the strong rebound in 1,500,000
positive net absorption? The 955,000-square foot Metrus’ building at 9501 1,000,000
Highway 50, Vaughan, which was previously vacant, was fully leased this
500,000
quarter. Also, DHL leased a 575,000-square foot building that they occupy this
quarter. Helping with positive net absorption next quarter will be XPO Logistics 0
380,000 square feet lease on behalf of Amazon. 2014 2015 2016 2017 2018
YTD
Rents
Total vacancy
At $7.05 per square foot, average asking net rents in the GTA North continue to
be the highest in the whole industrial market. This is because in certain GTA 2.8% 3.0%
North industrial nodes, there is strong demand for small and mid-bay size 2.2%
1.7% 1.9%
space. And with a clear lack of availability in this size range, and no new
product coming to market, asking rates are getting pushed up.
Sales
Summit REIT purchased two properties in Markham, 2601 14th Ave a 232,454- 2014 2015 2016 2017 2018 YTD
square foot building and 56 Steelcase Rd W, an 88,574-square foot building.
Summit purchased the buildings for a combined $70 million representing an Average asking rents ($/s.f.) Net Rent
Additional
aggregate price per square foot of $218.
$8.00
New construction $6.00
Much of the 1.5 million square feet under construction happening in the GTA
$4.00
North is concentrated along Highway 50 in Vaughn. The largest building from
this is the 383,194 square feet at 100 Gibraltar Road, Vaughan. Here, Sobeys fully $2.00
leased the building, and are planning on investing $25 million in the space and $0.00
set up automation to support their online shopping network. 2014 2015 2016 2017 2018 YTD
RECENT SALES COMPARABLES
Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.)
Summit REIT Epic Realty Partners Inc. 2601 14th Ave Markham 232,454 June 2018 $170
Rodenbury Investments 66 Leek Cres Inc. 66 Leek Crescent Richmond Hill 178,000 April 2018 $134
RECENT LEASE COMPARABLES
Tenant Landlord Location Municipality Size (s.f.)
DHL Metrus Properties 9501 Highway 50 Vaughan 575,000
Sobeys Anatolia 100 Gibraltar Rd Vaughan 383,194
© 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.
GTA Central
Fundamentals Forecast
• There is a strong demand for class A space in the GTA Central, exhibited YTD net absorption 1,080,448 s.f. ▲
by 82.0 percent of new construction in this type being pre-leased. QTR net absorption 13,969s.f. ▲
• Although demand has been relatively steady in the submarket, vacancy Under construction 1,604,743 s.f. ▶
rates held at 1.4 percent QoQ. Total vacancy 1.4% ▶
• The amount of positive net absorption in the first half of 2018 is higher Average asking net rent $6.65 p.s.f. ▲
than the 2014, 2015, and 2017 year totals. Tenant improvements Falling ▼
Supply and demand (s.f.) Net absorption
Lease activity Deliveries
In the second quarter, positive net absorption was a negligible 13,969 square 1,200,000
1,000,000
feet. Why? Two buildings totaling 281,000 square feet in Etobicoke became
800,000
vacant. Meanwhile, only one large tenant moved into space: DGN Marketing
600,000
moved into 126,000 square feet at 21-63 Rexdale Boulevard. 400,000
200,000
Rents 0
Average asking net rents in the GTA Central increased 8.0 percent YoY to $6.65 2014 2015 2016 2017 2018
per square foot. The lack of available space couple with strong demand has YTD
continued to lift asking rents higher. In some instance, asking rents are much
Total vacancy
higher. For example, new class A industrial space under construction is asking
over $7.25 per square foot. Tenants are not shying away either; ONE Properties’ 3.2%
924,000 square foot new development at 2233 Sheppard Avenue, North York 2.0%
had asking rates in this range, and 550,000 square feet leased last quarter and 1.8%
1.5% 1.4%
the remainder is conditional.
Sales
Tiffany Gate Foods purchased a 180,000-square foot facility at 20 Towns Road, 2014 2015 2016 2017 2018 YTD
Etobicoke for $9.2 million or $51 per square foot from a private investor, making
it the biggest sale in the submarket for the quarter. Average asking rents ($/s.f.) Net Rent
Additional
New construction $7.00
$6.00
First Gulf has started construction on their Metro East Business Park at Tapscott $5.00
Road & Steeles Avenue in Scarborough. The 385,000-square foot build-to-suit $4.00
facility is for The Hillman Group, who will be consolidating their existing $3.00
facilities, and be moving into this one in 2019. $2.00
$1.00
$0.00
2014 2015 2016 2017 2018 YTD
RECENT SALES COMPARABLES
Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.)
Tiffany Gate Foods 2165991 Ontario Inc. 20 Towns Rd Etobicoke 180,000 April 2018 $51
Private Investor Private Investor 50& 70 Silver Star Boulevard Scarborough 100,915 June 2018 $185
RECENT LEASE COMPARABLES
Tenant Landlord Location Municipality Size (s.f.)
DGN Marketing Greystone Managed Investments 21-63 Rexdale Blvd. Etobicoke 126,000
Tomato Kings Transmetro Properties Ltd 191 Evans Ave Etobicoke 134,000
© 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.GTA East
• Average asking net rents increased 6.0 percent YoY due to limited Fundamentals Forecast
availability within the submarket. YTD net absorption 423,723s.f. ▲
• The eventual outcome of the NAFTA negotiations is going to impact QTR net absorption (44,720) s.f. ▲
whether there is development in the submarket; a positive outcome would Under construction 435,365 s.f. ▶
mean construction happening. Total vacancy 2.5% ▶
• The GTA East is attracting a diverse group of tenant types because of the Average asking net rent $6.00 p.s.f. ▲
market’s lower average asking net rents and stable labour pool. Tenant improvements Falling ▼
Lease activity
Supply and demand (s.f.) Net absorption
Despite strong interest from tenants, few tenants moved into the GTA East this Deliveries
600,000
quarter, leading to 44,750 square feet of negative net absorption. The weak net
400,000
absorption did not move vacancy rates from the first quarter, which is at 2.5
percent. In the coming quarters this should change however, as we expect more 200,000
tenant to move into the submarket to take advantage of the relatively low 0
asking rents. -200,000
-400,000
Rents 2014 2015 2016 2017 2018
Average asking net rents increased to $6.00. And although there was negative YTD
net absorption this quarter, we still think that average asking net rents will trend Total vacancy
upward (slight) in the coming quarters, due to the amount of demand that 5.1%
might spill over from other parts of the market. 4.0% 3.8%
2.4% 2.5%
Sales
In the second quarter there was only three industrial building sales in the GTA
East, for a total 95,066 square foot and an average sale price of $118 per square
foot. .
2014 2015 2016 2017 2018 YTD
New construction
The GTA East has seen significant interest in industrial land as of late. This Average asking rents ($/s.f.) Net Rent
Additional
quarter, Panattoni closed on 27 acres on Thornton Road South and Wentworth
Street West in Oshawa. They aim on receiving site plan approval in Q1 2019 on $7.00
$6.00
two buildings totaling approximately 590,000 square feet and are expecting to $5.00
completed construction by mid-2020. Gordon Food Services has begun $4.00
construction on their new distribution center at the northwest corner of Salem $3.00
Road and Ringer Road, Ajax; the 342,000-square foot facility will create 300 new $2.00
$1.00
jobs. The next notable development to start construction will be Kubota and $0.00
their 565,000-square foot facility in the Picking Innovation Corridor. 2014 2015 2016 2017 2018 YTD
RECENT SALES COMPARABLES
Buyer Seller Location Municipality Size (s.f.) Date Price ($/s.f.)
1020 Brock Road South Inc Chesben Holdings Inc. 1020 Brock Road South Pickering 43,389 June 2018 $129
Forterra Drainage Pipe & Fort-Nom Holdings 102 Prouse Road Uxbridge 39,650 June 2018 $67
Products
RECENT LEASE COMPARABLES
Tenant Landlord Location Municipality Size (s.f.)
Undisclosed Nxgenco 1845 Clements Rd Pickering 38,933
Undisclosed 202 South Blair Properties Inc 202 South Blair St, unit 14-17 Whitby 29,244
© 2018 Jones Lang LaSalle IP, Inc. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.About JLL
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