Greater Toronto Area Industrial Market Report - Avison Young

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


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


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


20

$6.00 $5.00 $4.00 $3.00 $2.00

1%

0

$1.00

0% Q3 '13

Q4 '13


Q1 '14

Q2 '14

GTA West - Occupancy Cost Trends

$10.00

7%


Total Available Area (000,000 sf )

25

$0.00

Q3 '14


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


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)



Current Quarter

Current Quarter


Current 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



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


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



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)



Current Quarter

Current Quarter


Current 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%


2

$8.00



3

$7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00

0

0% Q3 '13

Q4 '13


Q1 '14

Q2 '14

Q3 '14


$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


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)



Market Current Quarter

Current Quarter


Current 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


6

5%


Total Available Area (000.000 sf )

8

1%

0 Q4 '13


Q1 '14

Q2 '14

$6.00 $4.00

$0.00

Q3 '14


$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



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)


Current 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



* 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 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.

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