Would-be commercial tenants in need of industrial space have had a tough time finding it in the Greater Toronto Area -- and there’s no relief in the immediate term as the latest vacancy numbers reveal the region is among the tightest markets in North America.
The second-quarter Industrial Market Report from Avison Young reports an availability rate of just 0.9% in the industrial rental sector, remaining virtually unchanged from the previous quarter -- the lowest on record -- and reflecting a 135% increase over the past five years. In fact, there are only 16 available properties in the GTA measuring more than 250,000 sq ft. New supply is also slow to come online; currently, there is a total of 15M sq ft. under construction, a decline of 700,000 sq ft. from Q1.
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That’s resulting in favourable conditions for landlords, as rental rates have continued to climb, hitting $15.09 psf, up 11% from the previous quarter.
The GTA industrial market “remains a hotbed of activity,” reads the report, supported by strong fundamentals and a classic supply-and-demand imbalance; while a number of new building competitions came to market during the quarter, it barely made a dent, given 84% were leased prior to completion.
A total of 20 buildings, totalling 2.8M sq ft., were delivered between April and June, with 15M remaining under construction across 64 buildings by quarter's end, 45% of which have already been leased.
However, buildings under construction “equate to a mere 1.7% of the GTA’s existing industrial stock, split between design-build (36%) and speculative (64%) developments,” says the report. Meanwhile, pre-construction developments total 50M sq ft. in 143 buildings across the GTA, with the GTA West market leading the way with 62% of pre-construction opportunities, followed by 20% in the North, and 9% each in the Central and East markets.
However, supply conditions should ease slightly in the coming years. According to Avison Young, there’s currently 65M sq ft. in the development pipeline over the next three years (including existing and pre-construction projects). Given this, “rising availability will likely provide more space options to a broader spectrum of industrial tenants compared with today’s constrained supply environment.”
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While the GTA’s availability rate remained flat QoQ, overall space has been on the decline over the long term, down 7.1% from the first quarter of 2010. As well, demand for spaces 10,000 sq ft. has surged, especially among the logistics and distribution sector, making up 38%. Manufacturing companies account for 19% of leasing demand, followed by consumer goods and services (15%), and retail/e-commerce (13%) tenants.
The majority of investor demand for spaces 10,000 sq ft. and greater during the same time frame was driven by private investors (51%), followed by users (31%) and institutional investors (9%).
Notable large-block lease signings -- a total of 11 with more than 100,000 sq ft. were inked during the quarter -- include Pet Valu’s 670,500 sq ft. lease at 10750 Highway 50 in Brampton, Chrysler’s 513,500 sq ft. lease at 100 Edgeware Rd. in Brampton and Brimich Logistics & Packaging’s new deal for 467,500 sq ft. at 1330 Martin Grove Rd. in Etobicoke.
“Low availability rates have offset the high land values and construction costs evident in today’s market. Given the supply-demand imbalance, the consensus is for continued growth across the GTA industrial market for the foreseeable future,” reads the report.
