GTA Industrial – 2024 State of the Market

As we wind down 2024, a number of thoughts can creep into our minds.

First off – how did we get here so quickly? Next, comes the struggle to push aside the flood of memories to try to remember what we achieved and what are our top priorities for the coming weeks, months, and year.

Quiet and stillness that come with the holidays allow us a chance to ground ourselves in the present and to reflect on how we want to approach 2025. Whether to maximize revenues and transactions, to grow new relationships, to spend more time on our families and/or health, or to inspire new changes.

As it relates to the Greater Toronto industrial market: 2024 was undoubtedly the year that bridged a market in limbo due to receding demand and unsustainable cost increases towards a new equilibrium of moderating pricing, tempered business decisions, as well as a renewed optimism for 2025.

We have much to cover and an endless amount of topics to explore. 

Examining the trends, challenges, and opportunities shaping one of Canada’s most dynamic real estate sectors.

The Greater Toronto Area (GTA) industrial market experienced notable shifts in 2024 as it transitioned from years of rapid growth to a more moderated and balanced phase. Amid changing tenant demands and macroeconomic adjustments, the market remains a cornerstone of Canada’s logistics and manufacturing industries, with significant trends shaping its current state. 

Rising Availability Rates: A Market in Transition

The industrial availability rate in the GTA reached 3.8% by the third quarter of 2024, a marked increase from 2.6% at the beginning of the year. For perspective, this availability rate is still well below historical highs such as the 6% range seen in the early 2010s, underscoring that demand remains relatively strong despite signs of cooling.

Negative net absorption levels, totalling 3.6 million square feet in 2024-YTD as of Q3, reflect a recalibration among tenants, particularly in sectors like e-commerce and third-party logistics. Rising operational costs and slowing consumer demand have prompted companies to adjust space requirements, leading to an influx of space becoming available.

This adjustment has been most notable in secondary markets like Brampton and Mississauga, which saw some of the highest increases in availability.

Rental Rates Decline: The First Drop in Seven Years

For the first time since 2017, the average asking net rental rate declined, reaching $17.64 per square foot in the third quarter of 2024. This represents a 1.5% decrease from the previous quarter and signals a significant shift after years of nearly uninterrupted growth. Factors contributing to this decline include an increase in supply, heightened competition among landlords, and budget constraints among tenants.

Landlords have increasingly resorted to incentives, such as rent-free periods or tenant improvement allowances, to attract leases in this more competitive environment. Tenants, on the other hand, are prioritizing cost-efficiency and are gravitating toward quality spaces in key markets like Vaughan, where newer Class A facilities are still achieving premium rates. In contrast, older, less modern facilities in outlying markets are experiencing greater pressure on rents.

Despite this short-term decline, long-term trends remain positive. Over the past five years, rental rates in the GTA have increased by an average of 20% per year. For instance, rental rates in 2019 hovered below $10 per square foot, making today’s levels indicative of sustained demand and a strong industrial sector.

Sublease Space Growth Reflects Tenant Restructuring

Sublease activity has nearly tripled over the past five quarters, with available sublease space climbing to 5 million square feet in Q3 2024. Sublease space now accounts for 16% of the total available inventory in the GTA, highlighting a notable trend of tenants adjusting their spatial footprints. Companies in sectors like manufacturing and retail distribution have been particularly active in listing sublease space as they reassess operational needs in the face of economic uncertainty.

This increase in sublease availability has created opportunities for smaller tenants to access high-quality spaces at competitive rates. For example, facilities in Brampton and Mississauga, traditionally leased by large logistics operators, are now attracting mid-sized users looking for short-term lease flexibility.

Construction Activity Remains Strong Despite Market Headwinds

The GTA industrial pipeline remains robust, with 16.45 million square feet of space under construction as of Q3 2024. Despite the broader market adjustments, developer confidence remains high, particularly in markets like the GTA West, which accounts for 39% of new developments, and the GTA East, comprising 33% of activity.

Major Transactions Signal Continued Demand for Prime Assets

Significant deals in 2024 illustrate that investor confidence in the industrial market remains intact, especially for high-quality assets in prime locations. One of the year’s most notable transactions was Prologis’ acquisition of the 1,335,030-square-foot facility at 8450 Boston Church Road in Milton for $361 million, equating to approximately $270 per square foot. This transaction highlights the enduring value of strategically located assets with strong tenant bases.

Leasing activity also demonstrates demand resilience. For instance, Kruger secured a 645,000-square-foot lease at 4680 Garrard Road in Whitby, a clear indicator of sustained interest from large tenants in facilities that support modern logistics and manufacturing needs. Such transactions reinforce the idea that while the market is adjusting, demand for well-located and well-designed industrial properties remains robust.

Market Outlook: A Path Toward Balance

The GTA industrial market is undergoing a critical period of recalibration after years of unprecedented growth. Rising availability rates and declining rental rates indicate a shift toward balance, offering opportunities for both tenants and investors to secure favorable deals in a market that is no longer overwhelmingly tilted in favor of landlords. At the same time, the continued strength of construction activity and significant transactions in key locations point to enduring confidence in the sector’s long-term prospects.

While the short-term challenges are evident, particularly as tenants navigate economic uncertainty and adjust their requirements, the GTA industrial market’s fundamentals remain strong. Its strategic location, established infrastructure, and role as Canada’s largest logistics hub ensure that it will continue to be a critical driver of economic activity in the years ahead.

2024 Recap: Best Of Featured Series

Industrial Condominiums

Industrial condominiums have emerged as a strategic solution for small- and mid-sized businesses in the Greater Toronto Area (GTA), offering ownership opportunities with modern amenities in key locations. Recent developments across various GTA regions highlight this trend:

GTA Central:

• Pinnacle Industrial Condos: Developed by Berkshire Axis and Fiera Real Estate at 111-151 Steinway Boulevard in Etobicoke, this project features two buildings with units ranging from 5,937 to 10,399 square feet, 28-foot clear heights, and access for 53-foot trailers. Registration and occupancy are targeted for Q1 2025.

GTA East:

• Victoria Crossing: Located at 1440-1450 Victoria Street East in Whitby, Ripple Developments has redeveloped a facility into 15 industrial condos ranging from 8,557 to 10,585 square feet, each with 28-foot clear heights and multiple loading options. 

• Lakeside Business Centre: Beedie’s project at 1155 Boundary Road in Oshawa comprises 10 units starting at 13,649 square feet, featuring 28-foot clear heights and both dock-level and drive-in doors. The development has sold out.

Peel, Halton Regions and Hamilton:

• Heart Lake Industrial Condos: Situated at 20 & 25 Newkirk Court in Brampton, this Class ‘A’ development by Berkshire Axis and Fiera Real Estate includes 26 units totaling 107,000 square feet with 28-foot clear heights and truck-level loading. All units have been sold.

• 3200 South Service Road: QMW Corporation’s development in Burlington comprises 55 units totaling 99,500 square feet, designated for industrial, medical, and general office use. The industrial units feature 20-foot clear heights and drive-in doors, with direct exposure to the QEW.

• Heritage Green Business Park: Located at 406 Pritchard Road in Hamilton, Urbancore Developments completed this project in two phases, offering units with 22.5-foot clear heights and insulated shipping doors.

• Three Oaks Business Centre: Beedie’s development at 3303, 3313 & 3323 Superior Court in Oakville consists of 26 units ranging from 4,366 to 10,656 square feet, each with 28-foot clear heights and a mix of dock and grade-level loading. Occupancy is expected in Q3/Q4 2024.

Three Oaks Business Centre – 3303, 3313 & 3323 Superior Court, Oakville. Source: Beedie.

These developments underscore the growing demand for industrial condos in the GTA, providing businesses with ownership opportunities in strategic locations. While they may command a premium per square foot compared to traditional industrial facilities, the benefits of ownership, modern features, and proximity to key markets make them an attractive option for many industrial users. 

Food-Related Real Estate

Industrial real estate is integral to the food industry’s supply chain, encompassing various specialized facilities that ensure efficient production, processing, storage, and distribution. Each segment of the food industry has distinct facility requirements:

1. Farming and Agriculture:

• Traditional Farming: Requires expansive rural land with access to irrigation, transportation routes, and storage silos. These properties, often situated outside urban centers, supply raw materials to food processors and distributors.

• Vertical Farming: Emerging as a sustainable urban solution, vertical farms are located in industrial buildings with high ceilings, climate-controlled environments, and robust HVAC systems to support hydroponic or aeroponic growing systems. This approach reduces land use and transportation costs, enhancing urban food security.

2. Food Processing and Packaging:

• Processing Facilities: Transform raw agricultural products into finished goods, requiring significant power capacity for automated equipment like grinders, mixers, ovens, and pasteurizers. Features such as sloped floors and drainage systems are essential for sanitation and compliance with strict food safety standards.

• Packaging Facilities: Preserve product quality and extend shelf life through specialized machinery for sealing, labeling, and boxing products. Proximity to transportation hubs ensures swift movement through the supply chain.
• Canning and Bottling Facilities: Focus on preserving and packaging food and beverages in cans, jars, or bottles, requiring heavy-duty equipment for sterilization, filling, sealing, and labeling. Access to high water pressure, energy-efficient sterilization systems, and streamlined logistics are key considerations.

3. Baking and Cooking Facilities:

• Commercial Kitchens and Bakeries: Large-scale food preparation facilities need advanced ventilation systems, gas connections, and food-grade surfaces. They demand precision in temperature control and humidity management for consistent product quality.

Facilities must also comply with certifications such as CFIA, HACCP, BRCGS, SQF, and ISO 22000, demonstrating a commitment to rigorous food safety standards.

In summary, specialized industrial real estate is the backbone of the food industry’s ecosystem, driving the production, processing, packaging, and distribution necessary to feed and nourish society. Understanding the nuances of these properties is critical for developers, investors, and food businesses alike.

The GTA industrial market is transitioning from a phase of rapid growth to a more balanced state. Stabilizing rents and values, along with increased availability of existing inventory, suggest a methodical approach from developers and investors. 

Premium attributes such as exceptional locations, Net Zero Carbon certifications, and specialized features continue to command higher interest and valuations.

In summary, 2024 has been a year of adjustment for the GTA industrial market, with a focus on strategic development and leasing opportunities that align with evolving economic conditions and tenant requirements.

For a confidential consultation or a complimentary opinion of value of your property please give us a call.

Until next week…

Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 30 years.

Goran Brelih is an Executive Vice President for Cushman & Wakefield ULC in the Greater Toronto Area. 

Over the past 30 years, he has been involved in the lease or sale of approximately 25.7 million square feet of industrial space, valued in excess of $1.6 billion dollars while averaging between 40 and 50 transactions per year and achieving the highest level of sales, from the President’s Round Table to Top Ten in GTA and the National Top Ten.

Specialties:
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development

About Cushman & Wakefield ULC.
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with approximately 53,000 employees in 400 offices and 60 countries.

In 2020, the firm had revenue of $7.8 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. To learn more, visit www.cushmanwakefield.com.

For more information on GTA Industrial Real Estate Market or to discuss how they can assist you with your real estate needs please contact Goran at 416-756-5456, email at goran.brelih@cushwake.com, or visit www.goranbrelih.com.

Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih