We find ourselves at staring down an uncertain path ahead.

Both internal market forces and external economic headwinds are shaping the GTA industrial market.

The Greater Toronto Area has approximately 17 MSF of industrial properties under construction, as well as a reported 67 MSF of ongoing and pre-construction pipeline. Developers and institutional investors are rushing to produce inventory and capture demand, with the bulk being Class-A, Big Box warehousing and logistics facilities.

Increasing construction costs and low vacancies have all but locked in continued rent increases for the years to come. At the same, a softening economy may materialize as a pullback in demand or pushback from tenants looking to renew or lease space at rates double and triple that of just five to seven years ago.

Will the glut of incoming supply provide more leverage for users in negotiations as product sits? Or will everything be quickly and systematically absorbed through pre-leasing as is being predicted?

From the perspective of the Big Box segment, developers may be more cautious around competing pipelines and delivering on spec; perhaps opting to feel out the market and break ground with a tenant in tow. That said, with how robust new projects have pre-leased, it’s unlikely we’ll see a ton of slack for very long.

As we analyze the industrial market and observe just how competitive development has become, one may ask if there is another strategy that is simpler to execute and with less risk?

While all of the focus has been centred on mega-developments, the GTA has a sizeable supply of small- to mid-bay industrial properties and occupiers, with almost no vacancy whatsoever, a plethora of upcoming renewals to significant upside, and extremely limited pipeline as the product type offers less economies of scale and higher per-square-foot construction costs.

And as developers have to deal more with competition, issues surrounding zoning and official plans, and pricey industrial land and construction costs, acquiring small- and mid-bay properties at below replacement cost and with upside in rents may just be a more straightforward alternative strategy.

That is why, today, we will examine some of the largest small- to mid-bay industrial portfolio acquisitions of 2022, and what they mean for the market moving forward.

In what is the latest blockbuster industrial portfolio acquisition, CanFirst has acquired a mix of 13 small- and mid-bay properties – all located within about a kilometre of one another in Vaughan at a price of $313 PSF.

What’s interesting to note is that, with a reported occupancy rate of 99.8% and a WALT of 2.5 years, CanFirst’s executives have stated that existing rents are at 50% of the current market rate.

This potential upside is a key factor in acquiring properties in any market, however, with the accelerating rental rates, this additional future rental income is gravy on top of assets which were secured at a great value (and likely below replacement cost). 

The acquisition, whereby Dream secured a 10% stake (with GIC retaining the other 90%), made waves throughout the Greater Toronto commercial real estate community.

According their Q3 reports, Summit owns or has a stake in 162 properties totalling 21.8 MSF, with $3.5 billion of unencumbered assets, a 99.6% occupancy rate with an average lease term of 5.5 years, and 14 buildings under development aggregating 2.5 MSF of potential GLA. Revenues from investment properties totalled $63.048 M in Q3 2022.