Historical Industrial Sales Volumes and Major Transactions in GTA East Markets
Understanding and Forecasting GTA Industrial Values
September 10th, 2021
Beating records is an inspiring – even addictive – phenomenon. The moment you have broken one, whether individually or collectively, there grows an urge to demonstrate to yourself or the market that you can do it again; if only to prove that it was not by chance.
When it comes to the Greater Toronto industrial market, however, the many investors, developers, and landlords purchasing properties and portfolios aren’t proactively looking to pay more to prove a point. If anything, they are trying to find, unlock, and create value so as to stabilize their assets more quickly; with greater margins, and with more predictability.
Why, therefore, have values and rental rates consistently climbed to new heights over the past several years?
Well, the broad stroke narrative is about the basic forces of supply and demand.
Looking granularly at the numbers, as we will in this newsletter, there appears to be a specific inflection point where the scales tipped into an imbalance that has created the market we currently live in. And for these submarkets specifically, there is a booming interest due to the relative discount in pricing and availability of developable land.
Yes, there are many other factors at play, such as delays in the permitting process, material and labour shortages, and regulations stemming from the pandemic. And yes, the industrial asset class is itself being transformed and modernized by the e-commerce and logistics industry.
We find ourselves in a loop, if you will. An equilibrium within a set of differential equations whereby moving into a new balance would require a massive shock to either demand or supply, or both.
Until that time comes, we should expect the gravitational pull of space-hungry behemoths such as Amazon to anchor availabilities at near-zero levels; forcing values to continue creeping ever upward.
So without further ado, let us examine the historical sales volumes of the past five years, as well as the major year-to-date transactions, in order gain a better understanding of value within the Greater Toronto industrial market.
Greater Toronto East Markets (Pickering, Ajax, Whitby & Oshawa)
Historical Sales Volume Breakdown – Q1 2016 to Q2 2021
While the GTA East markets are generally smaller and less active than their Central, North, and West counterparts, they are up-and-coming in popularity, with many milestone developments and initiatives occurring at the moment.
Sales volume, pricing, rental rates, and the number of transactions continue to trend upwards, although lagging behind other GTA regions. The difference here is we can expect pricing to catch up faster relative to the decades it took the other regions to mature. This is a function not only of relative discounts being sought out by developers and investors, but also due to the fact that development and construction costs are fairly universal – at least they are 90 minutes east on the 401 – and will drive up values in and of themselves.
Looking to our previous issues, we saw that the Central submarkets were largely insulated from the economic shutdowns in terms of sales volume. Meanwhile, the North markets took a massive hit and is still recovering.
As depicted in Figure 2, however, the East markets look like a happy medium, albeit, on a smaller scale. Transaction volume did slow down in early 2020, only to skyrocket into Q3 2020 and maintain strong volume into 2021 year-to-date.
As seen in Figure 3, the region is on pace to set new records, already eclipsing 2020’s annual sales volume in the first 6 months, and just $7 million short of beating its yearly record in 2019. In fact, 2 recent transactions completed in Q3 2021 amount to approximately $130 million, putting 2021 at around $363 million in sales volume; making it the best year ever for the GTA East markets.
As mentioned earlier, these submarkets were largely ignored by investors and developers over the last decade or two relative to other areas in the GTA. Recent efforts by these parties, as well as the municipalities, have encouraged a tremendous amount of new construction, as well as plans for the servicing, zoning, and permitting of lands which will unlock future opportunities.
Year-to-Date 2021 – Top Ten Transactions in GTA East
Figure 4 – Year-to-Date 2021 – Top Ten Transactions – GTA East. Source: RealNet.
1652 Tricont Avenue, Whitby
- industrial is definitively being fuelled by E-commerce demand, as well as other verticals such as online grocery sales, transportation, and even film production;
- investors are keen to deploy capital, often willing to pay a premium, further pushing up values and compressing cap rates;
- supply chain disruptions are causing many businesses to on-shore their operations, adding to demand;
- these disruptions are also causing businesses to increase inventories where possible, further bolstering need for space;
- land is scarce, as is available product;
- new supply is being hamstrung by labour and material shortages, as well as delayed permitting and zoning processes.
For Investors: Now that we seem to be caught in a supply trap, one should expect to see values increase further, albeit at a decelerating pace relative to the jump we saw over the past 5 years. Only future data will tell how much further values have to go… That being said, it’s very likely that cap rates will continue to compress and pricing will go up further.
For Occupiers: Similarly, one should expect further increases in pricing. If you want to lease, you’ll have to pay more. If you want to own, you’ll have to pay more. In addition, it will be more difficult to find opportunity and the deals may take more time to complete unless you are lucky or hit the timing perfectly. Further to this, if you cannot find anything, you may have to develop; only if you can find any land available to do so.
Overall, prepare to pay more. Introduce more time into your pursuits of deals. And be prepared to build (two years or more in advance) or complete an early renewal (18 to 24 months out) if you want to stay at your current location.
Finally, 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 29 years.
Goran Brelih is a Senior Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.
Over the past 29 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.
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 firstname.lastname@example.org, or visit www.goranbrelih.com.
Connect with Me Here! – Goran Brelih’s Linkedin Profile: https://ca.linkedin.com/in/goranbrelih
Goran Brelih, SIOR
Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.