Establishing True Valuations Across Differing Markets
August 23rd, 2024
“Things of this world are in so constant a flux, that nothing remains long in the same state.”
- John Locke
Throughout the epic rise of industrial real estate – as a direct result of a boom in logistics and e-commerce – we saw record-breaking rents, soaring values, scarce inventory, and a massive pipeline of new construction.
It seemed like it would never end, but alas, things always change.
Rising interest rates and a softening economy brought about a slowdown in logistics, transportation, and warehousing, along with a stalling and the ensuing, slow recovery in the capital markets.
Things appeared to be at a standstill, however, the ‘invisible hand’ of the market has quickly entered to create efficiencies. As example, the first and second quarters of 2024 saw a flood of leasing and sub-lease options become available. This caused landlords to begin cutting prices, offering incentives, and entertaining short-term deals; something not seen at this level in quite some time.
The good news is that the shift has resulted in deals getting done and tenants coming to the table. Both sales values and volumes are climbing their way back – yet they too are only going to benefit from the recent interest rate cuts and a renewed confidence from investors.
As we enter the final phases of yet another summer and slide into the autumn rush, we note that vacancies and negative absorption of industrial properties continue to climb. That said, we expect them to stabilize at what would be considered a ‘healthy’ equilibrium before plausibly tightening as tenant demand grows and due to the normalization of speculative construction.
Decisions will be made. Businesses will optimize and adjust their footprints. Rents and values will normalize along with expectations. And investors and developers will continue to add value and bring state-of-the-art, industrial product to the market.
It will take time to sort through issues within individual assets or portfolios, yet there is a renewed optimism.
So without further ado, let’s examine how each of the Greater Toronto Area regions performed in Q2 2024, and where we expect the market to go moving forward.
Key Takeaways from Q2 2024 – Toronto East Markets
- The availability rate increased from 3.8% to 4.3%, with 3.9% available for lease and 0.4% available for sale;
- We had 425,389 SF of new supply year-to-date and 4,113,947 SF still under construction;
- We had 288,251 SF of negative absorption; and
- The weighted average asking net rent was $16.24PSF, down from $16.68 PSF the previous quarter, with additional rent of $4.69 PSF (a decrease from $4.78 PSF).
Why are the GTA East Markets in such demand?
Generally, the Toronto-East markets have strong economics – relatively inexpensive land compared to other markets in the GTA, better availability of land, better located industrial land with proximity to the City, relatively low development charges, and great access to major highways.
We have seen a number of major Users and Developers step in and make commitments on large pieces of land for spec development and design build, which amounts to millions of square feet being built and in the pipeline.
So, if you are an Investor, Landlord, or Owner-Occupier you may be wondering…
“How much is my property really worth?”
What rental rate can I expect? How much $/PSF would I be able to get if I sold my building?
These questions are being asked all the time.
The answer to this will depend on a range of factors, including:
- the age and size of the building,
- lot size,
- ceiling height,
- office component,
- parking,
- trucking access,
- truck parking if available, etc….
This week we are covering the Toronto-East Markets
(Pickering, Ajax, Whitby, Oshawa & Clarington)
Statistical Summary – GTA East Markets – Q2 2024
Q2 2024 GTA Industrial Market Overview – Source: Cushman & Wakefield
Properties Sold between April 2024 – June 2024, from 20,000 SF plus
1350 Phillip Murray Avenue, Oshawa.
Properties Leased between April 2024 – June 2024, from 20,000 SF plus
221 Church Street, Bldg C, Ajax.
Major Development Projects Ongoing in GTA East Markets
1. Carttera – 1900 Boundary Road, Whitby
1900 Boundary Road, Whitby. Source: Colliers.
1575 Clements Road, Pickering. Source: Colliers.
Triovest is constructing a 270,163 SF facility at 1575 Clements Road in Pickering. Situated on approximately 22 acres of land, the property will boast a 40’ clear height with 36 truck-level and 2 drive-in doors, 1,600 amps of heavy power and a 130’ truck court. Expected delivery is Q2 2025 with flexible configurations starting at 45,734 SF. Colliers is currently marketing the asset for lease.
3. Rosewater Group – 5385 Thickson Rd N & Garrard Rd, Whitby
5385 Thickson Rd N & Garrard Rd, Whitby. Source: Colliers and D’Orsay + Co.
Rosewater Group is offering a design-build purchase opportunity of up to 350,000 SF over two land parcels (of 9.82 acres and 22.54 acres in size) located at 5385 Thickson Road North & Garrard Road in Whitby. Various conceptual site configurations have been proposed, with expected servicing to the sites targeted for Q4 2024 and 2025. Colliers and D’Orsay + Co. are currently marketing the opportunity.
4. Pure Industrial REIT – Lakeridge Logistics Centre
Pure Industrial REIT is developing the Lakeridge Logistics Centre at 537 Kingston Road East in Ajax. Delivering in Q4 2024, the site will support up to 1.2 million square feet of “ultra-modern Class-A zero carbon industrial space” with demisable options.
The behemoth warehouse will have a clear height of 40 feet with 207 truck-level and 4 drive-in doors, as well as approximately 250 trailer parking spaces. Fronting on Highway 401, and less than a 10-minute drive from Highway 407 and the Ajax GO Station, the property offers excellent connectivity. Avison Young is marketing the asset for lease.
Nicola Wealth and First Gulf are bringing to market the Hopkins Logistics Hub in Whitby, Ontario. With occupancy slated for July 2024, the proposed warehouse will be 293,251 SF in size, situated on 22.21 acres (13.5 developable acres).
The property will have a clear height of 40 feet with 30 truck-level and 2 drive-in doors and 21 trailer parking stalls. Located in proximity to Highway 401 and the Whitby GO Station, Hopkins Logistics Hub will provide access to major transportation routes, the labour pool, and consumers throughout the GTA. Cushman and Wakefield is leasing the asset.
6. Crestpoint – Ajax Industrial On the Park – 221 Church Street S, Ajax
Crestpoint Real Estate Investments is constructing a three-property industrial park totalling approximately 1.1-million square feet and surrounded by 82 acres of natural green space.
Building A will be 698,301 square feet with 118 truck-level and 2 drive-in doors, as well as 96 trailer parking spaces. Buildings B and C will be 198,946 square feet and 195,853 square feet, respectively, with 53 truck-level and 2 drive-in doors each.
All assets will have 40 foot clear heights with 60 foot staging bays, and will target LEED Gold and Zero Carbon Ready building design certifications. CBRE is marketing the project with target delivery of Q3 2024.
FGF Brands, with Caplink as the partner developer, is constructing the “FGF Food Manufacturing Campus” (also known as the “Wonderbrands Innovation Business Park”) at 745-815 Highway 7 in Pickering, ON.
The six-building industrial and office development sits on 151 acres and will total over 1-million square feet upon completion; the largest food manufacturing campus in the GTA and one of the most cutting-edge in terms of technology with robotics, integrated AI systems, machine learning, and supply chain innovations.
The park will host approximately 3,000 new employees and will potentially see Wonder Bread, D’Italiano, Country Harvest, Casa Mendosa, Gadoua, Stonefire, and other FGF-brand products manufactured and distributed through its doors.
- Building A will be 436,650 SF with 60 truck-level and 4 drive-in doors.
- Building B will be 616,268 SF with 106 truck-level and 8 drive-in doors.
- Building C will be 385,770 SF with 52 truck-level and 4 drive-in doors
- Building D will be 75,865 SF with 11 truck-level and 2 drive-in doors.
- Building E will be 56,886 SF with 12 truck-level and 2 drive-in doors.
Fieldgate Commercial Properties and First Gulf are constructing the Brooklin Gate Business Park in Whitby, Ontario. With occupancy expected in Q4 2024, the 311,680 square foot warehouse offers a 40 foot clear height, and 52 truck-level and 2 drive-in doors. Colliers is marketing the asset for lease.
What Lies Ahead:
- Rental Rates: The Toronto-East markets now have a weighted average rental rate of $16.24 PSF net, the lowest across the GTA regions. That said, rents across the GTA have levelled off and, in many cases, we have seen rate reductions. Likewise, annual rental escalations have decreased. Leasing is slower and it is taking longer to complete a deal as Tenants have become more cautious. Finally, as vacancies are increasing (see the jump from 3.8% to 4.3% this last quarter), Tenants have more options. These dynamics are putting further downward pressure on rents, specifically on Class B or C industrial buildings. Overall, we are in a more balanced market between Landlords and Tenants.
- Property Values: The Toronto-East markets typically have the lowest weighted-average asking sale price in the GTA. As rental rates decrease in certain properties, coupled with upward pressure on cap rates, we are going to see a decrease in the value of investment properties. For users, we expect to see values remain elevated as supply is extremely limited. Finally, due to the overall softening of the market and slowdown in new construction, the value of development land has decreased.
- Development Opportunities: We are seeing strong development continue in the East with a current pipeline of 4,113,947 SF. Big players such as Panattoni, Nicola, Carttera, Crestpoint, PIRET, etc. (to name a few) are all involved… and it will continue.
So, how much is your property really worth?
What rental rate can you expect or how much per SF would you be able to get if you sell your building? How much can we compress CAP rates to create even greater value?
Well, the answers to these questions will depend on a variety of factors, many of which we can quickly uncover in an assessment of your situation. And with our rental rates and valuations at all-time highs, and vacancy rates low, finding the right property is a real challenge.
Having said that, a lot of transactions are being done off the market.. and to participate in that, you should connect with experienced brokers that have long-standing relationships with property owners.
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
Goran Brelih, SIOR
Executive Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
www.cushmanwakefield.com
Office: 416-756-5456
Mobile: 416-458-4264
Mail: goran.brelih@cushwake.com
Website: www.goranbrelih.com
