Establishing True Valuations Across Differing Markets
September 6th, 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.
- The availability rate increased from 4.1% to 4.8%, with 4.7% available for lease and 0.1% available for sale;
- We had 3,486,544 SF of new supply year-to-date and 7,302,077 SF still under construction;
- We had 1,446,973 SF of negative absorption;
- Brampton achieved the highest weighted asking net rental rates in Q2 2024 at $18.93 PSF, followed by Mississauga at $18.41 PSF and Burlington at $18.18 PSF;
- The weighted average asking net rent was $18.37 PSF, down from $19.05 the previous quarter, with additional rent of $4.11 PSF (a decrease from $4.12 PSF); and
- The weighted average asking sale price rose from $485.12 PSF to $495.33 PSF.
Why are the GTA West Markets in such demand?
The GTA West Industrial Markets are by far the largest industrial markets in the GTA, representing about 47% of GTA Industrial Inventory, or 387,868,301 SF. The GTA West Markets were active this quarter and with more than 7,302,077 SF under construction.
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-West Markets
(Mississauga, Brampton, Oakville, Milton, Caledon, Burlington & Halton Hills)
Statistical Summary – GTA West Markets – Q2 2024
Properties Sold between April 2024 – June 2024, from 20,000 SF plus
6380 Vipond Drive, Mississauga.
Properties Leased between April 2024 – June 2024, from 20,000 SF plus
**For more information, contact our team.
1100 Courtneypark Drive East, Mississauga.
2600 North Park Drive, Brampton.
Properties Leased between April 2024 – June 2024, from 20,000 SF plus
8 Van Der Graff Court, Brampton.
1180 Corporate Drive, Burlington.
Properties Leased between April 2024 – June 2024, from 20,000 SF plus
4216 South Service Road, Burlington.
2767 Brighton Road, Oakville.
- Rental Rates: Rents have levelled off and, in many cases, we have seen rate reductions and inducements from landlords. We expect this to continue. Likewise, annual rental escalations have also decreased. Leasing is slower and it is taking longer to complete a deal as Tenants have become more cautious. Finally, as vacancies have increased and we continue to see negative absorption, Tenants are beginning to have options, which may spur more movement and breed competition, putting more downward pressure on rents, specifically in Class B or C industrial buildings. Overall, we are in a more balanced market between Landlords and Tenants.
- Property Values: As rental rates plateau, and as we see rents decrease in certain properties, coupled with upward pressure on cap rates, we are going to see a decrease in value of investment properties. For users, even though the Buyer pool may have thinned, we expect to see values remain elevated as supply is extremely limited and as interest rates continue to fall.
- Development Opportunities: In the second quarter of 2024, we had approximately 7.3 million square feet under construction in the GTA-West markets. This represents about 45% of all new development across the GTA (16.17 million SF), with the bulk of activity taking place in Milton/Halton Hills (2.58 MSF), Mississauga (2.32 MSF), and Brampton (1.40 MSF).
Conclusion:
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
