|
Establishing True Valuations Across Differing Markets
November 8th, 2024
“The four most expensive words in the English language are, ‘This time it’s different.’”
Just like every economic cycle before now, market participants have been subject to the forces of supply and demand; with their outcomes largely determined by preparation, management, and timing.
The fact is that any market can be a profitable one.
To that point, market fundamentals can also shed light on potential obstacles to success.
As it stands, the Greater Toronto industrial market has experienced over 3.4-million square feet of negative absorption in 2024 amidst a second consecutive quarter of declining asking rents.
Meanwhile, 16.4-million square feet remains under construction with approximately 6.9-million square feet delivered year-to-date.
Coupled with a pre-leasing average of just 37.7% (down significantly from the 86% during the post-pandemic period) and an 8-year-high additional 3.4-million square feet of sublet space, Owners and Developers have become both cautious and aggressive in securing new Tenants for their facilities.
Despite these alarming statistics, enormous sales and leasing transactions are still happening. And, to its credit, the GTA industrial market had its second-highest leasing activity in Q3 2024; helping to slow the rise in vacancies and provide the belief that we may be nearing the bottom.
The timing right now is quite opportunistic. Organizations are making decisions at a point where Landlords’ and Sellers’ expectations have already adjusted and been reflected in asking rents and values. These same Occupiers have more options now than in the past several years. And to boot, the Bank of Canada has been quick and fast in its cutting of interest rates over deflationary fears.
All of these forces provide a thin-slice of information which, when gathered together, may form a story. We believe that, while there will continue to be a re-shuffling and fine-tuning of ownership and occupancies, Owners and Occupiers of industrial real estate will be better able to secure the space they need; helping to provide a more positive economic outlook.
So without further ado, let’s examine how each of the Greater Toronto Area regions performed in Q3 2024, and where we expect the market to go moving forward.
Key Takeaways from Q3 2024 – Toronto East Markets
- The availability rate decreased from 4.3% to 3.7%, with 3.2% available for lease and 0.5% available for sale;
- We had 914,493 SF of new supply year-to-date and 4,428,543 SF still under construction;
- We had 809,455 SF of absorption; and
- The weighted average asking net rent was $14.96 PSF, down from $16.24 PSF the previous quarter, with additional rent of $4.04 PSF (a decrease from $4.69 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….
In order to get to the truth, we need to dig a bit deeper…
This week we are covering the Toronto-East Markets
(Pickering, Ajax, Whitby, Oshawa & Clarington)
Statistical Summary – GTA East Markets – Q3 2024
 Q3 2024 GTA Industrial Market Overview – Source: Cushman & WakefieldQ3 2024, Industrial Market Overview – Source: Cushman & Wakefield
So let’s take a closer look at how the different Toronto East Markets performed during Q3 2024…
GTA East Markets
Properties Sold between July 2024 – September 2024, from 20,000 SF plus
No properties were sold in the GTA East submarkets of Pickering, Ajax, Whitby, and Oshawa in Q3 2024.
GTA East Markets
Properties Leased between July 2024 – September 2024, from 20,000 SF plus
In the GTA East submarkets (of Pickering, Ajax, Whitby, and Oshawa) in Q3 2024, 5 properties were leased (totalling 927,369 SF). The net rental rates achieved were from $15.75 PSF to $15.95 PSF, with an average building size of 185,474 SF and an average net rental rate of $15.85 PSF.
 4680 Garrard Road, Bldg A, Whitby.
Major Development Projects Ongoing in GTA East Markets
1. Carttera – 1900 Boundary Road, Whitby
1900 Boundary Road, Whitby. Source: Colliers. Carttera is building a brand-new, speculative 343,000 SF facility targeting LEED Silver and Net Zero Carbon Ready status. Located at 1900 Boundary Road in Whitby, the property will have a 40’ clear height, 53 truck-level and 2 drive-in doors, 4,000 amps of heavy power, and 54 trailer parking stalls. Expected delivery is Q2 2025. Colliers is currently marketing the asset for lease.
2. Triovest – 1575 Clements Road, Pickering
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
Lakeridge Logistics Centre, Ajax. Source: Avison Young.
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.
5. Nicola Wealth/First Gulf – Hopkins Logistics Hub
901 Hopkins Street, Whitby. Source: C&W.
Nicola Wealth and First Gulf are bringing to market the Hopkins Logistics Hub in Whitby, Ontario. With occupancy expected shortly in Q3/Q4 2024, the 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
Ajax Industrial on the Park. Source: Crestpoint.
Crestpoint Real Estate Investments has brought to market a three-property industrial park totalling approximately 1.1-million square feet and surrounded by 82 acres of natural green space.
Building A is 698,301 square feet with 118 truck-level and 2 drive-in doors, as well as 96 trailer parking spaces. Buildings B and C are 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 full delivery almost complete.
7. CapLink – 745-815 Highway 7, Pickering – Proposed 1MSF FGF Brands Campus
745-815 Highway 7, Pickering. Source: UrbanToronto.
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.
8. Panattoni – 1565 Thornton Rd N, Oshawa – Proposed 500,000 SF Development
1565 Thornton Road N, Oshawa. Source: Panattoni.
Pannatoni is close to delivering a 499,665 square-foot warehouse at 1565 Thornton Road North in Oshawa. The Class A facility will have a 40 foot clear height with 104 truck-level and 8 drive-in doors, alongside 104 trailer parking spots. The site is easily accessible through Highways 401, 407, 412, and 418.
9. Panattoni – 5360 Thickson Road, Whitby – Proposed 1.6 MSF Development
5360 Thickson Road, Whitby. Source: Panattoni.
Panattoni is proposing the development of a 1.6-million SF industrial campus at 5360 Thickson Road in Whitby. With expected delivery in 2025, and available for sale or for lease, the park will comprise of 5 buildings with 40 foot clear heights and ample trailer and car parking stalls.
- 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.
10. Fieldgate/First Gulf – Brooklin Gate Business Park, Whitby
Brooklin Business Park, Whitby. Source: Colliers.
Fieldgate Commercial Properties and First Gulf are constructing the Brooklin Gate Business Park in Whitby, Ontario. With occupancy expected in Q3 2025, 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.
11. Dream REIT – 220 Water Street, Whitby
220 Water Street, Whitby. Source: Avison Young.
Dream REIT is developing two speculative industrial buildings totalling up to 389,374 SF. Located minutes from Highway 401, the properties will offer 40’ clear heights with 1,600 amps of heavy power and a 60’ staging bay. Building A will be 199,389 SF in size with 35 dock doors and 2 drive-in doors. Meanwhile, Building B will be 189,985 SF with 39 docks and 2 drive-in doors. Avison Young is marketing the project.
What Lies Ahead:
- Rental Rates: The Toronto-East markets now have a weighted average rental rate of $14.96 PSF net, the lowest across the GTA regions. This shows how rents have levelled off and, in some cases, have resulted in rate reductions. We expect this to continue. Likewise, annual rental escalations have decreased. Leasing is slower and it is taking longer to complete a deal, however activity is picking up towards the end of the year. Finally, increased vacancies have provided Tenants with more options, putting downward pressure on rents, specifically in Class B or C industrial buildings. Overall, we are heading towards 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, we have seen 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.
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
|
