Q3 2022 Insight, Toronto-East Markets

Establishing True Valuations Across Differing Markets 

November 4th, 2022

Winter is coming.

As the long summer of near-zero rates, limitless demand, and unbounded growth taper off into a new reality, we find ourselves in a remarkable period of transition.

Although the industrial (and broader commercial real estate) market remains healthy in terms of sales volume, new construction, and red-hot demand for space, a structural shift has already begun to take place.

Decision makers, in larger and larger numbers (and with more boldness), are beginning to question the economic fundamentals underlying the industrial market as a whole; even if only in private, for now.

Rising costs remain the biggest question on everyone’s minds – from construction, materials, and labour to borrowing, operating, purchasing, and leasing.

The second-most contemplated item is how will investors continue to extract yields or how will users be able to adapt to rising rents as each line item slowly creeps into margins.

The past decade saw a degree of certainty within the market whereby users could lock in reasonable rates for a period of 10 years or more. Meanwhile, investors were assured of their returns as values seriously lagged behind other global markets, providing ample runway and a buffer should any mistakes be made.

Now, however, all of these forces are beginning to converge, which have raised many questions.

How rich will the buyer pool be when selling assets?

How many tenants, aside from the AAA-covenant corporates, will be lining up to scoop up new space?

How will owners of smaller facilities deal with renewals when tenants are faced with a doubling or tripling of their rents while having few alternative options for relocation?

Overall, each stakeholder in the market is becoming more cautious and calculated as the general landscape brings forward more risk. How they negotiate and come to terms to make things work will largely dictate the success of the broader market moving forward. To what degree, and when, we see a recession finally play out remains to be seen. However, the fact remains that working together to get deals done in tougher economic climates is a critical mantra looking forward.

In the meantime, we observe a market continuing to charge forward, albeit much more carefully. Opportunity still abounds, however, strategy and timing will largely determine how successful each venture will be.

So with that said, let’s examine how each of the Greater Toronto Area regions performed in Q3 2022, and where we expect the market to go moving forward.

Key Takeaways from Q3 2022 – Toronto East Markets

  • The availability rate was 1.1% with 1% available for lease and 0.1% available for sale;
  • We had 363,593 SF of new supply and 1,908,147 SF still under construction;
  • We had 322,130 SF of absorption;
  • The weighted average asking net rent was $13.00 with additional rent of $3.00 PSF; and 
  • There was no weighted average asking sale price due to limited availability. 

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 2022 

Q3 2022 GTA Industrial Market Overview – Source: Cushman & Wakefield
Q3 2022, Industrial Market Overview – Source: Cushman & Wakefield
So let’s take a closer look at how the different Toronto East Markets performed during Q3 2022…
GTA East Markets (Pickering)
Properties Sold between July 2022 – September 2022, from 20,000 SF plus
No properties were sold in Pickering in Q3 2022.
GTA East Markets (Pickering)
Properties Leased between July 2022 – September 2022, from 20,000 SF plus

Two properties were leased (totalling 171,189 SF) in Pickering in Q3 2022. The net rental rates achieved were from $11.89 to $14.50 PSF, with an average building size of 85,595 SF and an average net rental rate of $13.20 PSF.

905 Sandy Beach Road, Pickering
GTA East Markets (Ajax)
Properties Sold between July 2022 – September 2022, from 20,000 SF plus
Just one property was sold in Ajax in Q3 2022.

525 Finley Avenue, Ajax
GTA East Markets (Ajax)
Properties Leased between July 2022 – September 2022, from 20,000 SF plus
Four properties were leased (totalling 137,867 SF) in Ajax in Q3 2022. The net rental rates achieved were from $12.50 to $14.50 PSF, with an average building size of 34,467 SF and an average net rental rate of $13.88 PSF.

453-463 Fairall Street, Ajax
GTA East Markets (Whitby)
Properties Sold between July 2022 – September 2022, from 20,000 SF plus
In Whitby in Q3 2022, a total of 2 properties were sold (totalling 118,906 SF); both were investment sales. The prices achieved were in the range of $158 PSF – $428 PSF, with an average building size of 59,453 SF and an average price of $293 PSF. 

125 Consumers Drive, Whitby
GTA East Markets (Whitby)
Properties Leased between July 2022 – September 2022, from 20,000 SF plus
No properties were leased in Whitby in Q3 2022. 
GTA East Markets (Oshawa/Clarington)
Properties Sold/Leased between July 2022 – September 2022, from 20,000 SF plus
No properties were leased or sold in Oshawa or Clarington in Q3 2022. 
What Lies Ahead:
  1. Rental Rates: Currently, rental rates average $13.00 PSF net in the GTA East, the lowest of all GTA submarkets; where all of the others are already well over $15.00 PSF net. We have already seen quite an increase in rental rates and land values in the East as they catch up to other Regions, however, we expect rents to increase at a slower, decelerating rate. 
  2. Property Values: Property values, like rental rates, are considerably lower relative to the other GTA submarkets… but also increasing as investors and developers act on the opportunities and relative discount. 
  3. Development Opportunities: We are seeing a lot more development than ever before. Big players such as Panattoni, Carttera, Crestpoint, Blackwood, 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 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 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

Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.

Office: 416-756-5456
Mobile: 416-458-4264
Mail: goran.brelih@cushwake.com
Website: www.goranbrelih.com


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