February 24th, 2023
Should every investor buy into the Southern Ontario industrial market?
And should every industrial property owner try to cash out at some of the strongest valuations we’ve ever seen (despite the hairiness of increased interest rates)?
Well, this begs the question if one should do anything ‘just because’ it is opportunistic and can be validated by the opinions and actions of others. To address the above questions: yes, one should, but if, and only if, one meets certain criteria.
At the end of the day, we are looking to manage returns and risk, and to do so in a way that aligns with our own personal preferences and long-term objectives. If all the proverbial boxes are ticked, then the question becomes, “how does one do it?”
And despite all of the data and intel at our fingertips, we are no doubt moving through uncharted waters. The ability to predict and insulate oneself from future shifts in the market through prudent management may be more top-of-mind now than speed-to-market or aggressive acquisitions and asset-banking.
Looking back at the momentous upswing in popularity of the GTA’s industrial market, making decisions on the way up is relatively simple. When market and economic fundamentals are good, we can at least rationalize our moves in knowing that we have an out (through selling) and that we can lock in new gains in rents or values – even if they are not at new watermark levels (i.e. leasing our property for $16 PSF net and missing out on a few potential extra dollars).
Today, however, strategy is everything. Finding value is more difficult. Being ready to pounce on opportunities will not only position you to grow in difficult times, but to cultivate greater returns when the economy strengthens once more.
How we do this, as was raised earlier, is twofold. Managing oneself and one’s portfolio, and carefully poring over inbound data and intelligence to quickly analyze, verify, and execute on deals that make sense for you or your organization.
So with that said, let’s examine how each of the Greater Toronto Area regions performed in Q4 2022, and where we expect the market to go moving forward.
- The availability rate dropped slightly from 0.5% to 0.4%, with a lease availability rate of 0.4% and a sale availability rate close to 0% (57,975 SF out of 157M SF of inventory);
- We had 1,381,162 SF of new supply and 1,702,991 SF still under construction;
- We had absorption of 1,422,833 SF;
- The weighted average asking net rent was $17.26 with additional rent of $4.27 PSF; and
- The weighted average asking sale price was $557.30 PSF.
Why are the GTA North Markets in such demand?
Generally, the Toronto-North markets have newer product with higher ceiling heights and better shipping access. Further, there are benefits from access to major transportation routes.
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,
- trucking access,
- truck parking if available, etc….
This week we are covering the Toronto North Markets (Vaughan, Markham, Richmond Hill, Aurora, Newmarket, Stouffville, East Gwillimbury)
Statistical Summary – GTA North Markets – Q4 2022
Q4 2022 GTA Industrial Market Overview – Source: Cushman & Wakefield
Q4 2022, Industrial Market Overview – Source: Cushman & Wakefield
GTA North Markets (Vaughan)
225 Bradwick Drive, Concord
100 Pippin Road, Vaughan
40 West Beaver Creek Rd, Richmond Hill
35 Staples Avenue, Richmond Hill
In the Aurora/Newmarket submarkets in Q4 2022, a total of 3 properties were sold (totalling 101,627 SF); 2 were investment sales and 1 was a user sale. The prices achieved were in the range of $238 PSF – $370 PSF, with an average building size of 33,876 SF and an average price of $283 PSF.
225 Industrial Parkway South, Aurora
305 Addison Hall Circle, Aurora
- Rental Rates: The Toronto-North markets now have a weighted average rental rate of $17.26 PSF net. Keep in mind that rental rates are a weighted average, and also subject to annual escalations. We continue to see a general upward pressure across the board into the high-teens to low-twenties, depending on a number of factors, such as building size, location, ceiling height, etc. Based on the increase of value of industrial land, infill sites, construction costs, etc… we can only see these rates continue to grow. Overall, we are still in a Landlord’s market.
- Property Values: The Toronto-North markets have the highest weighted-average asking sale price across the GTA at $557.30, due in part to the lack of availabilities. Depending on the building size and location, and especially for Class A, well-located space, pricing shall remain strong. Given the most recent increases in interest rates, we will see an impact on CAP rates.
- Development Opportunities: The Toronto-North markets still have quite a bit of land available for development in Vaughan-West along Highway 50. We are also going to see further development along Highway 400 as land sites in more central areas become more scarce. Regarding industrial land, pricing generally continues to increase.
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.
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 email@example.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.