The Bottleneck in Industrial Supply
Examining the GTA’s Industrial Pipeline & Supply Challenges
October 9th, 2020
Historically, developers and investors in the GTA have only been able to complete and bring online about 5 Million SF of new construction every year. This flow has remained fairly constant throughout the years, with about 10 Million SF in the pipeline….
Despite the relatively large number of ongoing projects and levels of activity throughout one of North America’s hottest industrial markets…
It Simply Isn’t Enough!
Q2 2020 CW Marketbeat
- Under Construction – 9,947,000 Million SF
- Construction Completion – 4,802,000 Million SF
The reasoning behind this statement is that almost nothing sits on the market. A good percentage of buildings are pre-leased or built-to-suit while most of the remaining product built on spec is filled with high-quality tenants well before completion of construction.
This shortage isn’t due to a lack of competent developers or institutional backing in the GTA. No, we’ve got plenty of high-performing organizations breaking ground, submitting applications, organizing projects, and getting deals done.
A friend and leader of one such organization described the demand for product as having “5 really nice steaks for dinner and not being able to eat all of them.” Having said that, these groups are working around-the-clock to move projects through the pipeline.
The surface-level issue here is easy to spot. It’s not just a lack of land in general. It’s a shortage of developable and shovel-ready land.
Even investors and developers that own large portfolios of land from Hamilton to Barrie and out past Oshawa have their hands tied when it comes to going through the planning and approval process.
The underlying culprit behind the chronic lack of supply is, indeed, red tape and regulation.
Check out the list below.
Developers have to submit all of these documents and more, depending on the site, to the City to get through the approval and planning process…
- Cover Letter
- Application Form
- Application Checklist
- Planning Rationale
- Project Data Sheet
- Arborist Report
- Architectural Plans
- Civil and Utilities Plans
- Cost Estimates For Landscaping
- Servicing Report
- Stormwater Management Report
- Survey Plans
- Toronto Green Standards Checklist
- Transportation Impact Study
- Tree Preservation Plan
- Geotechnical Study
- Resubmission Form
- Detailed Revision List(s)
And the above is a real-life example…
A prominent Developer submitted an Application form in April 2018 for the development of a speculative industrial building in the GTA. Building construction commenced in the summer of 2020. The property could be fully enclosed before winter and possibly delivered to the tenant in Q4 2020, but most likely in Q1 2021….
This process is extensive and thorough. And there are reasons why each step must be performed to satisfy requirements from various departments. We can all respect that. That being said, the timeline is simply way too long… and it is one of the main reasons why developers cannot deliver more than 5 – 6 million SF annually in the GTA.
We see developers and investors pursuing any available opportunities to purchase development land or infill opportunities… without it, you are just not in the business…. you ought to have a considerable amount of said product in your pipeline…
From purchasing significant acreage throughout the GTA and surrounding regions, to actively pursuing and engaging in the servicing, and eventually, the more formal approval and planning process. Not to mention the team of third-party experts and consultants that are brought in to execute… Overall, we can observe the most active developers are those who take a long-term, focused approach.
And, as we mentioned earlier, we do currently have about 10 million SF under construction…
When new, modern warehousing and distribution facilities go from 200k to 300k SF all the way to 1.5 million SF, the total volume adds up quickly. Finally, when the majority of new product is pre-leased or absorbed before completion, the relative risk associated with a traditional speculation build is lower than if one were to construct a different type of asset in a less sought-after market.
With respect to potential negative externalities or unintended consequences: from observing transactions, there is an obvious bias towards the ‘e-commerce-suited’ warehousing, distribution, transportation, and logistics facilities. Little attention is being given to smaller properties as of yet, that stock is pretty much constant so with this demand pricing just continues to escalate.
In terms of possible solutions regarding the approval process itself, that would require an open forum and a collaboration between many different Parties and authorities. Those working in and actively modifying the process would understand the reasons why certain steps and regulations exist.
Perhaps there may be a way to expedite certain projects to bring relief to a market that has predominantly supported larger developments, which we have seen a number of times in the past.
Next week, we will take a deeper look at the GTA Industrial pipeline. We will provide a thorough list of the buildings over 100k SF completed or currently under construction and scheduled to be completed in 2020.
Goran Brelih and his team have been servicing Investors and Occupiers of Industrial properties in Toronto Central and Toronto North markets for the past 25 years.
Goran Brelih is a Senior Vice President for Cushman & Wakefield ULC in the Greater Toronto Area.
Over the past 27 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.
Goran is currently serving as Immediate Past President of the SIOR ‐ Society of Industrial and Office Realtors, Central Canadian Chapter.
Industrial Real Estate Sales and Leasing, Investment Sales, Design-Build and Land Development
About Cushman & Wakefield ULC.
Cushman & Wakefield is a leading global real estate services firm that delivers exceptional value by putting ideas into action for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms with 48,000 employees in approximately 400 offices and 70 countries.
In 2017, the firm had revenue of $6.9 billion across core services of property, facilities and project management, leasing, capital markets, advisory, and other services. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.
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
Senior Vice President, Broker
Cushman & Wakefield ULC, Brokerage.
Immediate Past President, SIOR – Central Canada Chapter