February 16th, 2024

Time seems to have compressed ever since we came out of the pandemic.

Maybe it was simply a catalyst for change. Or perhaps we were all making up for lost time.

Or within the context of industrial real estate, the emergence of e-commerce and the resulting demand for warehousing and logistics facilities emphasized the need and signalled the profitability surrounding Bix Box space.

Whatever the reason may be, broad economic forces, regional drivers, and industrial real estate dynamics have been in constant flux. The rise of interest rates from all-time lows. The scale of the industrial pipeline and resulting flood of deliveries. The dramatic increase in costs to develop new facilities. The softening in demand from occupiers and investors.

All of these narratives and phenomena have led to an industrial real estate market that continues to be sought-after, but where decisions and negotiations have become more prevalent and more strategic.

In 2023, we saw the market cool; with rents and values stabilizing, as well as availabilities pushing up to 1.9% (the last time they were above that mark was in Q2 2018). Some tenants pulled back on expansion plans, while some downsized their footprints (see Amazon, for example). Developers became relatively more conscious of competing properties and less enthusiastic about building on-spec, while landlords also changed their mentalities from wanting to push the market’s limits on rents to being satisfied with quality tenants paying market rates.

So what will 2024 bring?

As inflation cools and interest rates are expected to plateau, perhaps we will finally see some predictability in terms of costs and values, although they will likely not come down to pre-expansion levels.

Elevated labour, land, development, and material costs mean that quality real estate will inherently maintain its value as it cannot be replaced easily, quickly, or cheaply.

Similarly, operating costs have increased noticeably in taxes, maintenance, and utilities. We are seeing a trend towards net-zero carbon (as discussed in past issues) and energy efficiencies to help offset this and meet upcoming mandates. Overall, high-cost environments lend themselves to better property management and fully-tenanted buildings.

More available options should see tenants focus more on building specifications and location, meaning high-quality facilities will continue to command a premium on older inventory. As a result, there are many opportunities to add value through infill redevelopment. Bifurcation between modern, Class-A space and functionally obsolete space will also continue.

Aside from these ‘crystal ball’ thoughts, we can be sure that there will be a curveball or two that will be impossible to predict. All one can do is try to study the market, be prepared for opportunity when it comes knocking, and do their best to roll with the punches.

That is why, for this week’s newsletter, we will analyze the GTA industrial market’s historical leasing data to gain a better understanding of how the market has evolved, and to help get a sense of what is to come.

GTA Historical Leasing Analysis

As you can see below, the weighted average asking net rent of GTA industrial properties has changed dramatically in less than five years. In 2018, the weighted average asking net rent was just $6.48 per square foot… where in Q4 2023 it reached $18.43 PSF; almost tripling. Keep in mind that we have seen deals take place in the low 20s depending on features such as location, cubic volume, shipping capabilities, power, and excess land.

Despite this tremendous rise in rental rates, we notice two key inflection points. First, a major acceleration around Q4 2020/Q1 2021 where rents almost doubled within 12 months as we emerged from economic lockdowns and the logistics/e-commerce industries grew exponentially. Second, around Q4 2022, we begin to see this trend slow down – where rents began to stabilize around mid-2023 in the $18-20 PSF net range.

GTA Industrial Rents by Region, 2018 to 2023. Source: Cushman & Wakefield.

Complementing the above, we see the industrial availability rate by region over the past five years below. Noticeable movements include a sharp rise in early- to mid- 2020 (from 1.3% to 1.9%) followed by a sharp tightening all the way through until mid-2022; where we experienced a global minimum of 0.7%.

As the economic landscape began to shift, and coupled with a flood of new deliveries, available space as a percentage of inventory began shooting up to its current level of 2.6%; a relative quadrupling, although this figure is still well below the 4 to 5 percent seen in a ‘healthy market equilibrium.’

GTA Industrial Availability by Region, 2018 to 2023. Source: Cushman & Wakefield.

As mentioned earlier, some tenants have pulled their expansion plans, while others are running optimization exercises of consolidating older, inefficient space into newer, high-cube space. Even at sizeable rent increases, the throughputs and synergies are justifying the moves for net savings. Of course, this means that the market gains net availabilities, and as occupiers exhibit a ‘flight to quality’ we see a bifurcation whereby older product with lower clear heights and shipping capabilities are leasing at rates in the low- to -mid-teens PSF net.

GTA Industrial Leasing Breakdown by Region

Below, we see the differences in industrial leasing activity by Region.

GTA Industrial Leasing Activity by Region: 2018-2023. Source: C&W.

Important Takeaways:

  • No matter the market conditions, leasing transactions are being completed.
  • Transaction trends are erratic by nature. Although they can track booms and busts in the economic cycle, as well as ebb and flow seasonally, a decision made by a single corporate real estate manager to take 1 MSF can skew the dataset. 
  • Sublease opportunities are hitting the market on a more regular basis as the market corrects. Potential discounts here will further stabilize rents but prop up leasing volume; a natural part of the cycle.
  • The GTA West has always led leasing activity on an absolute level due to the amount of inventory located in those submarkets, as well as the size of the lease transactions.
  • In the West markets in Q4 2023, we saw a noticeable jump in space leased to approx. 4.7 MSF. Interestingly, in the four quarters preceding this spike, around 13.4 MSF of space was delivered while the availability rate tripled from 1.1% to 3.3%. 
  • The GTA Central and North markets are more consistent but less active overall due to the lack of available space and market maturity where we see older product and less development activity relative to the West. As the number of vacancies tracks lower, there are fewer places to move to, further stifling leasing volume.
  • The GTA East markets are historically the least active, however, there is approximately 3.8 MSF of industrial space is currently under construction. With average rents currently at $16.41 PSF net, we may see more occupiers move east to take advantage of cost savings and other incentives offered by the municipalities. Lactalis Canada’s recent 379,000 SF lease at Broccolini’s site at 1680 Thornton Rd E in Oshawa is just one example of a high-profile tenant doing just that.

Major Industrial Lease Transactions in 2023

Below, we are featuring some of the largest industrial lease transactions of 2023.

  1. Loblaws Pre-Leases 1,083,000 SF at 5762 Mayfield Rd (Phase 1, Building A) in Caledon (Choice Properties)

5762 Mayfield Rd (Phase 1, Building A), Caledon.

  1. Lululemon Takes 976,919 SF at 5515 Countryside Drive in Brampton (Prologis)

Prologis Highway 50 DC – 5515 Countryside Drive, Brampton.

  1. National Logistics Service Pre-Leases 620,000 SF (with 911,300 SF expansion option) at 5762 Mayfield Rd (Phase 2, Building H) in Caledon (Choice Properties)

5762 Mayfield Rd (Phase 2, Building H), Caledon.

  1. Home Depot Takes 605,000 SF at 3150 Derry Road East in Mississauga (Crestpoint)

3150 Derry Road East, Mississauga.

  1. PepsiCo Takes 569,000 SF at 1890 Reading Court in Milton (Orlando Corporation)
  2. General Mills Takes 552,000 SF at 1820 Reading Court in Milton (Orlando Corporation)

1820 & 1890 Reading Court, Milton.

  1.  FCA Canada Takes 513,507 SF at 100 Edgeware Road in Brampton (Orlando Corporation) 

100 Edgeware Road, Brampton.

  1.  E.D. Smith Takes 476,665 SF at 8 Burford Road in Hamilton (IBA Enterprises) 

8 Burford Road, Hamilton.

  1. Proactive Logistics Takes 450,867 SF at 12315 Coleraine Drive in Caledon (GWL)

12315 Coleraine Drive, Caledon.

  1. Hanon Systems Takes 426,000 SF at 470 Anatolian Drive in Vaughan (Anatolia Real Estate)

470 Anatolian Drive, Vaughan.

  1. Lactalis Canada Takes 379,000 SF at 1680 Thornton Road North in Oshawa (Broccolini)

1680 Thornton Road North, Oshawa.



Looking ahead, the industrial market continues to defy the broader economic uncertainty and remains highly sought-after; both to purchase and lease – it just will depend on the individual asset.

While some may say that sentiment has changed, or speak of both investors and occupiers putting plans on the shelf, vacating space, or downsizing, let’s not forget that this is typical in any normal market. What we had experienced over the past three to seven years was a landscape with constrained supply and a red-hot logistics and warehousing industry. As vacancies push up to the 2% mark (and as interest rates plateau or eventually and gradually fall) tenants will have more options, buyers will regain confidence, and pricing will further stabilize.

As is with common sense, it may certainly be more challenging or rigorous to complete a deal, obtain financing, go through development, or even secure a tenant. That said, if you currently own a well-maintained and -located industrial property within the GTA, there are still large institutional and private investors with dry powder seeking to obtain these assets, both for their strong cashflows and as a hedge against inflation and any potential threats to the financial system.

If selling your property is still something you would consider but have not followed through with for any reason, it is not too late to do so… just ensure that you go into any sales process with a clear strategy and expectations, as well as an understanding of potential outcomes.

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 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.

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


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