Fall 2011 | INDUSTRIAL
toronto ontario
COLLIERS INTERNATIONAL | MARKET REPORT
Canadian Market Overview The Canadian economy is once again outperforming many of its peers. While this is an enviable position, the question remains: will Canada be able to navigate the global economic headwinds and sidestep either a noticeable slowdown or recession?
MARKET INDICATORS 2011 Q2
2011 Q3
AVERAGE ASKING NET RENT AVERAGE SALES PRICE
INVENTORY AVAILABILITY RATE SUBLEASE RATE TOTAL AVAILABLE SF NET ABSORPTION UNDER CONSTRUCTION NEW SUPPLY
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Commercial real estate has weathered the recent storm and is well positioned for any softening of the economy. Office markets have largely digested the new inventory that was delivered in the past 24 months and are moving towards healthy levels of occupancy. One area that appears somewhat exposed should the global economy enter a protracted downturn is the industrial property class, which in many markets is tied closely to import and export activity. There are mixed signals on both import and export activity levels. Exports have recently reported gains, however the slowing U.S. economy points to a pullback from our largest customer. The most recent jobs report from the U.S. has further demonstrated the fragility of their economy and will likely hurt U.S. consumer confidence, and hence retail activity. Imports are also in positive territory in the most recent releases, but some caution is warranted as the Canadian Consumer Confidence Index has retreated slightly in July, which may point to a future softening of retail sales and, of greater concern, housing activity. Retail activity is a driver of warehouse and distribution facility demand in many markets, pointing to a reduction in demand for that property type if retail spending is reduced. On a positive note, Canadian businesses appear bullish on future prospects and have started to make capital investments in machinery and equipment, boosting imports in those areas. The outlook appears to call for slow and steady performance in the near term, with a return to moderate growth as external economic variables are stabilized.
GTA North GTA East GTA Central
GTA West
MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
Greater Toronto Area Overview The industrial real estate market has proven to be resilient despite the economic downturn and continued uncertainty in the economy. Since Q2 2011, availability has declined to 4.9 per cent, the lowest level since Q3 2008 with most of the decline observed in the GTA North and GTA West markets. In addition, the sublease ratio is at 11 percent, the lowest in a decade. Notwithstanding, demand for industrial space has slowed since the beginning of Absorption 2011 when comparing quarterly numbers. While vacancy rates at this level are typically accompanied by new development, minimal new supply has been delivered across the Greater Toronto Area (GTA), with less than 400,000 square feet in the GTA North and GTA West combined and only a few new construction projects underway. This
has resulted in a shortage of large blocks of space, particularly those with ceiling heights exceeding 24 feet.
be more focused on securing tenancies today rather than achieving rental rates that the market would normally dictate.
Average asking net rent is reported at Looking ahead, the Conference Board $4.50 per square foot, which continues to of Canada in its September 2011 release remain below levels witnessed prior to the forecasted the industrial sector in the GTA GTA Industrial Market downturn in. It should be noted that the to further expand, although at a slower Historical Performance & Forecast lack of new supply, which is associated average pace of 0.8 percent over the next Q3 2001 - Q3 2012f with higher asking rents, coupled with four quarters with most of the growth anticipated to occur in the manufacturing the addition of available spaceAverage in older Availability Rate Asking Net Rent buildings with lower asking rates has sector. influenced this average downwards and net rents for preferred space in quality locations are often significantly higher. The existing landscape of lower average rents combined with a lack of new supply are a function of economic uncertainty and landlord confidence, as landlords appear to
With this in mind, Colliers expects demand for industrial space to slow but continue to put downward pressure on availability with a corresponding increase in rents, and push market fundamentals into more favorable territory for new development.
GTA | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Average Asking Net Rent
Availability Rate
Net Absorption (100,000 SF)
60
FORECAST
40
4.6
20
2.3
0
0
(20)
(2.3)
(40)
(4.6)
(60)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
Source: Colliers International, September 2011
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6.9
| COLLIERS INTERNATIONAL
2004
2005
2006
2007
2008
2009
2010
2011
2012
(6.9)
Asking Net Rent ($)/Availability Rate (%)
Net Absorption
MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
GTA Central THE MARKET
to 3.5 percent. An availability rate this low in GTA Central is located in the Etobicoke With the second largest industrial has not been reported in this market since submarket. Of this space, almost 70 percent inventory in the GTA, the GTA Central midyear 2008, which suggests sustained is made up of buildings of less than 24 feet market, encompassing Etobicoke, North employment with modest growth in these in ceiling height and in smaller sized units. York, Old City of Toronto, York, East York industrial markets. FORECAST and Scarborough, continuously quotes In total, approximately 850,000 square According to the Conference Board of the lowest rental rates compared to other GTA Central Industrial Market markets. This can be attributed to the feet have been absorbed since spring Canada, industrial space utilizing sectors Historical Performance & Forecast fact that more than half of this market’s 2011. The absorption of industrial space such as transportation and warehousing, Q3 2001 - Q3 2012f inventory is comprised of buildings of less was especially strong in Q2 2011 followed as well as wholesale and retail trade, are than 100,000 square feet with a clear by a marginal decline in the third quarter. expected to grow moderately in the GTA Absorption Availability Rate Average Asking Net Rent height of less than 24 feet. Spaces with It remains to be seen whether this is a over the next 12 to 24 months. With a lack these characteristics are generally in less temporary slowdown or the beginning of an of major new supply on the horizon, Colliers projects that the supply of available space demand and command lower rents. upward trend. will slowly decrease to 3.3 percent of the While the Scarborough and North York TRENDS inventory by Q3 2012, while rents will Asking rental rates have remained stable at submarkets quoted relatively large amounts remain close to current levels. $3.80 per square foot, while the availability of available space, 2.2 million and 1.5 million rate in the GTA Central market has declined square feet respectively, approximately modestly since Q2 2011 from 3.8 percent 60 percent of the overall available space
GTA CENTRAL | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Average Asking Net Rent
Availability Rate
Net Absorption (100,000 SF)
30
FORECAST
6.0
20
4.0
10
2.0
0
0
(10)
(2.0)
(20)
(4.0)
(30)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Asking Net Rent ($)/Availability Rate (%)
Net Absorption
(6.0)
2012
Source: Colliers International, September 2011
COLLIERS INTERNATIONAL |
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MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
GTA North THE MARKET
Absorption
space has been absorbed over the same The GTA North market, encompassing period of time, primarily in Richmond Hill Vaughan, Richmond Hill, Markham, Aurora and Markham. Occupancy levels this high and Newmarket quotes the highest rental have not been reported since early 2007, rates in the GTA and is led by the Markham signifying continued demand for this market. submarket with the highest weighted average Rental rates have increased by $0.20 per asking net rent of $6.40 per square foot. On square foot to $5.15 per square foot by Q3 GTA North Industrial Market a percentage basis, more buildings in the 2011. With the exception of Newmarket, all Historical Performance & Forecast GTA North market contain ceiling heights in other submarkets quoted higher rents than Q3 2001 - Q3 2012f excess of 24 feet when compared with other in Q2 of this year. GTAAvailability industrial markets, to Rate which contributes Average Asking Net Rent FORECAST higher average asking net rents. Colliers anticipates a slower rate of decline TRENDS for available industrial supply but expects Since Q2 2011, available space has further that quoted average rents will be sustained decreased from 5.2 percent to 4.7 percent above the $5.00 per square foot mark. or approximately six million square feet. Almost one million square feet of industrial
GTA NORTH | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Average Asking Net Rent
Availability Rate
Net Absorption (100,000 SF)
20
FORECAST
15
6.0
10
4.0
5
2.0
0
0
(5)
(2.0)
(10)
(4.0)
(15)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
Source: Colliers International, September 2011
P. 4
8.0
| COLLIERS INTERNATIONAL
2004
2005
2006
2007
2008
2009
2010
2011
2012
(6.0)
Asking Net Rent ($)/Availability Rate (%)
Net Absorption
MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
GTA East THE MARKET
has been otherwise equally distributed among the GTA East submarkets. Overall, almost 600,000 square feet of industrial space has already been absorbed in the last six months, doubling the 10 year average annual demand for this market. Rental rates decreased $4.30 Industrial per square foot GTAto East Market as lower-demand, less expensive Historical Performancespace & Forecast remained on the Q3 market, the 2001influencing - Q3 2012f TRENDS rent average downwards. After more than two years with anAbsorption elevated Availability Rate Average Asking Net Rent availability rate of 7.5 percent on average, FORECAST the overall availability rate has decreased Colliers expects further declines in availability, to 5.9 percent in the GTA East market, although only modest increases for rent levels amounting to less than two million square over the next 12 months given sustained feet of available space by the end of the third levels of uncertainly in the economy. quarter. This decline was most pronounced in Ajax, but demand for industrial space GTA East is the smallest market among the GTA industrial markets and is comprised of Ajax, Oshawa, Pickering and Whitby. Most of the available space remains located in Whitby and Pickering, in a number of smaller and mid-sized buildings where availability rates exceed 12 and 7 percent respectively.
GTA EAST | HISTORICAL PERFORMANCE & FORECAST | Q3 2001 - Q3 2012F
Average Asking Net Rent
Availability Rate
Net Absorption (100,000 SF)
15
FORECAST
12.0
10
8.0
5
4.0
0
0
(5)
(4.0)
(10)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Asking Net Rent ($)/Availability Rate (%)
Net Absorption
(8.0)
2012
Source: Colliers International, September 2011
COLLIERS INTERNATIONAL |
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MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
GTA West THE MARKET
GTA West is the largest industrial market in the GTA, with over 40 percent of the GTA’s total industrial inventory found within its boundaries. Over 16 percent of the inventory is comprised of buildings greater than 100,000 square feet with a clear height greater than 24 feet, in response to the need for large warehouse and distribution facilities from many wholesale and retail companies. Absorption TRENDS
GTA West has experienced the most leasing activity in the GTA industrial market since Spring 2011 and, as a result, availability has decreased from 6.6 percent to 6.1 percent in the same time period—a level that has not been reported since prior to the recession. Strong
demand occurred in Q2 2011, predominantly FORECAST in buildings over 100,000 square feet with With only minimal new supply, Colliers expects clear heights of 24 feet and higher, leaving demand for industrial space in GTA West to the majority of available space—42 percent— remain positive with rents remaining at current in buildings with clear heights of less than 24 levels, although demand may be constrained feet. During Q3 2011, on the contrary, GTA due to a lack of functional space and continued West experienced a softening in demand uncertainty in the economy. GTA West Market by as available spaceIndustrial increased marginally Historical & Forecast approximatelyPerformance 350,000 square feet. Despite Q1 2001 Q3 2012f the strong decline in availability in Q2 2011, rental rates decreased by 3.5 percent to $4.67 Availability Rate Average Asking Net Rent per square foot. Similarly to the GTA East market, this dynamic is primarily a function of space that is in less demand and, as it remains on the market quoting lower rental rates, it puts deflationary pressure on average asking rents. The highest average asking rents were seen in Milton at $5.06 per square foot and the lowest in Burlington at $4.36 per square foot.
GTA WEST | HISTORICAL PERFORMANCE & FORECAST | Q1 2001 - Q1 2012F
Average Asking Net Rent
Availability Rate
Net Absorption (100,000 SF)
50
FORECAST
40
6.4
30
4.8
20
3.2
10
1.6
0
0
(10)
(1.6)
(20)
(3.2)
(30)
(4.8)
(40)
3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3
2001
2002
2003
Source: Colliers International, September 2011
P. 6
8.0
| COLLIERS INTERNATIONAL
2004
2005
2006
2007
2008
2009
2010
2011
2012
(6.4)
Asking Net Rent ($)/Availability Rate (%)
Net Absorption
MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
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Glossary of Terms Asking Net Rent The dollar amount requested by landlords for direct available space, not including subleases, expressed in dollars per square foot per year.
Inventory Industrial inventory consists of existing industrial buildings which are 15,000 square feet and larger.
Availability The amount of available space divided by the building’s inventory base. Available space is space that is available for lease, and may or may not be vacant.
Net Absorption The net change in physically occupied space between the current measurement period, and the last measurement period. It can be either positive or negative.
Industrial Building Facilities in which the space is used primarily for research, development, service, production, storage or distribution of goods, and which may also include some office space. Industrial buildings are further divided into three primary classifications: manufacturing, warehouse and flex space.
Vacancy The amount of vacant space divided by the building inventory base. Vacant space is physically unoccupied, and it may or may not be available for lease or sublease. This is physical vacancy. It is not determined whether a tenant is paying rent on the space.
COLLIERS INTERNATIONAL |
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MARKET REPORT | FALL 2011 | INDUSTRIAL | TORONTO
COLLIERS INTERNATIONAL CONTACTS Scott Addison Executive Vice President Eastern Canada +1 416 620 2800 scott.addison@colliers.com
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