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Toronto industrial market has millions of new sq. ft. on the way

67 million sq . ft. in construction/pre-construction pipeline, and the GTA just might absorb it all

A rendering of Pure Industrial's 1.2-million-square-foot spec industrial building, Pure LakeRidge, in Ajax east of Toronto. (Courtesy Avison Young / Pure)
A rendering of Pure Industrial's 1.2-million-square-foot spec Lakeridge Logistics Centre, in Ajax east of Toronto. (Courtesy Avison Young / Pure)

Industrial real estate transactions in the Greater Toronto Area (GTA) may have slowed in Q3 and developers and landlords may be becoming more cautious in response to current economic conditions, but the outlook remains positive for the approximately 840-million-square-foot and growing market during the next year.

Rents continued to rise, the vacancy rate was at a record low 0.9 per cent during the quarter and demand continues to outpace supply, so the pieces are in place for continued activity.

“The fundamentals are still strong,” JLL executive vice-president and managing director of GTA office and industrial Jonathan Peretz told RENX. “Overall, the industrial market is still historically very active and demand is still very strong. That gives me a sense of optimism for the development community.”

There were 17.77 million square feet of space under construction, with 6.4 million of the total expected to be completed by the end of the year, according to a new JLL report.

“The rates of new supply and delivery slowed down a bit this year, but that's because there was just a big surge of construction after the construction stoppages over COVID,” Avison Young research manager for suburban markets Warren D’Souza told RENX.

Third-quarter construction starts included Pure Industrial’s sites at 10 and 20 Whybank Dr. in Brampton – at more than 600,000 square feet – and BentallGreenOak’s sites at 1352 and 1362 Tonolli Rd. in Mississauga combining for 516,375 square feet. 

Third-quarter completed projects 

The largest completion of the third quarter was a 445,100-square-foot distribution facility at 1655 Reading Ct. in Milton built by Orlando Corporation and fully leased by Rockwool.

That was followed by a 216,100-square-foot building for Canadian Appliance Source at 27 Director Ct. in Vaughan, and a 139,000-square-foot building at 675 Harwood Ave. N. in Ajax owned by Triovest that was 60 per cent leased.

Although the GTA saw 1.8 million square feet of deliveries during the third quarter, according to JLL, 79.9 per cent of that was pre-leased. 

“Developers, regardless of the economic headwinds, are still not running for the hills,” Avison Young principal of industrial and capital markets real estate Ben Sykes told RENX. 

“No one is in a rush to do a deal. Groups are still being very selective on covenant and use, and a lot of groups do not want to split larger tracts and space.” 

New developments coming soon

Orlando has a new 569,083-square-foot cross-dock distribution centre at 1890 Reading Ct. in Milton that will be available for occupancy in March. Sykes said a number of groups are looking at that site.

Sykes said Panattoni will deliver a 485,485-square-foot, spec-built facility at 100 Ace Dr. in Brampton in Q1 2023 and noted there are indications a transaction could be in the offing with a multi-national manufacturer.

Menkes is nearing completion of a fully leased 377,254-square-foot warehouse at 8205 Parkhill Dr. in Milton.

Sykes said Crestpoint Real Estate Investments Ltd. and Alberta Investment Management Corporation are delivering a 630,000-square-foot, spec-built facility at 3160 Derry Rd. E. in Mississauga and are in active negotiations with a potential tenant.

Oxford Properties broke ground on its 180-acre, 3.3-million-square-foot master-planned James Snow Business Park greenfield development in Milton in the third quarter.

The first phase will comprise nearly 1.6 million square feet and include 400,000 square feet of solar panels as part of its sustainability commitment.

Canada Post will become the owner of the largest industrial building in Canada to meet standards for net-zero emissions. The 585,000-square-foot processing centre at 1395 Tapscott Rd. in Scarborough is expected to open in March. 

Toromont Industries announced plans to build a 137,000-square-foot remanufacturing facility on 30 acres in Bradford West Gwillimbury.

Leasing demand remains strong

Nine leases of more than 100,000 square feet were signed during the third quarter, including: 

    •    Samsung’s renewal of 435,000 square feet at 8041 Fifth Line in Halton Hills; 
    •    Traffic Tech’s renewal of 249,500 square feet at 550 Matheson Blvd. E. in Mississauga; 
    •    Shein’s new lease of 166,700 square feet at 10 Canfield Dr. in Markham;
    •    Ontario Power Generation’s renewal of 158,200 square feet at 2555 Forbes St. in Whitby; 
    •    Portside Warehousing’s new lease of 141,399 square feet at 3430 Harvester Rd. in Burlington; 
    •    and Probus Logistics’ new deal for 122,900 square feet at 53 Mobis Dr. in Markham. 

While new lease deals of more than 50,000 square feet declined 53.3 per cent quarter-over-quarter, several large pending deals are still in the works. 

10750 Hwy. 50 in Brampton haas been leased by retailer Pet Valu. (Courtesy JLL)
10750 Hwy. 50 in Brampton has been leased by retailer Pet Valu, which will occupy the 670,485-square-foot cross-dock facility when it completes in 2023.. (Courtesy JLL)

“We're still seeing incredibly strong pre-leasing demand,” said Peretz, “and a portion of the space that's not currently leased is conditionally leased. So I think what you're going to see is more announcements over the next couple of months going into Q1 where deals will get finalized.”

H&M has leased all of a new 716,838-square-foot building in the GTA East Industrial Park at Salem Road and Kerrison Drive in Ajax. 

Pet Valu has leased a 670,485-square-foot cross-dock distribution centre in Orlando’s new BramEast Business Park at 10750 Hwy. 50 in Brampton. It’s scheduled for completion next year.

“We're not seeing any meaningful givebacks or large spaces coming back to the market with the current tenant demand,” said Peretz. 

The largest pre-leasing project to come to market in the third quarter is Pure Industrial’s 1.2-million-square-foot Lakeridge Logistics Centre at 537 Kingston Rd. E. in Ajax.

Billed as the largest spec-built industrial building in Canadian history, it's expected to be completed by Q4 2024. 

Avison Young is representing the property and Sykes said it's receiving inquiries from various groups. He believes the entire building will be leased to one tenant.

Different users driving demand

A new report from Avison Young says leasing demand over the past five quarters for spaces of 10,000 square feet and greater has been dominated by logistics and distribution (37 per cent), retail/e-commerce (20 per cent), manufacturing (17 per cent) and consumer goods and services (12 per cent) tenants. 

Most of the investor demand for spaces of 10,000 square feet and up during the same time frame was driven by private investors (35 per cent), followed by private equity (23 per cent) and institutional investors (19 per cent).

Twenty-eight per cent of the buildings under construction are design-build while 72 per cent are speculative developments, according to Avison Young.

Despite Avison Young’s report noting the GTA market has 67 million square feet under construction and pre-construction, new deliveries will continue to be in short supply.

“We're operating in such an undersupplied market across the board and specifically on small- and mid-bay space,” said Sykes. “The inventory that's been added is all formatted to the larger 100,000-square-foot-plus marketplace.”

While industrial rents have risen dramatically, Sykes said high development costs would mean smaller spaces would have to charge rents of up to $25 per square foot to be feasible — and the market for that price isn’t there yet.

A more strategic approach could be taken

A slowdown in speculative construction, particularly by merchant developers and for projects that don’t have permits in hand, may be the result of higher interest rates and economic uncertainty now and going forward.

“Developers understand their supply chain and they understand timing,” said Peretz. “Looking at the market, I think you're going to see landlords and developers take everything under a strategic approach.” 

Peretz said tenants are paying for occupancy certainty and asking landlords and developers to provide construction schedules to demonstrate they can deliver projects on time.

“It's more of a partnership than ever before,” said Peretz. 

“If anything, we'll start to see a little bit of product come back or be delivered that doesn't get absorbed,” Sykes said of what could happen if economic headwinds persist. 

“But that’s not necessarily a bad thing and kind of takes the market back from an undersupplied landlord market to more of a balanced market.” 

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