Panattoni Canada has just leased a new 308,545-square-foot Mississauga logistics facility it was building on spec, but its pipeline of industrial developments is nowhere close to dry.
Logistics service provider Metro Supply Chain Group signed a long-term lease for the property at 2220-2260 Matheson Blvd. E., which will be ready for occupancy in September. The facility includes a 40-foot clear height, a high shipping door ratio and trailer parking.
Panattoni Canada expects to complete about one million square feet of spec development and 500,000 square feet of build-to-suit projects in the Greater Toronto and Hamilton Area (GTHA) and Edmonton during 2020, according to executive vice-president for Eastern Canada Michael Smele.
“We’re also under construction on quite a bit more space. We anticipate we’ll be shell-complete in 2021 on a further 4.6 million square feet.”
That adds up to about 6.1 million square feet being delivered during 2020 and 2021. If that’s not enough, Panattoni Canada has plans to develop another 1.4 million square feet on spec in the GTHA in 2022.
Industrial demand to remain strong
“We’ve been very aggressive in identifying land positions over the last handful of years,” Smele told RENX. “It’s still a one per cent vacancy market. It’s extremely challenging to find sites and entitle them and be fully permitted in order to go and construct your buildings.
“Historically, over the last five to 10 years, demand has been outstripping supply. It seems to be continuing that way. Obviously, with COVID, everyone took a bit of a breath and analyzed what was going to be taking place.
“What we’ve seen in the industrial sector, with e-commerce and fulfillment space, demand has (gotten) stronger in a lot of cases due to COVID and accelerated that online experience and how that translates into how product is processed and delivered to consumers.”
While Panattoni owns a handful of smaller-bay industrial complexes, its focus is on large fulfillment centres.
“We anticipate that demand will continue to be there,” said Smele. “It might stabilize a little bit more, but there’s still an imbalance with supply and demand so we don’t believe that the demand side is going to disappear.”
Rising expenses and rents
It’s been challenging for Panattoni Canada to complete underwriting for projects while construction and land costs and development charges continue to rise.
“We need to continually push the envelope on rental rates we believe we can achieve in order to justify going ahead and acquiring land,” said Smele.
“We have been successful up to this point and we believe we will be with the projects we currently have scheduled for completion, but it will continue to be a challenge and something we need to evaluate on a project-by-project basis for any future acquisitions.
“At some point we expect that the tenants just won’t be able to afford the rents.”
These economic factors, as well as more specific tenant needs for fulfillment centres, could lead to a shift to more build-to-suit development.
Edmonton remains a key market
While the majority of Panattoni Canada’s activity has been in the GTHA, it has enjoyed success in Edmonton despite the additional challenges in the Alberta capital due to an economy slowed by low energy prices.
“We do have some large land positions in the Edmonton area that we’ll continue to look at to develop on a build-to-suit basis,” said Smele. “The deal velocity is a lot slower and the size is typically smaller as well, but there still are deals that do take place.
“There are groups that are still looking for modern, efficient and functional buildings, and that’s what we focus on.”
Apex 1 at Apex Business Park, at 170 Street and 140 Avenue, is ready for immediate occupancy.
Fastener distributor Fastenal has leased approximately 30,000 square feet. The building has a 32-foot clear height and units from 15,000 to 186,980 square feet are available.
Panattoni Canada has also completed a 317,000-square-foot, build-to-suit facility at Apex Business Park for pharmaceutical and medical supply distributor McKesson Canada.
The company anticipates erecting a further 285,000-square-foot spec building at the park in 2021.
Panattoni Canada GTHA developments, leasing
Back in the GTHA, Panattoni Canada is expanding an existing building at 6 Manchester Ct. in Bolton. This includes more space for existing tenant Rubbermaid and space leased by new tenant Excel Logistics, a freight forwarding and courier company.
Panattoni Canada completed construction on a build-to-suit cold storage facility off Hurontario Street north of Bovaird Drive in Brampton for Give & Go Prepared Foods in July.
It measures 133,949 square feet and is situated on 9.5 acres of land. The facility has a 30-foot clear height in the cold dock area and a 52-foot clear height in the freezer portion.
The company completed its first lease transaction, for 61,439 square feet, to vertical farming firm Infarm at 50 Aeropark Blvd. in Hamilton. The 264,534-square-foot development is scheduled for a fourth-quarter completion. Units ranging in size from 15,000 to 186,980 square feet are available.
A Mississauga site on Meadowpine Boulevard with Highway 401 frontage is being planned. Construction of the 130,000-square-foot building will be completed next year.
Panattoni Canada is building a 1.3-million-square foot, build-to-suit facility at 10254 Hurontario St. in Brampton. The project will be home to a Canadian Tire distribution centre and is scheduled for a 2021 completion.
In Oshawa, two projects are on the go. A development featuring 410,000- and 220,000-square-foot spec buildings at 1121 and 1147 Thornton Rd. S. is scheduled for occupancy in February 2021.
A few blocks away, the firm is building 440,000 square feet on spec at 883 Thornton Rd. S. slated for completion in 2021.
Panattoni Canada has site plan approval to build one million square feet at 110 Aeropark Blvd. in Hamilton, next door to its existing spec building at 50 Aeropark Blvd. It should be completed in 2021.
Two buildings, one 325,000 square feet and the other 320,000, will be built on spec near Highway 7 and Highway 50 in Brampton. Completion is expected next year.
Two other buildings, one 115,000 square feet and the other 65,000, will be built near Hurontario Street north of Bovaird Drive in Brampton next year.
COVID-19 impacts on Panattoni Canada
Panattoni Canada construction sites were shut down for more than four weeks in the spring due to COVID-19, which impacted delivery dates and continues to present some construction challenges due to labour availability, physical distancing measures and sourcing materials.
“We’re very well-capitalized and have low leverage so, from a financing and liquidity standpoint, we haven’t been affected,” said Smele. “We have a strong and stable tenant base with a lot of large national and multinational corporations, so we haven’t really faced tenants not being able to operate and pay their rent.”
Smele said some tenants at Panattoni Canada’s relatively few smaller bay industrial complexes, especially those that rely on the public coming into them to generate revenue, have had a harder go of it.
The company has worked with these tenants so they can benefit from government assistance programs and has also negotiated some rent deferrals.
Panattoni internationally and in Canada
Panattoni Development Company, Inc. is one of the largest privately held, full-service real estate developers in the world. It was launched in 1986 and has 28 offices worldwide.
The Irvine, Calif.-headquartered company is responsible for the development of more than 376 million square feet of industrial and office space across Canada, the United States and Europe while working with more than 2,500 clients.
Panattoni Canada was launched in 2004 and has completed projects in Ontario, Alberta and Quebec. It has a head office in Toronto and a regional office in Edmonton.