More than one million square feet of new industrial supply was added to the Greater Toronto Area market in the second quarter of 2017, but the availability rate still dropped due to overall absorption of nearly 3.3 million square feet. Meanwhile, CBRE’s recently released Canada Q2 2017 Quarterly Statistics highlight generally healthy industrial performance in most major markets.
Toronto’s 2.7 per cent availability rate is the lowest among the 10 centres surveyed, while average net rents rose to $6.10 per square foot, contributing to the 9.7 per cent increase in rents since June 2016. “This is the fifth consecutive quarter wherein annual rental growth has exceeded 5 per cent,” the report adds.
That said, Toronto net rents trail the national average of $6.78 per square foot and are well below Edmonton’s $9.68 per square foot and Vancouver’s $9.19 per square foot average. Across Canada, six of the 10 surveyed cities recorded higher net rents than Toronto’s, with Montreal and nearest neighbour markets in Waterloo Region and London, Ontario, lagging.
More than 5 million square feet of new space is now under construction in the GTA, but CBRE analysts don’t foresee much exit from existing facilities. “A lack of available opportunities will encourage tenants to consider renewing existing space, which will further increase rents,” the report speculates. “Long-term leases continue to decrease in length; lease terms now average between 60 and 72 months.”
The national availability rate fell to 4.7 per cent — the lowest since 2003. Toronto accounted for the major share of the approximately 4.2 million square feet of absorption during the quarter, but only Edmonton and London saw space empty out.
Both Edmonton and Calgary continue to post industrial availability rates above the national average, at 9.3 per cent in Calgary and 8.5 per cent in Edmonton. That represents an improvement of 50 basis points over Q1 for Calgary and average net rents of $7.02 per square foot still surpass the national average, despite dropping $0.02 from Q1.
A modest 75,000 square feet of new space came onto the market in Q2, while another 357,000 square feet is under construction. Supply chain logistics play a role in the quarter’s slight upturn, but CBRE analysts predict Calgary’s industrial availability rate won’t drop below 9 per cent this year.
“Leasing activity remains bifurcated by size. For example, this quarter, activity for properties exceeding 50,000 square feet was quite active, driven by transportation and distribution-type tenants. Whereas, leasing activity for properties less than 10,000 square continued to remain very limited,” the report observes.
Vancouver is something of a parallel industrial hotspot to Toronto. Even though the availability rate rose 30 basis points, to 3 per cent, between March 31 and June 30, average net rents increased by $0.51 in the same period. Nearly 4.6 million square feet of new space is under construction — rivalling Toronto’s current activity, but likely to make more of a ripple as it hits an existing industrial market of 187.6 million square feet, or less than a quarter of the Toronto inventory.
Nevertheless, CBRE analysts attribute this quarter’s availability uptick to “one significant building returning to inventory” and are predicting a further 50-bps drop in the availability rate by year-end. “A significant amount of new supply this quarter was pre-leased, or sold, thus doing little to satisfy growing demand,” the report notes.