In its Industrial Real Estate Market Study, Newmark Knight Frank Devencore reported that the need for larger, more modern industrial spaces has spurred significant development activity in the GTA West. At the present time, some four million square feet of industrial space is being built in Mississauga, Brampton, Caledon and Milton.
“The key stories in the GTA industrial real estate market during the first half of 2014 concerned the supply and demand disconnect and the increasing obsolescence of older industrial properties,” said Rob Renaud, Managing Principal / Broker of Record at Newmark Knight Frank Devencore’s GTA West Office. “In part, this has to do with the changing nature of the GTA’s industrial base, where the exponential growth of e-commerce businesses is fuelling demand for larger and more modern logistics and distribution spaces. Typically, these spaces are 400,000 square feet to 1.5 million square feet, have higher clear heights, more trailer parking, better office space layouts, more energy efficient systems and, in many cases, building designs that are specifically tailored to the space users.”
Throughout the GTA, vacancy rates have fallen from 4.2 per cent to 3.9 per cent over the past year. While demand was greatest for spaces of 400,000 square feet and beyond, there was also significant tenants activity in the 20,000 to 100,000-square-foot market. Asking rental rates have remained relatively stable over the past twelve months and are averaging $5.75 in the GTA as a whole.
“The continued changing dynamic of industrial activity, with the shift away from manufacturing to e-commerce, logistics and warehousing enterprises, is having a clear impact on the GTA’s industrial real estate landscape,”Renaud added. “The developments currently underway will certainly help to ease the demand; however, as needs evolve so too will the specifications that tenants require in their premises. As an example, we are already seeing a growing need for clear heights as high as 40 feet, which the new 32 to 36 foot clear speculative developments do not address.
“Given these issues, space users must weigh all of their options, including build-to-suit premises where they may see leases that extend up to 20 years. Tenants who do not necessarily require the most modern space have a greater range of options. The key is to prepare a thorough real estate analysis that takes both present and future needs into account and aligns with overall business strategy. Build-to-suits, blend-and-extends and/or lease restructurings may also prove advantageous,” Renaud concluded.