Industrial space for lease in Toronto continues to be extremely sought after, and there is currently a major tightening in the market. To fully understand this change in the market we must look at such things as how sale prices and lease rates have changed, new developments in the area, and the external demand factors that have added to the current situation.
Understanding the Market for Commercial Real Estate in Toronto
Firstly, we must acknowledge that with the low availability there has been a very clear rise in the sale prices and lease rates in Toronto and the surrounding areas. Sales prices had a significant increase of 12.6% to $175.42 per square foot coming into 2018. Additionally, for the first time in over a decade the industrial lease rates overall have consistently been increasing for over a year. An increase of almost two percent between Q4 2017 and Q1 2018 brought the current average net rent to $6.53 per square foot. Considering the conservative increases we’ve been accustomed to over the last decade, especially with industrial lease rates, this has very clearly reduced the negotiating power of both buyers and tenants for commercial real estate in Toronto. With lease rates increasing, and vacancy rates gradually decreasing, more power is in the hands of the landlords when at the negotiating table.
The Potential of Industrial Property for Sale in Toronto
To meet some of the demand, there were approximately 2.1 million square feet of new industrial space for lease in Toronto delivered in the first quarter of 2018, with another 2.3 million square feet planned for the second quarter. In addition, it is predicted that in the future there will likely be more in-fill activity closer to Central Toronto. This would make use of more outdated spaces that could be converted into spaces better suited to today’s buyers and tenants that incorporate new technologies, and efficiencies. Due to lack of supply, some groups are also opting for a much more expensive option, with high land and development costs, of purchasing their own land to design-build facilities instead of finding a warehouse for sale in Toronto. Ultimately, with a vacancy rate of 1.2% in the Greater Toronto Area as of the first quarter of 2018, it has become necessary for developers and users in the market to look for creative solutions when meeting new space requirements now, and in the near future.
Commercial Property for Sale in Toronto
Manufacturing has declined and much of the industrial inventory is occupied by distribution related companies, however, the Toronto area economy is highly diversified and is serviced by a wide range of industrial industries including automotive, Transportation and Logistics, Pharmaceutical, Food Service, Health Care. The current climate of the global economy is becoming more uncertain, and the trade tensions being experienced across North America are also impacting users in the market of office spaces for lease in Toronto. With growing uncertainty with tariffs and trade agreements, companies must brace themselves for what may occur over the coming years, and how it will impact their real estate decisions regarding industrial property for sale in Toronto.
With the current vacancy rates as low as they are driving up rates, the crunch to meet new demand, and the economic factors in the market, only time will tell how this market will continue to change.