Industrial Market Report & Forecast SPRING 2008

Transcription

1 Industrial Market Report & Forecast SPRING 2008 COLLIERS INTERNATIONAL GREATER TORONTO AREA

2 This report and other research materials may be found on our website at This is a research document of Colliers Macaulay Nicolls (Ontario) Inc., Brokerage Questions related to information herein should be directed to the Research Department at The information contained in this report was provided by sources deemed to be reliable, however, no guarantee is made as to the accuracy or reliability. As new, corrected or updated information is obtained, it is incorporated into both current and historical data, which may invalidate comparison to previously issued reports. Colliers Macaulay Nicolls (Ontario) Inc., Brokerage 2008 is an owner member of Colliers International, a worldwide real estate partnership with offi ces in the Americas, Europe, Asia, Australia and Africa. 2 COLLIERS INTERNATIONAL

3 Economic Overview s economic performance has two distinct and opposing trends that combine to produce a picture of moderate economic growth for 2008 and a return to stronger performance in 2009 & The manufacturing sector has been under siege for several years as a result of the rising Canadian dollar, and is now feeling the effects of the U.S. economic slowdown and the related decline of consumer spending. The service sector has been a strong enough component of economic activity to largely offset the manufacturing challenges and produce a real gross domestic product (GDP) gain for the region of 2.5% in Continuing softness in manufacturing through 2008 will again be mitigated by strong performance in the service sector and result in a repeat of 2.5% growth in Real GDP. The forecasted reduction in the value of the loonie will assist manufacturers in 2009 and beyond, enabling the return to a healthier growth rate of 3.8% for the period 2009 through 2012, according to the Conference Board of Canada. The domestic economy has been strong with personal disposable income growing at a rate of 4.7%, combined with a gain of 1.8% in employment between 2004 and This strength will drive growth in 2008 for the retail and wholesale trade, with further strength in the public administration sector and a more subdued performance from the fi nance, insurance and real estate industries, which will combine for growth of 2.7%. As the U.S. economy and the new housing market in Canada return to stronger growth next year, the service sector will respond with more robust results f 2009f 2010f Real GDP - millions 221, , , ,109 Growth 2.50% 2.50% 3.70% 4.00% Manufacturing Employment Growth -4.41% -1.72% 0.39% 1.16% In Colliers review of market performance, with economic indicators and their relationship to the performance of the industrial markets, it was determined that Real GDP and manufacturing output correlated well with the performance of the industrial markets. Based upon the strength of the relationship between the economic indicators and market performance, this information was utilized in Colliers forecast for the industrial markets. COLLIERS INTERNATIONAL 3

4 INDUSTRIAL AVERAGE ASKING RENT - North Halton Halton s s INDUSTRIAL LAND VALUES - North Halton Halton s s 4 COLLIERS INTERNATIONAL

5 Industrial Market Historical Availability, Rent and Absorption & Forecast Absorption Availability Rate Rent Absorption (millions of sq ft) Forecast Asking Rent ($/sq ft) & Availability Rate % -5 0 Source: Colliers Research Industrial Market Overview N West North Central East Lake Ontario The region has seen stable performance in the industrial markets over the past seven years, with availability fl uctuating in the 5% - 6% range and a recent trend of slow but steady increases in rent, coupled with strong absorption. There are several challenges currently facing developers, which may impact new supply, one of which is the high cost of land. The has seen a 70% increase in the average price per acre over the past fi ve years, rising from $315,000 in 2003 to an average of $547,000 per acre in Q Rents have not kept pace with the increased cost to bring a new building to market, creating a disincentive for new supply. The latest wildcard is the review and change of development charges, some of which are resulting in a total cost of land that is not viable for industrial development. continued on page 7 COLLIERS INTERNATIONAL 5

6 COLLIERS INTERNATIONAL 6 Halton s Halton s Halton s Halton s Halton s Halton s Halton s Halton s Halton s INDUSTRIAL VACANCY RATES

7 Sale & Lease Activity Sale Activity Property Address Submarket Sale Price Sale Price/Sq. Ft. Size Sq. Ft & 8162 Keele Street $15,300,000 $66 232, Railside Drive $11,075,000 $99 111, Century Avenue $6,740,000 $75 89, Sheridan Garden Drive $6,200,000 $103 60, Coventry Road $5,610,000 $133 42,289 Lease Activity Property Address Submarket Size Sq. Ft Kennedy Road 241, Squires Beach Road 191, Invader Crescent 157, Stanfield Road 152, Stanfield Road 116,380 The unpredictability of these charges creates risk for developers who take a long term view and buy land with fi ve to 10-year development horizons. Several have commented that it may now be more prudent to pay the premium to buy land, with a shorter horizon to mitigate the risk. The forecast for the region calls for 2008 to be a year of slower activity, both in terms of new construction and in the absorption of space, so overall supply and demand should balance. Going forward into 2009 and 2010 as economic activity begins to pick up, the outlook is for tightening availability and rent increases to follow. COLLIERS INTERNATIONAL 7

8 Central Historical Performance Absorption Availability Rate Rental Rate 1,500, ,000,000 5 Absorption (in sq ft) 500, ,000-1,000, ytd Asking Rent ($/sq ft) Availability Rate (in %) -1,500, ,000,000 0 Central N West North Central East Lake Ontario The central market has had minor movement in availability and rents during the past few years, with an average rent of $4.94, the area is underperforming the other markets by $ $1.60 per square foot. During the past twelve months absorption has been negative in three of fi ve submarkets, with small offsets in and. Land values are currently averaging $607,000 per acre, continuing the overall upward trend for the past five years. Building values in the market averaged $100 per square foot in Q1 2008, with Cap Rates averaging 7.0%. CENTRAL Q1 07 Current Change Availability Rate 4.10% 4.90% Absorption 2,492, ,796 Rent $4.90 $4.94 Under Construction 396,952 1,874,931 8 COLLIERS INTERNATIONAL

9 Central Absorption & Rent Change Q Q1 08 Rent Absorption -19.3% -28.8%% -19.6% 11.4% 1.5% 2.1% -1,000, , , , ,000 (sq ft) 0 200, , ,000 COLLIERS INTERNATIONAL 9

10 East Historical Performance Absorption Availability Rate Asking Rent 2,000, ,500, Absorption (sq ft) 1,000, , ytd Asking Rent ($/sq ft) Availability Rate (in %) -500, ,000, East N West North Central East Lake Ontario The East market has been steady for the past 36 months, with availability holding around 5% and a slight upward trend in rents to a current average of $5.46, up from $4.83 one year ago. Absorption in the fi rst quarter came in at 248,000 square feet, starting the year on a positive note. Durham region has the least expensive land in the with the most recent quarter averaging $292,000 per acre, which is assumed to be a quarterly spike from the 2007 average of $156,000 per acre, and will average out to a value closer to that of Sales of industrial buildings had an average value of $98 per square foot, with the highest Cap Rates in the of 7.2%. EAST Q1 07 Current Change Availability Rate 3.60% 5.00% Absorption 445, ,080 Rent $4.83 $5.46 Under Construction 1,791,225 1,445, COLLIERS INTERNATIONAL

11 East Absorption & Rent Change Q Q1 08 Rent Absorption 28.5% 28.5% 6.8% -10.6% -800, , , , , , ,000 COLLIERS INTERNATIONAL 11

12 North Historical Performance Absorption Availability Rate Asking Rent 3,500, ,000, Absorption (sq ft) 2,500,000 2,000,000 1,500, Asking Rent ($/sq ft) Availability Rate (in %) 1,000, , ytd 0.00 North N West North Central East Lake Ontario North follows the trend of other markets, with stability in rents and availability. Absorption of 201,000 square feet for the fi rst quarter is subdued, relative to 2006 and The market outperforms the in rental rates with a current average of $6.41 per square foot, and as the hottest sub-market with absorption of 296,000 square feet, yearto-date, and an average rent of $7.03 per square foot. Land values in the area are also higher than the, with the most recent quarter posting an average price of $775,000 per acre. Building prices for Q averaged $100 per square foot, with Cap Rates being the lowest in the at an average of 6.5% NORTH Q1 07 Current Change Availability Rate 4.50% 5.11% Absorption 1,254, ,694 Rent $6.37 $6.41 Under Construction 1,764,880 2,206, COLLIERS INTERNATIONAL

13 North Absorption & Rent Change Q Q1 08 Rent Absorption 3.2% 2.4% 14.4% -17.5% -5.2% -800, , , , , , , ,000 1,000,000 COLLIERS INTERNATIONAL 13

14 West Historical Performance Absorption Availability Rate Asking Rent 8,000, ,000, ,000, Absorption (sq ft) 5,000,000 4,000,000 3,000, Asking Rent ($/sq ft) Availability (%) 2,000, ,000, ytd 0.00 West N West North Central East Lake Ontario The theme of stable rents and availability continues in the West, with the differentiator in this market being the volume of activity relative to the rest of the. West dominates in terms of activity, with absorption of 4.2 million square feet yearto-date. Rents have increased marginally to $5.93 per square foot, while availability has remained just under 5%. The twoyear averages for the regions, prior to Q1 2008, were $338,000 per acre for Halton and $463,000 per acre for Peel. Building values for Halton averaged $99 per square foot, with Cap Rates at 6.6% and values in Peel came in at $104, with Cap Rates pegged at 6.9%. WEST Q1 07 Current Change Availability Rate 4.60% 4.73% Absorption 4,246,733 4,240,168 Rent $5.88 $5.93 Under Construction 4,251,822 5,722, COLLIERS INTERNATIONAL

15 West Absorption & Rent Change Q Q1 08 Rent Absorption 2.2% -1.3% -4.7% 2.5% 10.3% -500, ,000 1,000,000 1,500,000 2,000,000 2,500,000 COLLIERS INTERNATIONAL 15

16 COLLIERS STATISTICS 293 offi ces in 61 countries on 6 continents USA 99 Canada 19 Latin America 18 Asia Pacifi c 62 EMEA 95 US $2 billion in revenue 868 million square feet under management 11,000 Professionals CONTACT INFORMATION Scott Addison Executive Managing Director Industrial & Investment Practice Groups John Arnoldi Managing Director Offi ce Practice Group Mary Mowbray Manager Retail Practice Group TORONTO ONE MANAGEMENT George Chambers Vice President & Manager Eastern Canada Real Estate Management Services Ian MacCulloch Vice President - Research Canada Jessica Norton Analyst - Industrial Markets