Now that we have entered into a new year, many investors and occupiers have already begun or completed the process of forecasting and objective setting.
What will the space needs be according to the business’ growth plans? Where will the most lucrative opportunities lie in the development or purchasing of commercial assets?
Well, just as industrial properties dominated the past two years, the general consensus in the market is that it will continue its trajectory in 2022 and beyond. Significant uncertainty clouds the horizon of office and retail, while e-commerce volumes eat up a greater share of total retail sales. And with each additional billion dollars in online transactions, the demand for warehousing, distribution, cold-storage, and transportation assets to service customers grows further.
That said, availabilities continue to decline, while the delivery of new product struggles to keep pace with demand. Therefore, competition for space will only heat up further as businesses expand their footprints and investors search for yield.
In order to make quick and effective decisions in the coming year, we believe that establishing a baseline by taking stock of the previous 12 months is a great first step.
So without further ado, let’s dive in.
Greater Toronto Logistics Facilities Sales in 2021
If we look at Figure 1 below, we see the sales price and pricing per square foot of sales of logistics-focused facilities in the Greater Toronto Area that occurred in 2021.
For our methodology, we limited our search parameters to the Greater Toronto Area. Further, we excluded large portfolio or multi-property sales, as well as the sale of assets under 50,000 SF.
Transactions ranged from $6-million to approximately $175-million, and from 50,000 SF to 850,000 SF. Viewing the chart from a high-level, we observe the linear trendlines increasing significantly. This pattern confirms our observations of industrial values moving towards the $300 to $400 per-square-foot-range, depending on the location and quality of the asset.
Figure 1: 2021 Sales of GTA Logistics Facilities Over 50k SF. Source: CoStar.
Select Top 2021 GTA Logistics Facility Sales
Below in Figure 2, we see some of the largest sales transactions of Greater Toronto Area logistics facilities over 50,000 SF that occurred in 2021.
For context, e-commerce and logistics occupiers have been willing to pay a premium for modern facilities, location, and timely availability in order to facilitate their growth. This is because real-estate-related costs tend to make up a smaller share of operating costs relative to line items such as transportation and labour.
As a result, a significant portion of the acquisitions we tracked were made by institutional buyers like Great West Life, H&R REIT, and Pure Industrial REIT; who have taken favourably to the environment of rising industrial rents backed by large, creditworthy tenants. Value-add and redevelopment plays are also common, with the upside potential further supporting increased values.
Looking at our complete dataset of 56 observations, the average sales price was approximately $26.8-million, with an average price per SF of $237.28, and an average property size of 124,495 SF.
Figure 2: Select Top 2021 Sales of GTA Logistics Facilities Over 50k SF. Source: CoStar.
Finally, when overlaid on a map of the Greater Toronto Area, we notice the transactions spread out across the major submarkets, with obvious clusters forming in Brampton, North Mississauga, Pickering, and Vaughan.
Summary
The GTA industrial logistics market is red-hot and continues to experience supply challenges. This environment will see rents and values further increasing, with new construction providing little relief until at least 2023.
As the e-commerce and logistics industry experiences greater growth in 2022, meeting your space needs may require additional planning and foresight, as well as being willing to pay a premium for quality space.
Your best strategy will be to open a dialogue with a commercial real estate broker at the earliest indication that space will be needed.
On that note, if you would like our team to assist with your next lease or purchase, or for more market intel or off-market opportunities, please contact us directly.
Logistics and E-Commerce best practices, local expertise, and market intelligence across North America
Lee & Associates Logistics and E-Commerce - Our logistics and e-commerce real estate specialists are at the leading edge of this transformation and they understand your unique challenges with integration along with revised facility and property site requirements.
We will help you find the right location that optimizes your industry needs, market positioning, revenue growth, stability and profitability for decades to come. We focus on reducing your company’s operating costs and the carbon footprint.
Whether its assisting retailers optimize their real estate backend warehousing and distribution needs; helping logistics managers with bricks and mortar options at the front end (manufacturing) of the supply chain delivery; or finding that location needed to support your last mile or e-fulfilment strategy. We can help, let’s connect.
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Mark Cascagnette, SIOR*
President, Managing Partner
markcas@lee-associates.com D 416.628.8146
Luis Almeida, SIOR*
Senior Vice President, Partner
D 416.628.8151
*Sales Representative