Local Response | Future Cities

2020 North America Industrial Big Box Review & Outlook

Toronto

View of Toronto city skyline
Toronto’s industrial market remains exceptionally strong, with strong demand leading to a record-low vacancy rate. A limited amount of new construction scheduled for delivery in 2021 and early 2002 has already seen significant preleasing activity. Industrial development land prices are at record-highs, underwritten by rapid rent growth and some of the lowest industrial cap rates in North America. Due to the low vacancy and rapid rent acceleration of Greater Toronto’s core markets, secondary markets to the east and west have seen a spike in demand and new supply.
Kyle HannaExecutive Vice President

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Demographics

More than 8.6 million people live within 50 miles of the market core, the highest population concentration in Canada. Population is expected to grow by 7.4% over the next five years. Nearly 15 million people are within 250 miles, with a five-year projected growth rate of 6.4%.

Figure 1: Toronto Population Analysis



Source: CBRE Location Intelligence.

The local warehouse labor force of 129,800 is expected to grow by 14.4% over the next decade. The average hourly wage for a non-supervisory employee is C$17.76 (US$13.24), one of the most affordable rates in North America.

Figure 2: Toronto Warehouse & Storage Labor Fundamentals



*Average hourly wage rate (all levels of experience); Non-Supervisory Warehouse Workers (forklift, warehouse workers).
Source: Statistics Canada LFS (NOCs), Conference Board of Canada, CBRE Research, December 2020.

Location Incentives

Over the past five years, there have been 55 economic incentives deals totaling more than $196 million at an average of $44,271 per new job in the Toronto metropolitan area, according to Wavteq. According to CBRE’s Location Incentives Group, the extent, if any, of province and local incentives offerings for industrial projects in metro Toronto depends on location and scope of the operation.

Figure 3: Toronto Top Incentive Programs



Source: CBRE Location Incentives Group. Note: The extent, if any, of state and local offerings depends on location and scope of the operation.

Logistics Driver

Toronto has superb access to seven major highways that provide access to locations across Canada and to U.S. border crossings. The market is served by both the Canadian National and Canadian Pacific railways, with intermodal rail yards in Brampton, Caledon, Milton and Vaughan.

Toronto Pearson International Airport processes more than 45% of Canada’s air cargo, serving 175 international destinations. The airport is at the center of the region’s rail and highway network, making cargo easy to ship to the region’s big-box facilities.

Big-box industrial investment activity in Toronto has been sparse, but not due to a lack of interest in one of Canada’s most desirable markets. Many Canadian institutional investors want to increase their allocations to the industrial asset class in Toronto, but few owners are willing to sell. This is expected to change in the coming months as merchant builders look to monetize recently completed buildings. Pricing is expected to break through existing peak levels and going-in yields likely will lower toward the mid-3% range. Pricing will increase due to an abundance of Canadian institutional capital with mandates to invest domestically and a limited amount of best-in-class product for sale.
Peter SenstPresident, Canadian Capital Markets

Capital Markets


Figure 4: Cap Rate Comparison



Source: CBRE Research.

Supply & Demand

With 258 million sq. ft. of total inventory, Toronto is the largest big-box market in Canada. The direct vacancy rate is a mere 0.3%, despite 7.6 million sq. ft of construction completions last year. Demand is so high that completions are leased before or at the time of completion and any available existing space is leased prior to being vacated. Transaction volume rose by 38.2% year-over-year in 2020 to 17.2 million sq. ft., with absorption totaling 7.8 million sq. ft.

Developers are buying land farther out from the market core, with 8.9 million sq. ft. currently under construction. Nearly 73% of this is already preleased, including nearly all of the 500,000-sq.-ft. and larger facilities. First-year taking rents rose by 4.6% year-over-year. Toronto will remain one of the most in-demand big-box markets in North America, but the lack of available inventory will keep its vacancy rate at a record low for the foreseeable future.

Figure 5: 2020 Occupier Transaction Market Share



Source: CBRE Research.

Figure 6: Transaction Volume



Source: CBRE Research.

Figure 7: Big Box Year-Over-Year Comparison



Note: Taking Rents are in $CAD.
Source: CBRE Research.

Figure 8: Under Construction vs. Preleased



Source: CBRE Research.

Figure 9: First Year Taking Rents (psf/yr)



Note: Includes first year taking rents for leases 200,000 sq. ft. and above.
Note: Taking Rents are in $CAD.
Source: CBRE Research.

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2020 North America Industrial Big Box

This report provides an in-depth overview of supply-and-demand fundamentals, demographics, logistics drivers, labor and location incentives for the top 22 markets in North America.