Future Cities
2022 North America Industrial Big Box Review & Outlook: Toronto
March 11, 2022 5 Minute Read
After two years of accelerated e-commerce growth driving demand from retailers and 3PLs alike, there is effectively no immediate or near-term available space left in the big-box segment of the Greater Toronto market. Even though there is more than 7 million sq. ft. of large-format space currently under construction, most of it has been preleased, which will continue to drive record market fundamentals. Rents and land prices are at record highs and are destined to keep increasing as companies continue to target the major population centers in and around the Toronto area.
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 6.2% over the next five years. Nearly 15 million people live within 250 miles, with a projected 5.5% growth rate.
Figure 1: Toronto Population Analysis
Source: Sitewise, Oxford Economics, Statistics Canada, Canada Job Bank, 2021.
The local warehouse labor force of 200,226 is expected to grow by 15% by 2030. The average hourly wage for a non-supervisory warehouse employee is C$18.00 (US$14.43), one of the most affordable rates in North America.
Figure 2: Toronto Warehouse & Storage Labor Fundamentals
*Median Wage in Canadian Dollars; Warehouseperson occupation (NOC 7452).
Source: Statistics Canada LFS (NOCs), Conference Board of Canada, CBRE Research.
Location Incentives
Over the past five years, there have been 70 economic incentives deals totaling more than US$757 million at an average of US$90,268 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 incentive offerings depends on location and scope of the operation.
Logistics Driver
Toronto has seven major highways that provide access to all of 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.
Toronto has seven major highways that provide access to all of Canada and to U.S. border crossings.
Capital Markets
Leading companies in the e-commerce, 3PL and retail industries are implementing core market strategies. In response, their competitors are moving in lockstep to further develop their supply chains. The development community, backed by major institutional investors, is meeting this need and entitling large key sites in the Greater Toronto area. Sophisticated capital is increasingly playing a larger role in this big-box segment. Once approached with caution due to the large investment size, investors are finding this sector palatable and interesting.
Figure 4: Cap Rate Comparison
Source: CBRE Research.
Supply & Demand
With 256 million sq. ft. of total inventory, Toronto is the largest big-box market in Canada. The direct vacancy rate is just 0.5%, despite 8.3 million sq. ft of construction completions last year. Demand is so high that new supply is either fully leased before or at the time of completion and any available existing space is leased prior to being vacated. The lack of available space, primarily in blocks of more than 500,000 sq. ft., lowered total leasing activity by 25% last year to 11.6 million sq. ft. Net absorption was on par with 2020 at 7.8 million sq. ft.
Developers are buying land farther out from the market core, with 7.3 million sq. ft. currently under construction. Nearly 73% of this is preleased, including all of the 500,000-sq.-ft. and larger facilities. The average first-year taking rent 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: Share of 2021 Leasing Activity by Occupier Type
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 6: Leasing Activity
Note: Includes new leases and renewals 200,000 sq. ft. and above.
Source: CBRE Research.
Figure 7: 2021 Construction Completions vs. Overall Net Absorption
Source: CBRE Research.
Figure 8: Direct Vacancy Rate by Size Range
Source: CBRE Research.
Figure 9: Under Construction & Percentage Preleased
Source: CBRE Research.
Figure 10: Historical 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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Contacts
Peter Senst*
President Canadian Capital Markets, National Investment Team
Lic. *Sales Representative
James Breeze
Vice President, Global Industrial and Retail Research
John Morris
President, Americas Industrial & Logistics, Advisory Services
