Developers Move Forward With Speculative Industrial Project in GTA as Vacancy Rate Dips Below 1%
Developers Move Forward With Speculative Industrial Project in GTA as Vacancy Rate Dips Below 1%
Almost 50 kilometres northwest of Toronto, developers broke ground this month on the first phase of what is expected to be five industrial buildings on a speculative basis, meaning without any tenants signed on, but renting the space is not expected to be an issue.
Fiera Real Estate and Berkshire Axis Development are building the multiphase industrial development in the Heart Lake Business Park in Brampton, Ontario. They bought the 43.7-acre site last year.
The plans seem like a good bet with the latest data from Cushman & Wakefield showing the Greater Toronto Area had a 0.7% vacancy rate in the first quarter.
Fraser Plant and Michael Yull, executive vice presidents with Cushman & Wakefield, brought the deal to the buyers last year.
“The sites were already defined on what you could build,” said Yull, who wouldn’t disclose the price the buyers paid, in an interview with CoStar News. “It was a very shovel-ready acquisition, probably the most shovel-ready acquisition of a development site in the GTA last year.”
The first phase of construction has begun at 10 Newkirk Court for a 316,452-square-foot building and at 15 Newkirk Court for a 105,896-square-foot structure. The first phase is expected to be completed in the first quarter of 2023.
“GTA industrial vacancy is less than 1%, making the region the second tightest industrial market in the Americas. What’s more, Heart Lake Business Park’s modern design and construction makes it ideal for a number of uses and types of tenants,” Kathy Black, senior vice president of development with Fiera Real Estate, said in a statement.
Leslie Marlowe, president and managing partner of Berkshire Axis, said the project would be his company’s largest industrial development in the GTA. He called the project one of Brampton’s last significant greenfield sites in a key Toronto market with strong highway access.
“With regulatory hurdles cleared and construction materials secured, our ability to deliver on schedule separates us from other GTA speculative projects in a market that absorbed a record 14 million square feet last year and only shows signs of accelerated demand,” said Marlowe in a statement.
Yull said it took years to get the project through the regulatory levels of government by the previous owner, but the vendor always planned to sell once it received various approvals.
Marketing of the first phase just rolled out in the past two weeks, and Yull’s view is that with no larger buildings in GTA West being completed in the next 12 months, it should result in a lot of interest.
“The building is positioned very well from that standpoint,” he said.
There is 23.8 million square feet of industrial space expected to be completed across Canada in 2022, according to Cushman & Wakefield.
“If all this new supply does indeed arrive this year, this would be the highest annual total of new supply that has arrived across Canada since 1989,” said the real estate company in its first-quarter report.
Yull said there are headwinds, including conflicts in Europe and rising rates, that could cause some tenants to pause on commitments, but the market is so tight in the GTA that it could take years for supply to catch up.
“If there were zero demand over the next five years, it would take five years to get back to a 5% vacancy rate,” Yull said.
While some landlords are reluctant to prelease in the industrial market with rising rents, these developers are ready for offers from tenants with strong credit.
“We are open for business now, and we will deal with tenants as they come,” said Yull, noting lease rates in Brampton for industrial real estate are heading toward $18 per square foot with rent escalations of 3% to 3.5% annually typical in contracts.
The clients, in this case, are looking for a 10-year deal, even though Yull said some landlords want shorter-term rates to take advantage of the rising rental environment.
“The 10-year deal is what most institutional landlords want,” said Yull.
Source CoStar. Click here to read a full story
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