TORONTO — JLL’s Industrial Report for Toronto, released recently, finds cooling rents suggested a return to moderation despite persistently low vacancy.
According to the report, the GTA industrial market continues to trend towards relative moderation as vacancy rates saw gradual increases paired with smaller quarter over quarter increases in average net asking rents. Market vacancy increased to 1.6 per cent, the highest rate since Q1 2021. All GTA submarkets remained at or above the 1.5 per cent mark during the quarter.
Average net asking rents increased to $18.69, a 15.2 per cent increase year-over-year and a 0.80 per cent increase quarter-over-quarter. Such a marginal increase contrasts with the 5.9 per cent increase seen between Q2 and Q3 2022, suggesting the pandemic era of high rental escalations is coming to an end, the release indicates.
Tenant demand generated 5.2 million square feet of major leasing activity, with the largest new lease done being PepsiCo’s deal with Orlando for 569,083 square feet in Milton. Q3’s major leasing volumes are a drop from the six million square feet in Q2.
Additionally, quarterly investment volumes reached approximately $960 million, the lowest total seen since Q4 2020 as interest rates return the market to its pre-pandemic status.
Construction activity reached a massive 21.8 million square feet, with 3.3 million square feet delivered during the quarter. The largest deliveries were seen among Pure Industrial’s developments at 10 Whybank and 20 Whybank in Brampton. Both buildings were unleased, highlighting the current trend of declining pre-leased delivery rates across the GTA, which sat at 70.7 per cent in Q3, down from 75.6 per cent quarter-over-quarter and a marked decline from the 88.2 per cent seen in Q3 2022, the report states.
The quarter also marked the groundbreaking of Ivanhoé Cambridge’s 1.2-million-square-foot site at the Lakeridge Logistics Centre in Ajax, now the largest industrial development in the GTA.
The report says outlook tenants will contend with a tight but gradually balancing market into 2024 and delivered square footage is expected to continue to outpace total absorption as the GTA’s massive construction pipeline reaches delivery. When paired with decreasing pre-lease rates, tenants can expect quarter-over-quarter increases in vacancy and near negligible increases in average net asking rents, adds the report.