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Greater Golden Horseshoe: The Next Frontier



Over the past decade, the Greater Toronto industrial market has seen a remarkable transformation – a reflection of the city’s coming-of-age into a global metropolis. Coupled with the rise of e-commerce, industrial rents and values have approximately doubled over the last five years – and continue to rise – while space is increasingly difficult to find.

A market that was once relatively inexpensive, even undervalued by some analysts, has crowded out investors and occupiers due to intense competition. For retailers and third-party logistics businesses, trying to line up opportunities with growth forecasts has made it challenging to execute their real estate strategy in a timely manner.


As a result, these dynamics have pushed both investors and occupiers to look further out, with many identifying the Greater Golden Horseshoe as the next frontier. Located just over an hour West of the City’s industrial core, the region provides a potentially cost-effective alternative with ample access to labour and development options.


We predict this trend will continue – with the spillover effect quickly increasing industrial rents and values, albeit to a lesser degree than within the GTA.


With that said, let us examine the state of the Greater Golden Horseshoe logistics market, and see what story the data can tell us regarding costs, recent transactions, and future opportunities.


Key Metrics for GGH Logistics Facilities Over 50k SF

  • Rents: $9.14 PSF (+9.8% Year over Year)

  • Vacancy: 0.8% (-1.1% from 1 Year Ago)

  • Inventory: 74.2 million SF (+1.0% Year over Year)

  • 12-month net deliveries: 731,832 SF

  • 12-month net absorption: 1.5 million SF

  • Under construction: 546,000 SF (-55.3% Year over Year)

  • Market sale price: $118 PSF (+16.8% Year over Year)

  • Cap rate: 6.3% (-0.1% from 1 Year Ago)

Observing the key metrics above, we see a tightening of the GGH logistics market – with rents and values increasing significantly over the past year. We can attribute this pattern to two main drivers:


First, the general insatiable appetite for logistics space by retailers and 3PLs has created a ‘rising tide’ in rents and values while pushing down availabilities.


Second, the relative cost and difficulty in securing space in the neighbouring Greater Toronto markets have pushed many investors and businesses, alike, to the Greater Golden Horsehoe markets of Hamilton, Kitchener, Cambridge, Waterloo, Brantford, and Guelph. Both factors have resulted in a significant imbalance between absorption and net new deliveries, meaning we can expect further constraints in the months and years ahead.


Notable GGH Industrial


Figure 1: Top 14 Leasing Transactions from the Past 12 Months. Source: CoStar.

GGH Logistics Pipeline of New Construction


Complementing the table above, Figure 2 outlines new industrial construction by submarket. Some important takeaways:

  • The average size of new construction (115,459 SF) is head and shoulders above the average size of all existing industrial properties (41,835).

  • Approximately 989,000 SF out of 2.3M SF – or 43% of new construction - has been pre-leased, with the balance likely in the process of being secured.

  • Hamilton and Wellington (Guelph) Counties lead the way in terms of available space under construction (a combined approximate 779,000 SF), while Brant County is fully pre-leased (according to existing data).

  • Given the relative availability of developable land, as well as the growing appetite in the region, we expect the volume of new projects to pick up in the coming years.



Figure 2: GGH Industrial Construction by Submarket. Source: CoStar.


Finally, Figure 3 depicts historical and forecast data for new deliveries. As new entrants to the region increase and developers work to meet demand, we expect to see more development in 2023 and beyond.




Figure 3: Historical and Forecast GGH Industrial Deliveries. Source: CoStar.


Summary

Overall, the GTA industrial logistics market is red-hot, with all-time-low availabilities and supply challenges. This environment will see businesses looking to fulfill their growth plans by considering cost-effective options within the Greater Golden Horseshoe area.

As the e-commerce and logistics industry experiences greater growth in 2022 and into 2023, 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 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 carbon footprint.

Whether it's assisting retailers to 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-fulfillment strategy. We can help, let’s connect.


We Offer Solutions:

•Transaction Management

•Project Management

•Lease Administration

•Value and Tax Advisory

•Portfolio Optimization

•Market Research

•Investment Sale Leaseback

•Accounting Compliance IFRS & FASB




Mark Cascagnette, SIOR*

President, Managing Partner

D 416.628.8146




Luis Almeida, SIOR*

Executive Vice President, Partner

D 416.628.8151







*Sales Representative


For More Information, please visit us at: www.LeeToronto.com




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