INDUSTRIAL CONSTRUCTION ACTIVITY AT HIGHEST LEVEL SINCE YEAR-END

Transcription

1 Q12 $ (millions) CBRE Limited Global Research and Consulting Canadian Industrial INDUSTRIAL CONSTRUCTION ACTIVITY AT HIGHEST LEVEL SINCE YEAR-END 28 By Roelof van Dijk Research Manager, Canada SUMMARY Canadian industrial market fundamentals were stable overall, with a slight uptick in demand across the country this quarter. The overall market sentiment is positive, with net asking rents on the rise and developers announcing approximately 6.8 million SF of new projects this quarter, however, global economic concerns could potentially temper this optimism. Canadian industrial market fundamentals continue to improve, shifting power from tenants towards landlords. There was 3.7 million SF of positive net absorption in the first quarter of 212, prompting the availability rate to drop 1 basis points (bps) to 6.5%. This caused net asking rental rates to increase from $5.36 psf last quarter to $5.5 psf this quarter. The brief pause in the availability rate in the fourth quarter of 211 combined with weaker than expected absorption, reflected the caution that many investors and tenants exhibited in late 211. This hesitancy has given way as developers announced 6.8 million SF of new construction this quarter. Construction activity jumped from 1.5 million SF last quarter to 14.6 million SF, the highest level of activity since year-end 28, and easily dwarfing the 6.1 million SF that was under construction at this time last year. Top Industrial Development Projects Size (SF) Property Due Date 1,5, Target Distribution Centre, Milton, ON Q ,2, Target Distribution Centre, Balzac, AB Q , Communications Security Establishment Canada, Ottawa, ON Q , 1 Ironside Drive, Brampton, ON Q , 95 Winston Churchill Boulevard, Mississauga, ON Q , Sobeys Distribution Centre, Terrebonne, QC Q , Hopewell Distribution Park, Calgary, AB Q , 6275 Millcreek Drive, Mississauga, ON Q , The Village at Fraser Mills, Coquitlam, BC Q , Remington South Central, Edmonton, AB Q1 213 The manufacturing sector experienced a 1.7% increase in employment since the fourth quarter of 211. This increase is partially the result of higher automobile production, but is also due to increased demand for products needed to service the mining and energy sectors. Although manufacturing sales were down.8% quarter-over-quarter (q/q), sales were up 1.9% in March, led by the petroleum and coal sector, with Ontario and Quebec reporting the largest gains. While manufacturing sales were down, new orders were up 3.7% (q/q). The trend for unfilled orders and inventory levels, both future looking indicators, are encouraging, with unfilled orders up 3.% (q/q), and inventory levels down.2% (q/q). Monthly inventory levels have been particularly optimistic, with decreases in three of the last four months. A drop in the lower finished product inventory accounted for the majority of the decline, however, it should be noted that a third of the drop was due to declines in raw material inventories. Manufacturing Sales $75, $6, $45, $3, $15, $ Source: Statistics Canada Manufacturing Sales Inventory New Orders Unfilled Orders The Canadian economy, which has been relying on the strength of domestic demand, is expected to grow by over 2.% in 212, however, fluctuations in the global economy and the price of commodities cannot be ignored. The investments that developers are making in new construction projects is indicative of confidence in the Canadian industrial market. The 1.7 million SF of new space that will be delivered by the end of 212 will provide much needed space to several increasingly tight markets. 212, CBRE Limited

2 1Q2 3Q2 1Q3 3Q3 1Q4 3Q4 1Q5 3Q5 1Q6 3Q6 1Q7 3Q7 1Q8 3Q8 1Q9 3Q9 1Q1 3Q1 1Q11 3Q11 1Q12 Jobs (s) Q/Q Change MARKET STATISTICS Market Inventory SF (millions) Availability Rate (%) Rate Change (y/y) Completions SF (s) Quarterly Net Absorption SF (s) Asking Net Rental ($ psf/yr) Asking Sale Price ($ psf) Vancouver % 1 bps $7.8 $ Calgary % 5 bps $8.15 $153. Edmonton % -8 bps $9.64 $ Winnipeg % 1 bps $6.32 $59.7 London % -6 bps $3.91 $28.71 Waterloo Region % 4 bps $4.3 $36.5 Toronto % -11 bps $4.66 $86.8 Ottawa % 3 bps -25. $8.14 $8. Montreal % -17 bps 1,83.8 $5. $56.2 Halifax % 22 bps $7.38 $7. National 1, % -8 bps 2,749 3,725.1 $5.5 $88.69 Economic Trends 1.2% 1.%.8%.6%.4%.2%.% -.2% Employment % Change GDP % Change 1Q11 2Q11 3Q11 4Q11 1Q12* 2Q12* 3Q12* 4Q12* Source: Conference Board of Canada * Forecast Industrial Employment 3,5 3, 2,5 2, 1,5 1, 5 Source: Statistics Canada Manufacturing Transportation & Warehousing T & W as a % of Industrial Jobs 35% 3% 25% 2% 15% 1% 5% % ECONOMIC TRENDS After the labour market lost approximately 55, jobs in the fourth quarter of 211, job creation became a major concern as new jobs provide the impetus for increased demand for commercial real estate. With 81,8 jobs created in the first quarter of 212, 82,3 jobs in March alone, the outlook has turned decidedly positive. The national unemployment rate declined 2 basis points (bps) from the fourth quarter of 211 to 7.2%. The question is whether this surge in job creation is sustainable given that 212 GDP growth is forecast to be 2.% and growing global economic headwinds. INDUSTRIAL EMPLOYMENT Logistics employment has become increasingly more important over the past decade, increasing from 24.8% of overall Canadian industrial employment to 32.3% as of the first quarter of 212. This increase in the prominence of logistics employment is partially due to a 13.2% increase since 22, but more as a result of a 21.4% decrease in manufacturing employment over the same period, with Canadian manufacturing suffering as a result of the strong Canadian dollar and subdued demand from the U.S. Conversely, in the first quarter of 212 logistics as a percentage of total industrial employment decreased to 32.3%, down from 32.9% in the fourth quarter of 211, as logistics employment was down.9% (q/q) and manufacturing employment increased by 1.7% (q/q). Page 2 212, CBRE Limited

3 Atlanta Riverside Chicago Toronto Montreal Dallas Boston LA Northern NJ Vancouver Calgary Edmonton $ psf $ psf SF (s) NET ABSORPTION With a new year came a healthy increase in occupied space. There was 3.7 million SF of net absorption in the first quarter of 212, up from 2.5 million SF both last quarter and at this time last year. As has been the case over the last four quarters, Eastern markets recorded the bulk of total absorption, at 2. million SF this quarter. Tighter Western markets recorded less absorption, 1.7 million SF this quarter. Eight of the ten markets tracked experienced positive absorption, led by Montreal, Toronto, Vancouver and Edmonton, at 1.1 million SF, 867, SF, 764, SF, and 544, SF of positive net absorption, respectively. Both Edmonton and Toronto also experienced a large amount of new supply during the quarter, with 934, SF and 886, SF delivered, respectively. Only Ottawa and Halifax, the two smallest markets tracked, experienced negative net absorption this quarter, at negative 25, SF and negative 15, SF, respectively. The Western markets are particularly space constrained, but with a surge of new supply being delivered in the coming quarters, strong absorption is expected for the remainder of 212. Net Absorption National Net Absorption 3,725,78 SF 6, 5, 4, 3, 2, 1, 1Q11 2Q11 3Q11 4Q11 1Q12 1-Yr Avg. National Net Asking Rental Rate $6. $5.5 Net Rental Rate $5.5 psf $5. $4.5 NET RENTAL RATES After declining for two consecutive quarters, the average net asking rental rate increased substantially to $5.5 psf this quarter, up from $5.36 psf last quarter, which was the lowest average rental rate since the fourth quarter of 25. The lack of quality space continues to weigh down rates, however, with tenant demand picking up, landlords have become more bullish in many markets. This is also prompting a construction boom, with the amount of space under construction jumping from 1.5 million SF last quarter to 14.6 million SF at the end of the first quarter of 212. Rental rates are up in all markets across the country this quarter, except for London. Most increases were minimal, however, net asking rental rates in Edmonton, which had 934, SF of new supply this quarter and is being buoyed by the oil and gas industry, experienced a $.61 psf increase this quarter, with rents jumping to $9.64 psf. The majority of new construction projects will be delivered in 212, resulting in conflicting pressures on rental rates. An increase in space usually alleviates upward pressure on rates, however, the new supply, some of which is speculative construction, will demand higher rents, thereby pushing rents higher. $4. $3.5 $3. $1 $8 $6 $4 $2 $ Q12 North American Industrial Net Asking Rents Comparison (C$) U.S. rents converted to Canadian dollars Page 3 Recent High Net Rent 4Q 211 Net Rent 1Q 212 Net Rent 212, CBRE Limited

4 SF (s) SF (s) AVAILABILITY RATE After being unchanged at 6.6% in the third and fourth quarters of 211, the national availability rate decreased 1 bps to 6.5% in the first quarter of 212. Although all markets experienced positive net absorption this quarter, except for Ottawa and Halifax, only four markets, Vancouver, Winnipeg, London and Montreal, experienced a drop in availability, whereas Calgary, Waterloo Region and Toronto registered no change, and Edmonton, Ottawa and Halifax recorded a slight increase. The Edmonton availability rate increased from 3.9% to 4.3% in the quarter as a result of 934, SF of new supply. The lowest availability rates in the country are Winnipeg, Edmonton, Calgary and Toronto at 3.5%, 4.3%, 4.9% and 5.3%, respectively, and aside from Winnipeg, these markets plus Vancouver, are home to the lion s share of construction activity. The majority of the projects under construction are expected to be delivered by year-end 212. With this pending new supply, availability rates could experience a slight uptick at mid-year and again at year-end, however, given the low availability rates and limited options for tenants, any increases will be minimal. Availability and Vacancy Rates 1% 8% 6% 4% 2% % Under Construction 15, 12, Availability Rate 6.5% Vacancy Rate 5.% 1Q11 2Q11 3Q11 4Q11 1Q12 1-Yr Avg. Under Construction 14,598,371 SF Completions 3,725,78 SF 1-Yr Quarterly Avg. Construction Completions 4,1,17 SF 9, CONSTRUCTION ACTIVITY An additional 6.8 million SF of new construction was announced during the first quarter, bringing total industrial construction activity to 14.6 million SF, up from 1.5 million SF in the fourth quarter of 211. Construction activity is now at levels not seen since the fourth quarter of 28, when developers slammed on the brakes as the economy entered the recession. Most markets experienced an increase in activity this quarter, but the bulk of the increase occurred in Calgary, Toronto and Ottawa. There continues to be a significant amount of pent-up demand for modern distribution space across the country and new supply is being absorbed fairly quickly once developers have the confidence to go ahead with new construction. As a result, although there continues to be an emphasis on design-builds, developers in most markets are now willing to build on spec. The amount of space under construction is now well above the 1-year quarterly average of 1. million SF, however, with the market being relatively starved for space since 29, the current construction activity is warranted and is not expected to negatively impact the market. The main consequences will be to slow down the drop in availability and push asking rental rates higher. 6, 3, 1Q11 2Q11 3Q11 4Q11 1Q12 Construction By Market 4, 3,2 2,4 1,6 8 Page 4 Under Construction Toronto Calgary Vancouver Edmonton Montreal Ottawa 212, CBRE Limited

5 SELECT INDUSTRIAL TRANSACTIONS CANADA-WIDE LEASE: Size (SF) Tenant Tenant Industry Address 242,278 Sherway Warehousing Inc. Warehousing 738 Bren Road, Mississauga, ON 21,871 SCI Logistics Inc. Logistics Hopcott Road, Delta, BC 178,355 Ventra Plastics Manufacturing 2 Montercorte Street, Whitby, ON 168,754 Kintetsu World Express (Canada) Inc. Shipping 945B Southgate Drive, Guelph, ON 145,4 Ryder Truck Rentals Canada Ltd. Truck Rental 3 Pedigree Court, Brampton, ON 134,535 Logistics Distribution Inc. Logistics 55 Industrial Drive, Milton, ON 121,35 Blo Plastix Inc. Manufacturing 17 No. 6 Road, Richmond, BC 118,8 Unisource Wholesaler Yellowhead Crossing, Edmonton, AB 18, Big Freight Systems Inc. Logistics 115 Fife Street, Winnipeg, MB 14,56 Sears Canada Inc. Retail 46 Poirier Boulevard, Saint-Laurent, QC PURCHASE: Size (SF) Purchaser Purchaser Type Address 361,8 Stanfield Investment Corp. Private Investor - Canadian 2562 Stanfield Road, Mississauga, ON 332,58 Pure Industrial Real Estate Trust REIT/REOC Brock Road, Pickering, ON 318,699 Strashin Developments Inc. Private Investor - Canadian 51 Alliance Avenue, York, ON 298,11 Lotus Pacific Holdings Inc. Private Investor - Canadian 187 Albion Road, 29 Carrier Drive, Etobicoke, ON 274,514 HOOPP Realty Inc. Pension Fund / Advisor 2375 Clark Graham Street, Baie d'urfé, QC 267,392 Canadian Urban Limited Private Investor - Canadian 255 Pinebush Road & 128 Balmoral Road, Cambridge, ON 257,622 Toronto Hydro Corp. User 715 Milner Avenue, Scarborough, ON 29,61 ICBC Insurance 71 & 81 Maybrook Drive, Scarborough, ON 19, Standard Life Assurance Company of Canada Insurance 2816 Bristol Circle, Oakville, ON 177,6 Concert Real Estate Corporation Pension Fund / Advisor 122 Champlain Avenue, Bulrington, ON Industrial Inventory Breakdown Toronto - 43% Montreal: 2% Vancouver: 1% Calgary: 7% Waterloo: 6% Edmonton: 5% Other: 9% 43% 2% 9% 1% 7% 6% 5% FOR MORE INFORMATION PLEASE CONTACT: Ross J. Moore Director of Research, Canada CBRE Limited Global Research and Consulting T: ross.moore@cbre.com Roelof van Dijk Research Manager, Canada CBRE Limited Global Research and Consulting T: roelof.vandijk@cbre.com This disclaimer shall apply to CBRE Limited, Brokerage, and to all other divisions of the Corporation ( CBRE ). The information set out herein (the Information ) has not been verified by CBRE, and CBRE does not represent, warrant or guarantee the accuracy, correctness and completeness of the Information. CBRE does not accept or assume any responsibility or liability, direct or consequential, for the Information or the recipient s reliance upon the Information. The recipient of the Information should take such steps as the recipient may deem necessary to verify the Information prior to placing any reliance upon the Information. The Information may change and any property described in the Information may be withdrawn from the market at any time without notice or obligation to the recipient from CBRE.