peel industrial and office market trends analysis · office market new supply pipeline • shift of...

PEEL INDUSTRIAL AND OFFICE MARKET TRENDS ANALYSIS

PREPARED FOR:REGION OF PEEL MARCH 5, 2015

2REGION OF PEEL CUSHMAN & WAKEFIELD

VALUATION & ADVISORY

INDUSTRIAL MARKET OVERVIEW

REGION OF PEEL CUSHMAN & WAKEFIELD


3

• Vacancy rate in a range from 4.5% - 6.0% from 2000 through 2007 (and again in 2013).

INDUSTRIAL MARKET

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ABSORPTION NEW SUPPLY VACANCY RATE

GTA – ABSORPTION, NEW SUPPLY AND VACANCY RATE

Absorption, New Supply and Vacancy Rate – Time Series

4.5% - 6.0%



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• Average annual new supply of 9 million sf from 2000-2008.• New supply annual average of 3 million sf from 2009-2013 (but increased each of the past three years).

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INDUSTRIAL MARKET

GTA – ABSORPTION, NEW SUPPLY AND VACANCY RATE




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• Peel accounts for 35% of the GTA’s industrial inventory (sf).• Mississauga (172 million sf) represents a 63% share of Peel’s inventory, followed by Brampton (92 million sf – 34%) and Caledon (11 million sf – 4%).

INDUSTRIAL MARKET

MISSISSAUGA63%

BRAMPTON34%

CALEDON4%

Inventory – GTA and Peel

GTA – INVENTORY (2013) PEEL – INVENTORY (2013)

PEEL35%

TORONTO33%

YORK20%

HALTON9%

DURHAM4%



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PEEL50%

TORONTO6%

YORK21%

HALTON18%

DURHAM6%

INDUSTRIAL MARKET

GTA – INVENTORY (2013)

• Since 2000, Peel Region has accounted for 1 out of every 2 new sf of industrial space GTA-wide.

–Mississauga has accounted for a 63% share of Peel’s new supply, followed by Brampton at 34% (equivalent to their proportion of existing inventory).

• Why? Multiple 400-series highway access… Proximity to airport… Large and growing labour force… GTA west location…

GTA – NEW SUPPLY (2000-2013)

50%

Inventory and New Supply Comparison

PEEL35%

TORONTO33%

YORK20%

HALTON9%

DURHAM4%



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INDUSTRIAL MARKET

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1970s 1980s 1990s 2000s 2010s

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<100,000 SF 100,000-200,000 SF 200,000-300,000 SF300,000-400,000 SF 400,000-500,000 SF 500,000 SF

PEEL – BUILDING SIZE BY DECADE OF CONSTRUCTION

Building Size by Decade of Construction

• In Peel, buildings over 100,000 sf constituted roughly a 10% share of the development activity in the 1970s and 1980s.• There is an awareness that industrial facilities – particularly warehouse and distribution centres – have moved to a larger building model.



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<100,000 SF 100,000-200,000 SF 200,000-300,000 SF300,000-400,000 SF 400,000-500,000 SF 500,000 SF

INDUSTRIAL MARKETBuilding Size by Decade of Construction

57%

26%

• In the 2000s in Peel, buildings over100,000 sf accounted for a 41% share of the development activity; buildings over 200,000 sf accounted for a 12% share.

–The proportion of buildings over 200,000 sf increased to a 57% share in the 2010s.–In the 2010s, buildings over 500,000 sf account for 26% of all activity (including under construction today).

12%

PEEL – BUILDING SIZE BY DECADE OF CONSTRUCTION



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<100,000 SF 100,000-200,000 SF 200,000-300,000 SF300,000-400,000 SF 400,000-500,000 SF 500,000 SF

INDUSTRIAL MARKET

OTHER GTA – BUILDING SIZE BY DECADE OF CONSTRUCTION


• Elsewhere in the GTA, the same overall trend is apparent – but not to the same magnitude.• In the 2010s, buildings in excess of 100,000 sf accounted for a 17% share of overall activity elsewhere in the GTA, versus a 57% share of Peel’s industrial new construction.

9%17%



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INDUSTRIAL MARKET

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PEEL OTHER GTA

PEEL AND OTHER GTA – BUILDINGS OVER 200,000 SF


• In summary, the composition of the building stock in Peel is becoming much larger in size relative to elsewhere in the GTA.



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<16' 16'-24' >24'

INDUSTRIAL MARKET

PEEL – CEILING CLEAR HEIGHT BY DECADE OF CONSTRUCTION

Ceiling Clear Height by Decade of Construction

• The typical ceiling clear height (measured from the floor to the underside of ceiling joists) has increased significantly from the 1970s and 1980s to today.

–Across Peel, buildings with a ceiling clear height of <24’ comprised a roughly 5% share of buildings constructed in the 1970s and 1980s; this has grown to an 84% share in the 2010s.

5% 84%



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INDUSTRIAL MARKET

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<16' 16'-24' >24'

OTHER GTA – CEILING CLEAR HEIGHT BY DECADE OF CONSTRUCTION


• Elsewhere in the GTA, a similar trend is evident – but as with building size increase, the change is not as pronounced as in Peel.

–A 63% share of buildings constructed (or under construction) in the 2010s had a ceiling clear height of >24’.

63%



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INDUSTRIAL MARKET

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PEEL OTHER GTA

PEEL AND OTHER GTA – CEILING CLEAR HEIGHT <24’


• In summary, industrial buildings constructed with a ceiling clear height in excess of 24’ have accounted for a greater share of activity in Peel versus elsewhere in the GTA.



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IMPLICATIONS FOR PEEL’S NON-RESIDENTIAL DC REVENUE



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INDUSTRIAL MARKETImplications for Peel’s Non-Residential DC Revenue

• What is the importance of each metric? What does it tell us about Peel?• Impact on non-residential Development Charge revenue outlook (industrial = 70% share of projected revenue)?

• Absorption–Absorption (“change in occupied space”) is a function of employment growth.–Employment growth projections are a core element of the DC Background Study.

• New Supply–Pace of new supply activity slowed in recent years across GTA (post-recession).–New supply contributes DC revenue.–The recession has impacted the anticipated collection of non-residential DC revenues in Peel/GTA.



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INDUSTRIAL MARKETImplications for Peel’s Non-Residential DC Revenue

• Building Size–Increasing size of buildings doesn’t affect non-residential DC revenue, since it is collected on a floor space basis.–Larger buildings require large land parcels to be available to developers – protect these employment lands.–Many of these larger buildings are warehousing and distribution-type facilities, which typically have a lower employment density compared to manufacturing facilities.

»Employment density trends must be clearly understood – but not an element of C&W’s analysis.

• Ceiling Clear Height–Has implications for the collection of non-residential DC revenue.

»DC’s are collected on the basis on floor area, not cubic area.–A building with 28’ clear height has 40% more cubic area than the same floor area with 20’ clear height.–A building with 28’ clear height has 17% more cubic area than the same floor area with 24’ clear height.

»However, the 28’ clear height building does not likely accommodate proportionally more workers (1:1).



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OFFICE MARKET OVERVIEW



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-1.5-1.0-0.50.00.51.01.52.02.53.03.54.0

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OFFICE MARKET

• Annual average of 1.2 million sf million sf of new supply since 2000.–(6,000 jobs annually, at 200 sf per employee)

• Vacancy rate hasn’t returned to pre-recession levels – weak absorption.–Renewed interest in Downtown Toronto office development.

weak


GTA SUBURBS – ABSORPTION, NEW SUPPLY AND VACANCY RATE



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OFFICE MARKET

PEEL 17%

TORONTO CENTRAL

AREA50%

EAST SUBURBS

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NORTH SUBURBS

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OTHER WEST SUBURBS

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AIRPORT/ AIRPORT CORPORATE CENTRE 40%

MEADOWVALE20%

HURONTARIO14%

MISSISSAUGA CITY CENTRE

12%

SHERIDAN3%

COOKSVILLE2%

BRAMPTON8%

• The GTA’s office inventory is evenly divided between Downtown Toronto and the Suburban markets.• Mississauga’s office inventory accounts for 15% of the total GTA supply – and 31% of the GTA Suburbs.

Inventory – GTA and Peel

GTA – INVENTORY (2013) PEEL – INVENTORY (2013)

1/2



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OFFICE MARKET

PEEL, 37%

TORONTO CENTRAL

AREA26%

EAST SUBURBS

21%

NORTH SUBURBS

5%

OTHER WEST

SUBURBS10%

GTA – INVENTORY (2013) GTA – NEW SUPPLY (2000-2013)

PEEL 17%

TORONTO CENTRAL

AREA50%

EAST SUBURBS

19%

NORTH SUBURBS

9%

OTHER WEST

SUBURBS5%

• Since 2000, Peel (really, Mississauga’s four active office concentrations) has been growing at twice its share of the overall GTA office inventory.

–Airport/Airport Corporate Centre has added 3.6 million sf, and Meadowvale has added 3 million sf.–Downtown Toronto added 3.2 million sf in year 2009 alone! (albeit little new supply prior to that).

Inventory and New Supply Comparison

!



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2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

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TORONTO CENTRAL AREA EAST SUBURBS NORTH SUBURBS WEST SUBURBS

OFFICE MARKETNew Supply Pipeline

• Shift of new supply activity from Suburbs to Downtown Toronto.–Toronto Central Area accounted for just 9% of new office space from 2000-2008.–Toronto Central Area will account for 62% of new office space from 2009-2017.

»An additional 5 million sf from 2014-2017 in Toronto Central Area.

62%

GTA – NEW SUPPLY COMPLETED AND UNDER CONSTRUCTION

9%



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IMPLICATIONS FOR PEEL’S NON-RESIDENTIAL DC REVENUE



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OFFICE MARKETImplications for Peel’s Non-Residential DC Revenue

• What is the importance of each metric? What does it tell us about Peel?• Impact on non-residential Development Charge revenue outlook?

• Absorption–Absorption (“change in occupied space”) is a function of employment growth.–Employment growth projections are a core element of the DC Background Study.

• New Supply–New office supply pipeline moderates in Peel compared to prior years.–Reduced near-term DC revenue.

• New Supply Pipeline–Is the shift in office demand from Suburbs to Downtown cyclical, or structural?–Impacts office employment growth and correspondingly, DC revenue generation.

peel industrial and office market trends analysis · office market new supply pipeline • shift of...

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