The Greater Toronto Area (GTA) industrial market remains resilient, despite the pandemic and challenges in the broader economy. This has translated to exceptionally strong leasing and investment transaction activity (and compressed cap rates) as well as increased competition for available land.

The sector has also benefited from its occupiers largely being deemed essential services, with strong rental collection through the pandemic, and rental-rate growth relative to other commercial real estate asset classes.

From a high of 7.1% in first-quarter 2010, the GTA industrial availability rate has dropped steadily to the current historic low of 1.1% – below the national average and making the GTA among the tightest markets in North America. In the second quarter, 3 million square feet (msf) was delivered across 18 buildings, of which 100% was leased. At quarter-end, 10.8 msf was under construction, of which 6.9 msf (64%) had already been leased. Buildings under construction equate to a mere 1.2% of the GTA’s existing industrial stock.

Rental rates have grown by 71% in the past five years and low availability rates have offset the high land values and construction costs evident in today’s market. Given the supply-demand imbalance, the consensus is for continued growth across the GTA industrial markets for the foreseeable future.

As rents continue to rise rapidly, developers are not posting asking rates on projects. This strategy helps ensure their costs are covered upon completion, given future uncertainty due to the potential for unforeseen project stoppages and increases in construction material and labour costs – all of which can lead to delivery timeline delays and cost overruns.