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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
VALUATION & ADVISORY
3
• Vacancy rate in a range from 4.5% - 6.0% from 2000 through 2007 (and again in 2013).
INDUSTRIAL MARKET
0%
1%
2%
3%
4%
5%
6%
7%
8%
-4
-2
0
2
4
6
8
10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Vaca
ncy
Rate
Abso
rptio
n/N
ew S
uppl
y (m
illion
sf)
ABSORPTION NEW SUPPLY VACANCY RATE
GTA – ABSORPTION, NEW SUPPLY AND VACANCY RATE
Absorption, New Supply and Vacancy Rate – Time Series
4.5% - 6.0%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
4
0%
1%
2%
3%
4%
5%
6%
7%
8%
-4
-2
0
2
4
6
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10
12
14
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Vaca
ncy
Rate
Abso
rptio
n/N
ew S
uppl
y (m
illion
sf)
ABSORPTION NEW SUPPLY VACANCY RATE
• 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).
3
9
INDUSTRIAL MARKET
GTA – ABSORPTION, NEW SUPPLY AND VACANCY RATE
Absorption, New Supply and Vacancy Rate – Time Series
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
5
• 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%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
6
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%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
7
INDUSTRIAL MARKET
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
<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.
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
8
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
<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
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
9
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
<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
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%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
10
INDUSTRIAL MARKET
0%
10%
20%
30%
40%
50%
60%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
PEEL OTHER GTA
PEEL AND OTHER GTA – BUILDINGS OVER 200,000 SF
Building Size by Decade of Construction
• In summary, the composition of the building stock in Peel is becoming much larger in size relative to elsewhere in the GTA.
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
11
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
<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%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
12
INDUSTRIAL MARKET
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
<16' 16'-24' >24'
OTHER GTA – CEILING CLEAR HEIGHT BY DECADE OF CONSTRUCTION
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%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
13
INDUSTRIAL MARKET
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
1970s 1980s 1990s 2000s 2010s
% of
Con
stru
ctio
n Act
ivity
PEEL OTHER GTA
PEEL AND OTHER GTA – CEILING CLEAR HEIGHT <24’
Ceiling Clear Height by Decade of Construction
• 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.
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
14
IMPLICATIONS FOR PEEL’S NON-RESIDENTIAL DC REVENUE
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
15
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.
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
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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).
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
17
OFFICE MARKET OVERVIEW
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
18
0%
2%
4%
6%
8%
10%
12%
14%
-1.5-1.0-0.50.00.51.01.52.02.53.03.54.0
20002001200220032004200520062007200820092010201120122013
Vaca
ncy
Rate
Abso
rptio
n/N
ew S
uppl
y (m
illion
sf)
ABSORPTION NEW SUPPLY VACANCY RATE
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
Absorption, New Supply and Vacancy Rate – Time Series
GTA SUBURBS – ABSORPTION, NEW SUPPLY AND VACANCY RATE
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
19
OFFICE MARKET
PEEL 17%
TORONTO CENTRAL
AREA50%
EAST SUBURBS
19%
NORTH SUBURBS
9%
OTHER WEST SUBURBS
5%
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
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
20
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
!
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
21
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
New
Sup
ply
(milli
on sf
)
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%
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
22
IMPLICATIONS FOR PEEL’S NON-RESIDENTIAL DC REVENUE
REGION OF PEEL CUSHMAN & WAKEFIELD
VALUATION & ADVISORY
23
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.