Uptick in development shows confident state of Canadian and U.S. industrial markets

Avison Young releases its Spring 2015 Canada, U.S. and U.K. Industrial Market Report 

TORONTO, May 12, 2015 /PRNewswire/ - Industrial markets on both sides of the border are experiencing stable-to-improving fundamentals, with a narrowing spread in vacancy rates between Canada and the U.S. year-over-year. Confidence in anticipated demand is demonstrated by active development pipelines. Volatile energy prices remain an unknown factor going forward, but their impact has yet to be felt – and is expected to be localized in particular markets and industry sectors.

These are some of the key trends noted in Avison Young's Spring 2015 Canada, U.S. and U.K. Industrial Market Report, released today.

The report covers the industrial markets in 43 Canadian, U.S. and U.K. metropolitan regions: Calgary, Edmonton, Guelph (Southwestern Ontario), Lethbridge, Mississauga, Montreal, Ottawa, Regina, Toronto, Vancouver, Winnipeg, Atlanta, Austin, Boston, Charleston, Charlotte, Chicago, Cleveland, Columbus, OH; Dallas, Denver, Detroit, Fort Lauderdale, Houston, Las Vegas, Long Island, Los Angeles, Miami, New Jersey, Oakland, Orange County, Orlando, Philadelphia, Pittsburgh, Raleigh-Durham, Reno, San Diego County, San Francisco, San Mateo, Tampa, Washington, DC; West Palm Beach and London, U.K.

"It's been one year since we launched our inaugural Canada-U.S. industrial market report, and we are pleased to report that, as Avison Young has grown, our coverage has expanded from 35 to 43 industrial markets, including additional cities in Canada and the U.S., plus London in the U.K.," comments Mark E. Rose, Chair and CEO of Avison Young. 

He continues: "Momentum continues to build, particularly in the U.S. markets, many of which have recorded declines in vacancy and a steady rise in rental rates, while demand for quality assets has been broad based. This situation will only get better as the U.S. economy expands – and the spillover effects will benefit Canada. Both countries' industrial markets have positioned themselves to take advantage of this anticipated next phase of the recovery by delivering state-of-the-art distribution and warehouse facilities, both design-build and speculative in nature.  

"While we have been accustomed to low single-digit vacancy rates across Canada, even through the credit crisis, it's great to finally see all but one of the U.S. markets covered by Avison Young in single-digit territory. London, Avison Young's first location in the U.K., shares similar market fundamentals, with decreasing vacancy and rising rental rates."   

According to the report, of the 42 industrial markets tracked by Avison Young across North America, vacancy declined in 32 markets, increased in eight, and remained unchanged in two, during the 12-month period to the end of the first quarter of 2015.

Year-over-year improvement occurred in almost all of Avison Young's U.S. markets, with vacancy rates falling to varying degrees in 27 of 31 metropolitan regions surveyed. In Canada, the results were a mix of subtle shifts in vacancy in both directions, with the exception of two markets, which showed no change compared with the first quarter of 2014.     

The Canadian industrial market collectively reported a vacancy rate of 4.4%, down 20 basis points (bps) year-over-year in the first quarter of 2015, compared with 6.9% (-90 bps) in the U.S.

Both countries have seen a significant increase in development during the past 12 months, as more than 117 million square feet (msf) was under construction at the end of the first quarter of 2015. To support growing supply-chain networks, distribution centres are being built or expanded by the likes of Canadian Tire, Walmart, Home Depot, FedEx and Hyundai Mobis (in Canada), and Amazon.com, Cardinal Health, Midwest Warehouse & Distribution Systems, Southern Wine and Spirits, and ALDI (in the U.S.).

"Macroeconomic conditions, including volatile oil prices, a low Canadian dollar and less-than-stellar GDP numbers, are starting to take their toll on commercial real estate property market fundamentals in Canada," says Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. "The industrial market is faring much better than the office sector, where pressure is building as a result of a burgeoning new supply pipeline in major markets such as Vancouver, Calgary and Toronto, and the retail sector, which has been affected by the unexpected exit of Target from Canada and the closure of all Future Shop locations, and other retailers' departures."

He adds: "The industrial sector is displaying low vacancy rates, stable-to-rising rental rates, improving leasing velocity, a growing – but conservative – development pipeline and strong investor demand. An established and expanding distribution and logistics-driven industry and a sustained U.S. recovery will provide upside, and if a low Canadian dollar persists, it will fuel exports and boost a retooled manufacturing sector, particularly in Ontario and Quebec. The only caveat: manufacturers linked to the oil and gas sector will face headwinds."

CANADA

Notable First-Quarter 2015 Canadian Industrial Market Highlights:

• Canadian markets claimed six of the lowest vacancy rates, four of the highest average asking net rental rates and three of the busiest development markets of North America's top 10.
• Single-digit vacancy rates persist, with seven of 11 Canadian markets surveyed posting vacancy below the national average of 4.4% – down from 4.6% one year ago.
• Regina recorded the lowest vacancy rate (2%) and the greatest swing (-160 bps), while Montreal (6.6%) had the country's highest vacancy.
• Collectively, Canada's Western markets saw a modest increase in vacancy (+10 bps to 4.1%) during the past year, compared with a decrease (-20 bps to 4.6%) by Eastern markets – narrowing the East-West spread to 50 bps from 80 bps one year prior.
• Development activity has doubled, with nearly 17.5 msf under construction (33% preleased) – equating to only 1% of the existing inventory. Toronto, Calgary and Edmonton account for 75% of the total industrial space under construction.
• The average national asking net rental rate increased to $7.90 per square foot (psf), with the West ($9.21 psf) outpacing the East ($6.33 psf).

U.S.
The 9.2-billion-square-foot (bsf) U.S. industrial market covered in the Avison Young report demonstrated strength in all major markets year-over-year. In spite of an uptick in development, rents are rising and demand for class A product has been notable. As a result, several markets report a return to landlord-favourable conditions. With the exception of four markets, all others saw their vacancy rates improve year-over-year – some significantly. The overall U.S. market's vacancy rate improved by 90 bps to 6.9%.

"Industrial market fundamentals showed meaningful improvement across the U.S. in the last year. Lower energy prices are supporting consumer spending and non-energy warehouse and distribution growth, with key cities reporting build-to-suit and speculative development," states Earl Webb, Avison Young's President, U.S. Operations. "At the same time, the lower energy costs and continued low interest rates are fuelling increased auto sales, so manufacturing and parts production should also accelerate this year."

The overall average asking rent in the U.S. increased by a relatively modest $0.40 psf year-over-year, but this belies the fact that every market, with the exception of Miami, posted increased rents, and most have strengthening deal terms.

Notable First-Quarter 2015 U.S. Industrial Market Highlights:

• Nearly every Avison Young market in the U.S. reported some level of industrial development as of the first quarter of 2015. Construction volume is up nearly 16% compared with the same period in 2014. Altogether, almost 100 msf is under construction, with 78% of the total concentrated in seven markets.
• West Coast industrial powerhouse Los Angeles reported a sub-4% vacancy rate, its lowest level in more than a decade, and has 18 msf under construction – more than the entire Canadian market.
• Atlanta has 17 msf under construction, half of which is being built speculatively.
• The 1-bsf Chicago market is shifting to landlord-friendly conditions, with vacancy falling by 110 bps year-over-year, and has nearly 9 msf under construction. In the land-constrained urban core, redevelopment and infill projects are in play.
• Driven by owner/occupier demand, vacancy levels in Las Vegas fell to 8.5% from 11.1% one year prior.
• Detroit, where the industrial market is driven by the auto industry, continued its marked improvement as vacancy dropped to the single digits, falling by 170 bps year-over-year to 8.4%.
• The highest reported rents were again on the West Coast: San Francisco ($14.54 psf), San Diego County ($11.64 psf) and San Mateo ($10.44 psf). This finding is not surprising, since these three markets have strong demand drivers along with barriers to entry and vacancy rates in the low single digits.

Webb concludes: "Sales of industrial properties and portfolios are on the rise and, as we move further into 2015, the U.S. industrial market is experiencing a continuation of 2014 trends such as reshoring and modernization. That said, the full impact of the uncertain energy market is yet to be seen in select U.S. industrial markets such as Houston."

***

Please turn to the following pages of the report for highlights in the local markets. For comments on individual markets, please contact the Avison Young representatives listed below. Thank you.

p. 3 Canada & U.S.: 
Bill Argeropoulos, Principal and Practice Leader, Research (Canada), 416.673.4029 or cell: 416.906.3072 [email protected] 
Margaret Donkerbrook, VP, U.S. Research, 202.644.8677 [email protected]

Canada
p.7 Calgary
Todd Throndson, Principal, 403.232.4343 [email protected]

p.7 Edmonton
John Ross, Managing Director, 780.429.7564 [email protected]

p.8 Guelph (Southwestern Ontario)
Ted Davis, Managing Director, 226.366.9040 [email protected]

p.8 Lethbridge
Doug Mereska, Managing Director, 403.330.3338 [email protected]

p.9 Montreal
Denis Perreault, Principal, 514.905.0604 [email protected]

p.9 Ottawa
Michael Church, Principal, 613.567.6634 [email protected]

p.10 Regina
Richard Jankowski, Managing Director, 306.359.9799 [email protected]

p.10 Toronto
Mark Fieder, Principal, 416.673.4051 [email protected]

p.11 Toronto West/Mississauga
Martin Dockrill, Principal, 905.283.2333 [email protected]

p.11 Vancouver
Michael Keenan, Principal, 604.647.5081 [email protected]

p.12 Winnipeg:
Wes Schollenberg, Managing Director, 204.947.2886 [email protected]

United States
p.12 Atlanta
Steve Dils, Principal, 404.865.3663 [email protected]

p.13 Austin
Mike Kennedy, Principal, 512-717-3099 [email protected]

p.13 Boston
Michael Smith, Principal, 617.575.2830 [email protected]

p.14 Charleston
Jeremy Willits, Managing Director, 843.725.7200 [email protected]

p.14 Charlotte
John Linderman, Principal, 919.420.1559 [email protected]

p.15 Chicago
Danny Nikitas Principal, 312.940.8794 [email protected]

p.15 Cleveland
Chris Livingston, Principal, 216.406.1131 [email protected]

p.16 Columbus, OH
Scott Pickett, Principal, 614.264.4400 [email protected]

p.16 Dallas
Greg Langston, Principal, 214.207.8388 [email protected]

p.17 Denver
Alec Wynne, Principal, 303.332.4952 [email protected]

p.17 Detroit:
Jim Becker, Principal, 313.510.2825 [email protected]

p.18 Fort Lauderdale  
Pike Rowley, Principal, 954.938.1807 [email protected]

p.18 Houston
Rand Stephens, Principal, 713.993.7810 [email protected]

p.19 Las Vegas
Joseph Kupiec, Principal, 702.472.7979 [email protected]

p.19 Long Island
Ted Stratigos, Principal, 516.962.5399 [email protected]

p.20 Los Angeles
Chris Cooper, Principal, 213.935.7435 [email protected]

p.20 Miami
Donna Abood, Principal, 305.447.7857 [email protected] 
Michael Fay, Principal, 305.447.7842 [email protected]

p.21 New Jersey
Jeff Heller, Principal, 973.753.1100 [email protected]

p.21 Oakland
Charlie Allen, Principal, 510.333.8477 [email protected]

p.22 Orange County
Dan Vittone, Principal, 949.757.1570 [email protected]

p.22 Orlando
Greg Morrison, Principal, 407.440.6640 [email protected]

p.23 Philadelphia
David Fahey, Principal, 610.276.1081 [email protected]                              

p.23 Pittsburgh
George (Duke) Kingsley, Principal, 412.944.2131 [email protected]

p.24 Raleigh-Durham
John Linderman, Principal, 919.420.1559 [email protected]

p.24 Reno
John Pinjuv, Managing Director, 775.332.7300 [email protected]

p.25 San Diego County
Jerry Keeney, Principal, 858.201.7077 [email protected]

p.25 San Francisco
Nick Slonek, Principal, 415.322.5051 [email protected]

p.26 San Mateo
Randy Keller, Principal, 650.425.6425 [email protected]

p.26 Tampa
Ken Lane, Principal, 813.444.0623 [email protected]

p.27 Washington, DC
Keith Lipton, Principal, 202.644.8683 [email protected]

p.26 West Palm Beach
Jonathan Satter, Principal, 561.721.7031 [email protected]

United Kingdom
p.28 London
Nick Cook, Principal, +44 20 7041 9999 [email protected]

Avison Young is the world's fastest-growing commercial real estate services firm. Headquartered in Toronto, Canada, Avison Young is a collaborative, global firm owned and operated by its principals. Founded in 1978, the company comprises 1,700 real estate professionals in 66 offices, providing value-added, client-centric investment sales, leasing, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

Editors/Reporters:
• Please click on link to view and download Avison Young's Spring 2015 Canada, U.S. and U.K.
Industrial Market Report:
http://www.avisonyoung.com/fileDownloader.php?file=files/content-files/Research/Links/2015/AYSpring15Canada_US_UK_IndustrialReport_May12_15Final.pdf

For further information/comment/photos:

• Sherry Quan, Principal, National Director of Communications & Media Relations, Avison Young: 604.647.5098; cell: 604.726.0959 [email protected]

• Bill Argeropoulos, Principal and Practice Leader, Research (Canada), Avison Young: 416.673.4029; cell 416.906.3072 [email protected]

• Margaret Donkerbrook, Vice-President, U.S. Research, Avison Young: 202.644.8677 
[email protected]

• Mark Rose, Chair and CEO, Avison Young: 416.673.4028

• Earl Webb, President, U.S. Operations, Avison Young: 312.957.7610

www.avisonyoung.com

Avison Young was a winner of Canada's Best Managed Companies program in 2011, 2012 and 2013 and has demonstrated its commitment to the program and successfully reapplied for the designation as a Gold Standard winner in 2014. 

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SOURCE Avison Young Commercial Real Estate (BC)