The pronounced land shortage for industrial space is pushing rents skyward in Toronto.
CoStar Group, a multinational commercial real estate research and technology company with several Canadian offices, noted that while there’s 12 million square feet of industrial construction in Toronto, the vacancy rate is only 1.5% and that caused rents to surge 14% in 2018.
“We won’t be able to build as much as the market needs over the next few years, and when you hit that wall, different questions arise: Will rents shoot up drastically? Will we see change to land reform? The province talked about opening up the Greenbelt, but it got shot down quickly,” said Roelof van Dijk, CoStar’s market economist for Canada.
The Greenbelt is effectively in the middle of a distribution pathway for would-be industrial facilities, and given the land dearth for commodious buildings near large population centres, it might spur some creative delivery habits.
“Maybe we change delivery habits,” said van Dijk. “Everyone likes to bring it in during the day, but maybe we’ll have to do it at night, like Manhattan does. If you same-day delivery stuff, you need smaller distribution centres close to the population centre. That’s why there isn’t a ton of same-day delivery in Canada, because there isn’t a ton of those operations. It will come, but they need time to set those up.”
The likely result is that areas like Milton will become distribution hubs, and as land scarcity continues moving westward, cities as far west as London could have their day in the sun.
“But in Hamilton, where you have the airport and FedEx, it’s logical that it will happen there.”
Adding to the supply constraints around industrial space is that it is becoming fashionable for other businesses, even—or especially—idiosyncratic ones. It has long been presumed that sub-18-foot clear heights were no longer in demand, but CoStar has determined that they still command a lot of attention.
“People thought that section was dead, because most people want 30 or 50 feet, but a lot of people want them, like construction companies,” said van Dijk. “They’re also being converted into co-working office space—even children’s play gyms and random stuff like that. There’s a film production facility in Mississauga for sub-18 clear heights. Supply will continue being constrained in the future and I think that’s something that will onto the agenda in the coming years.”