Stable to improving market fundamentals define rapidly evolving North America and U.K. industrial property sector

Avison Young releases its Spring 2016 North America and U.K. Industrial Market Report 

TORONTO, May 12, 2016 /PRNewswire/ - While local, regional and global economic headwinds continue to impact commercial property markets, the industrial sector is operating in a position of relative strength, evolving rapidly as owners and occupiers alike respond to changing demand. Traditional buildings are being viewed in a different light as they compete with new, innovative facilities catering to the burgeoning e-commerce, logistics and distribution sectors.

These are some of the key trends noted in Avison Young's Spring 2016 North America and U.K. Industrial Market Report, released today.

The report covers the industrial markets in 51 North American and U.K. metropolitan regions: Calgary, Edmonton, Halifax, Lethbridge, Montreal, Ottawa, Regina, Toronto, Vancouver, Waterloo Region, Winnipeg, Atlanta, Austin, Boston, Charleston, Charlotte, Chicago, Cleveland, Columbus, OH; Dallas, Denver, Detroit, Fort Lauderdale, Greenville, Hartford, Houston, Indianapolis, Las Vegas, Long Island, Los Angeles, Miami, Minneapolis, New Jersey, Oakland, Orange County, Orlando, Philadelphia, Pittsburgh, Raleigh-Durham, Reno, Sacramento, San Antonio, San Diego County, San Francisco, San Mateo, Tampa, Washington, DC; West Palm Beach, Mexico City, Coventry, U.K. and London, U.K.

"Our industrial market report has grown along with our company and has expanded this year to cover 51 markets in four countries, including additional coverage in the U.S. and U.K., and in Mexico for the first time," comments Mark E. Rose, Chair and CEO of Avison Young.

He continues: "Despite the well-documented issues being experienced in energy-producing regions, the overall sense from across the Avison Young platform is that the industrial sector is in good shape. While traditional manufacturing processes continue to make up a major portion of the sector, the market is responding to e-commerce and other innovations that are underway with new approaches. Demand for new types of facilities and well-located sites is top of mind with developers, who are seeing potential renovation or redevelopment value in properties once considered obsolete. The rapid-order-fulfillment phenomenon is driving both leasing activity and investment sales."

"The continued rebound in U.S. fundamentals is a welcome sight; meanwhile, the Canadian market's diversity appears to be buffering the setback in the resource sector. In Mexico City, the logistics sector is gaining prominence, while the U.K. markets are seeing similar strong demand for logistics and distribution space," says Rose.

According to the report, of the 51 industrial markets surveyed by Avison Young across North America and the U.K., vacancy declined in 38 markets, increased in 12, and remained unchanged in one, during the 12-month period ended March 31, 2016.

Year-over-year, industrial vacancy rates were lower in 31 of 37 U.S. metropolitan regions surveyed, while vacancy declined in slightly more than half of the 11 Canadian markets. In Mexico City, vacancy increased marginally to 7%. In the U.K., Coventry and London reported vacancy rates of 6.2% and 3.1%, respectively. London ranks among the 10 tightest industrial markets surveyed in the report.

"Even with all the noise surrounding economic woes in the oil patch, the Canadian industrial market has fared very well," says Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. "Fundamentals remain fairly healthy and the sector continues to operate near full occupancy."

Argeropoulos continues: "The contraction in the energy sector has been countered by demand from other industries – even in traditionally energy-dependent markets – as increases in distribution, logistics and e-commerce activity cushion the blow. One cautionary note is that some markets may leave themselves open to oversupply in the future if current demand levels do not continue."

He adds: "In the North American context, Canadian markets claimed four of the 10 lowest vacancy rates, three of the 10 highest average asking net rental rates and two of the 10 busiest development markets. However, in the rankings for 12-month absorption and new product completions, only Toronto made the continent's top 10. Although Canada's showings in these rankings are not as strong as in recent years, they are not surprising given the improving market conditions in the U.S. – which ultimately benefit Canada as well."

CANADA
Closing in on 2 billion square feet (bsf) of inventory, Canada's industrial market finished the first quarter of 2016 with a vacancy rate of 4% – down 50 basis points (bps) from the same quarter in 2015. While regional disparities exist, overall, the market is relatively strong across most of Canada, thanks to low energy costs and interest rates, and the continued growth of e-commerce – with a resurgent U.S. economy and competitive Canadian dollar fuelling exports. However, headwinds tempering market sentiment include potential further declines in commodity prices and increased currency risk.

Notable First-Quarter 2016 Canadian Industrial Market Highlights:

• Demand for industrial space is robust, with 12-month absorption totalling almost 25 million square feet (msf) – nearly double the total for the previous 12-month period. Toronto led all markets by a wide margin, followed by Vancouver and Edmonton, as the East outpaced the West.
• Ten of the 11 Canadian markets surveyed display single-digit vacancy rates (with four markets posting rates below the national average) compared with seven one year earlier. Western markets combined for a modest vacancy increase (+10 bps to 4.2%) during the past year, compared with a decline by Eastern markets (-80 bps to 3.8%).
• Year-over-year, vacancy declined in five markets and increased in six. Toronto claimed the country's lowest rate (2.7%), Halifax the highest (11.9%) and greatest swing (+200 bps), while Vancouver (2.8%) showed the biggest improvement (-120 bps).
• Keeping pace with demand, developers completed almost 16 msf of new industrial product in the past year with three-quarters delivered in Toronto, Edmonton and Vancouver.
• More than 10 msf is under construction – equating to only 0.5% of the existing inventory. Only 12% of this product is preleased, pointing to the speculative nature of development across the country. Toronto and Vancouver account for 75% of the total industrial area under construction.
• Downward pressure on asking net rental rates, especially in Calgary and Edmonton, and to a lesser extent in Regina, helped lower the national average $0.05 per square foot (psf) year-over-year to $8.04 psf. Despite weakness in the oil patch, the West ($9 psf) maintains a healthy, but narrowing, spread over the East ($6.89 psf).

U.S.
Like Canada, the U.S. industrial market registered further strengthening during the past year, and virtually all U.S. markets recorded an increase in rental rates, declining vacancy and pent-up demand for new industrial properties. Developers have responded to this demand. After years of consistent occupancy gains, most markets remain favourable to landlords, achieving higher rental rates and heightened leasing velocity; however, some regions report that leasing activity is inhibited by a lack of available expansion space, ultimately hindering absorption figures.

"The outlook for the U.S. industrial sector remains positive after the U.S. had another year of sustained employment growth and lower energy prices. The need for additional industrial development is evidenced by low single-digit vacancy levels and strong leasing fundamentals across all major industrial cities," states Earl Webb, Avison Young's President, U.S. Operations. "The current landlord-favourable conditions are likely to remain through year-end 2016 and into 2017 despite the necessary uptick in construction that's occurring."

Online retailers and logistics providers remain the primary demand drivers with developers catering to e-commerce fulfillment warehouses as logistics users, including Amazon, compete for distribution locations closer to the consumer.

Notable First-Quarter 2016 U.S. Industrial Market Highlights:

• The 10.6-bsf U.S. industrial market ended first-quarter 2016 with an average vacancy rate of 5.9%, and seven of the 37 markets tracked by Avison Young report vacancy of 4% or less. West Coast markets lead the country with the lowest vacancy reported: San Mateo (36 msf / 2%), Orange County (218 msf / 2.2%) and powerhouse Los Angeles (1.4 bsf / 2.6%).
• Net U.S. absorption for the prior four quarters approached 200 msf, nearly 4% higher than the previous reporting period and an amount roughly equal to 2% of the total inventory. Los Angeles (27.5 msf), Chicago (23.3 msf) and Dallas (19.7 msf) achieved the highest net absorption.
• Despite a faltering energy market, the rapid growth of e-commerce fulfillment and high-tech manufacturing has been able to backfill demand – and, in many cases, drive vacancy and rental rates to new records. The highest average asking triple net rent in the U.S. was recorded in land-constrained San Francisco ($16.28 psf), and the markets that reported the greatest gains in rent year-over-year were San Mateo (+$3 psf), San Francisco (+$1.74 psf), Los Angeles (+$1.56 psf), Oakland (+$1.44 psf) and Denver (+$0.92 psf).
• A quality gap between existing buildings and new developments has created pent-up demand for high-quality product. This trend is likely to continue for several years, as industrial developers are often priced out of the rare development sites available in primary markets.
• Altogether, the U.S. delivered 130 msf in the 12-month period ending March 31, 2016. Another 136 msf is under construction with preleasing levels at 45%. Dallas and Los Angeles each have 20.4 msf underway.
• In an unusual twist, tight market conditions have led some owners to begin converting office buildings for industrial use (Long Island), while other municipalities have begun enforcing zoning ordinance fines to ensure that limited industrial space is not misappropriated by office tenants (San Francisco).

Webb concludes: "U.S. employment growth, demand for modern class A warehouse product with features such as higher ceiling heights and oversized truck bays, and the rise of e-commerce as well as the need to shorten the supply chain should keep this sector flourishing."

***

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

pp.4-5 Canada & U.S.: 
Bill Argeropoulos, Principal and Practice Leader, Research (Canada), 416.673.4029 or cell: 416.906.3072 [email protected]
Margaret Donkerbrook, Principal and Practice Leader, U.S. Research, 202.644.8677 [email protected]

Canada
p.11 Calgary                                                                                                                           
Todd Throndson, Principal and Managing Director, 403.232.4343 [email protected]

p.12 Edmonton                                                                                                                       
John Ross, Managing Director, 780.429.7564 [email protected]

p.13 Halifax                                                                                                                 
Michael Brown, Managing Director, 902.454.4110 [email protected]

p.14 Lethbridge   
Doug Mereska, Managing Director, 403.330.3338 [email protected]

p.15 Montreal                                                                                                                          
Denis Perreault, Principal and Managing Director, 514.905.0604 [email protected]

p.16 Ottawa                                                                                                                 
Michael Church, Principal and Managing Director, 613.567.6634 [email protected]

p.17 Regina                                                                                                                             
Richard Jankowski, Managing Director, 306.359.9009 [email protected]

p.18 Toronto                                                                                                              
Martin Dockrill, Principal and Managing Director, 905.283.2333 [email protected]

p.19 Vancouver                                                                                                                       
Michael Keenan, Principal and Managing Director, 604.647.5081 [email protected]

p.20 Waterloo Region                                                                                      
Ted Davis, Managing Director, 226.366.9040 [email protected]

p.21 Winnipeg:                                                                                                                                    
Wes Schollenberg, Managing Director, 204.947.2886 [email protected]

United States
p.23 Atlanta     
Steve Dils, Principal and Managing Director, 404.865.3663 [email protected]

p.24 Austin
Mike Kennedy, Principal and Managing Director, 512-717-3099 [email protected]

p.25 Boston
Michael Smith, Principal and Managing Director, 617.575.2830 [email protected]

p.26 Charleston
Chris Fraser, Managing Director, 843-725-7200 [email protected]

p.27 Charlotte
John Linderman, Principal and Managing Director, 919.420.1559 [email protected]

p.28 Chicago
Danny Nikitas, Principal and Managing Director, 312.940.8794 [email protected]

p.29 Cleveland
Chris Livingston, Principal and Managing Director, 216.406.1131 [email protected]

p.30 Columbus, OH
Scott Pickett, Principal and Managing Director, 614.264.4400 [email protected]

p.31 Dallas
Greg Langston, Principal and Managing Director, 214.207.8388 [email protected]

p.32 Denver
Alec Wynne, Principal and Managing Director, 720.508.8112 [email protected]

p.33 Detroit:
Jim Becker, Principal and Managing Director, 313.510.2825 [email protected]

p.34 Fort Lauderdale
Pike Rowley, Principal and Managing Director, 954.938.1807 [email protected]

p.35 Greenville
Chris Fraser, Managing Director, 843-725-7200 [email protected]

p.36 Hartford
Andrew Filler, Principal and Managing Director, 860.327.8302 [email protected]

p.37 Houston
Rand Stephens, Principal and Managing Director, 713.993.7810 [email protected]

p.38 Indianapolis
Bill Ehret, Principal and Managing Director, 317.210.8808 [email protected]

p.39 Las Vegas
Joseph Kupiec, Principal and Managing Director, 702.472.7979 [email protected]

p.40 Long Island
Ted Stratigos, Principal and Managing Director, 516.962.5399 [email protected]

p.41 Los Angeles
Chris Cooper, Principal and Managing Director, 213.935.7435 [email protected]

p.42 Miami
Donna Abood, Principal and Managing Director, 305.447.7857 [email protected]
Michael Fay, Principal and Managing Director, 305.447.7842 [email protected]

p.43 Minneapolis
Mark Evenson, Principal and Managing Director, 612.913.5641 [email protected]                                  

p.44 New Jersey
Jeff Heller, Principal and Managing Director, 973.753.1100 [email protected]

p.45 Oakland
Charlie Allen, Principal and Managing Director, 510.333.8477 [email protected]

p.46 Orange County
Chris Cooper, Principal and Managing Director, 213.935.7435 [email protected]

p.47 Orlando
Greg Morrison, Principal and Managing Director, 407.440.6640 [email protected]

p.48 Philadelphia
David Fahey, Principal and Managing Director, 610.276.1081 [email protected]                            

p.49 Pittsburgh
Brad Totten, Principal and Managing Director, 412.944.2132 [email protected]

p.50 Raleigh-Durham
John Linderman, Principal and Managing Director, 919.420.1559 [email protected]

p.51 Reno                                                                                                                                
John Pinjuv, Managing Director, 775.332.7300 [email protected]

p.52 Sacramento
Thomas Aguer, Principal and Managing Director, 916.563.7827 [email protected]

p.53 San Antonio
Marshall Davidson, Principal and Managing Director, 210.714.8083 [email protected] 

p.54 San Diego County
Jerry Keeney, Principal, 858.201.7077 [email protected]

p.55 San Francisco
Nick Slonek, Principal and Managing Director, 415.322.5051 [email protected]

p.56 San Mateo
Randy Keller, Principal and Managing Director, 650.425.6425 [email protected]

p.57 Tampa
Ken Lane, Principal and Managing Director, 813.444.0623 [email protected]
Clay Witherspoon, Principal and Managing Director, 813.444.0626 [email protected]

p.58 Washington, DC
Josh Peyton, Principal and Managing Director, 202.644.8688 [email protected]

p.59 West Palm Beach
Jonathan Satter, Principal and Managing Director, 561.721.7031 [email protected]

Mexico
p.61 Mexico City
Guillermo Sepulveda, Principal and Managing Director, 52 55 4123 7570 [email protected] 

United Kingdom
p.63 London
Nick Cook, Principal and Managing Director, +44 20 7041 9999 [email protected]

p.64 Coventry/Midlands
Robert Rae, Principal and Managing Director, +44 (0)24 7663 6888 [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 2,200 real estate professionals in 77 offices, providing value-added, client-centric investment sales, advisory, management, financing and mortgage placement services to owners and occupiers of office, retail, industrial and multi-family properties.

For further information/comment/photos:

• Sherry Quan, Principal, Global 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, Principal and Practice Leader, 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, 2013 and 2014 and requalified in 2015 to maintain its status as a Best Managed Gold company 

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Editors/Reporters:
• Please click on link to view and download Avison Young's Spring 2016 North America and U.K.
Industrial Market Report:
https://avisonyoung.uberflip.com/i/671728-ayspring16namericaukindustrialreportmay12-16final-pdf

SOURCE Avison Young Commercial Real Estate (BC)

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