Demand for industrial space begins to increase across GTA, reports Newmark Knight Frank Devencore

In its recently released Industrial Real Estate Market Report, Newmark Knight Frank Devencore reported that, by the end of 2009, overall industrial vacancy rates in the Greater Toronto Area (GTA) had climbed well above six per cent and rents had fallen in most regions. Since that time, however, there has been a steady increase in space absorption and rents are now beginning to stabilize. Asking rates for large blocks of bulk space are currently in the $4.50-$5.50 per-square-foot range, although these costs may vary from municipality to municipality. After an extended period during which even financially healthy tenants adopted a wait-and-see attitude, growth should once again resume and bring renewed vigour to the industrial real estate markets.

“With vacancy rates higher than they have been in a number of years, many landlords are seeking stability and are thus increasingly interested in signing quality tenants to longer-term commitments,” said Allan Schaffer, president / Broker of Record of Devencore Realties Corporation Canada Limited, Brokerage. “While landlords are not holding any fire sales, they are willing to show greater flexibility in leasing negotiations. As is the case in the office market, the best opportunities for tenants will be found on a region-by-region and building-by-building basis.”

Devencore’s report also made note of the shifting dynamic in the GTA’s real estate investment market. Earlier in the decade, a number of entrepreneurial U.S. developers had made their presence strongly felt, but as the financial markets collapsed many of these investors left the market. As a result, the more traditional developers and landlords, including established Canadian pension fund managers, once again hold a dominant position in the marketplace. “These institutions are generally more focused on revenue stability over the longer-term, which means they can be more patient in securing quality tenants,” Schaffer said.

Nationally, the availability of industrial space increased in virtually every metropolitan region over the past 18 months, which in turn led to an easing of rental rates and a slowing of speculative development. Devencore notes, however, that the worst effects of the recession seem to be easing and corporate real estate activity is on the upswing in most markets across the country. For the rest of this year and into 2011, Devencore expects to see positive space absorption as the economy stabilizes further and begins to build momentum.

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