Introduction

Throughout 2021, the GTHA industrial market continued to flourish, and we expect this trend to continue in 2022. Those in search of space will need to be active and diligent in their search, as space is being leased 2-3 years out for buildings under construction and those still in the planning stages. This means that new developments will come to market fully pre-leased, leading to limited opportunities for potential tenants and a scarcity of space available in the GTHA over the coming years.

Industrial & Land Market Outlook

Net absorption in the GTHA improved by a large margin from last quarter. During Q4 2021, net absorption finished strong reaching 2,340,936 square feet. In the GTA, net absorption reached 13.7 million square feet in 12-month absorption. This is the highest level of net absorption recorded in history with the last peak in 2017 of 7.9 million square feet.

Availability leveled off this quarter, remaining at a record low of 0.7% across the GTHA. With demand still strong in the market, scarcity of options is expected to worsen over the next 12 to 24 months as pre-leasing level climbs across new developments. As availability goes down, tenant covenants will take on more importance to landlords, who are receiving multiple offers in all size ranges.

A lack of industrial space in the GTHA, highlighted by a 0.3% vacancy rate, continues to drive up asking net rental rates to further all-time highs. Actively marketed spaces are seeing multiple offers, highlighting the increasing importance of tenant covenants during the negotiation process. Landlords now prefer deal terms between 3 to 5 years compared to the traditional 10-year term because of how fast rents are increasing. Annual rent escalations are starting at the 5% range versus the 2% to 4% range seen previously.

Coinciding with the lack of industrial space, employment land in the GTHA has never been more scarce. As land prices increase, private investors holding land assets zoned for employment could be influenced to sell as prices continue to skyrocket. Year-over-year, the average price per has risen at a constant pace, unceasingly setting all-time highs.

Office Market Outlook

Q4 2021 commenced with strong momentum of economic and office leasing activity in the Greater Toronto Hamilton Area (GTHA). However, the emergence of the Omicron variant has forced companies to recalibrate their return-to-office expectations once again for 2022. Tenant sentiment ranges from conservative to optimistic, but our recent study found that only 26% of companies anticipate an overall decrease in their office footprint, down from 46% in summer 2020.

The majority of leasing activity this quarter came from FIRE (financial, insurance, real estate, legal) and TAMI (technology, advertising, media, information) industries. Going forward, strong employment growth in these sectors will help buoy demand for office space as employees return to the office. As such, the value of high-quality amenities and common space activation has taken the spotlight for employers. Many landlords are observing a flight to quality in their portfolios, with the highest levels of interest from tenants being in new construction, newly renovated space, and built-out turnkey and model suites.

As employees return to the workplace, there’s an even greater emphasis on the office as a destination for collaboration and innovation to strengthen and enrich company culture. 2022 is poised to test the viability of hybrid work models in the long run, as landlords and occupiers rebuild confidence in the office as a tool for enabling company growth and longevity.