Key market indicators, trends and forecasting for the Kitchener, Waterloo and Cambridge industrial markets, including vacancy rates, absorption, lease rates, sale prices and recent market transactions.
2. 2 Research & Forecast Report | First Quarter 2016 | Waterloo Region / Industrial | Colliers International
Market Summaries
City of Cambridge...........................................................................................................4
City of Kitchener......................................................................................................5
City of Waterloo.......................................................................................................6
Glossary................................................................................................................................ 7
Table of Contents
3. 3 Research & Forecast Report | First Quarter 2016 | Waterloo Region / Industrial | Colliers International
Waterloo Region Market Overview
In the first quarter of 2016, year over year, leasing activity was
down slightly with 190,000 square feet transacted compared to
201,000 square feet in Q1 2015. However, year over year
transaction size was up. The average transaction size
increased by 4,667 square feet from 11,166 square feet in Q1
2015 to 15,833 square feet in Q1 2016. This is a positive
indicator that larger users are active in the market and
absorbing space.
On a quarter over quarter basis, there was an increase of
38,000 square feet in the total area leased in Q1 2016 over the
previous quarter and an increase in transaction size of
approximately 2,000 square feet – a trend we expect will carry
forward into the next two quarters.
Lease rates were up over the last quarter while operating
expenses stayed flat. The weighted average asking rate
increased by just $0.04 compared to Q1 2015 ($5.19 per square
foot up from $5.15 per square foot) while Taxes, Maintenance
and Insurance costs (TMI) remained virtually unchanged at
$3.38 per square foot (compared to $3.36 per square foot in Q1
2015). Unweighted average rates, however, show a more
dramatic increase: $5.47 per square foot up from $4.95 per
square foot asking rents and $3.80 per square foot versus
$3.52 per square foot for TMI.
Based on current market activity, we anticipate increased
leasing activity in Q2 and Q3 with 30,000 to 50,000 square
feet leased each quarter, and lower weighted average asking
rates as better quality space is leased.
The low interest rates, relative ease of borrowing, and
increased construction costs make the purchase of existing
buildings attractive to industrial users, but desirable purchasing
options are in short supply. While off-market purchases are
Market Indicators
Relative to prior period
Waterloo Region
Q4 2015
Waterloo Region
Q1 2016 Trend
VACANCY 6.8% 6.65%
NET ABSORPTION -488,398 139,316
CONSTRUCTION 98,826 69,442
RENTAL RATE* $4.76 $4.83
Note: Construction is the change in Under Construction.
* Rental rates for current quarter are asking weighted averages for all submarkets.
Source: Colliers International
Historical Performance & Forecast | Waterloo Region Industrial Market
(1,000,000)
(800,000)
(600,000)
(400,000)
(200,000)
0
200,000
400,000
600,000
800,000
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
Net Absorption New Supply Vacancy Rate
usually 20% to 25% of the total sales per quarter, in Q1 2016,
seven of the 11 user transactions over 5,000 square feet were
achieved without mass marketing - opportunities are quickly
seized.
Vacancy maintains a generally downward trend (6.65% versus
the 6.80% rate in Q4 2015) and the Q1 2016 absorption is
positive (139,000 square feet), mostly due to the occupancy of
spaces where leases were done previously (for example,
102,000 square feet at 50 Groh Avenue and 45,000 square
feet at 1250 Franklin Boulevard).
Investment Market
There were no industrial investment sales in Waterloo Region
in Q1 2016. This is due to a lack of supply as industrial
investments are still seen as extremely attractive to a wide
range of active purchasers. We expect cap rates to remain
within the 6.0% to 7% range indicated by the recent sale of
455 Silvercreek Parkway North in the neighboring Guelph
market. The industrial investment market will be very active
this year - the only limiting factor will be on the supply side.
4. 4 Research & Forecast Report | First Quarter 2016 | Waterloo Region / Industrial | Colliers International
Notable Lease Transactions
TENANT NAME & ADDRESS TYPE
APPROXIMATE
SIZE (SF)
1.
Undisclosed
111 Savage Drive
Headlease 28,057
2.
PNR Railworks
1139 Industrial Road
Headlease 19,231
3.
Undisclosed
1741 Bishop Street North
Headlease 12,040
8
5
7
Notable Lease Notable Sale New Supply
City of Cambridge
Cambridge remains the most active of the Region’s industrial
markets; with quick access to Highway 401, readily available
serviced land and reasonable development charges, it will
continue to grow and attract new investment. New speculative
projects attract tenants seeking modern, efficient facilities
while less functional, outdated buildings tend to find lease up
more challenging. Construction activity has slowed as users
seek out existing opportunities and developers sit on the
sidelines, waiting for signs of improvement. Purchase options
are in demand, however the availability of purchase inventory
is the limiting factor.
Trends
>> Vacant inventory consists mostly of older Class B and C space
while demand is strong for newer Class A space.
>> New spec space will generate activity in 2016 with new options
for tenants seeking high quality, functional and efficient space.
>> Sale activity remains strong as low interest rates and financing
availability encourage users to purchase.
Summary Statistics
Cambridge Industrial Market 2015 Q4 2016 Q1 Trend
Industrial Inventory 31,506,914 31,589,735
Net Absorption -130,620 139,869
Vacancy Rate 5.65% 5.36%
Average Asking Net Rent
(Per Square Foot)
$4.85 $4.91
Historical Performance and Forecast
(600,000)
(400,000)
(200,000)
0
200,000
400,000
600,000
800,000
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
Net Absorption New Supply Vacancy Rate
Notable Sale Transactions
PURCHASER & ADDRESS PRICE
APPROXIMATE
SIZE (SF)
4. 110 Vondrau Drive $4,830,000 40,176
5. 1680 Bishop Street North $3,000,000 38,250
6. 85 Thompson Drive $1,525,000 13,995
Upcoming New Inventory
ADDRESS COMPLETION
APPROXIMATE
SIZE (SF)
7. 45 Commerce Court Q1/Q2 2016 43,290
8. 75 Heroux Devtek Drive Q2/Q3 2016 20,582
1
4
2
3
6
5. 5 Research & Forecast Report | First Quarter 2016 | Waterloo Region / Industrial | Colliers International
Notable Lease Transactions
TENANT NAME & ADDRESS TYPE
APPROXIMATE
SIZE (SF)
1. 1070 Guelph Street Headlease 25,000
2. 45 Goodrich Drive Headlease 20,435
3.
Carehawk
780 Wilson Avenue
Headlease 18,483
Notable Lease Notable Sale New Supply
City of Kitchener
Kitchener’s industrial market activity continues to be restrained
by the lack of quality Class A space available to both tenants
and prospective buyers. Most available options comprise
older Class B and C space, or buildings that are poorly sized
for demand requirements. Industrial users actively seek
opportunities in the neighbouring City of Cambridge due to its
superior Highway 401 proximity.
Trends
>> Much of the available space is functionally challenged or
obsolete; these facilities present opportunties for redevelopment
or adaptive reuse to gain tenancies.
>> Downward pressure on lease rates is a result of functionally
challenged buildings attempting to attract tenants through lower
lease rates.
>> Industrial growth in Kitchener remains stagnant due to the lack
of developed industrial land. The City of Kitchener is the primary
land developer.
>> Blue Top Properties’ new spec development at Wilson Avenue
and Goodrich Drive brings much-needed Class A space to
Kitchener; the project has seen great success with over 75% of
space now leased.
Summary Statistics
Kitchener Industrial Market 2015 Q4 2016 Q1 Trend
Industrial Inventory 19,636,168 19,632,633
Net Absorption -400,372 23,292
Vacancy Rate 10.09% 9.95%
Average Asking Net Rent
(Per Square Foot)
$4.37 $4.37
Historical Performance and Forecast
(1,000,000)
(800,000)
(600,000)
(400,000)
(200,000)
0
200,000
400,000
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
Net Absorption New Supply Vacancy Rate
Notable Sale Transactions
PURCHASER & ADDRESS PRICE
APPROXIMATE
SIZE (SF)
None
Upcoming New Inventory
ADDRESS COMPLETION
APPROXIMATE
SIZE (SF)
4.
For Lease
45 Goodrich Drive
Q2/Q3 2016 65,572
1
32&4
6. 6 Research & Forecast Report | First Quarter 2016 | Waterloo Region / Industrial | Colliers International
Notable Lease Notable Sale New Supply
City of Waterloo
The smallest and least active industrial market of the three
cities in the Region, Waterloo is challenged by its lack of
Highway 401 proximity and limited industrial development
opportunities. Over the past decade, Waterloo’s industrial
inventory has decreased as many facilities were repurposed to
accommodate the explosion of office and technology users.
The remaining inventory trends to light industrial uses and
demand rests largely on users who are already in Waterloo.
Trends
>> Waterloo’s declining inventory will stabilize as BlackBerry-
influenced conversions and demolitions cease.
>> New development/construction will be limited to small additions
to the existing facilities.
>> Activity in Waterloo has been, and will continue to be, dominated
by users who are already located in and wish to remain in the
City of Waterloo.
Summary Statistics
Waterloo Industrial Market 2015 Q4 2016 Q1 Trend
Industrial Inventory 8,913,419 8,913,419
Net Absorption 34,080 -23,845
Vacancy Rate 3.66% 3.93%
Average Asking Net Rent
(Per Square Foot)
$5.40 $5.19
Historical Performance and Forecast
(300,000)
(200,000)
(100,000)
0
100,000
200,000
300,000
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2010Q1
2010Q2
2010Q3
2010Q4
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
Net Absorption New Supply Vacancy Rate
Notable Lease Transactions
TENANT NAME & ADDRESS TYPE
APPROXIMATE
SIZE (SF)
None
Notable Sale Transactions
PURCHASER & ADDRESS PRICE
APPROXIMATE
SIZE (SF)
1. 639 Colby Drive $1,250,000 22,154
2. 670 Superior Drive $1,520,000 10,214
Upcoming New Inventory
ADDRESS COMPLETION
APPROXIMATE
SIZE (SF)
None
2
1
7. 7 Research & Forecast Report | First Quarter 2016 | Waterloo Region / Industrial | Colliers International
Glossary
Weighted Average Asking Net Rent
The dollar amount requested by landlords for direct available space, not including subleases, expressed in dollars per
square foot per year.
Availability
The amount of available space and available space to be delivered to the market within six months, divided by the
market’s inventory base including those future deliveries. Available space is space that is available for lease, and may or
may not be vacant.
Net Absorption
The net change in physically occupied space between the current measurement period, and the last measurement
period. It can be either positive or negative.
Vacancy
The amount of vacant space divided by the building inventory base. Vacant space is physically unoccupied, and it may
or may not be available for lease or sublease. This is physical vacancy. It is not determined whether a tenant is paying
rent on the space.