Canadian Industrial Real Estate Continues To Impress
July 12, 2022 3 Minute Read
Canadian industrial markets keep tightening amid record-high demand for space.
Hot off the press, CBRE’s new Q2 2022 Industrial Figures report details a market that can’t seem to build industrial space fast enough to satisfy demand.
Here are 5 reasons why Canadian industrial real estate continues to impress market watchers.
- The availability rate is at a record low.Only 1.6% of industrial space was available for lease or purchase in Q2, despite 6.1 million sq. ft. of new supply being delivered in the quarter. All markets aside from Calgary and Edmonton now have availability rates of 2.0% or lower, and most are reporting a scarcity of large bay facilities, driving occupiers toward new development to meet their space needs.
- Industrial leasing has remained robust. Despite the limited space availability, the market recorded 7.2 million sq. ft. of positive net industrial absorption in Q2. Toronto accounted for 2.6 million sq. ft. of net leasing activity; Calgary had 2.0 million sq. ft. of it; and Edmonton had 1.1 million sq. ft, driven by strong demand and available space in the Alberta markets.
- Third-party logistics is a top leasing driver. The 3PL industry accounted for 4.4 million sq. ft. of transactions in the first half of 2022, following 5.2 million sq. ft. in the second half of 2021. Meanwhile ecommerce-related distribution and warehousing/storage industries saw a marked slowdown in the first half of 2022 relative to the second half of 2021.
- The construction boom builds. The amount of industrial space being built reached 43.9 million sq. ft. in Q2, the highest amount ever under construction in a single quarter. But this new development continues to be met with strong pre-leasing activity, and 64.4% of the space under construction is already committed. Expect an additional 26.0 million sq. ft. of new supply to be delivered by the end of 2022 and much of that to be snapped up fast.
- Industrial rental rates grew a remarkable 24.2% year-over-year. In dollar terms, the national average net asking rental rate rose $1.02 to a new record high of $12.25 per sq. ft. in Q2. This represents a near doubling of industrial rents compared to five years ago when the national average was $6.79 per sq. ft. Rental rates for newly built properties are being driven up well above market rates due to inflation and rising construction costs.
CBRE’s National Investment Team has won Real Estate Deal of the Year at the Best Ottawa Business Awards (BOBAs) for its $277 million sale of 160 Elgin Street, Canada’s biggest office deal of 2023.
Interest rates are up and commercial property sales have slowed. Lenders are responding to new economic realities by shifting capital away from properties seen to have a higher risk, especially speculative land purchases and certain office assets.
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