Canada's Industrial Markets Get Tighter

Warehouse availability is at an all-time low in Canada, sending industrial rents soaring to all-time highs in Q3 2022, according to a new report from CBRE.

An influx of new supply—9.1M SF of industrial space was delivered in Q3, the third highest total for a quarter during the past five years—failed to make a dent in net absorption because nearly 90% of deliveries were pre-leased due to record demand.

Boosted in large part by three fully pre-leased warehouse deliveries in Calgary encompassing 4M SF, net absorption of industrial space in Canada rose to 9.6M SF in Q3.

Availability nationwide notched remained at an all-time low average of 1.5% in the third quarter, sending net rental rate growth to a record high of $12.89 per SF, a YOY increase of 29.4%, CBRE reported.

Industrial projects under construction dipped slightly in Canada to about 43M SF in Q3, still far ahead of last year’s quarterly average of 30M SF. Overall, national construction activity represents just 2.2% of existing inventory.

“The vast majority of projects under construction are speculative, a result of continued confidence and demand in the Canadian industrial sector,” CBRE reported.

Calgary led all markets will 5.2M SF of net absorption in Q3, followed by Toronto at 1.4M SF and Vancouver at 900K SF.

“Net absorption will be closely tied to new supply going forward with limited available space driving occupiers to the development pipeline for their requirements,” CBRE said.

The brokerage reported that more than 70% of total fourth quarter deliveries—estimated at 16M SF—already are pre-leased, on a pace to match the Q3 level of 88.8% of deliveries that were inked before they arrived.

Nearly all Canadian markets are reporting availability rates at or near their respective 10-year lows, with four markets—Waterloo, Vancouver, Toronto and London—recording availabilities for less than 1%.

On a YOY basis, the Canadian Prairie markets of Edmonton, Calgary and Winnipeg have recorded the greatest compression this year in availability rates, declining 280 bps, 240 bps and 160 bps, respectively.

Every major market saw rental rates rise in Q3, with Montreal and Waterloo recording the fastest growth of 68.2% and 57.6% YOY, respectively.

“As market rents become increasingly dictated by new builds in the development pipeline, rental rates are expected to increase rising due to the high associated construction costs,” CBRE’s Q3 report said.

Sales price growth increased 32.4% YOY in the third quarter, led by Halifax, which saw its average YOY asking price more than double.