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Despite uncertainty around COVID-19, the Canadian industrial real estate sector continues to see growth.
With more and more Canadians shopping online, demand is set to increase for distribution and logistics centres across the country.
“Industrial real estate is a bright light in a challenging period and businesses in this sector are grateful to have new supply to support the surge in e-commerce logistics activity,” says Jason Kiselbach, Managing Director, CBRE Vancouver. “We expect demand to grow in most markets and industrial properties to come out ahead in the wake of COVID-19.”
His optimism is backed by promising insights found in CBRE’s Q2 2020 Quarterly Statistics Report. A rise in the national net asking rent rate despite a slowdown in transaction volume is just one of the reasons to watch the industrial sector heading into the second half of the year.
Rental Rates Rise
The national industrial availability rate increased 40 basis points to 3.5% in the second quarter, driven by a slowdown in transaction volumes and an increase in small-bay product on the market.
That’s well below the Canadian 10-year average of 5.1%. Despite worries about a pricing reduction, industrial rental rates rose in six out of 10 markets in Q2, leading to a national average net asking rent rise of 2.6%, to $9.17 per square foot (psf).
Landlords in turn have become more flexible on free rent, term length, rent escalations and tenant inducements during COVID-19.
Vancouver’s New Supply
Some of the most notable numbers came from Canada’s major markets. Vancouver’s industrial market saw its availability rate rise from 2.1% to 2.9% in the second quarter, but not for the reason you might think.
Nearly 2.1 million sq. ft. of new supply was delivered, the most new supply the market has had in a single quarter in over a decade.
The supply was delivered 74.6% pre-leased, with significant interest generated for the remaining available space, which is expected to be leased by the end of the year.
Another 2.5 million sq. ft. of new construction is anticipated to be delivered by 2021, of which 64.1% is already committed.
Toronto’s All-Time High
Toronto’s industrial availability rate also increased in the second quarter, in part due to the delivery of 5.4 million sq. ft. of industrial space since the beginning of the year.
The GTA’s average net asking rent rate increased slightly to an all-time high of $9.71 psf, marking 13 consecutive quarters of rent growth.
And while there has been a noticeable slowdown in transaction volumes, demand for e-commerce related product puts the GTA industrial market in a strong position heading into the second half of the year.
Developers are cautiously moving forward with their planned projects, and another 6.4 million sq. ft. of new supply is expected to be completed by the end of the year.