PRO Real Estate Investment Trust acquired three light industrial buildings in Ottawa for $49.2 million last month, a 283,000 sq. ft. portfolio that expands the group’s footprint in Ontario. PROREIT now owns a total of 10 industrial, mixed-use and office assets in the greater Ottawa region.
CBRE’s Senior Vice President Nico Zentil, who brokered the deal, notes that these high-quality buildings — with 14’ to 18’ clear heights — are the exact sort of product the market has been pursuing with gusto. “All investors are chasing an industrial strategy right now. It is the in-demand asset class, but many investors have been priced out of Vancouver, Toronto and Montreal. There is relative value here, with a bit more of a return than you would get in other markets.”
That’s not just the case in Ottawa; all of Canada’s major markets are seeing off-the-charts demand for industrial properties, whether it’s to buy the buildings or lease them.
Exceptional leasing velocity from coast to coast pushed the national industrial availability rate in the first quarter of 2021 down to 2.9%, the lowest in Canadian history. And while Toronto (with a 1.6% availability rate), Vancouver (1.7%) and Montreal (1.9%) remain North America’s tightest industrial markets, Ottawa’s availability rate dropped a remarkable 90 bps to 3.2% in a single quarter.
Developers remain bullish on Canada’s industrial markets, as there is currently 26.1 million sq. ft. of logistics space under construction, the bulk of it in Toronto, Vancouver and Montreal. Ottawa has 2.85 million sq. ft of industrial space under construction, but compared to the major markets the city lacks a pipeline of speculative builds.
Zentil cites this lack of industrial product as a barrier to entry for investors looking to grow their presence in Ottawa. “Everyone wants to be in Ottawa to the extent they can have some meaningful scale. It’s a small industrial market that doesn’t have a lot of trading velocity, so while the pricing and fundamentals are attractive, it’s difficult for investors to enter Ottawa at scale unless they’re able to pick up a portfolio, as PROREIT has just done.”
It would certainly help matters if the federal government saw fit to release some of the lands it holds in the greenbelt abutting Ottawa’s east end industrial node, Zentil points out. While the city is working to re-designate lands in order to establish an industrial zone in its west submarket, Ottawa’s industrial market faces serious roadblocks to future growth. “We’re plagued by an inability to put land into production to develop,” says Zentil.
Ottawa industrial properties may be attractive to investors, but while pricing and competition are less significant barriers than in other cities, there are unique challenges here as well.