Article
Trade-Induced Uncertainty Pushes Industrial Real Estate Market into Negative Territory in Q2
July 2, 2025 4 Minute Read
Industrial leasing activity is showing signs of business stress. The net amount of industrial space leased across the country turned negative for the second time in five years in the second quarter, totaling -1.4 million sq. ft., according to CBRE’s just-released Q2 2025 Canada Industrial Figures.
Business and economic uncertainty stemming from the ongoing trade war are being cited for weakening demand from the businesses that use industrial space.
While industrial leasing activity in Q2 was buoyed by 3.7 million sq. ft. of pre-leasing in new supply delivered in the quarter, the amount of available space coming onto the market as businesses shrank or moved increased by 5.1 million sq. ft. This pushed the national availability rate to 5.3%.
“You don’t need a canary in a coal mine – you just need to watch the news to understand why the industrial market is slowing,” says CBRE Canada Chairman Paul Morassutti. “That said, the industrial market continues to right-size after the pandemic-induced logistics rush, and tariffs or no tariffs, speculative construction is going to be one of the biggest contributors to rising availability through 2026.”
The amount of available industrial space across Canada grew by 8.5 million sq. ft. quarter-over-quarter in Q2, most of it in Toronto (5.1 million sq. ft.) Every market recorded higher availability rates year-over-year aside from Edmonton.
On a quarterly basis, Waterloo Region (+90 bps) and Ottawa (+70 bps) saw the largest increases. National industrial sublease space rose to a record high 14.4 million sq. ft., with Toronto (6.8 million sq. ft.) and Waterloo Region (818,000 sq. ft.) both reaching record highs of sublease space in Q2.
Industrial development starts in Q2 rose to 8.0 million sq. ft.; Amazon’s third distribution centre in Ottawa accounted for 3.1 million sq. ft. of that. Toronto and Montreal also recorded surges in construction starts in Q2, predominantly speculative projects, which totaled 3.8 million sq. ft. Toronto and Vancouver continue to lead industrial construction activity, joined by Ottawa and its new Amazon DC.
The second quarter saw 7.1 million sq. ft. worth of industrial project completions, with much of the new supply delivered in Toronto (58.4%); Vancouver and Calgary trailed far behind. Stronger industrial pre-leasing was particularly evident in the Alberta markets, Waterloo Region and Montreal.
Another 12.5 million sq. ft. of new supply is expected to be delivered in the second half of 2025. Barring further material increases in construction starts, new industrial supply should start winding down later this year and into 2026.
Office Market Reaches Plateau
In the Canadian office market, the national vacancy rate has held in a tight 20 bps range for the last year and a half, a sign that for every company that is shrinking their office footprint there is another one that is growing and expanding.
After steadily increasing for five years, vacancy in the overall Canadian office market has likely plateaued. The current uncertain economic environment, however, could see this plateau be more protracted than it otherwise would have been before moving into recovery.
Six cities reported positive net office leasing in the second quarter, led by Montreal and Edmonton, according to CBRE’s Q2 2025 Canada Office Figures. In a reversal from last quarter, activity in these two markets counteracted negative results from Q1 and on a year-to-date basis these cities are now on positive ground.
But Calgary, Toronto and Vancouver reported the largest amount of office space returning to the market, which pushed the national absorption total into negative territory.
“Leasing momentum, which had been building steadily, is clearly being impacted by economic uncertainty and rising job losses,” says Morassutti.
The second quarter saw 2.8 million sq. ft. of office projects under construction, mostly in Toronto and Vancouver. Multiple markets including Edmonton, Winnipeg, London, ON, and Montreal have no active office developments.
In terms of pre-leasing, on a national level 56.6% of all office construction has been pre-leased, thanks to significant pre-leasing in Toronto and Vancouver.
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