Canada Industrial Figures Q1 2023

Executive Summary

• National net absorption slowed to its lowest level in 11 quarters, totaling 896,000 sq. ft. of positive net leasing activity in Q1 2023.
• The Canadian industrial market continues to return to balance, with the national availability rate rising by a modest 30 basis points (bps) to 1.9% in Q1 2023.
• The construction pipeline continues to grow with 7.4 million sq. ft. of new developments kicking off in Q1 2023.
• New supply fell to 5.7 million sq. ft. in Q1 2023 as construction delays pushed project completion dates into next quarter.
• Rent growth slows across most markets with the national average rent rising 28.1% year-over-year to $15.99 per sq. ft.

Net leasing activity slows to lowest level in 11 quarters

Net leasing activity slowed across Canada with national net absorption falling to an 11-quarter low of 896,000 sq. ft. in Q1 2023.

Despite a drop in new supply in Q1 2023, new build deliveries once again outpaced net absorption as the Canadian industrial market slowly returns to balance.

New supply exceeded net absorption across seven of the 10 Canadian markets, with London, Edmonton and Ottawa the only markets recording tighter market conditions in Q1 2023.

Vancouver led net leasing activity in Q1 2023 with 661,000 sq. ft. of positive net absorption. This was more than double the next highest market of Ottawa that recorded 298,000 sq. ft. of net leasing activity over the quarter.

Toronto, Montreal and Winnipeg were the only markets to record negative net absorption in Q1 2023.

Availability edges higher as market continues return to balance

The Canadian industrial market continues to return to balance, with the national availability rate rising by a modest 30 bps to 1.9% in Q1 2023.

Market conditions remain tight across Canada, with six markets reporting availability rates under 2.0%. However, four of these six markets have seen their availability rates trend upwards year-over-year.

Calgary and Halifax continued to see market conditions notably tighten year-over-year, with their availability rates falling 130 bps and 60 bps, respectively.

London is now the market with lowest availability rate in Canada, which compressed 30 bps year-over-year to a record low of 0.6%.

Vancouver and the Waterloo Region recorded the largest year-over-year increases in their availability rates, rising 100 bps and 80 bps, respectively.

Construction pipeline ramps up in Q1 2023

The construction pipeline continues to grow with 7.4 million sq. ft. of new developments kicking off in Q1 2023, lifting the national total to a record 46.2 million sq. ft. under construction.

Over two-thirds of the new developments that broke ground in Q1 2023 were located in either Toronto (3.6 million sq. ft.) or Montreal (1.4 million sq. ft.)

Overall construction activity remains at conservative levels, with all markets except for Halifax building at 4.0% or less of their respective current inventories.

Pre-leasing activity has softened slightly relative to the pace seen in 2022, with 41.7% of the 40.6 million sq. ft. expected to deliver over the rest of 2023 currently committed.

New supply slows, but more expected over 2023

New supply fell to 5.7 million sq. ft. in Q1 2023 as construction delays pushed project completion dates into Q2 2023.

The majority of the new supply in Q1 2023 was delivered pre-leased, with 74.7% of the space already committed at completion. As a result, the impact on overall availability rates was limited this quarter.

In line with the market demand for larger sized industrial facilities, 79.8% of the space delivered in Q1 2023 was from properties 100,000 sq. ft. or greater.

Over the coming quarters, new supply is expected to surge as the bulk of the construction pipeline completes. New supply for Q2 2023 is projected to total 12.3 million sq. ft. and an additional 28.3 million sq. ft. is expected over H2 2023.

Rent growth slows across most markets in Canada

Net rental rates continued to rise across Canada in Q1 2023, albeit at a slower pace than seen in previous quarters. The national average rent rose 28.1% year-over-year to $15.99 per sq. ft.

Relative to the rate of growth seen last quarter, the year-over-year rental rate increases eased slightly in Q1 2023 across nearly every market.

Rent growth was led by Montreal, Toronto and the Waterloo Region in Q1 2023, with each market’s increases outpacing the national average rate.

Vancouver has the highest industrial rents in Canada, averaging $21.33 per sq. ft. and is followed by Toronto and Montreal with average rents of $17.77 and $16.65 per sq. ft., respectively.

Industrial sale prices start to ease in Q1 2023

While the national asking sale price declined marginally to average $270.50 per sq. ft. in Q1 2023, it remains 12.1% higher on a year-over-year basis.

Sale price growth has continued to decelerate since peaking at the beginning of 2022. Price growth more than halved in Q1 2023 relative to last quarter and is now closer in line with the 10-year historical average.

On a year-over-year basis, every market continues to see increases in industrial sale prices. However, quarter-over-quarter, declines were seen in London (-18.0%), Vancouver (-7.7%), Montreal (-3.9%) and Toronto (-1.3%).