Canada Industrial Figures Q2 2023

Executive Summary

• Net absorption rose from its post-pandemic low last quarter, but net leasing activity was relatively muted outside of Toronto and Edmonton.
• With significant levels of new supply delivered over recent quarters, the national availability rate continues to edge higher and increased to 2.1% in Q2 2023.
• Overall market conditions remain tight with availability well below the historical 15-year average rate of 4.8%.
• Construction activity begins to moderate from peak levels with the national development pipeline decreasing to 44.4 million sq. ft. in Q2 2023.
• Rent growth continues to normalize across markets with the national average asking rent increasing 19.3% year-over-year to $16.35 per sq. ft.

Net absorption moderates across most markets

Net leasing activity rose from its post-pandemic low last quarter to 3.4 million sq. ft. of positive net absorption in Q2 2023.

Activity was led primarily by the Toronto and Edmonton markets which had strong levels of pre-leased new supply delivered this quarter, for total positive net absorption of 2.1 and 1.3 million sq. ft., respectively.

For the second consecutive quarter, the Montreal market recorded negative net absorption in Q2 2023. Montreal and Winnipeg remain the only markets that have recorded cumulative negative net absorption so far in 2023.

Outside of these three markets, net absorption was muted across Canada as most markets held relatively steady quarter-over-quarter.

New supply once again outpaced net absorption in Q2 2023 across every market in Canada with the exception of Winnipeg.

Availability rate edges higher but remains below historic average

The national availability rate continues to rise steadily in Canada, increasing slightly by 20 basis points (bps) to 2.1% in Q2 2023.

While national availability has risen above 2.0% for the first time in two years, market conditions remain tight and well below the historical 15-year average rate of 4.8%.

On a year-over-year basis, seven of 10 markets have seen availability rates rise, with contractions seen in London and the two Alberta markets.

The London market continues to be the tightest industrial market in Canada with an availability rate holding under 1.0% in Q2 2023.

Vancouver, Ottawa and Halifax recorded the largest year-over-year increases in their availability rates in Q2 2023, rising 140 bps, 100 bps and 90 bps, respectively.

Construction activity begins to moderate from peak levels

The national development pipeline decreased in Q2 2023 to 44.4 million sq. ft. of space under construction as more projects completed and were delivered into the market.

Overall construction levels in Canada continue to be conservative, representing just 2.3% of total inventory.

The pace of industrial construction remains healthy with 6.6 million sq. ft. of net new projects breaking ground in Q2 2023.

New development was focused in Vancouver, Toronto and the Waterloo Region, which accounted for 79.6% of all new construction that kicked off this quarter.

Pre-leasing activity remains lower relative to last year with 38.0% of the 27.1 million sq. ft. expected to deliver over H2 2023 currently committed.

Significant levels of new supply over recent quarters continues to lift availability

New supply ramped up this quarter with a total of 8.8 million sq. ft. of new builds being delivered into the market in Q2 2023.

Despite the increase in new supply, the overall impact to availability rates was offset slightly by 73.0% of the new builds delivered this quarter already pre-leased.

The pace of deliveries has risen significantly over the last year, reaching a record high four-quarter total of 36.2 million sq. ft. of new supply in Q2 2023.

The new supply this quarter was largely concentrated in the four markets of Toronto (38.9%), Edmonton (16.1%), Vancouver (15.9%) and Calgary (11.6%), which combined accounted for 82.5% of all the completions in Q2 2023.

Over 27.1 million sq. ft. of space currently under construction is expected to deliver throughout H2 2023. Most of the new space will be located in Toronto (12.2 million sq. ft.), Calgary (4.3 million sq. ft.) and Vancouver (4.2 million sq. ft.).

Rent growth continues to normalize across markets

While the pace of rental rate growth moderated further across Canada, net asking rents continued to rise with the national average increasing 19.3% year-over-year to $16.35 per sq. ft.

Rent growth continues to normalize across Canada as year-over-year increases largely stabilize around the national average in most markets.

Montreal, the Waterloo Region and Toronto recorded the largest year-over-year increases in rents in Q2 2023, with each market outpacing the national average rate.

Edmonton was the only market to record a minor year-over-year rent decrease of 2.2% in Q2 2023. This represents the first industrial rental rate decline in Canada since Q4 2021.

Sale prices plateau in Q2 2023 as growth decelerates

The national average asking sale price rose marginally to $273.55 per sq. ft. in Q2 2023, marking the first time in 10 quarters that year-over-year growth has fallen to single-digits.

Halifax, Ottawa and Montreal recorded the largest increases in asking sale prices with each market seeing year-over-year growth in excess of 20%.

Asking sale prices in Q2 2023 dropped year-over-year in Vancouver and London, marking the first decline in Canada since Q3 2020.

Vancouver continues to command the highest asking sale prices across Canada at $575.00 per sq. ft., followed by Toronto at $377.97 per sq. ft. and Ottawa at $337.00 per sq. ft.