Market conditions remain tight as influx of new supply provides limited relief

Net absorption rises to 2nd highest level on record

The Canadian industrial market recorded 10.4 million sq. ft. of positive net absorption in Q4 2022. This lifted the annual total to the 2nd highest level on record to 35.8 million sq. ft. of positive leasing activity in 2022.

Net absorption in Q4 2022 was led in large part by the robust pre-leasing activity on the new supply that delivered during the quarter.

For the first time in nine quarters, new supply outpaced net absorption, signaling the potential start of market fundamentals returning to balance.

Toronto led activity in Q4 2022 with 4.7 million sq. ft. of positive net absorption, followed by Edmonton and Calgary with 2.9 million sq. ft. and 1.0 million sq. ft., respectively.

Every market in Canada recorded positive net absorption in Q4 2022, with the exception of the Waterloo Region which only saw a minor decline in the quarter.

National availability rate remains near record lows

Market conditions remain tight across Canada with the national availability rate easing slightly to 1.6% in Q4 2022.

New supply provided limited relief to some markets in 2022, with Ottawa’s availability rate rising 90 basis points (bps) year-over-year while the Waterloo Region, London, Vancouver and Montreal recorded minor increases as well.

Six of the 10 Canadian markets continue to have availability rates of 1.2% or lower, with the Waterloo Region remaining the tightest industrial market in Canada.

The relative attractiveness of the Alberta markets from higher levels of available space and lower average market rents has boosted demand in the region. As a result, the availability rates in Calgary and Edmonton fell 220 bps and 150 bps in 2022, respectively.

Construction activity rises to record high in Canada

Amid persistently tight market conditions, the industrial development pipeline has risen to a new record level of 44.6 million sq. ft. of projects currently under construction.

The fourth quarter saw 13.0 million sq. ft. of new projects begin construction, with the majority of the space located in Toronto, Calgary and Montreal.

Despite the record level of construction, Canadian markets continue to build at conservative levels with the national pipeline representing just 2.3% of total existing inventory.

Pre-leasing activity remains strong with 56.9% of the 20.3 million sq. ft. of space expected to deliver in H1 2023 already committed.

Speculative construction continues to drive industrial development in Canada, accounting for 78.3% of the total pipeline.

Markets remain tight despite record new supply deliveries

A record amount of new supply was delivered in Canada this quarter, with a total of 12.7 million sq. ft. of new product entering the market in Q4 2022.

Despite the substantial influx of new industrial properties, 91.7% of the space was delivered pre-leased in Q4 2022. As a result, markets saw little relief to tight conditions and the national availability rate eased just slightly.

Large bay facilities made up the vast majority of the new supply that delivered in Q4 2022, with buildings 100,000 sq. ft. or larger accounting for 91.2% of the new industrial inventory.

Rents rise to new heights amid escalating growth

Net rental rates continued to escalate throughout 2022 and reached an average of $13.71 per sq. ft. in Q4, setting another new record for growth at 30.9% year-over-year.

Rents rose in every market across Canada with growth led by Montreal, the Waterloo Region and Toronto, which all saw annual increases of over 30% in 2022.

All markets, with the exception of Edmonton, set new historical highs for net asking rental rates in Q4 2022. The Vancouver market currently commands the highest rents in Canada, averaging $20.83 per sq. ft. in Q4 2022. Toronto and Montreal follows with average net asking rents of $17.17 per sq. ft. and $15.39 per sq. ft., respectively.

With a large influx of new supply expected to enter the market in 2023, further rental rate growth is expected due to the high associated construction costs of new builds in many markets.

Sale prices continue to rise but growth moderates

While sale price growth moderated throughout 2022 amid the rising cost of debt and a capital markets slowdown, prices continued to increase and reached an average of $277.89 per sq. ft. in Q4.

Every market across Canada saw asking sale prices rise in 2022, with seven of the 10 markets recording double-digit growth year-over-year.

The national average asking sale price rose 27.2% in 2022, following the 30.1% gain last year, this represents a cumulative 65.5% increase in sale prices over the last two-year period.

Vancouver leads industrial sale prices in Canada with an average of $650.00 per sq. ft., putting the market well ahead of the national average.