Canada Industrial Figures Q4 2023

January 9, 2024

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Wave of new supply lifts availability rates amid slower pre-leasing while rents hold relatively steady

Executive Summary

  • The national industrial availability rate increased at a record pace of 70 basis points (bps) quarter-over-quarter to 3.2% in Q4 2023.
  • Net absorption remained muted in Q4 2023 and the slower pace of activity throughout the year brought the annual total to its lowest level since 2009 at 10.4 million sq. ft.
  • The overall construction pipeline fell substantially to 34.7 million sq. ft. in Q4 2023 as new starts slowed and more of the pipeline was delivered.
  • New supply surged to a record quarterly high of 16.8 million sq. ft. of product delivered in Q4 2023 while pre-leasing activity slows. New supply deliveries were on average 59.0% pre-leased upon completion in 2023.
  • National rents recorded a minor quarterly decline of 0.3% in Q4 2023 for a national average rate of $16.25 per sq. ft.

Availability rises at record pace amid wave of new supply

The rise in the national industrial availability rate accelerated further in Q4 2023, increasing at a record pace of 70 bps quarter-over-quarter to 3.2%.

This marks the largest annual increase in national availability seen since 2009, rising 160 bps year-over-year, and brings the national rate nearly in line with the last peak in 2020.

A main driver for the increased availability across Canada has been the softer preleasing levels on the record amounts of new supply being delivered.

Six of the 10 markets across Canada recorded year-over-year increases in availability of 120 bps or more. On the other hand, London and Edmonton were the only markets to see availability rates compress year-over-year, albeit modestly.

London remains the tightest Canadian industrial market with an availability rate of 0.7% as of Q4 2023.

Net absorption falls to lowest levels since 2009

Net leasing activity remained muted and totaled just under 2.5 million sq. ft. of positive net absorption in Q4 2023. The slower pace of activity seen throughout the year has resulted in the lowest levels of annual net absorption recorded since 2009 at 10.4 million sq. ft.

New supply has consistently outpaced net absorption in 2023 and surged to a record high in Q4 2023 with 16.8 million sq. ft. of new industrial product delivered.

The Waterloo Region and Vancouver markets recorded the strongest levels of positive net absorption of over 1.0 million sq. ft. in Q4 2023. Meanwhile, Toronto and Montreal were the only markets to see negative net absorption in the quarter.

On an annual basis, net absorption remained positive for nearly every market in Canada save for Montreal which recorded 2.4 million sq. ft. of negative net absorption in 2023.

Development pipeline falls as starts slow and more projects complete

Aggregate industrial construction activity fell substantially in Q4 2023 as new starts slowed and more of the pipeline was delivered. Total space under construction dropped by 22.6% quarter-over-quarter to 34.7 million sq. ft., its lowest level since Q3 2021.

In Q4 2023, there were 6.2 million sq. ft. of new construction starts with 57.7% of the space located in the Toronto market.

As more projects deliver, national construction activity has slowed to 1.7% of total inventory in Q4 2023. Across the country, every market aside from Halifax and Vancouver is currently building at or less than 3.0% of their respective inventories.

Pre-leasing activity remains modest with commitments in place for 40.0% of the total national under construction pipeline as of Q4 2023.

New supply rises to record levels amid slower pre-leasing activity

The wave of new supply seen this year accelerated further in Q4 2023, surging to a record quarterly high of 16.8 million sq. ft. This also lifted the annual amount of new supply deliveries to record levels, for a total of 42.2 million sq. ft. completed in 2023.

Most of the completions in 2023 were located in the Toronto market which single-handedly accounted for 40.3% of all new supply. This was followed distantly by the Vancouver and Calgary markets which represented 17.1% and 14.3% of the national total, respectively.

Pre-leasing activity had slowed materially in 2023 from the robust levels seen in the prior two post-pandemic years. 59.0% of the new supply this year was delivered pre-leased compared to the near-90% recorded in 2021 and 2022.

More new supply is expected in 2024, with an additional 18.2 million sq. ft. set to deliver in the first half of next year, of which 43.0% is currently pre-leased.

National average rental growth slows to 6.1% year-over-year

The trend of moderating rental rate growth continued in Q4 2023, with the national average rate increasing by 6.1% year-over-year to $16.25 per sq. ft.

For the first time since Q1 2017, the national average rental rate recorded a quarter-over-quarter decrease, albeit a minor drop of just 0.3% - from $16.30 per sq. ft. to $16.25.

In 2023, the Waterloo Region, Ottawa and London markets recorded the strongest levels of industrial rent growth with 18.6%, 13.3% and 12.3% year-over-year increases, respectively. Edmonton was the only market to see rental rates decline year-over-year.

On a quarterly basis, half of the 10 tracked markets in Canada reported declines in average rental rates quarter-over-quarter.

National sale prices hold steady in 2023

Industrial sale prices have held relatively flat throughout 2023, with the national average rising at a marginal 1.5% year-over-year to $276.75 per sq. ft.

The largest increases in sale prices this year were seen in the Halifax, Montreal and Ottawa markets which recorded double-digit year-over-year growth of 20.0%, 17.9% and 11.1%, respectively.

Three markets reported declines in industrial sale prices in Q4 2023. London, Vancouver and Toronto market sale prices decreased by 16.0%, 15.4% and 0.4% year-over-year, respectively.

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