Canadian Industrial Markets Hit New Heights in First Quarter of 2022, as Construction of Warehouse Space Surges
April 5, 2022
Currently half of the industrial markets in Canada have availability rates of 1.0% or less, helping push the national asking net rental rate to a record $11.20
Canada’s industrial markets hit unprecedented heights in the first quarter of 2022, with the amount of warehouse and distribution space under construction surging to a record 41.7 million sq. ft. nationwide. But occupiers are moving quickly to secure future space, and 69.0% of that industrial pipeline is already pre-leased.
An impressive 8.6 million sq. ft. of industrial space was absorbed in the first quarter across the country, with nearly every market recording positive net leasing activity. Available industrial space remains scarce in Canada, and the availability rate continues its downward trend, falling 20 bps to a new record low of 1.6% in Q1 2022.
Currently half the markets in Canada have industrial availability of 1.0% or less. Montreal’s availability rate is 1.0%, Vancouver is at 0.9%, and Toronto, which saw 2.3 million sq. ft. absorbed in Q1 alone, is at 0.8%—all-time lows for Vancouver and Toronto. Edmonton (5.9%) and Calgary (4.6%)—which each recorded 1.9 million sq. ft. of net positive leasing activity this quarter—had the largest quarterly decreases in availability rates in Q1, falling 110 bps and 80 bps, respectively.
Amid skyrocketing demand for industrial space, the national asking net rental rate grew at its fastest pace ever, rising 17.4% year-over-year to a new record high of $11.20 per sq. ft. Vancouver continues to have the highest average asking net rent in Canada of $17.40 per sq. ft., followed by Toronto ($13.59), Ottawa ($12.70), Montreal ($11.34) and Edmonton ($10.40).
“Despite the record levels of industrial construction in response to the overwhelming wave of demand, this forthcoming new supply represents just 2.2% of existing inventory and will not keep pace with the blistering pace of leasing,” notes CBRE Canada Vice Chairman Paul Morassutti. “We have effectively run out of available industrial space and many occupiers have no practical present-day options.”
Office Vacancy Up
Office vacancy continued to press upward after a brief reprieve at year-end 2021, and now sits at 16.3% nationally. Most of Canada’s major office markets saw slight upticks in their vacancy rates in the first quarter.
Some office markets fared relatively well in Q1, namely Calgary, which had 130,626 sq. ft. of office space absorbed—that city’s first quarter of positive net absorption of office space since the start of the pandemic. Positive net absorption was recorded in five of 10 office markets this quarter, predominantly in British Columbia, Alberta and Manitoba, which had earlier re-openings.
Sublets currently account for 18.7% of vacant office space across Canada, or 3.0% of the total inventory. This is down from the market high of 22.2% of vacant space recorded a year ago in Q1 2021. A combination of high demand for quality-built out spaces and users retaining their space should continue to decrease sublet options over the year.
Nationally, office construction levels remained largely stable into the new year, decreasing slightly to 14.7 million sq. ft., 56.2% of which is currently pre-leased. Tenant demand for modern offices has resulted in all projects underway in Winnipeg, Halifax and Waterloo Region being 100% pre-leased.
“The pandemic and hybrid office models aren’t the primary driver vacancy – new supply is and there is a lot of space still to come in the next two years,” says Morassutti. “Having said that, office leasing activity was actually quite robust across Canada over the quarter, and downtown cores are coming back to life with the easing of lockdown measures.”
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