Canada’s industrial real estate market is showing strong growth but the cost of land is a challenge.
A new report from Avison Young highlights how the retail sector, especially e-commerce, is driving demand for warehousing and similar units, but supply of these properties is low.
“Canada’s industrial market is performing well beyond expectations, and although absorption levels vary from city to city, the industrial market’s increasingly strong link to the retail sector – specifically e-commerce – remains a key catalyst for growth,” says Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. “As a result, large-format distribution/fulfilment centre space is desirable, but scarce. Meanwhile, the overall industrial sector remains challenged by rising land costs, including soaring development charges, and dwindling supply of developable land in some markets.”
Across 11 Canadian markets, the report reveals a record-low national industrial vacancy rate of 3.3% in the first quarter of 2018 – down 40 basis points (bps) year-over-year.
This tight supply is driving up rents, boosting the attractiveness of the sector for investors.
Canada’s average industrial net asking rental rate increased $0.25 per square foot (psf) year-over-year to finish the opening quarter of 2018 at $8.30 psf. There were gains in all 11 markets surveyed.
Canada is performing well even as US improves
The US market is improving but Canada’s industrial CRE sector is still performing well on the North American scene.
Among larger markets, Toronto (1.7%) and Vancouver (1.8%) boasted the lowest vacancy rates; Vancouver and Regina claimed two of the 10 highest average asking net rental rates (with Ottawa falling just short of the top 10).
“The U.S. administration’s desire to revamp NAFTA and introduce protectionist trade policies has the potential to create headwinds for Canada’s industrial market and the economy in general. For now, the industrial market is expected to operate at or near capacity until new supply catches up with demand,” says Argeropoulos.