Construction Completions Closes Out the Year Strong: JLL Report

According to JLL’s latest Industrial Outlook Report, the decade closed with a surge of construction completions with nearly 9.2 million square feet added to the inventory in Q4.

Photo courtesy of JLL Industrial Outlook Report

About one million square feet was completed this quarter in Calgary with almost four million square feet of completions in 2019 while Toronto lagged behind other markets for most of the year with 6.2 million square feet completed in Q4. The report states that this marks the beginning of a large construction cycle that will continue through 2020.

National vacancy concluded the decade hovering near a cyclical low of 2.7 per cent, which has been the case since Q1 2019. While low vacancy and limited new completions constrained occupier growth in Q2 and Q3, the surge of completions this quarter made little impact on vacancy as over 86 per cent of Q4 deliveries were pre-leased or sold.

Toronto and Vancouver led the pack with 93.5 and 91.0 per cent pre-lease rates and Edmonton had 83.7 per cent pre-lease rate on this quarter’s completions, despite being the second-highest vacancy market in the nation.

Montréal and Ottawa have both seen vacancy rates plunge to below three per cent this year, as construction activity has yet to match user growth. Montréal has experienced well over four million square feet of positive annual net absorption over the past three years. The city averaged only one million square feet of annual new supply over that time.

While construction has ramped up, 82.7 per cent of current projects are either built-to-suit or will be owner- occupied, meaning little vacant space will actually hit that market when complete.

In Ottawa, expected 2020 completions are only 0.5 per cent of Ottawa’s current industrial supply, which will do little to alleviate tight market conditions, according to the report. Calgary has been the exception this year with a 200 basis point rise in vacancy. However, a slowing construction pipeline and steady user demand will likely halt that trend in 2020.

2019 saw rental rates increase of 8.8 percent year over year. This is down slightly from the 9.1 per cent witnessed in 2018. Toronto, Vancouver and Montréal all saw double- digit increases in 2019, which is expected to moderate in 2020 as these increases are not sustainable over an extended period of time.

More moderate increases in Canada’s largest markets will likely mean more moderate rental rate increases nationally in 2020. JLL states that rental rates increases are still expected to be very strong amid tight market conditions. Meanwhile, Edmonton, Calgary and Ottawa have all seen modest rental rate increases the past two quarters after slight declines earlier in the year.

Logistics companies dominated large block leasing volume this quarter. The highlight deal was DSV’s almost 1.1 million square foot sale-leaseback of their recently completed Greater Toronto facility.

E-commerce retailers also had another strong quarter in which Amazon announced its first distribution centre in the province of Québec, located in Lachine, just outside of Montréal.

While e-commerce may not have led the pack this quarter, the industry does ultimately have a significant impact on logistics companies. Another significant lease this quarter was Bombardier’s Greater Toronto land lease in which they will build a 1.0 million square foot state of the art aircraft manufacturing facility.

You might also like

Leave A Reply

Your email address will not be published.

single-podcasts