Industrial availability continues to edge higher with increased new supply while rent growth normalizes: CBRE

A recent report by the CBRE revealed that industrial availability continues to edge higher with increased new supply while rent growth normalizes.

Photo credit: CBRE

Net absorption experienced an increase from its post-pandemic low during the last quarter, although net leasing activity remained relatively subdued outside of Toronto and Edmonton. A notable influx of new supply has been introduced over recent quarters, leading to a gradual uptick in the national availability rate, which reached 2.1 per cent in the second quarter of 2023. Despite this rise, the overall market conditions remain tight, with availability remaining well below the historical 15-year average rate of 4.8 per cent.

Construction activity is beginning to moderate from its peak levels, resulting in a decrease in the national development pipeline to 44.4 million square feet in the second quarter of 2023. This decline is due to the completion and delivery of more projects into the market.

The construction landscape in Canada remains relatively conservative, accounting for just 2.3 per cent of the total inventory. Notably, 6.6 million square feet of new projects commenced construction in the second quarter of 2023, with a significant portion of this activity centered in Vancouver, Toronto, and the Waterloo Region, contributing to 79.6 per cent of all new construction projects initiated during this quarter.

Photo credit: CBRE

In terms of new supply, there has been a substantial influx in recent quarters, with a total of 8.8 million square feet of new builds entering the market in the second quarter of 2023. Despite this increase, the impact on availability rates was somewhat offset, as 73.0 per cent of the new builds delivered in this quarter were pre-leased.

Deliveries have significantly escalated over the past year, culminating in a record high four-quarter total of 36.2 million square feet of new supply in the second quarter of 2023. The primary focus of new supply during this quarter was centered in Toronto, Edmonton, Vancouver, and Calgary, collectively accounting for 82.5 per cent of all completions.

Rent growth across various markets has continued to normalize, with net asking rents continuing their upward trajectory. The national average asking rent rose by 19.3 per cent year-over-year to reach $16.35 per square foot. This trend of rent growth normalization is evident as year-over-year increases stabilize around the national average in most markets. Notably, Montreal, the Waterloo Region, and Toronto recorded significant year-over-year increases in rents during the second quarter of 2023, surpassing the national average rate.

Conversely, Edmonton was the sole market to experience a minor year-over-year decrease in rents by 2.2 per cent, marking the first industrial rental rate decline in Canada since the fourth quarter of 2021.

In terms of sale prices, there was a plateau observed in the second quarter of 2023, indicating a deceleration in growth. The national average asking sale price slightly increased to $273.55 per square foot, marking the first instance of single-digit year-over-year growth in ten quarters.

Photo credit: CBRE

Noteworthy increases in asking sale prices were observed in Halifax, Ottawa, and Montreal, with each market experiencing year-over-year growth exceeding 20 per cent. Conversely, Vancouver and London witnessed year-over-year declines in asking sale prices in the second quarter of 2023, representing the first decrease since the third quarter of 2020. Vancouver maintained its position with the highest asking sale prices across Canada, at $575.00 per square foot, followed by Toronto at $377.97 per square foot and Ottawa at $337.00 per square foot.

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