Canadian Industrial Real Estate

Explosive Growth Exhausts Supply, Driving Rental Rates to New Highs

TORONTO, February 27, 2019 – Heated demand for industrial space by e-commerce and logistics service providers continues to outpace supply across Canadian markets. A severe shortage of space and rapidly rising rental rates remain the big stories for gateway markets such as Vancouver, Toronto, and Montreal, according to Cushman & Wakefield’s update report on Canadian Industrial Real Estate.

“This is the most dramatic and long-lasting transformation cycle in decades, and it’s far from over,” said Stuart Barron, National Director of Research.

As Barron explained: “Companies are reinventing themselves to serve growing online demand, and there’s huge pressure for fast last-mile delivery. This has detonated record demand for well-located warehouse and logistics space – and supply can’t keep up. The bottom line is whether you’re leasing or buying, you’re going to find an extreme scarcity of product and face sticker shock.”

In the GTA – the third largest industrial real estate market in North America – demand is so voracious that availability is almost under water at 1.5%. Not surprisingly, multiple offers have become common for any quality space that comes to market.

“Now more than ever, it’s critical for businesses to start looking well in advance of their lease expiries or growth projections, otherwise they may be out in the cold until supply catches up,” said Barron.

As the report outlines, Canadian gateway markets are seeing the strongest overall demand since 2000, with the national availability rate plunging to a mere 3.1% as of Q4 2018 - the lowest on record. Toronto, Vancouver, and Montreal, which are seeing the lion’s share of growth, are all at historic low availability rates of 1.5%, 2.1%, and 4.1%, respectively.

Further, escalating land and construction costs have contributed to tempered development over the past four years, causing rental rates to soar. Canada-wide asking rental rates increased by 10.1% in 2018 and average rates surpassed $8.00 per square foot. Toronto saw asking rental rates rise by 17.6%, the fastest growth in the country. Vancouver, which has seen the most significant rise in rental rates over the past four years saw rate pressure of 10.5% in 2018, followed by Ottawa and Montreal at 7.2% and 6.5%, respectively.

Looking out over the next two years, the report predicts that Toronto and Montreal will remain extremely tight with continued upward pressure on rental rates, with Vancouver also remaining hot. Stronger investment returns, driven by rising rental rates, will spur development growth by late 2020 but, until then, larger tenants looking for space in key markets will have to consider outlying regions.

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