Elevated interest rates and economic volatility have not dulled the lustre of this asset class, says new report
Demand continues to outpace availability in the Canadian industrial property market despite the addition of a record-breaking 16.3 million square feet of new industrial supply in Q4 2023, according to Altus Group.
In its latest quarterly report, Altus said that the Canadian industrial availability rate grew by 0.7% to reach 4.3%, with notable gains observed across all major markets.
“Despite elevated interest rates and inflationary pressures, investors continued to favour the industrial asset class for its minimal risk and stable returns,” Altus said.
The surge in new industrial space far surpassed the historical average in Q4 completions of less than 10 million square feet, Altus noted.
Ray Wong, vice president at Altus, stressed that the upswing in project completions represents only a fraction of the industry’s pressing needs.
“Even though the overall availability rates have increased from the third quarter to the fourth quarter, from 3.6% to 4.3% on a national basis, we have a very tight availability rate for industrial,” Wong said. “The challenge for tenants is when their needs change and they’re looking at a renewal, they have limited availability and choice in the marketplace.”
Keith Reading, Senior Director of Research at Morguard Corporation, points to the robust performance of the industrial and multi-residential sectors, which offset quieter retail and office activity.https://t.co/ZywdYgZaWD#mortgageindustry #commercialmarket #realestate
— Canadian Mortgage Professional Magazine (@CMPmagazine) August 22, 2023
The fourth quarter also saw lease rates continue their upward trajectory when compared to the prior year. Nationally, the average rental rate went up by 7.7% annually, with Montreal posting the most significant average year-over-year increase at 16%, followed by Toronto at 4.8%, and Calgary and southwest Ontario tied at 3.7%.
Halifax was the sole region that experienced a decline in the average rental rate, with a 5.6% annual drop.
Altus reported the completion of 79 buildings during Q4 2023, totalling 16.3 million square feet. Most of this new supply materialized in Toronto (8.7 million square feet), Calgary (2.9 million), and southwestern Ontario (2.5 million).
Wong cited the e-commerce sector as the major driver of warehouse demand in the fourth quarter.
“The Amazons of the world, the Walmarts, need very large distribution warehouses, from half a million to close to a million square feet of space,” he said. “Warehouse distribution sites have been the most in demand.”
