Tenant options expand as rates climb
The Calgary industrial market is experiencing a shift as increased supply eases pressure on vacancy rates.
After several years of record demand and limited space, availability rates have increased, providing more options for tenants and signalling a potential balance in the market after years of high demand and limited supply.
Calgary’s industrial market saw a negative absorption of 353,000 square feet, leading to an overall vacancy rate increase to 4.5% this quarter. That’s up 0.1% from the previous quarter and 2% from the same period last year.
The sublease vacancy rate has risen to 1.1%, and the overall availability rate now stands at 5.1%.
“Vacancy has continued to rise since reaching a record low in late 2022. We anticipate a return to historic averages,” the report read.
With this shift, tenants are finding more options among newly constructed spaces. This increased supply has stabilized rental rates, which remained flat from the previous quarter.
The construction pipeline is also slowing down as the market rebalances. So far this year, 1.2 million square feet of new space has been added, with an additional 2.5 million square feet under construction and 5.2 million square feet proposed for development.
Several projects are expected to be completed in the second half of 2024. Despite the slowdown, demand for new industrial sites, particularly small and medium bay spaces, remains robust, driving up development land prices.
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About 50% of the newly constructed spaces have been pre-leased, indicating strong tenant interest even before completion.
Investment conditions are also becoming more favourable. The Bank of Canada recently lowered the interest rate to 4.5%, with further cuts anticipated, improving the investment climate.
Although industrial sales have declined from the record highs of the past three years, investor interest remains strong. The solid market fundamentals that have supported Calgary through economic challenges suggest that investment activity will stay steady, with potential for growth.
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