- What Despite some pockets of weakness, market watchers still see plenty of strength in local markets
- Why Insiders point to continuing high demand for industrial space in large Canadian markets
- What’s next Construction is expected to slow as demand returns to historical levels post-pandemic
Canada’s industrial market has taken some blows amid higher interest rates and new supply, but market insiders remain optimistic about the sector.
First-quarter sales volume for industrial properties worth at least $10m totaled $1.2b, down 55% from the previous quarter, Morguard said in a recent report. What’s more, availability rose to 3.7% nationally, a six-year-high, driven by an escalation in construction completions and increased subleasing activity.
Attendees at this week’s Land & Development conference in Toronto debated the state of the industrial space. One broker active in the GTA industrial market said investors are waiting to transact until the Bank of Canada lowers interest rates.
“I’d say it’s a challenging climate right now,” the broker said. “Everyone is waiting for a rate cut.”
But not everyone is worried. Michael Bardyn, vice president of asset management for Graywood Developments, said the Toronto-based investment management company, which owns some 2m sq ft of industrial and commercial space in the GTA, will continue to invest in the sector.
He said demand remains strong for small bay facilities, which generally are 50,000 sq ft or less. There is little new supply of those properties, and low vacancy rates in municipalities like Markham and Mississauga, as well as in parts of Toronto, persist.
“There’s not a lot of supply, and no one’s really focused on building in that subsector either,” Bardyn said.
Avison Young broker David St. Cyr noted that in Alberta, demand remains high for industrial space, particularly for warehouses over 100,000 sq ft. That’s being fueled by the influx of new residents over the last five years to urban areas like Edmonton and Calgary, driving demand for next-day delivery of consumer goods and services.
To serve its growing population’s needs, municipalities are wooing large logistical providers by offering sweeteners such as waiving development charges and taxes. Those efforts seem to be paying off: In May, Amazon opened its second fulfillment centre in the province, a 2.8m sq ft facility in Calgary’s East Sheppard industrial area.
Later this year, the furniture chain Leon’s is planning to open a new 500,000 sq ft distribution centre in northwest Edmonton. Other projects in the pipeline expected to be completed in 2024 include Home Depot’s 130,000 sq ft facility in Acheson (bordering Edmonton) that is under development by Qualico.
Still, St. Cyr doesn’t think the local market is becoming oversupplied, noting that the long Alberta winter, which can start as early as November and last into May, has a major impact on construction season, capping the number of projects that can be completed in a year.
“I’m not worried about oversupply,” St. Cyr told Green Street News in mid-May. “In some assets, we’re almost facing an undersupply.”
Fiera Real Estate’s head of development, Kathy Black, said the company expects to reduce its construction pipeline as demand starts to normalize post-pandemic. She said there is ample interest from potential tenants as well as buyers of Fiera’s assets, and with fewer new projects coming online, she doesn’t expect demand to drop. Black noted that around 32m sq ft of new industrial space is expected to be completed annually, far short of what’s needed to satisfy tenant and investor demand.
“The forecast right now tells us that nationally over the next three years we’re going to need about 176m sq ft [of new industrial space]. So, we’re not even close to achieving that,” Black said.
Don’t miss out on the biggest stories from Canada – act now
During this launch period, Green Street News Canada is free to view. To continue reading articles after this period ends on July 8, click the button to inquire about a subscription, or adding Canada to your existing Green Street News subscription.