Strong demand for Canadian industrial real estate: report

Avison Young says demand will continue to outpace new development, driven by e-commerce

Canada’s industrial real estate market began 2019 on a strong footing, building on the exceptional results achieved in 2018, according to a new report by Avison Young.

“While Vancouver and Toronto remain key markets for occupiers and investors, scarcity of product was evident in the single-digit vacancy rates posted across the country in the first quarter of 2019,” said the Spring 2019 Global Industrial Market Report.

“Nationally, the industrial sector remains undersupplied – demand is outpacing new development and will continue to do so, even though almost twice as much space is under construction compared with spring 2018. This supply-demand imbalance has pushed rental rates higher in almost all markets, attracting investors and resulting in low yields and rising asset values.”

The report said Canada’s industrial vacancy rate remains at a historic low, ending first-quarter 2019 at three per cent – down 70 basis points (bps) from the same quarter in 2018. Ten of the 11 markets surveyed reported lower vacancy year-over-year and single-digit vacancy rates, with four markets posting rates below the national average. In the North American context, Canadian markets – Vancouver (1.2 per cent), Toronto (1.5 per cent) and Ottawa (1.6 per cent) – recorded the three lowest vacancy rates through the first three months of 2019.

Mark Fieder, Avison Young's COO
Mark Fieder
Avison Young’s COO

“E-commerce remains the industrial sector’s catalyst for success as retailers and developers strive to perfect the supply chain,” said Mark Fieder, Avison Young’s COO, Canadian Operations, in a news release.

The report said online giants such as Amazon are impacting market dynamics in terms of scale and location with their demand for large distribution/fulfilment facilities near urban centres, resulting in rising land and development costs amid dwindling supply of developable land.

“This situation is most apparent in Toronto – and in Vancouver, where strata units increasingly offer the only opportunities for developers to justify their land costs. A focus on multi-storey facilities may be the next logical step to make the most of restricted urban sites,” added Fieder.

Canada’s industrial market is expected to remain active throughout 2019 with restricted supply posing challenges for occupiers and investors, said the report.

– Mario Toneguzzi

industrial real estate

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