Canadian industrial market update

Throughout the 2022 year, the industrial asset class has experienced continued elevated demand. This trend did not change trajectory in the fourth quarter of the year. The national industrial availability rate sat at 2% as of Q4 2022, a slight contraction from the 2.2% noted a year prior.

Demand for last mile distribution assets has persisted, especially as warehousing space and strong logistics networks remain. Despite this, there is a note of cautiousness in investor sentiment regarding industrial assets. This occurred due to the high cost of construction, as well as the continually rising cost of borrowing. With costs escalating, and industrial assets being so coveted, the price of the asset is becoming increasingly difficult to justify for some investors.

The labour market added 104,000 jobs in December. The unemployment rate declined slightly month over month, sitting at 5.0%, according to Statistics Canada. Retail sales rose 1.4%, sitting at $62 billion as of October 2022, the latest Statistics Canada data available.

Sales were up in six out of eleven subsectors, accounting for 84.4% of retail trade. The increase was led by higher sales at food and beverage and gasoline stores. E-commerce sales were down to 4.6% in October.

While this may mean that less sales were conducted overall, it may be indicative of people turning back to in person shopping, as the overall amount of retail sales has increased. Manufacturing sales also rose 2.8%, sitting at $72.6 billion as of October 2022. Sales increased in 12 out of 21 industries, and were led by the petroleum and coal, food, chemical and miscellaneous manufacturing industries.

There were 32 building completions in the fourth quarter of 2022, occupying slightly less than 6.3 million square feet of space, with an availability rate of 14.3% (Figure 2). Vancouver had five completions, with an availability rate of 9.6%, and almost 440,000 square feet occupied across the five buildings.

Edmonton had one completion 194,000 square foot completion in Q4, with an availability rate of 100%. Calgary noted three building completions occupying almost 942,000, nearly 50% leased. Toronto saw the highest number of industrial building completions this quarter. There were 15 buildings completed, adding up to slightly more than 3.9 million square feet and boasted a leased rate of 99.4%.

Ottawa had no completions in Q4, while Montreal recorded two completions with an availability rate of 20.9% adding up to 334,000 square feet. Lastly, Halifax had one 90,825 square foot building completion, and it was completely leased.

In the fourth quarter of 2022, there were 185 industrial buildings under construction, occupying slightly more than 40.2 million square feet, with an availability rate of almost 51%. Vancouver had 51 industrial projects underway in Q4 2022, adding up to in excess of five million square feet, with an availability rate of 25.4%. Edmonton had seven industrial buildings under construction, with an availability rate of 74.2%, occupying almost 1.3 million square feet.

Calgary noted 7.1 million square feet of industrial area under construction across seven projects, which had an availability rate of 36.2%. Toronto recorded the highest number of projects under construction across the major markets, with 69 buildings being built. These totalled slightly more than 19.5 million square feet and had an availability rate of 64%.

Ottawa had seven industrial buildings being built in Q4 2022, with close to 385,000 square feet of space being added to the market, and an availability rate of 56.1%. Montreal also had seven projects underway, occupying slightly more than three million square feet, and an availability rate of 18.3%. Lastly, Halifax had four industrial projects under construction, summing up to slightly less than 268,000 square feet and an availability rate of 68.2%.

The national availability rate for under construction industrial buildings sat at 51% as of Q4 2022, however, as these projects near completion, the space they offer will quickly get absorbed, leaving little inventory on the market.

As rents continue to rise and availability rates continue to tighten, the industrial asset class has remained an investor favourite. However, with high costs of construction, inflation, and rising interest rates, investors are concerned for their capital and are scrutinizing deals more carefully. As the 2023 year begins, it will be fascinating to see the evolution of the asset class over the next year.

View the Canadian industrial market update - Q3 2022