Canadian industrial market update – Q2 2024

Canada’s national industrial availability rate continued on an upward trajectory, climbing 70 basis points (bps) to 5.8% in the second quarter of 2024, the highest since Q2 2016 at 5.7%

Demand for newer industrial assets at certain price thresholds remained high in Q2 2024, with vacancy rates below the long-term average, especially in Toronto, Vancouver, and Southwestern Ontario. However, in the first half of 2024, leasing activity has begun to pull back, as the country registered negative absorption due to an influx of new supply with higher vacancy levels upon completion. 

Sublet space continues to increase, making up 15.3% of the available space, compared to 11% a year ago. As a result, rental rates have only increased moderately across Canada (between 3% to 7%) compared to double-digit percentage increases in previous years.

Statistics Canada reports that retail sales in April 2024 increased by 0.7% to $66.8 billion. Seven of the nine subsectors experienced an increase, led by gasoline stations and fuel vendors (4.5%), and food and beverage retailers (1.9%). Meanwhile, the largest decreases in retail sales were recorded in motor vehicle and parts dealers (-2.2%) and building material and garden equipment and supplies dealers (-1.4%).

Figure 1 - Industrial availability Q2 2023 vs. Q1 2024 vs. Q2 2024

Figure 2 - Industrial completions and availability (Q2 2024)

There were 27 industrial projects completed in Q2 2024, totaling nearly 4.4 million square feet, with 43% pre-leased. Southwestern Ontario and Calgary comprised the majority of new supply in terms of total square feet, at 1.4 million and 904,227 square feet, respectively (Figure 2).

Figure 3 - Industrial under-construction and availability (Q2 2024)

In the second quarter of 2024, 141 projects were under construction, totaling 27.7 million square feet, with 30% pre-leased (Figure 3). Vancouver had the highest pre-leasing activity with over 50% pre-leased, followed by Calgary with over 40% pre-leased. Toronto and Southwestern Ontario have moderated with less than 30% of the space pre-leased.

Conclusion

Despite the industrial market easing towards balanced conditions, with continued stable GDP growth, population increases, and high retail sales, investors have expressed confidence in the sector’s reliability. The industrial asset class comprised the largest share of Canada’s total investment volume, followed by multi-family in the first half of 2024.

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