Demand for warehouse space is pushing vacancy rates down and average rents to $10 per square foot across the country.
Recently published research by industrial real estate specialist JLL Canada indicates that for Q3 2020 the average vacancy rate was holding at 2.8 percent. Some markets, such as Edmonton, which is suffering recessionary conditions thanks to both the pandemic and depressed oil and gas prices, saw vacancy rates climb a little.
But others saw vacancies decline on the back of the pandemic-propelled surge in e-commerce. Montreal, for example, hit a low of 1.8 percent.
Meanwhile, with demand increasing, rents have pushed into the double digits. The national average, according to the JLL research, hit $10 per square foot for the first time ever. That represented a 1.5 percent increase over Q2, and a 10 percent bump over 2019’s Q3. Toronto led the way with a 19.4 percent increase. Vancouver was in hot pursuit, posting an 11.3 percent gain. Looking at the longer term, average rents have increase by 36.2 percent since 2015.
Large-block demand
Large-block warehouse space experienced strong demand, JLL says. After a lull during the pandemic lockdown phase in the spring, there was a rebound in Q3 as deferred deals were suddenly back on the table. Volume in the sector increased 54.8 percent in Montreal, 101.1 percent in Toronto and 800 percent in Q3, largely thanks to the lack of activity the quarter before.
Key deals JLL cites in its research include an e-commerce user leasing 2.2 million square feet in three separate deals, and the government of Canada taking 350,000 sq.ft. for PPE storage. Both deals are in the Greater Toronto Area. Walmart also finalized a deal for 550,000 sq.ft. in Vaughan, Ontario, also in the GTA.
Elsewhere, auto parts distributor Lordco took 341,000 sq.ft. in Metro Vancouver and Bulletproof Logistics leased 300,000 sq.ft. in Montreal. Lowes leased 1.2 million sq.ft. in Calgary and Amazon inked a deal for at least 450,000 sq.ft. in a newbuild 2.7 million sq.ft., five-level DC in Ottawa.
Build-to-suit
The pandemic has prompted a shift in the market towards build-to-suit development, JLL notes. As the pandemic hit, more than half (52.7 percent) of new development was speculative. By the end of Q3 that had dropped to 42.3 percent.
There are regional discrepancies in the picture, however. Speculative development remains dominant in the Toronto and Vancouver markets, while Calgary’s share dropped from 73 percent in Q1 to 15.9 percent by Q3.
New starts in Q3 across the country were 100 percent build-to-suit projects. They include the 2.7-million-sq.ft. building in Ottawa, a one-million-sq.ft. e-commerce facility near Edmonton, and an 850,000-sq.ft. facility for 3PL Wiptec, close to Montreal.
Toronto is on course to deliver 10 million square feet of completed space by the end of 2020, significantly up from last year 7.5 million. JLL highlights recent starts of Canada Post’s 600,000-sq.ft. facility in Scarborough and the 750,000-sq.ft. building in Mississauga that has been partially leased to Goodfood.ca.
JLL believes the “lack of speculative product, particularly outside of Vancouver and Toronto, will likely drive large occupiers to pursue built-to-suit opportunities in the coming quarters as demand has remained strong.”
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