Canada to see continued record low vacancy in industrial space

by Emily Atkins

Canadian markets are expected to have the lowest combined rate of vacancy for industrial property – at 1.5 percent – in North America by year end.

Cushman & Wakefield released its North American Industrial Forecast for 2022/23 showing a projected 855 million square feet (msf) of absorption and new supply of industrial properties at 932 msf.

“Industrial markets across North America have been under intense pressure with little new supply and unprecedented demand over the past two years,” said Carolyn Salzer, Americas head of logistics and industrial research for Cushman & Wakefield.

“This has put upward pressure on rents and driven demand for development land.”

Low vacancy

By year-end 2021, the North American industrial market is expected to reach over 507 msf of net absorption – the first time the market has surpassed 500 msf. Even with an anticipated near-record level of new supply, 376 msf being delivered by year-end 2021, North American vacancy is expected to register 3.8 percent at year-end 2021 — a 110-basis point decrease over 2020 year-end levels.

Overall net rents continued to climb in 2021 and are expected to finish the year at US$7.62 per square foot (psf), 8.5 percent above 2020 levels and another record high asking rental rate for industrial space.

“The economic recovery and the accelerated buildout of e-commerce and 3PL last-mile facilities, fulfillment centres, and bulk warehouses will reinforce demand for industrial real estate. Although the COVID-19 pandemic brought on new challenges for the industrial market, with port congestion, materials shortages, and commodity pricing skyrocketing, the market has and will continue to excel,” said Salzer.

Record absorption

In Canada, industrial markets will maintain their longest uninterrupted period of positive net absorption through 2023 after reaching a record high in 2021. Canadian industrial markets are forecast to absorb a net 41 msf of space from 2022 to 2023. Over the next two years, Toronto and Vancouver are expected to account for over 72 percent of Canadian occupancy growth.

For the ninth consecutive year, net absorption in the U.S. will exceed 200 msf in 2022 and Cushman & Wakefield projects this streak will extend through 2023 and beyond.

North American industrial markets are projected to deliver 932 msf of new product by year-end 2023. Over 94 percent of this will be in the U.S. where the market has been strapped for quality product over the past few years.

Canadian supply constraints

Though vacancy in Canada is even lower than in the U.S., new supply as a percent of total inventory is not coming online as quickly due to land constraints across Canadian markets. New supply is expected to outpace demand by 2023, but to remain slightly behind in 2022, with the effect on vacancy anticipated to be minimal.

Growth will remain high in primary industrial markets, port-proximate markets (both intermodal and maritime), and in markets with dense or fast-growing populations where demand has been strongest.

North American industrial asking rents are expected to reach a new nominal high of US$8.72 psf by year-end 2023. All markets in the forecast will register positive rent growth from the year-end 2021 to year-end 2023, with two of the top three in Canada.

Vancouver rent growth ranks fourth in North America, coming in at 18.3 percent over the two-year window, and Toronto ranks sixth, at 16.5 percent. Rent growth from 2021-2023 will be 14.4 percent by year-end 2023.

“While we’re seeing some of the pressure come off on the supply side, the truth is the industrial markets are red hot, and any kind of cooling will take substantial time. Industrial will remain the most sought-after asset class for the foreseeable future,” said Salzer.