The vacancy rate for industrial real estate in Canada dropped to an average of 2.5 percent in the first quarter of 2021, a new historic low, says real estate firm JLL Canada. At the same time, rents reached $10.10 per square foot, another new record.
Counter to trend, Toronto, which is the country’s largest industrial market, saw a slight easing in vacancy, while still remaining below two percent. Vancouver, Montreal and Ottawa all saw vacancies decline. In Alberta, both Calgary and Edmonton saw significant drops as well.
Although $10.10 a square foot is the all-time high average rental in Canada, the rate of increase has slowed, JLL says in its 2021 Q1 report. Last year the rate of increase was in the double digits. Now it has slowed to 5.3 percent year over year.
In Montreal, however, where vacancy is the lowest, rates are soaring, spiking up 12.8 percent from the same quarter in 2020 and 7.1 percent from the previous quarter.
E-commerce demand continues to put pressure on real estate supply. Bulletproof Logistics did two deals in Montreal during Q1. Metro Logistics inked two deals in Calgary, as well as 300,000 square feet in Caledon, Ontario. The latter is the 3PL’s third major lease in the area in a year.
Vacancy in Toronto’s industrial sector has remained below two percent for 10 consecutive quarters, JLL reports. Rental rates continue to climb at a rate of 9.8 percent a year, and reached $10.39 per square foot in Q1.
Notable deals include an e-commerce deal with several new builds expected this year in the west end. SNS
Activewear took almost 280,000 s.f. at an under-construction location in Vaughan. In Durham, Lear signed a deal for 185,000 s.f. in Whitby. In nearby Oshawa, Aosom.ca and Canatom signed major deals.
“With continued elevated leasing activity and a construction pipeline with little available space, vacancy is expected to remain below two percent and may even drift back towards a historic low of 1.2 percent later this year,” JLL said in its report.
“This will keep upward pressure on rental rates and is expected to ignite significant speculative construction starts later this spring and summer.”
Vacancy hit an all-time low of 1.6 percent in Q1, and asking net rent in the region climbed above $8.00 on average for the first time ever.
“As industrial land on the island of Montreal has become increasingly scarce, speculative construction off the island has ramped up,” JLL said.
ValDev announced two projects in Valleyfield, totaling 312,000 and 613,000 s.f. respectively. Montoni announced five projects in Laval and the South Shore, totaling 675,156 s.f. All these projects are expected to be completed by Q1,
JLL expects these new speculative projects to boost the vacancy rate slightly, and give tenants more choice in Class A properties, mostly off the island. Rents are forecast to continue their upward trajectory, however, as continuing demand is likely to outpace the supply of new product.
The nation’s capital is booming, with rentals hitting an average of $12.44 for the quarter, and vacancy below two percent. “This makes Ottawa the priciest major market in the country outside of Metro Vancouver,” JLL said.
With three million square feet of new space coming online in the nest year, this pressure should be alleviated, the firm said. Until then, however, vacancy is expected to remain around two percent, and continuing e-commerce demand will keep upward pressure on rates.
E-commerce is spurring the Vancouver industrial market to new high rents, with Q1 seeing a bump to $14.00 per square foot. Vacancy remains low, and new development is not expected to keep up with demand.
Several large lease deals in Q1 include a 203,000 s.f. deal in Delta for an e-commerce user. A government agency leased 158,000 s.f. in Richmond and Canada Post took 110,000 s.f. in Delta.
This quarter developer QuadReal purchased a 10.3-acre redevelopment site in Coquitlam from an investor. It plans to market a modern last mile distribution facility on the site for lease.
“With demand for industrial space at unprecedented levels, vacancy is expected to drift downwards and potentially set a new historic low below 1.6 percent later this year,” JLL predicted. “Rental rates and strata pricing will continue to see
significant upward pressure under these conditions.”