Industrial vacancy hits a new record low

by Emily Atkins

Industrial real estate vacancy in Canada hit a new record low of just 1.6 percent in the fourth quarter of 2021.

According to JLL’s most recent report, this represents a 20-basis point decline quarter-over-quarter and a 110-basis point drop year-over-year. In 2019 and 2020 the vacancy rate hovered round 2.6 to 2.7 percent.

Both Calgary and Edmonton saw vacancy rates below 0.5 percent, while Toronto and Vancouver were below one percent.

JLL says that with the currently “negligible” vacancy rates, there is little room for further declines. However, Calgary, Edmonton and Winnipeg have the highest current vacancy levels and will likely see the greatest vacancy rate declines in 2022.

“Nationally, market dynamics are unlikely to see a significant shift in 2022 and vacancy is expected to remain below 2.0 percent throughout the year,” JLL said.

Rental rates

The low vacancy rate propelled rental rates higher, with increases of 3.1 percent across the country in the fourth quarter of 2021. Rates increased 7.1 percent year-over-year in 2021, JLL reported.

Rates in Eastern Canada led the way, with Toronto, Ottawa, and Montreal posting 7.8 percent, 7.7 percent and 6.6 percent jumps respectively, in Q4. Montreal’s annual increase was 31.7 percent.

In Alberta, both Edmonton and Calgary saw the largest quarterly increases since 2018, and JLL anticipates this trend will persist through 2022. It expects double-digit rent increases there this year.

Sales prices

The average sale prices for industrial real estate climbed 20 percent last year, to $212 per square foot. The higher prices did not slow down transactions, however, with 2021’s total volume hitting almost $14.2 billion, the highest on record, and 34.9 percent higher than the second highest year, 2018.

Developers are trying to meet demand with new construction. In the fourth quarter there was an uptick of 7.7 percent in under-construction space to 39.6 million square feet (s.f.). Montreal and Vancouver contributed significantly to this number with lots of ground breakings and fewer completions.

In 2021 23.7 million s.f. of space was brought onto the market, up slightly from 22.2 million s.f. in 2020. “2022 is expected to see even greater deliveries as developers continue to race to satisfy demand,” JLL said.