A new analysis of the industrial market by RealREIT has revealed that vacancy rates Canada-wide hold below 2% despite ongoing record industrial development
David Tweedie, RBC Capital Markets Real Estate Group Managing Director, said, “From a fundamentals perspective, we’re sitting at record national-low availability, double-digit rental rate growth continues in most major markets and [there are] record tenant absorption levels.”
The latest analysis showed that despite the influx of approximately 37 million sqft of industrial space across Canada in 2022, 44 million sqft was absorbed by Canadian businesses. That means, once again, more industrial properties were absorbed than were created.
In the GTA specifically approximately 14M sqft of industrial space was delivered in 2022, yet the vacancy rate will remain below 1%.
These numbers are a reason why banks are willing to borrow to industrial investors despite the interest rate hikes by the Bank of Canada.
Industrial Sectors look Promising to Lenders and Investors alike
Matt Kornack, National Bank Financial Director for real estate equity research, projects lenders moving toward targeted industrial lending as investors are rapidly considering industrial real estate as the asset class with the highest growth potential and smallest capital expenditures.
Kornack further notes that rents will continue to rise and capital flood the asset class. As such, tenants should place priority on efficient use of space.
As a word of caution, Tweedie warned that the macro economic environment could impact the market. He said, “But on the headwind side, we’re facing moderating GDP, elevated inflation, the potential risk of recession in 2023 and continuing rising interest rates.”
At industria.to we have been advising our clients for the past five years to buy and hold industrial real estate. We warned our clients against waiting for the industrial market to drop before purchasing, as all the numbers in this space indicate that there is upward pressure on prices. Once again, in Q3 2022 we are advising our clients, investors and end-users alike, to invest in industrial real estate.
As an end-user, you will protect yourself against future rate hikes and own an appreciating asset, while as an investor you will own a share of the most lucrative real estate market in the GTA.
Canadian Industrial Market Snapshot From Q3 2022
The snapshot of the industrial market in Q3 2022 is following the overall trend of the past 5 years. Price and rent is still increasing, vacancy rates are at a historical low, and the industry cannot build fast enough to meet all the demand.
- Despite the influx of approximately 14 million sqft of industrial space delivered to the GTA in 2022, the vacancy rate will remain below 1%
- Industrial availability in the country’s top 9 markets is down 70 basis points year-over-year to 1.6%, including few markets which are below 1%
- The past 12 months has seen a net absorption rate of 44 million sqft, dwarfing the 37 million sqft of new space delivered
- 60% of the projected 41.6 million sqft to be delivered in 2023 has already been leased
- Price per sqft has risen more than 30% in Q2 2022 vs Q2 2021
- Q4 2022 numbers are projected to maintain the 2021 record high in industrial transaction value
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