Demand for storage and distribution warehouses continues to rise, creating strong investment opportunities as industrial properties in Toronto and Montreal command some of the fastest-rising prices in the word.
Canada’s industrial warehouse vacancy rate holds at a historic low 1.6% (CBRE Group Inc.), continuing to attract record international investment to the market. June saw massive industrial property owner, Prologis Inc., buy development land in the GTA for a new warehouse. The $500-million purchase price amounted to almost $2.5-million per acre, more than double the going rate five years ago.
Despite this, some retailers grow skeptical of the e-commerce boom, likely spooked by Amazon’s announcement of plans to sublease warehouse space as interest rate spikes and inflation wreak havoc on developmental costs.
However, numbers indicate online sales continue to rise – albeit at a slower pace than the historic numbers seen during lockdowns – with industrial properties remaining lucrative as markets in four Canadian cities are the tightest in North America. “The party is not over,” said CBRE Canada vice-chair Paul Morassutti. “It might not be quite the rager it was, but it’s definitely not over.”
This summer, Summit Industrial Income REIT reported average rent increase for the year was a whopping 46% as the national rental rate across the sector rose to a record high $12.25/sqf, compared to under $7/sqf just five years ago when the sector first started to take off. Two noteworthy transactions being the re-leasing of a Markham warehouse with a 42% increase in monthly rent after one month on the market, as well as a second GTA property re-leasing with no down time at a 117% rent increase.
Summit’s shares, which trade on the Toronto Stock Exchange, have soared 223 per cent, including distributions, over the past five years. Rivals Granite REIT and Dream Industrial REIT, which own a mix of Canadian and international properties, have gained 98 per cent and 86 per cent, respectively. The equivalent return for the S&P/TSX Composite Index is 57 per cent.
While some are beginning to fear warehouse space will follow the trend of residential real estate due to extraordinarily high construction rates, CBRE numbers indicate completion of current construction projects will raise total available square footage just 2.3% nation-wide. Coupled with their estimates that every billion dollars in e-commerce sales brought to Canada will require close to 1.25M square feet of warehouse space, foreshadowing the need for an additional 90 million square feet by 2027 , as well as the “negligible number of assets Amazon is actually looking to sublease” according to Granite REIT chief executive Kevan Gorrie, we are confident in recommending our clients continue looking to Canadian industrial real estate as a fantastic investment opportunity
“There are some U.S. markets that don’t have many constraints on land or constraints on development, and those markets are finding rents stabilizing much quicker,” Dream Industrial CEO Brian Pauls told analysts, “but in the GTA, certainly, and in Montreal, what we’re seeing are rents continuing to grow.”
