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Canada Industrial Figures Q1 2024

April 2, 2024

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Availability rises in nearly all markets as more new supply delivers and rent growth slows further

Executive Summary

The national availability rate continued to rise and reached 3.7% in Q1 2024, driven by available new supply being delivered alongside a rise in sublease space in some markets.
The construction pipeline continued to ease and contracted 11.2% quarter-over-quarter to 32.0 million sq. ft. in Q1 2024, representing a 29.5% total decline since its peak in Q3 2023.
Pre-leasing levels remain modest, at 49.9% of the new supply delivered in Q1 2024 pre-leased and 39.2% of the space currently under construction already committed.
The vast majority of the new supply delivered in the quarter was for large bay product located in Toronto, Vancouver, Calgary and the Waterloo Region.
While year-over-year rent growth slowed to its lowest level in seven years, on a quarterly basis, the national average has declined for the second consecutive quarter.

Availability rises but pace of increase begins to ease

The national availability rate continued to rise and reached 3.7% in Q1 2024, marking the highest level of availability in almost six years.

The pace of increase in national availability slowed to 50 basis points (bps) quarter-over-quarter from the record-setting 70 bps increase recorded in Q4 2023.

Available new supply being delivered over the quarter alongside a rise in sublease space in some markets were the main drivers of higher availability across Canada.

Every market saw availability rates rise on a year-over-year basis in Q1 2024 with the exception of Edmonton, where availability decreased slightly amid no new supply.

Halifax recorded the largest increase in availability across Canada, rising 400 bps year-over-year in Q1 2024. This was followed by the Waterloo Region, Calgary and Montreal which rose by 250 bps, 240 bps and 220 bps, respectively.

Net absorption turns marginally negative for the first time in nearly 4 years

National net leasing activity softened further in Q1 2024, with net absorption turning marginally negative for the first time in 15 quarters and totaling -350,000 sq. ft.

While the majority of markets reported minimal levels of net absorption in Q1 2024, Calgary and Vancouver continued to see over 1.0 million sq. ft. of positive net absorption, albeit largely the result of some fully pre-leased new supply being delivered.

Negative net leasing activity was led by Toronto with a total of -2.1 million sq. ft. in Q1 2024, the second quarter in a row of negative net absorption for the market. This is followed by Montreal with -0.9 million sq. ft. of negative net absorption, its fifth consecutive quarter of negative net activity.

Construction pipeline contracts further in Canada

Construction activity continued to ease in Canada with the development pipeline contracting 11.2% quarter-over-quarter to 32.0 million sq. ft. in Q1 2024, representing 1.6% of total inventory.

Since reaching its peak in Q3 2023, overall construction levels have declined 29.5% as market dynamics return to normal.

As projects complete and are delivered out of the pipeline, construction starts have also slowed to 4.7 million sq. ft. of new projects kicking off in Q1 2024.

These construction starts were predominantly located in Toronto and Vancouver and comprised mostly of speculative facilities 100,000 sq. ft. or larger.

Every market aside from Halifax has less than 3.0% of total inventory currently under construction.

Pre-leasing levels on the total national pipeline remains modest, with 39.2% of space currently under construction committed as of Q1 2024.

Major markets continue to grow their supply of new large bay product

The amount of new supply delivered in Q1 2024 moderated to 9.6 million sq. ft. from the record level recorded the previous quarter.

The vast majority of the new supply that delivered in the quarter was for large bay product located in Toronto, Vancouver, Calgary and the Waterloo Region. 84.2% of the new supply comprised of new builds at least 100,000 sq. ft. in size, of which, nearly two-thirds were buildings 200,000 sq. ft. or larger.

Pre-leasing levels have effectively held flat from the end of last year, with 49.9% of the new supply pre-leased upon delivery in Q1 2024.

Amid fewer construction starts, the pace of new supply is forecast to moderate over the coming quarters, with an additional 26.1 million sq. ft. currently expected to deliver over the rest of the year.

Rental rate growth falls to slowest level in seven years

National average rental rate growth slowed to its lowest level since Q1 2017, rising just 0.9% year-over-year to $16.06 per sq. ft.

Seven of the 10 tracked markets in Canada continued to record year-over-year increases in their average rental rates.

The strongest rental rate growth was recorded in the Halifax and Ottawa markets which both saw double-digit year-over-year increases in Q1 2024 of 12.1% and 11.1%, respectively.

Rental rate declines were led by Edmonton and Montreal with declines of 5.2% and 3.7% year-over-year, respectively.

On a quarterly basis, the national average rental rate had dropped $0.20 or 1.2% from Q4 2023, marking the second consecutive quarter of rental rate decline.

National sale prices continue to hold relatively flat in Q1 2024

The national average industrial asking sale price has been holding relatively flat over the trailing four quarter period, rising 0.7% year-over-year in Q1 2024 to $324.57 per sq. ft.

While nationally sale price growth was muted, strong increases were recorded in London and Halifax which both posted year-over-year growth of 20.0% or more.

Sale price decreases were led by the Vancouver market with a 10.0% year-over-year drop to $540.00 per sq. ft. and followed by the Waterloo Region with a marginal decline of 0.7% to $246.51 per sq. ft.