/Four things to know about Canada’s industrial property markets

Four things to know about Canada’s industrial property markets

Peter Garrigan has been in the commercial property business for about 15 years, and in that time, there hasn’t been an economic event damaging enough to substantially slap down the national industrial market — and he doesn’t expect such an event is coming soon.

Industrial vacancy in most of Canada’s major cities is low, and falling, the industrial managing director for Colliers International in Toronto told Postmedia recently. The GTA is facing an all-time low for industrial space, according to stats provided to Postmedia by the global brokerage house. Last mile service in Toronto has spurred on major investments, including by Purolator, which announced the construction of a $330-million, 430,000-square-feet national “super hub” in the central GTA.

Peter Garrigan is managing director, industrial for the Toronto region at Colliers International.

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Courtesy of Colliers International

The same goes for the Metro Vancouver region, which can’t build industrial space fast enough to keep up with demand from e-commerce-related logistics business and owner-users who want to be near the urban core. Industrial vacancy in the Vancouver region is now below two per cent.

But is Canada’s industrial property success just a Toronto and Vancouver story? Garrigan and Colliers answered that question — and a few others — recently about the Canadian industrial property market in a recent interview and with data provided to Postmedia.

Strong industrial demand is not just in Vancouver and Toronto

Montreal’s industrial market is thriving now too, Garrigan said. Vacancy rates have declined, from 3.1 per cent in mid-2018 to 2.3 per cent this quarter, which represents 2.93 million square feet of industrial property being occupied in that period.

Meanwhile, there are no speculative industrial builds in the Greater Montreal area projected for the near future, which means vacancy will likely keep dropping.

“Tenant demand is back in Montreal where it hasn’t been in over five years, so it’s a more desirable market for your investors and developers,” Garrigan said.

“We’re (also) seeing more activity out east,” he said. “(In the) Halifax area, we’re seeing more activity in secondary markets to the GTA, (such as) Kitchener-Waterloo, Hamilton and Durham.”

Alberta markets are not surging, but they’re stable

While facing turbulent energy and political sectors, Edmonton has experienced a stable quarter as industrial companies wait for a clearer economic picture to emerge, according to a data snapshot provided by Colliers.

Despite minor increases in vacancy and negative absorption, rental rates grew by five per cent in the past 12 months and there is now about 680,000 square feet of new space being built this quarter in the Alberta capital.

Calgary’s industrial market recently saw its first notable uptick in vacancy since the third quarter of 2016, when vacancy peaked at 7.4 per cent.

Despite the escalation in vacancy, absorption remained positive this quarter due to leasing and sales activity, and the city is noting some local industrial expansion and new entrants — including many who have been pushed out of Toronto, Vancouver or Montreal due to rising costs and low availability.

A lot of the new industrial demand driven by e-commerce and distribution

If you were to take e-commerce out of the national equation, there would be a massive decline in tenant demand for industrial space, Garrigan said.

“A lot of the (activity) we’re seeing in the GTA and Vancouver, Calgary (and) Montreal is all service-based industries,” he said. “It’s all distribution, and e-commerce is a large part of that.”

That said, e-commerce is just emerging as a factor in Canada, he said. “I think we have a long runway ahead of us in terms of e-commerce. You look at the major cities in the U.S (like) Chicago, L.A., New York; their e-commerce growth is much, much larger than Canada’s. We’ve got a long way to go.”

There’s no reason (yet) to expect the industrial market to fall back

“We had to have a major economic event to severely impact our market in Canada,” Garrigan said. “We haven’t seen a move in basis points in vacancy that we’d need to get to healthy rates in I don’t know how long. I’ve been in this business for 15 years and I’ve never seen it.

“There could be an economic catastrophe and we’d still move back in the GTA to five-per-cent vacancy rates, which is a very healthy vacancy,” he said. “That’s actually where we want it. (There is) no slowdown in sight.”

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