New supply on track for record year, moderating rental growth: CBRE
A recent report released by CBRE about Canada’s industrial figures in Q3 2023 revealed that net leasing activity maintained a steady pace compared to recent years, with national net absorption slightly easing to 3.1 million sq. ft.
According to the report, new supply outpaced absorption by 7.8 million sq. ft., the largest quarterly margin in 14 years. Calgary and Toronto led leasing activity, while Waterloo Region and Montreal recorded negative net absorption. Winnipeg’s positive quarter reversed its earlier negative trend, leaving Montreal as the only market with negative net absorption year-to-date.
The report also revealed that the industrial sector is moving towards equilibrium as availability rates rose for a fourth consecutive quarter, reaching 2.5 per cent in Q3 2023. While this is an increase, the report noted that it remains below the 15-year average rate of 4.7 per cent. Vancouver, Waterloo Region, and Montreal reported the largest year-over-year increases in availability rates. London remains the tightest industrial market in Canada with a rate of 0.8 per cent.
Construction activity eased from its peak, according to the report, with the national development pipeline moderating to 43.6 million sq. ft. under construction. In Q3 2023, 9.0 million sq. ft. of new construction projects started, with the majority in Toronto. The report also noted that pre-leasing activity is strong in London, Vancouver, and Montreal. Nationally, pre-leasing has slowed, with only 37.1 per cent of the 18.3 million sq. ft. of new supply in Q4 2023 committed.
The report noted that an influx of new supply is bringing relief to tight market conditions, with 11.0 million sq. ft. of new builds delivered in Q3 2023, marking the third-highest quarter on record. Only 54.0 per cent of these were pre-leased. Toronto, Vancouver, and Calgary accounted for 80.0 per cent of all completions. An additional 18.3 million sq. ft. of new builds is anticipated in the next quarter, putting 2023 on track for a record-breaking year of 43.8 million sq. ft. of new supply.
The pace of rental growth returned to pre-pandemic levels in Q3 2023, according to the report, with a national average asking rent of $16.36 per sq. ft., reflecting an 11.8 per cent year-over-year increase. Rent growth has stabilized across Canada, with seven of 10 markets reporting year-over-year growth rates in the range of 11 per cent to 17 per cent. However, Montreal, Vancouver, and London experienced quarter-over-quarter declines.
National sale price growth slowed to 2.2 per cent year-over-year in Q3 2023, the lowest level since Q2 2020, resulting in a national average asking sale price of $274.12 per sq. ft. Ottawa and Halifax saw the largest increases in sale prices, while Vancouver and London recorded declines for the second consecutive quarter. The report also noted that Vancouver maintained the highest asking sale prices across Canada at $575.00 per sq. ft.