Influx of new supply increases industrial availability rates amid slower pre-leasing: CBRE
A report by CBRE Group, Inc. revealed that the national industrial availability rate went up a record 70 bps
quarter-over-quarter to 3.2 per cent in the final quarter of 2023.
CBRE’s Q4 2023 Canada Industrial Figures revealed that demand in Canada’s major industrial hubs continues to moderate, with six of 10 cities recording year-over-year increases in availability of 120 bps or more. According to CBRE, this is what drove the national industrial availability rate to go up.
The CBRE noted that several industrial businesses are taking a “more cautious” approach to growth, leading to net industrial leasing slowing to its lowest level since 2009, at 10.4 million sq. ft.
The overall construction pipeline decreased to 34.7 million sq. ft. in Q4 as new starts slowed and more of the pipeline was delivered, according to CBRE.
A record quarterly high of 16.8 million sq. ft. of new industrial product was delivered in Q4, according to CBRE which lifted the total annual amount of new supply to a record 42.2 million sq. ft. in 2023.
According to CBRE, Waterloo Region and Vancouver recorded the strongest levels of demand from businesses needing industrial space, seeing over 1.0 million sq. ft. of positive net absorption in Q4.
Toronto, however, which accounted for 40.3 per cent of all new industrial supply in 2023, and Montreal, were the only markets to see negative net absorption of industrial space in the fourth quarter.
“Weak economic growth, slower e-commerce sales and new supply additions are collectively slowing industrial
market fundamentals,” said CBRE Canada Chairman Paul Morassutti. “The increase in the availability of industrial space is not necessarily a bad thing. It is still a landlord’s market, but there are more options for tenants than there have been in a while and that’s bringing better balance to the industrial market.”
The report noted that net absorption remained muted in Q4 2023 and the slower pace of activity throughout the
year brought the annual total to its lowest level since 2009 at 10.4 million sq. ft.
According to the report, the overall construction pipeline fell substantially to 34.7 million sq. ft. in Q4 2023 as new
starts slowed and more of the pipeline was delivered. In terms of new supply, it surged to a record quarterly high of 16.8 million sq. ft. of product delivered in Q4 2023 while pre-leasing activity slows.
The report also noted that national rents recorded a minor quarterly decline of 0.3 per cent in Q4 2023 for a national average rate of $16.25 per sq. ft.
According to CBRE, the rise in the national industrial availability rate accelerated further in Q4 2023, increasing
at a record pace of 70 bps quarter-over-quarter to 3.2 per cent, marking it as the largest annual increase in
national availability seen since 2009.
Net leasing activity remained muted and totaled just under 2.5 million sq. ft. of positive net absorption in Q4 2023, according to the report. The slower pace of activity seen throughout the year has resulted in the lowest levels of annual net absorption also recorded since 2009 at 10.4 million sq. ft.
CBRE noted that aggregate industrial construction activity fell substantially in Q4 2023 as new starts slowed
and more of the pipeline was delivered. Total space under construction dropped by 22.6 per cent quarter-over-quarter to 34.7 million sq. ft., its lowest level since Q3 2021. In Q4 2023, there were 6.2 million sq. ft. of new construction starts with 57.7 per cent of the space
located in the Toronto market.
The report noted that the trend of moderating rental rate growth continued in Q4 2023, with the national average
rate increasing by 6.1% year-over-year to $16.25 per sq. ft. For the first time since Q1 2017, the national
average rental rate recorded a quarter-over-quarter decrease, despite a minor drop of 0.3 per cent from $16.30 per sq. ft. to $16.25.
In terms of industrial sale prices, CBRE noted that they have held relatively flat throughout 2023, with the national average rising at a marginal 1.5 per cent year-over-year to $276.75 per sq. ft.