In a field of all round upbeat results, Calgary stands out as Canada’s rising industrial market of 2022. The vacancy rate dropped 180 basis points (bps), down to 2.1 per cent, over the course of 12 months, while average net asking rent climbed by $3.48 per square foot (psf) to reach $11.79 psf. That occurred along with more than 11.6 million square feet of positive absorption.
Although the vacancy rate and average net asking rent are still below the national average — pegged at 0.9 per cent and $12.77 psf in Colliers Canada’s newly released stats for the fourth quarter of 2022 — the firm’s analysts place Calgary among the best industrial performers across 12 major Canadian markets.
“The amount of annual positive absorption was the highest in the country, the year-over-year decrease in vacancy was the largest, and asking net rents increased every quarter,” they report. “With a promising development pipeline, 2023 will look to continue 2022’s strong showing.”
More than 7.6 million square feet of new space came onto the market last year, coupled with a high level of pre-leasing. Nearly 5 million square feet is currently under construction.
Meanwhile, rent escalation was the story in the big three markets where there wasn’t a lot of room for the vacancy rate to fall lower over the course of 2022. Montreal registered the steepest growth with the average net asking rent gaining $6.94 psf relative to Q4 2021 to hit $16.17 psf.
“Many industrial developments have been put on hold due to increased construction costs, from the force of rising interest rates. This delay will push net rents even higher for available product,” Colliers analysts project.
Currently, there is slightly more than 4 million square feet of new supply under construction, or about 86 per cent more than the 2.1 million square feet that came onto the Montreal market last year. The industrial vacancy rate nudged down 20 bps, to 0.6 per cent, over the course of 2022 along with 2.5 million square feet of positive absorption.
Vancouver’s year-over-year vacancy rate likewise fell 20 bps, to 0.2 per cent, while the average net asking rent jumped by $4.79 psf to reach $21.10 psf. The year saw 4.4 million square feet of new absorption and just slightly less than that amount coming onto the market as new supply. Nearly 7 million square feet of new industrial space is currently under construction.
Toronto’s year-over-year vacancy rate held steady at 0.3 per cent while the average net asking rent surged $4.43 psf during 2022 to reach $17.09 psf. The year saw about 11.5 million square feet of absorption and nearly 11.3 million square feet of new supply come onto the market. More than 13.5 million square feet of new supply is currently under construction. However, Colliers analysts note a slowing of rental rate growth in Q4 and pullback from both institutional investors and prospective tenants.
“Some tenants are now choosing to ride out current rents and gamble on future rates, rather than locking in now,” they observe. “With the rising interest rates, the pool of buyers and sales prices have fallen on the institutional side. Investment in industrial land will also continue to slow down given the increased cost of lending.”
As of year-end 2022, Ottawa’s industrial vacancy rate sits at 1.1 per cent, 20 bps above the national average, while its average net asking rent of $16.05 exceeds the national average by a far greater margin. Ontario’s Waterloo region and Halifax posted respective vacancy rates of 0.3 per cent and 2 per cent. Average net asking rents in the two markets hovered below the national average, but surpassed rents commanded in the five prairie cities.
Edmonton, continues to post the highest industrial vacancy rate among the 12 Canadian markets — at 4.1 per cent — but registered gains last year. That includes a 130 bps drop in vacancies since Q4 2021 along with a $0.98 increase in net average asking rent, taking it up to $10.33 psf. There was more than 6.3 million square feet of positive absorption in 2022, and about 3.7 million square feet of new space under construction, which is more than 30 per cent pre-leased.
Elsewhere in the prairies, Winnipeg’s industrial vacancy rate is at an all-time low of 1.3 per cent, down 150 bps since the end of 2021, while average net asking rent climbed from $7.95 to $10.18 psf in the same 12-month period. The market saw nearly 1.9 million square feet of positive absorption and a modest amount of new supply at just 70,200 square feet. However, approximately 690,000 square feet is currently under construction.
Saskatchewan is an anomaly with net average asking rent slipping relative to 12 months earlier in both Saskatoon and Regina. In Q4 2021, the two cities commanded the highest net average rent on the prairies — at $12.31 psf and $11.43 psf respectively. Over the course of 2022, Regina’s average net asking rent fell to $10.69 psf, while Saskatoon’s dropped to $11.47 psf.
In contrast, both cities experienced a tightening in the industrial vacancy rate during 2022. Saskatoon saw a 120 bps decrease, taking it down to 1.5 per cent, coupled with 172,000 square feet of positive absorption. Regina registered a 70 bps decline, with the rate dropping to 1.8 per cent, along with 237,000 square feet of absorption.
