Toronto and Vancouver posted the tightest industrial markets among major urban centres in Canada and the United States in the first quarter of 2023. Lee & Associates pegs the vacancy rate at 1.2 per cent in the two Canadian cities, 90 basis points (bps) below the lowest U.S. rate in Miami, Florida.
This latest North American report adds a third Canadian market — Calgary — to Lee & Associates’ quarterly overview for the first time, bumping its total survey base up to 61 markets. With an industrial vacancy rate of 2.6 per cent, Calgary also falls well below the U.S. index average of 4.4 per cent.
“Net absorption in the first quarter totaled 39.4 million square feet (in the U.S.), a 57 per cent drop from the record set a year ago. Demand for Canadian industrial space in Q1, however, gained nearly 21 per cent year-over-year,” the report notes.
Just 17 of the surveyed U.S. markets recorded vacancy rates below 3 per cent, while some of highest levels of vacancy are found in San Francisco (7.4 per cent), Denver (6.5 per cent), Nashville (6.1 per cent), Chicago (5.8 per cent) and Dallas/Fort Worth (5.6 per cent). The U.S. index for highest rent is USD $11.40 per square foot (psf), well above the Canadian index of USD $8.70 psf (CAD $11.76).
“U.S. and Canadian landlords in Q1 are expecting annualized 9.9 per cent and 14.1 per cent rent growth respectively. But those gains appear less likely to materialize as 2023’s record levels of deliveries will see 250 million square feet added in the second quarter and 650 million square feet projected this year,” the report hypothesizes.
For Q1, San Francisco commanded the top net asking rent rate at USD $27.12 psf and the highest sale price at USD $504 psf. Vancouver registered the top Canadian sale price at CAD $334 psf (USD $237 psf), but the gap is much closer on a national level with the USD index top sale price at USD $162 psf and the Canadian index price at CAD $215 psf (USD $159 psf).
Vancouver and Toronto are among the five markets with the lowest cap rates — at 4 per cent and 4.1 per cent respectively — along with three Californian markets: Inland Empire; Los Angeles; and Orange County. The U.S. index cap rate is 6 per cent versus a 4.9 per cent average in Canada.
Dallas/Fort Worth currently has the largest amount of space in the construction pipeline without about 76.7 million square feet in progress. That exceeds the amount of industrial space under construction Canada-wide, which is pegged at 61.5 million square feet.
Looking to other asset classes, Toronto and Vancouver also posted Q1’s lowest multifamily rental vacancy rates, at 0.6 and 0.8 per cent, respectively, and the lowest cap rates, pegged at 2.4 per cent in Vancouver and 3.4 per cent in Toronto. Vancouver also boasts one of the five lowest office vacancy rates — tied with Naples, Florida at 5.5 per cent — and registered the quarter’s lowest office cap rate at 3.9 per cent.
