market watch Spotlight: Industrial Property
Mark Hannah is Managing Director, Real Estate at Nicola Wealth Real Estate.
Inflated Rents, Lack of Options
square foot (psf) net range and have recently escalated to the $8 to $12 psf net range (depending on the unit size). In Vancouver, rental rates were stagnant in the $6 to $7 psf net range for the similar time frame and have also experienced similar rent inflation in the $8 to $13 psf net range (depending on the unit size). Why have escalating rents become the current standard? The increase has happened organically for several reasons. First, diminishing land supply, due to the previously mentioned causes, and strong demand resulted in an extreme rise in price for the remaining properties available for industrial use. Next, new construction provides some supply to the market but at significantly higher rental rates in order to compensate for high land prices, GST, government development cost levies, and the increased cost of labour and materials. This has in turn had a trickle-down effect to standing inventory whereby both new and existing supply are experiencing considerably higher rents. On a positive note, the economy appears to be robust with many industrial user groups such as e-commerce, food production, film production, third party logistics, distribution, cold storage, cannabis and last
Net absorption / overall asking rent Greater Vancouver
Greater Toronto $8
3,000,000 2,500,000
7.5
2,000,000 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 0
2014
2015
2016
2017
2018
Q2 2019
$14 12 10 8 6 4
7
1,500,000 1,000,000
6.5
500,000
6
0 5.5
-500,000 Net Absorption, SF Asking Rent, SPSF
6
5
-1,000,000 2014
2015
2016
2017
2018
Q2 2019
Source: Greater Toronto Cushman & Wakefield Q2 Industrial Report
By Mark Hannah
Canadian businesses requiring industrial real estate are feeling the pinch these days. Soaring land prices in Canada’s major markets are resulting in limited rental opportunities, ultimately forcing industrial users out of urban sub-markets and into outlying locations. According to CBRE’s third quarter report, the national industrial vacancy rate is 2.9 per cent. Toronto and Vancouver lead all major markets in Canada with record-low vacancy rates of 0.7 per cent and 1.4 per cent respectively. Through the 1990s and 2000s, rental rates were flat with plenty of options for tenants to choose from in Canada’s urban epicenters, Toronto and Vancouver. This allowed industrial users and businesses to reasonably afford “market rent” without impacting their businesses. Over the past eight to 10 years, the diminishing industrial zones neighbouring metropolitan areas, coupled with the push to re-zone industrial properties for higher density buildings, has forced users out notwithstanding the desire by many municipalities to preserve their industrial inventory. As a result, rental rates have more than doubled. Prior to 2010, Toronto rental rates historically trended in the $5.00 to $6.00 per
Source: Greater Vancouver Cushman & Wakefield Q2 Industrial Report
The Industrial Property Crunch in Canada
February / March 2020
BLD FebMar20.indd 6
2020-02-06 10:45 AM
