Industrial Rental Rates at Record Highs in Canada's Major Cities

In Toronto, Montreal and Vancouver - Canada’s three largest industrial real estate markets - average asking net rents have escalated to record levels, and are likely to continue climbing with lease renewal rates up almost 50% higher than they were five years ago. Many industrial tenants are experiencing sticker - shock.

WHY ARE AVERAGE ASKING NET RENTS SO HIGH?

With vacancy rates at or near record lows in Toronto, Montreal and Vancouver, there is not much available space, so landlords have the upper hand. The industrial markets here are particularly challenging for large space users who require buildings with the latest specifications.

A shortage of large tracts of land zoned for development in key industrial districts, especially in Toronto and Vancouver. This has started an infill redevelopment trend that is unabated, that coupled with increased development charges is forcing rents upward.

The changing nature of modern industrial space in today’s innovation, technology-driven economy. The industrial markets in Canada’s urban centresare now primarily driven by large distribution space users with a specific focus on e-commerce and last-mile retail operations.

Sharply escalating development charges, which have risen by as much as 80% in some areas over the last two years. Landlords have passed on these costs onto tenants in new developments, driving up the average market price across the board.

It is becoming more common to see multiple offers on the same industrial space within the Vancouver, Toronto and Montreal markets. With limited supply, industrial tenants compete for the same premises which in turn also puts landlords at an advantage.

WHAT ARE A SPACE USER’S OPTIONS?

1. Sublease Market

Work with your broker to identify sublease opportunities if and when they appear. But be warned: because of high demand, you must be prepared to move quickly when an opportunity arises.

2. Revise Expectations

Rental rates are high, and will continue to rise in the months (and possibly years) ahead. Due to limited inventory, planning a relocation or renewal strategy can also take longer, especially when build to suit or pre-leasing is considered.

3. Build to Suit

Evaluate the feasibility of build to suit space, particularly if you’re willing to commit to a long-term lease and have specific site requirements.

4. Pre-Leasing

Seek space in projects that are still in the pre-leasing stage. Generally, over 60% of industrial space under development is quickly pre-leased.

5. Submarkets

Consider re-locating to new, lower-cost submarkets in proximity to main transportation routes.

BY THE NUMBERS

  TOTAL INVENTORY VACANCY RATE AVERAGE ASKING
NET RENTAL RATE
APPROX.
UNDER CONSTRUCTION
VANCOUVER 228.6 Million SF 3.3% $11.84 / SF 3.1 Million SF
TORONTO 820.4 Million SF 2.2% $7.21 / SF 9.6 Million SF
MONTREAL 344.3 Million SF 3.7% $6.20 / SF 1.4 Million SF

 

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