Canada’s industrial market – already benefiting from strong fundamentals in major urban regions across the country pre-pandemic – proved extraordinarily resilient in 2020 with COVID-19-control measures highlighting the industrial market’s continuing supply-demand imbalance. Industrial vacancy remained near record-low levels across Canada projected to end 2020 at 2.5% despite almost 13 msf of new supply being delivered nationwide. Toronto (1.1%), Vancouver (1.3%), Montreal (1.6%) and Ottawa (1.8%) each recorded less than 2% vacancy at year-end 2020 and remain among the tightest industrial markets in North America. Industrial rents stabilized or continued to rise across Canada’s metro areas through 2020 and the consensus is that rents will rise through 2021.
Canadian industrial vacancy is anticipated to remain virtually unchanged in 2021 (2.4%) even as substantial amounts of new supply are delivered countrywide by the end of 2020, led by Vancouver (4.4 msf), Toronto (4 msf), Montreal (2 msf) and Calgary (1.8 msf). New industrial construction deliveries are forecasted to increase further in 2021 with completions totalling more than 19.4 msf, led by Toronto (9 msf), Montreal (3.2 msf), Ottawa (2.7 msf), Vancouver (1.6 msf) and Calgary (1.5 msf). Whether this influx of new supply in 2021 will provide relief to the majority of Canadian markets projected to continue to have low single-digit industrial vacancy rates remains unseen.
These changes, amplified by COVID-19 and the impact of government response measures, are resulting in the re-examination of the form factor of industrial development in Canada. Land supply constraints, whether they be physical, political or geographic, and rising costs (most apparent in Vancouver and Toronto) are increasingly leading developers to embrace verticality, whether through higher clear ceiling heights or multi-level development. Metro Vancouver is home to several proposals that feature multi-level industrial development, most notably Oxford Properties’ 707,000-sf large-bay multi-level industrial property at its Riverbend Business Park in Burnaby, BC, which broke ground in 2020 and is set for completion in 2022. The discussion around using volume metrics such as cubic metres to talk about logistics and distribution space as opposed to using traditional square footage measurements continues to grow. The unrelenting pressure generated by the rapid expansion in e-commerce and the need to locate logistics and distribution uses closer to urban centres may hasten the conversion of traditional big-box retail spaces, which are being increasingly vacated by retailers in many Canadian markets, to accommodate this rising need.
These changes, amplified by COVID-19 and the impact of government response measures, are resulting in the re-examination of the form factor of industrial development in Canada. Land supply constraints, whether they be physical, political or geographic, and rising costs (most apparent in Vancouver and Toronto) are increasingly leading developers to embrace verticality, whether through higher clear ceiling heights or multi-level development. Metro Vancouver is home to several proposals that feature multi-level industrial development, most notably Oxford Properties’ 707,000-sf large-bay multi-level industrial property at its Riverbend Business Park in Burnaby, BC, which broke ground in 2020 and is set for completion in 2022. The discussion around using volume metrics such as cubic metres to talk about logistics and distribution space as opposed to using traditional square footage measurements continues to grow. The unrelenting pressure generated by the rapid expansion in e-commerce and the need to locate logistics and distribution uses closer to urban centres may hasten the conversion of traditional big-box retail spaces, which are being increasingly vacated by retailers in many Canadian markets, to accommodate this rising need.
Despite restricted supply and pandemic conditions, Canada’s industrial sector thrived in 2020 and is anticipated to continue to do so in 2021 as pandemic response measures and the ongoing retail reformation further reinforce strong industrial fundamentals across the country. High occupancy levels and strong leasing rental-rate spreads (especially on renewals) in the major markets of Montreal, Toronto, Calgary and Vancouver (as well as Ottawa, Winnipeg and Edmonton) will keep investor attention squarely focused on the asset class in 2021 and beyond.
Despite restricted supply and pandemic conditions, Canada’s industrial sector thrived in 2020 and is anticipated to continue to do so in 2021 as pandemic response measures and the ongoing retail reformation further reinforce strong industrial fundamentals across the country.
