Rate hikes and signs of a possible recession have meant purchasing power for industrial properties isn’t as strong as last year. Still, the sector remains robust in Canada’s largest cities.
There is a lack of supply and constant demand in Montreal, Toronto and Vancouver, driven in part by the transformation of consumer buying habits during the pandemic.
“People were spending enormous amounts online, which boosted the e-commerce sector,” says Frederick Normand at Keller Williams in Montreal.
Consumers faced with lockdowns and reduced in-person shopping options turned to online sellers, and businesses forced to shut down learned to pivot by either expanding their online presence or creating one. With the growth of orders and the consequential increase of stock, businesses needed a facility to store and distribute expanding inventory.
According to Cushman & Wakefield’s national market report, “up until the third quarter of 2022, vacancy had ticked steadily downwards every quarter, setting new records and then subsequently seeing that record broken the next quarter.”
Vancouver
Gavin Brar, an industrial broker at Keller Williams in Vancouver, says that although buying has waned as a result of interest rates, “the leasing side is still strong.” Smaller food operators and brewers are some of the businesses propelling growth, but it varies widely across the city.
What’s remained constant is demand, he points out. “That was true even before the pandemic when approximately up to 50 per cent of pre-constructed properties were already spoken for.”
And that’s a result of “inventory shortage,” according to Brar, who says developers have limited expansion options in a city bordered by an ocean, mountains and the U.S. border.
In response, multilevel mixed-use complexes are catching on, Brar points out. In fact, a multilevel industrial and office complex is currently underway in South Vancouver. The ground level will be devoted to warehouse space, while the top levels will feature offices.
“There’s been a lot of innovation and creativity,” says Brar. “Challenges have given way to some great ideas.”
Montreal
Frederick Normand says that while “the market has slowed down compared to June 2022 when sales were through the roof,” demand remains relatively strong due to constrained supply.
Paul Fredette from Cushman & Wakefield in Montreal agrees, pointing out that for the foreseeable future, “shortage of available buildings to purchase or lease and the very low inventory of available land to develop will be an ongoing concern and keep vacancy rates very low.”
So what are the areas seeing the most growth? “We see higher demand in warehousing, distribution and 3PL services,” Fredette says.
As for what’s in store, “anything can happen,” Normand notes, adding that current interest rates and a possible recession are two variables that muddy the waters.
But for now, the industrial sector in Montreal remains robust. “There are still those who need space for their expanding businesses,” explains Normand.
“The industrial market is very much in demand,” says Fredette, “and most of the attention from investors is aimed toward properties.”
Toronto
“The GTA continues to see strong interest for industrial space; however, due to economic conditions, we are seeing a modest reduction in demand,” says Jonathan Peretz at JLL in Toronto. But he fully expects a turnaround.
“We believe leasing momentum will increase mid-2023 as the industrial occupier market remains strong with many users on the sideline waiting to make decisions.”
According to Peretz, manufacturing, automotive, and food and beverage companies are helping fuel this trend, adding that “Toronto’s proximity to population along with its connectivity to 400 series highways and intermodal hubs are key to its desirability for industrial users.”
Similar to the situation in Montreal, the Toronto industrial sector is noticing “an increase in demand from 3PLs as companies look to outsource their supply chain processes.”
So what are the expectations for the coming months?
“With the GTA being an incredibly tight market sitting at below one per cent vacancy,” Peretz says, “we will see increased momentum in the second half of the year.”
Rita Simonetta is a Mississauga, Ont.-based freelance journalist and fiction writer whose work has appeared in publications across Canada, including the CBC and Pivot Magazine.
