These CRE assets are increasingly attractive to Canadian investors

Canada’s industrial real estate continues to perform well despite improvement for the US market.

A report from Avison Young provides a snapshot of the market for the first quarter of 2018 and shows that, when assets can be obtained, the returns for investors are increasing.

“Canada’s industrial market is performing well beyond expectations, and although absorption levels vary from city to city, the industrial market’s increasingly strong link to the retail sector – specifically e-commerce – remains a key catalyst for growth,” says Bill Argeropoulos, Principal and Practice Leader, Research (Canada) for Avison Young. “As a result, large-format distribution/fulfilment centre space is desirable, but scarce. Meanwhile, the overall industrial sector remains challenged by rising land costs, including soaring development charges, and dwindling supply of developable land in some markets.”

Rents are rising
Investors holding Canadian industrial real estate assets are seeing rents rise as the survey of 11 industrial markets reveals a record-low national industrial vacancy rate of 3.3% in the first quarter of 2018 – down 40 basis points (bps) year-over-year.

Canada’s average industrial net asking rental rate increased $0.25 per square foot (psf) year-over-year to finish the opening quarter of 2018 at $8.30 psf.

Annually, rents grew in eight of 11 markets, with five markets recording rents greater than the national average. Rents were highest in Vancouver ($10.91 psf) in the West and Ottawa ($10.10 psf) in the East, while Western markets maintained a healthy $2-psf-plus spread above Eastern markets.

Positive outlook despite headwinds
“The U.S. administration’s desire to revamp NAFTA and introduce protectionist trade policies has the potential to create headwinds for Canada’s industrial market and the economy in general. For now, the industrial market is expected to operate at or near capacity until new supply catches up with demand,” adds Argeropoulos.