Industrial vacancy rates are falling and demand is rising in Q2 of 2021
Industrial sector picks up pace across the Prairies
WI Staff
Western Investor
Speculative development and private investors are back as vacancy rates fall and demand for distribution space increases
Hardware giant Lowes has just completed a 1.2-million-square-foot distribution centre in north Calgary. | Lowes rendering
Speculative development and private investors are back as vacancy rates fall and demand for distribution space increases
The purchase of a five-building industrial portfolio in Edmonton and the $67 million purchase of a single Calgary building underlines the strength of the industrial real estate sector across the Prairies this year.
Meanwhile, industrial vacancy rates are falling and demand is rising in both Saskatoon and in Regina.
A total of $43 million in industrial real estate sold in the second quarter of this year in Saskatchewan’s capital. Regina’s industrial vacancy rates has dropped to 4.2 per cent, down from 5.1 per cent at mid-year 2020.
Saskatoon saw its industrial vacancy rate drop to 4.1 per cent in the second quarter, down from 6.3 per cent a year earlier, while average lease rates increased 7.2 per cent to $10.55 per square foot. Over the past year, Saskatoon has seen positive absorption of 535,000 square feet of industrial space, and there is only 86,000 square feet currently under construction.
In Winnipeg the industrial vacancy rate has fallen to 3.4 per cent and more than 448,000 square feet of new industrial space is under construction, according to Colliers Canada.
But big-city Alberta is where the recent action is the wildest.
Early in August, local investors paid $18 million for a five-building industrial portfolio in Edmonton The Southside Industrial portfolio was bought from Manulife in a transaction brokered by CBRE Edmonton.
David Young, executive vice-president and managing director of CBRE in Edmonton, said there is plenty of deal activity in the industrial pipeline.
“I think the third and fourth quarter and into 2022 the industrial business will be quite buoyant in Edmonton and region,” he told the Real Estate News Exchange.
JLL Canada noted that speculative development has returned to Edmonton, including a 550,000-square foot project that is part of 4.9 million square feet of new space either planned or underway.
JLL said Edmonton’s industrial market posted 473,267 square feet of positive absorption in the second quarter.
“While most space under construction is built-to-suit, speculative activity has been increasing on optimism in the strength of Edmonton’s industrial sector,” JLL noted.
Calgary
On July 12, Toronto-based Skyline Real Estate Investment Trust (REIT) announced it had paid $67 million for a near-500,0000-square-foot distribution centre in southeast Calgary.
It is not alone piling into the city’s hot industrial sector this year.
“Investment sale transactions picked up dramatically in [second quarter] Q2 2021 with a significant volume of sales across all size ranges on track to close in the Q3 and Q4 2021,” noted Colliers International in its Q2 2021 report on Calgary’s industrial market.
Colliers suggests that investors are turning to Calgary from Vancouver, because of both lower land prices and higher yields in the Alberta city.
Of the three largest industrial sales in Q2, two were to owner-occupiers and the third the $7 million investor acquisition of 95,000 square feet in the Foothills area by VPC Group.
More than 2.3 million square feet of industrial space was absorbed in the first half of this year, 1.45 million square feet of that taken up in the second quarter.
Much of the action is in large-scale distribution centres.
Significant recent transactions include Walmart leasing 157,648 square feet in StoneGate Industrial from One Properties and X-Treme Packaging leasing 145,841 square feet in Foothills from Summit Real Estate Investment Trust.
This June, hardware giant Lowes completed a 1.23-million-square-foot distribution centre in Balzac in north Calgary, which opens this fall.
Calgary’s overall industrial vacancy rate continues to drop, falling from 5.35 per cent in Q1 2021 to 5.08 per cent in the second quarter, which has put upward pressure on market rents and decreased tenant inducements.
There is currently 1.86 million square feet of new industrial space under construction across Calgary, according to Colliers, which believes the increased demand could kick off a new cycle of construction.
Industrial properties were also the most popular asset class for Calgary investors at mid-year 2021, in terms of total dollar volume. Owner/users accounted for 44 of the 54 transactions completed during this period, spending $202.8 million of the total $249 million.
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